Toward a New Epistemology of the Social Sciences

Mises's reflections on the scientific and political significance of value theory were part of a more general effort on his part to pull together the different strands of his previous works, to discuss their implications, and to fill in the gaps.

One area in which the case for liberty and private property had been less than airtight was epistemology. The famous Methodenstreit between Menger and Schmoller had not produced the necessary clarification. The crucial question was whether there was such a thing as a theoretical social science—or whether the scientific rhetoric of the economists was just hot air.

In previous works, Mises had argued along the lines of Walter Bagehot that a social theory is necessary to interpret the wealth of data presented by observation. Therefore the social analyst first needed a theory, and only as a second step could he approach the object of his inquiry.⁶³ He also criticized the “empiricists” who thought they could explain the observable real world without relying on theory.⁶⁴ In 1926, these statements were made only for the record. With the benefit of hindsight, however, we know that they heralded the beginning of a research program that Mises pursued for the next thirty-five years. He discovered that the most underdeveloped area of the social sciences was epistemology—the meta-theory explaining how these sciences relate to reality.

His very first contribution to this field was an essay on the relationship between “sociology” and “history.”⁶⁵ Mises here stated that the Methodenstreit of the 1880s and 1890s had banished the teaching of economics from the universities of the German Reich, but that it had not clarified the central question of whether there was such a thing as a social theory that could claim the status of a science. Meanwhile, however, great progress had been achieved on a different front. The works of Wilhelm Windelband, Heinrich Rickert, Max Weber, and Henri Bergson had clarified the epistemological nature of historical research.⁶⁶ The works of these scholars had yielded two important insights.

First, the application of the methodology of the natural sciences to human action did not exhaust the task of the historian. The genuine purpose of historical research was to explain concrete human behavior in the unique circumstances influencing this behavior.

Second, historical research could not do without theoretical tools. There was no such thing as historical analysis untainted by theoretical interpretation. For example, the mere classification of observed phenomena such as “he was a king” or “she is my neighbor” or “they were Germans” involved more than a description of naked facts. The very words used in the description were in fact theoretical tools. Max Weber had set out to develop an epistemology to characterize the logical character of the theoretical tools needed in the science of history, arguing that they were “ideal types.”⁶⁷

Building on these insights, Mises set out to explain that “sociology”—the term he used as shorthand for the “theoretical science of social phenomena”⁶⁸—was one of the theoretical tools needed in historiography. Much of his long essay was devoted to a critical discussion of Max Weber's approach. Mises emphasized Weber's merits as a logician of historical research, but also stressed that, even though Weber held a chair of economic science, he could not be considered an economist. In Mises's view, Weber was simply unacquainted with economic theory. He acquired his reputation as a theoretician because he cultivated a new, very general form of historiography, which Mises proposed to call “universal history”:

The investigations collected in Weber's posthumously published major work, Wirtschaft und Gesellschaft, belong to the best that German scientific literature of the last decades has produced. Yet in their most important parts they are not sociological theory in our sense. Nor are they history in the customary meaning of the term. History deals with one town or with German towns or with European towns in the Middle Ages. Until Weber's time it knew nothing like the brilliant chapter in his book that deals simply with the “town” in general, a universal theory of town settlement for all times and among all peoples, the ideal type of the town in itself.⁶⁹

Brilliant though Weber's achievement was, it had nothing to do with universally valid sciences such as economics. The point was that ideal types such as the universal town were fictitious; they did not fit all or even any observed phenomena they were designed to describe. Weber had used the expression “ideal” in the same sense as Friedrich von Wieser—as a fictitious assumption. These fictions vitiated the scientific and political conclusions derived from their use: “propositions involving them must be similarly deficient.”⁷⁰ Economic laws, in contrast, concerned universally existing causal relationships inherent in human action. In every single instance in which the cause was given, it produced the effect according to the law. Mises explained:

The laws of sociology are neither ideal types nor averages. Rather, they are the expression of what is to be singled out of the fullness and diversity of phenomena from the point of view of the science that aims at the cognition of what is essential and necessary in every single instance of human action. Sociological concepts are not derived “through one-sided intensification of one or several aspects and through integration into an immanently consistent conceptual representation of a multiplicity of scattered and discrete individual phenomena, present here in greater number, there in less, and occasionally not at all, which are in congruity with these one-sidedly intensified aspects.” They are rather a generalization of the features to be found in the same way in every single instance to which they refer.⁷¹

Mises argued that the subject matter of both historical and theoretical social analysis is “human action.” The salient point was that not all observable human behaviors count as action. Rather, human action is a particular sub-class of behavior. It is behavior determined by conscious decision-making, that is, behavior constrained by scarcity. “Only as far as [scarcity] does exist does action take place; as far as it is lacking, action is also lacking.” Mises went on:

Once one has realized this, one also implicitly realizes that every action involves choice among various possibilities. All action is economizing with the means available for the realization of attainable ends. The fundamental law of action is the economic principle. Every action is under its sway. He who wants to deny the possibility of economic science must begin by calling into question the universal validity of the economic principle, i.e., that the necessity to economize is characteristic of all action by its very nature. But only one who has completely misunderstood the principle can do this.⁷²

But what was the epistemological status of the universally valid theory of human action? In his 1929 essay, Mises had touched on this question only when he observed that economic theory was “rationalistic in the sense that it makes use of the methods of reason—ratio.” And he further characterized these methods of reason as “discursive reasoning” and “scientific reasoning.”⁷³ Only four years later would he make his famous statement that the theoretical social sciences were aprioristic disciplines whose validity does not depend on the evidence of the senses.

The 1929 article on “Sociology and History” contained already, in nuce, the argument by which Mises would refute the claim of extreme historicism that there is no such thing as a generally valid social theory because the structure of the human mind was in a state of constant flux. He demonstrated that the empirical evidence offered to substantiate this claim failed to do so. Moreover, he argued that the historicist claim was self-contradictory:

What the proponents of historicism fail to see is that even propositions like; “The theorems of classical economics possessed relative truth for the age in which they were constructed” can be enunciated only if one has already adopted a supertemporal, universally valid theory.⁷⁴

Mises also addressed the opposite error of assuming social theory could have exactly the same logical character as the theories of the natural sciences. While it is true that human action is strictly determined by external factors, the knowledge that they are so determined is not sufficient to construct mathematical models of human behavior. One would also have to know how these factors affect human choice, and no such knowledge was available. Mises argued:

However, we do not know how these external factors are transformed within the human mind to produce thoughts and volitions directed and operating upon the outer world. We are able to ascertain this only post factum, but in no way can we deduce it in advance from a known regularity formulated as a law.⁷⁵

It was therefore necessary for the social scientist to take concrete human action as the starting point of his analysis—as an ultimate given. He could not hope to determine human behavior with any degree of quantitative exactitude. The propositions of the economist were qualitatively exact.

In this argument, Mises drew on his previous work in the field of monetary theory:

Mathematics has a significance in the natural sciences altogether different from what it has in sociology and economics. This is because physics is able to discover empirically constant relationships, which it describes in its equations. The scientific technology based on physics is thereby rendered capable of solving given problems with quantitative definiteness. The engineer is able to calculate how a bridge must be constructed in order to bear a given load. These constant relationships cannot be demonstrated in economics. The quantity theory of money, for example, shows that, ceteris paribus, an increase in the quantity of money leads to a decrease in the purchasing power of the monetary unit, but the doubling of the quantity of money does not bring about a fifty percent decline in its purchasing power. The relationship between the quantity of money and its purchasing power is not constant. It is a mistake to think that, from statistical investigations concerning the relationship of the supply of and the demand for definite commodities, quantitative conclusions can be drawn that would be applicable to the future configuration of this relationship. Whatever can be established in this way has only historical significance, whereas the ascertainment of the specific gravity of different substances, for example, has universal validity.⁷⁶