My Project

When one does something like what I'm doing – posting articles that aspire to be scholarly – one has to wonder, why?  After all, to say that I have a small readership is probably to exaggerate on the high side. I suspect that I even have an anti-audience – people, primarily academics, who avoid reading things I write because they have not been written by an academic or been peer-reviewed. Robert Higgs – who I have met, and who seems like a nice guy – has scoffed at authors who write on the Internet because they do not have a scholarly outlet that will publish them. Steve Horwitz has declined to respond to criticisms from people who have not had those criticisms subjected to the same academic standards of publication that his work has, and Peter Boettke has made it clear that not being in academia means it is unlikely, if not impossible, that you can add to economics, either in theory or application.

Of course, they don't know the years of tortuous thinking I have gone through to try to resolve the fundamental questions I write about; but even if they did they wouldn't have any reason to pay any more attention. Lots of people beat their heads against walls trying to figure something out, without success, and there is no reason to believe that I'm any different. And besides, I doubt that many of them even believe that the issues I worry over are unresolved or, if unresolved, merit much thought.

One possibility is that I am writing for myself, but in the sense that just isn't so. I really hate writing – thinking is a lot more fun. Writing is just the laborious process of trying to organize your thoughts in such a way that others can make sense of them. I already know what I think and am quite content with my understanding of the world. Putting it down takes time away from doing more thinking.

Of course, I really am writing for myself, because there is no other basis for action. I'm writing because I hope that someone will someday stumble on these ideas, and they will make a difference – that I will have added in some small, enduring measure to the knowledge of mankind. If the arguments I make are less-than-robust, I hope for someone who can take and fashion from them arguments that leave their greatest opponents defenseless. In that case I hope for a great composer to make a symphony from my folk tunes. If the arguments are robust, but the number of references lacking and the consideration of other points of view academically inadequate, I hope for a young person that has the time and energy to fill the gaps.

Although I must say that I feel frustration at the lack of an academic audience, I do not think of it as a conspiracy. The academics I mentioned are honorable and have no ax to grind in my case. It is simply the way of the world coupled with the fact that I came to what I think are interesting conclusions so late in life. After years of being a thought consumer it is difficult, if not impossible, to become recognized as a thought producer.

In Support of Methodological Monism

The appeal of methodological monism – as Popper put it, "the view that all theoretical or generalizing sciences make use of the same method, whether they are natural or social sciences" (1957, 130) – seems undeniable (think Occam's Razor), and it has a number of supporters.¹ On the other hand, some in the social sciences – notably members of the Austrian school of economics – suggest methodological dualism or, in the case of Bruce Caldwell (Caldwell, 1982), even methodological pluralism. It appears that these different camps are difficult to reconcile, and to this point no resolution has been found.

English: Karl Popper in 1990. (Photo credit: Wikipedia)

When difficulties of this sort arise – where there exist multiple views, all seemingly reasonable, yet
irreconcilable – it is possible that a solution may be found in appealing to a higher level of abstraction. In this case we look to Karl R. Popper's formalization of the scientific method in the following schema (Popper, 1972, 119):

P₁ → TT → EE → P₂

Where P₁ is the initial problem state, TT is a tentative solution or theory, EE is the error-elimination process applied to the theory, and P₂ represents the new problem state that has been generated by the process. This concise representation is simply that of a Darwinian or evolutionary approach to knowledge.

In this discussion our focus is on the error-elimination step. If one thinks of Popper's formulation as "the method", the error-elimination step may be modified as circumstances warrant without altering that method. Popper also referred to this step as "attempted elimination through critical discussion" (1999, 13-4). To acquire new knowledge, we always use this method, substituting the appropriate critical component.² With this understanding we may actually suggest that Bruce Caldwell is a methodological monist, as he specifically states that his reason for supporting methodological pluralism is that theories require different forms of criticism (Caldwell, 1982, 1-2).

English: Ludwig von Mises in his library (Photo credit: Wikipedia)

Ludwig von Mises, a strong advocate of methodological dualism (1969, 1-2),³ presents a slightly more difficult case. His dualism differentiated the method in the social sciences from that of the physical sciences by asserting that its axioms were a priori true,⁴ and that criticisms of the logic used to deduce its theorems were the best method of refuting them. A clarification of Mises's approach (Smith, 1996),
 explicity identifying and defending its axioms as synthetic rather than analytic, has tied it more closely to the real world. This clarification has increased the credibility of the approach even though tentative theories, in Popper's view, need no justification. To illustrate Mises's emphasis on criticism we offer the following quote:

Man is not infallible. He searches for truth – that is, for the most adequate comprehension of reality as far as the structure of his mind and reason makes it accessible to him. Man can never become omniscient. He can never be absolutely certain that his inquiries were not misled and that what he considers as certain truth is not error. All that man can do is submit all his theories again and again to the most critical reexamination. This means for the economist to trace back all theorems to their unquestionable and certain ultimate basis, the category of human action, and to test by the most careful scrutiny all assumptions and inferences leading from this bases to the theorem under examination. It cannot be contended that this procedure is a guarantee against error. But it is undoubtedly the most effective method of avoiding error. (Mises, 1966, 68)

The critical component in the method is composed of the examination of premises and validation of logic.

When viewed in this more abstract light, Mises's method fits Popper's formulation and does not contradict methodological monism. This fact is comforting as we suspect that the idea that there is only one fundamental method of obtaining knowledge is itself an a priori truth.

In a previous post we suggested that Mises was incorrect in claiming that economics was a subject unconnected with any other science, linking the action axiom with Popper's suggestion that "all life is problem solving" and to the science of biology. Here we have claimed that Mises's method fully complies with the scientific method as formulated by Popper, and that it is only the use of an appropriately different approach to error elimination or criticism that differentiates it from the physical sciences. If we have succeeded in our project it seems clear that economic methodology, as described and practiced by Ludwig von Mises, is scientific, and that the resulting discipline of economics is science.

Footnotes

¹ See (Blaug, 1992, 42-47), (Wilson, 1998), and (Cziko, 1995).
² I am grateful to Rafe Champion for bringing this point home.
³ For Mises's discussion of his method see (2003), (1966, 1-142), (1969) and (2006). For discussions by others, see (Boettke, 1998), (Boettke, 2012), (Kirzner, 2001, 69-92), and (Selgin, 1990, 11-18),
⁴ Mises recognized the observational, i.e. synthetic, component of his axiom (Kirzner, 2001, 88-9).

Bibliography

Blaug, M. (1992). The Methodology of Economics: Or how economists explain (2nd ed.). Cambridge: Cambridge University Press.

Boettke, P. J. (1998). Ludwig von Mises. In J. Davis, D. W. Hands, & U. Mäki (Eds.), The Handbook of Economic Methodology (pp. 534-40). Aldershot: Edward Elgar Publishing. Retrieved October 24, 2013, from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1531088

Boettke, P. J. (2012). Was Mises Right? In P. J. Boettke, Living Economics: Yesterday, today, and tomorrow (pp. 192-212). Oakland, California: The Independent Institute.

Caldwell, B. (1982). Beyond Positivism: Economic Methodology in the Twentieth Century. London: George Allen & Unwin.

Cziko, G. (1995). Without Miracles: Universal Selection Theory and the Second Darwinian Revolution. Cambridge, MA: The MIT Press.

Kirzner, I. M. (2001). Ludwig von Mises. Wilmington, Delaware: ISI Books.

Mises, L. v. (1966). Human Action: A treatise on economics (3rd ed.). Chicago: Henry Regnery.

Mises, L. v. (1969). Theory and History: An interpretation of social and economic evolution. New Rochelle, New York: Arlington House.

Mises, L. v. (2003). Epistemological Problems of Economics (3rd ed.). Auburn, Alabama: Ludwig von Mises Institute.

Mises, L. v. (2006). The Ultimate Foundation of Economic Science: An essay on method (2nd ed.). Indianapolis, Indiana: Liberty Fund.

Popper, K. R. (1957). The Poverty of Historicism. Boston: The Beacon Press.

Popper, K. R. (1972). Epistemology Without a Knowing Subject. In K. R. Popper, Objective Knowledge: An Evolutionary Approach (pp. 106-52). Oxford: Oxford University Press.

Popper, K. R. (1999). The logic and evolution of scientific theory. In K. R. Popper, All Life is Problem Solving (pp. 3-22). London: Routledge.

Selgin, G. A. (1990). Praxeology and Understanding: An analysis of the controversy in Austrian economics. Auburn, Alabama: Ludwig von Mises Institute.

Smith, B. (1996, Spring). In Defense of Extreme (Fallibilistic) Apriorism. Journal of Libertarian Studies, 12(1), 179-192.

Wilson, E. O. (1998). Consilience: The Unity of Knowledge. New York: Alfred A. Knopf.

Does Legal Polycentrism Have a Circularity Problem?

Recently, Michael Wiebe wrote a paper criticizing legal polycentrism, the view that multiple competing protection agencies would offer results superior to that of a government monopoly.  In the abstract, Wiebe states:

To show that competition between protection agencies would have beneficial  consequences, polycentrists often cite results from price theory about market competition.  But there is a circularity problem here: markets presuppose a legal framework; hence before polycentrists can employ price theoretic arguments about market competition, they must first show that the legal requirements of markets are satisfied, that is, that property rights and contracts are enforced.

The implication is that property rights and contracts are not respected unless there is a legal entity -- one assumes, the government -- to enforce them.  It also seems to imply that prices cannot be set without this legal entity, meaning that money cannot exist without it.  This latter implication contradicts Menger's theory of the origin of money.  Of course, there are people who dispute Menger's view, but one suspects that Wiebe is not one of them.  Just as money comes into being prior to legal frameworks, so does respect for property rights and contracts.

One can imagine the first traders, crossing mountains with desirable goods from their home villages to be traded for items to be returned to and traded in those same villages.  These traders must have been confident of their ability to protect themselves and their property, either personally or with the help of more skilled defenders hired for the purpose.  They also must have had some idea of acceptable behavior, each one pursuing his own idea of legality.  There was no one that assured them that their property rights were going to be respected or their contracts enforced unless it was through their own resources.  Participants in black markets face the same challenges, each having his own idea of appropriate behavior.  These are examples of individual-based legality -- maximal legal polycentrism.

Interestingly, it seems to be more the lack of property rights and contract enforcement that brings protection agencies to the fore.  For instance, Eugen Weber's "The Western Tradition" contains the assertion that the Catholic Church began to supplant Roman officials as judges in property cases, because the latter were so corrupt.  Realizing that the police cannot protect them or their property, many neighborhoods have organized supplemental Neighborhood Watch programs.  Private arbitration is frequently part of contracts in order to avoid the risks of courtrooms where juries are generally ignorant of contract law or dismissive of property rights.  And as to the enforcement of the contracts between protection agencies and their clients, there is always the risk of violent overthrow by customers if withholding payment or changing suppliers is not an option.

The idea that informal institutions do not scale up is belied by eBay's feedback system, which rewards and punishes both buyers and sellers on an international scale.  Admittedly, there are problems with identifying those who, after defrauding buyers or sellers, close their accounts and then open new ones under different names.  eBay, of course, relies on governments to police these issues as they hold the monopoly of enforcement.  The credit reporting companies are also a large-scale reputation monitoring system that has clearly grown to supply a history of behavior to supplement the limited ability of one person to evaluate another in a single interaction (Robert Axelrod's The Evolution of Cooperation documents the increased advantage of cooperation in the prisoner's dilemma game when future interactions are expected, which credit reporting companies support by maintaining a history of interactions that is supplied to future,  currently anonymous, users.).  Even if the ability to scale up informal institutions was limited in the past, who can doubt that there are entrepreneurs ready to step in with modern technology to accomplish the task?

The fact is that polycentrism already exists and has existed on many levels.  We have the example in ancient times of the Roman state operating side-by-side with the Catholic church.  Gangs have their own rules operating within a hierarchy of jurisdictions, setting their own prices for illicit goods while existing outside the legal framework.  Inmates in prison establish illicit "hustles" in order to live better without any legal framework to protect them.  Money and trade evolved in POW camps where rules evolved subsequently to remedy "problems."  Lastly, on the nation-state level we see governments with different laws who, while not controlling common territory, do resolve problems of fugitives and differences in law, generally without violence.

Near the end of the essay, Wiebe advises the abandoning of the idea of privatization and then refers to the problem of organizing violence in society.  We may ask a question similar to Hayek's: The question is not of planning for protection but who shall plan?  Who shall organize the violence?  The central planner or the consumer by purchasing or refusing to purchase?  As the state disintegrates and expresses less and less interest in the protection of property rights and contract enforcement, individuals will have no choice but to plan for themselves.  At that point the situation may be saved by existing companies expanding their protective services or new companies with fresh approaches and technology.  At that point, whether there is an evolution into a new freer society or a reversion to another statist nightmare depends on the resources available to those who are committed to avoiding the latter.

In Wiebe's defense, it is clear that a society that has no respect for property rights or contract will not directly evolve a peaceful and private marketplace for security.  No such market system would spring into existence from a state of nature.  It is for this reason that no classical liberal or libertarian feels the need to respond to assertions that Somalia is a libertarian paradise.  An evolution in our knowledge -- the comprehension of the value of property and contract -- is required.

Also, there is no proof possible that such a market system would be stable.  It is possible that if humanity evolved a market system for protection it would devolve into despotic chaos, but that is no worse than the current situation (Robert LeFevre said it best [paraphrasing] -- "Don't worry, if you get rid of government and it isn't working, be sure that there will plenty of people ready to start one up again!").  If, however, as von Mises frequently suggested, the great majority of people value peace and prosperity, we might expect an evolutionary process in which the prey have more resources for protection than the predators have for looting.  If this situation comes to pass, stability can appear.

Finally, Wiebe states that his contention that there is a circularity problem does not constitute an impossibility proof.  He does seem to believe that there are statements about markets that must be proved in order to take conjectures about them seriously.  This justificationist approach does an injustice to market processes that are evolutionary and require no argument.  After all, if legal polycentrism comes into existence in a free society, it will not be because it has been imposed, but because it has arisen through those processes.  Libertarians who argue market outcomes through logic are displaying a lack of imagination and failing to realize that having a hammer does not turn every problem into a nail.

Ludwig von Mises, the Action Axiom, and Biology

Introduction

In the pursuit of science little can be said to be of greater importance than the epistemology employed.  In this regard the epistemology of the Austrian School of economic thought has been roundly criticized and rejected by mainstream economists.¹  This reaction was primarily due to Ludwig von Mises's firm stand on apriorism and the claim that praxeology, of which economics was the most developed discipline, was a new science, unconnected to previously acquired knowledge (Mises, 1966, 1-10).

English: Ludwig von Mises in his library (Photo credit: Wikipedia)

Much of the Austrian literature on epistemology since Mises's exposition² has been to explain and defend, ever more loudly and vociferously, apriorism and the apodictic certainty of conclusions derived from Mises's action axiom.  A notable exception to that literature is Barry Smith's tract on fallible apriorism (1996), which elaborated and extended Rothbard's thesis (1957) by showing that a priori knowledge, although independent of observation, is derived from observation and, hence, is synthetic a priori knowledge.

With Smith's introduction of fallibilism into Mises's system, some of the distance between it and Karl Popper's concept of conjectural knowledge was reduced.  This reconciliation has been visible in a number of efforts that attempt to bring Mises's approach into the methodological housing of Popper and other philosophers of science, notably Imre Lakatos.³  More on that in another post; but, at this moment we have another issue to address — Mises's claim that economics, and its encompassing science, praxeology, are new sciences unconnected with previous knowledge.  This claim did not sit well with those who believe all knowledge to be connected and do not have an anthropocentric view of the universe.

The Origins of Action

Mises went to great lengths to deny that human action is in any way related to action in our evolutionary ancestors, even stating that "The newborn child is not an acting being," and that "Beings of human descent who either from birth or from acquired defects are unchangeably unfit for any action... are practically not human" (1966, 14).  To do so seems to strike at the very notion that we have evolved from species that have less flexibility than we, and from whom we do not stand apart in the universe.  In this context Mises formulated what has become known as the action axiom — man acts, aiming at the improvement of his situation relative to his values (1966, 13-14).

English: Karl Popper in 1990. (Photo credit: Wikipedia)

In an address given in 1967, Karl Popper made a more general statement — that "Animals, and even plants, are problem-solvers" (1972, 145).  The idea was later stated more simply as "All life is problem solving" (1999, 100).  By this statement he meant that each life form represented, either anatomically or behaviorally, a hypothetical solution to the problem of its environment. Darwinian evolution supplied the criticism or falsification of that hypothesis.

At this point we must ask, "what problem is being solved?"  The answer lies in the action axiom — the problem of improving the situation, or survivability, of the organism.  Each organism acts, in the way it understands, to improve its situation.⁴  It appears that Popper's statement stands as a powerful axiom — possibly the basic axiom of biology — in support of Mises's more specific one and reveals biology as the epistemological basis of economics.  In fact economics is not separated from all of the other sciences, but is an outgrowth of biology.

This conclusion would most likely suit Edward O. Wilson who said "It is in biology and psychology that economists and other social scientists will find the premises needed to fashion more predictive models, just as it was in physics and chemistry that researchers found premises that upgraded biology" (1998, 206); however, Wilson did not expect the basic premise to come from a philosopher or support the Austrian methodological approach.

We do not argue here that economics has that much to learn from biology, although Wilson certainly believes it does.  Economics is clearly a human science — the most fundamental theorems depend on activities that are observable only in humans.  What we do argue is that biology supplies an axiom that is fundamental to all life that strengthens Mises's action axiom, supporting it with what Rothbard would have called a "law of reality rather than a law of thought" (1957).

At this point we must question why Hayek did not see this connection.  He knew, and was friends with, both Mises and Popper, as well as having a deep understanding of their work.  He also came from a family of biologists.  His father was a serious botanist as well as being a doctor, and Hayek helped him with botanical work and attended society meetings (Ebenstein, 2001).  At this point we can only speculate, but he may have seen Mises's and Popper's works as irreconcilable and never even contemplated a reconciliation of their views.  Perhaps he was reluctant to start down a path that could have resulted in the loss of one or both of his closest intellectual associates.  In any case, it is unfortunate that a person of his stature did not complete Mises's work by linking economics with the rest of knowledge.

Conclusion

With the modification of Mises's viewpoint on action yet another objection to the epistemology of the Austrian School can be overcome.  This modification is hardly a blow to Mises's overall system as it supports, rather than rejects, his action axiom.  At the same time it ties economics more closely to the sciences, a goal that we can only believe Mises would have supported.

¹ See (Blaug, 1980, 81-2) and (Samuelson, 1964, 736).
² Mises wrote extensively on methodology and epistemology, producing a volume of essays in 1933 that was later translated into English (Mises, 1960) and his final published book (Mises, 1962).
³ See (Champion, 2013), (Di Iorio, 2008) and (Rizzo, 1983).
⁴ This is not to say that there is some super-human intelligence in operation, but that natural processes have been evolutionarily selected that make the organism's choices the most likely to succeed.

Bibliography

Blaug, M. (1992). The Methodology of Economics: Or how economists explain (2nd ed.). Cambridge: Cambridge University Press.

Champion, R. (2013, March 11). The Common Ground of Parsons, Mises and Popper in the 1930s: The Action Frame of Reference, Praxeology and Situational Analysis. Retrieved from the Rathouse: the philosophy site of rafe champion: http://www.the-rathouse.com/EvenMoreAustrianProgram/Convergence.html

Di Iorio, F. (2008). Apriorism and Fallibilism: Mises and Popper on the Explanation of Action and Social Phenomena. Nuova Civiltà delle Macchine(2). Retrieved March 11, 2013, from http://www.imtlucca.it/whats_new/_seminars_docs/000195-Di_Iorio_MISES_and_POPPER.pdf

Ebenstein, A. (2001). Friedrich Hayek: A Biography. New York: Palgrave for St. Martin's Press.

Mises, L. v. (1960). Epistemological Problems of Economics. (G. Reisman, Trans.) Princeton: D. Van Nostrand Co., Inc.

Mises, L. v. (1962). The Ultimate Foundation of Economic Science: An Essay on Method. Princeton: D. Van Nostrand Co., Inc.

Mises, L. v. (1966). Human Action: A Treatise on Economics (3rd revised ed.). Chicago: Henry Regnery.

Popper, K.R. (1972). Epistemology Without a Knowing Subject. In K.R. Popper, Objective Knowledge: An Evolutionary Approach (pp. 106-52). Oxford: Oxford University Press.

Rothbard, M.N. (1957). In Defense of 'Extreme Apriorism'.Southern Economic Journal(23), 315-20.

Rizzo, M. J. (1983). Mises and Lakatos: A Reformulation of Austrian Methodology. In I. M. Kirzner (Ed.), Method, Process, and Austrian Economics: Essays in Honor of Ludwig von Mises. New York: Lexington Books. Retrieved March 11, 2013, from http://mises.org/books/methodprocess.pdf

Samuelson, P.A. (1964, September). Theory and Realism: A Reply. The American Economic Review, 54(5), 736-9. Retrieved from http://www.jstor.org/stable/1818572

Smith, B. (1996, Spring). In Defense of Extreme (Fallibilistic) Apriorism. Journal of Libertarian Studies, 12(1), 179-192.

Wilson, E. O. (1998). Consilience: The Unity of Knowledge. New York: Alfred A. Knopf.

Related articles

• Mises' Sectarianism

The Myth of a (Classical) Liberal or Libertarian Utopia

Cover via Amazon

In reading online articles and blogs it is common to find references to a "libertarian utopia."  These references are both supportive and derisive, distorting what I will claim is the idea of true liberalism.  Hayek is even referenced in this Freeman article bemoaning the fact that "we lack a liberal Utopia."  The problem with this phrase first became clear to me when I read the following words:

Contemporary socialists – "light" totalitarians in mindset and vocabulary – go wrong when they imagine that liberals are busily planning the perfect society, the best that is possible in the world, but of opposite sign to their own. [emphasis in original]¹

The reality is that there is no liberal Utopia.  Liberalism and its modern-day progeny, libertarianism, are processes rather than destinations.  In the same sense that the scientific process leads to the discovery of laws of nature, liberalism leads to the discovery of that society that best conforms to human values.  Such a society defies planning, as planning implements the values of a small elite.  It also stifles the wide-ranging experimentation – through trial and error – that is necessary to discover the institutions and businesses that are necessary in building a society that supports human values.

Of course, one may wonder, "What are human values?"  I tend to think, as did Ludwig von Mises, that most people prefer prosperity over poverty, freedom over slavery, and life over death.  There are, and always will be, predators who prey on those who live peacefully and productively.  The latter will use freedom to create the cost-effective defenses that maximize the cost of predatory behavior, eventually discarding the unwieldy blunt instrument of the state.

What is needed then is a total commitment to the free market and its concomitant competition as discovery procedure by which society progresses.  There can be no fear of unacceptable outcomes, as outcomes will reflect human values.  Yes, in some areas of the world those outcomes might be repulsive to modern westerners, but eventual progress in those regions is not going to be accelerated by murdering, threatening, or lecturing the population.

What is most important is to embrace the idea that liberalism – the free (or freed) market – is the platform upon which progress depends.  The end state defies prior description, but we can have confidence that it will conform to human values.

^*In the body of the post an unmodified reference to "liberal" is a reference to "classical liberal."
¹Revel, Jean-François, Last Exit to Utopia, (2009 New York, Encounter Books), 54.

In Defense of Karl Popper and Piecemeal Social Engineering

Karl Popper in 1990. (Photo credit: Wikipedia)
Karl R. Popper was one of the most influential philosophers of science in the 20^th century.  His ideas on inductivism and falsifiability transformed the philosophy of science, creating credibility when he turned his mind to the social sciences.  Over the course of his lifetime he moved from a strong commitment to social democracy to support for liberal democracy, possibly due to the influence of his longtime friend, Friedrich Hayek.

In The Open Society and Its Enemies Popper proposed something he called “piecemeal social engineering.”[1]  In this regime he suggested that governments implement small societal changes and then critically evaluate the results.  He also mentioned that private individuals and businesses were participants in this process saying:

Even a man who opens a new shop, or who reserves a ticket for the theatre, is carrying out a kind of social experiment on a small scale ;  and all our knowledge of social conditions is based on experience gained by making experiments of this kind.[2]

In the context that Popper suggested it most free market advocates would find his view of social engineering to be anathema; but if we view it critically and in the context of Popper’s more abstract ideas, specifically “evolutionary epistemology,” we can come to a different and positive conclusion.

Consider Bryan Magee’s representation of Popper’s view of problem solving in society when he says, “Because he regards living as first and foremost a process of problem-solving he wants societies which are conducive to problem-solving.”[3]  When Popper suggested that liberal democracies could legislate small changes in the societal structure, evaluate the results and either repeal or retain the changes he was arguing against utopian views and for such a society.  As such it was a significant advancement in thinking about societal changes and a sensible argument against all utopian schemes.  Unfortunately, Popper was naïve about the ability of governments, even those of liberal democracies, to evaluate the results of their actions and to learn from them.

Governments are unable to learn from their mistakes for a number of reasons:

1. The individuals supporting a specific experiment risk citizens’ resources, not their own.
2. In a mixed economy, government does pay market prices for the resources it consumes, but as a monopoly it forces the populace to pay arbitrary prices for the goods and services it provides.
3. There is no signal such as profit or loss that can inform the experimenters of their success or failure.  In fact, it is widely suggested that government should undertake projects that are “desired” but that generate losses.

In addition to the inability of governments to learn, they impose their experiments on the entire populace, eliminating the possibility of parallel, competitive experiments through which more progress could be made.
As mentioned earlier, Popper did suggest that businesses could, in effect, also participate in piecemeal social engineering by implementing different business plans and offering revised or different products.  He failed to realize that what seemed to him to be a minor component was in fact the most significant and could accomplish his goal of societal evolution more effectively.
The fact is that businesses in the free market have built-in mechanisms that signal difficulties and facilitate learning:

1. The individuals involved are risking their own or investors’ resources – resources that are freely given and are at risk in the project.  This risk factor dampens the enthusiasm for projects that appear fantastic or utopian as opposed to realistic.
2. Businesses charge prices that must reflect customers’ values.
3. If income minus expenses is negative that signals that the business’s inputs are not creating a value for consumers that justifies the consumption of resources.  The individuals involved must make the decision whether to continue to consume capital or abandon the project.

Businesses are naturally competitive and are generally unable to impose their plans on the population, making it possible for multiple plans to be executed simultaneously across various industries.

Thus, we can say that Popper’s idea – piecemeal experimentation with the expectation of finding problem solutions – was sensible, but his means – governments of liberal democracies – could not accomplish that end.  On the other hand, a society free of government intervention and based on profit and loss has the tools required to accomplish it.

---

[1] Popper, Karl R., The Open Society and Its Enemies, Volume I: The Spell of Plato, (New York: Harper & Row, 1963), 158.
[2] Ibid, 162.
[3] Magee, Bryan, Philosophy and the Real World: An Introduction to Karl Popper, (La Salle, Illinois: Open Court, 1985), 75.

Personal Value Judgments

Image via Wikipedia
In the, so far, excellent foreword to Ludwig von Mises's Epistemological Problems of Economics, Jörg Guido Hülsmann makes the following curious statement:

The discipline of economics dealt with human action to the extent that the acting person could base his decisions on personal value judgments and economic calculations, whereas praxeology dealt with human choices guided by personal value judgments alone.

But economic calculation simply augments personal value judgments.  Any analogy might be the use of a scale when confronted by two sacks of potatoes.  Which one should I buy?  The scale is a tool that can aid me in that decision, assuming that I want to buy a greater weight of potatoes for my money.  However, the color of the potatoes, their apparent age and quality may override my desire for the greater weight.  The scale simply supplies a quantitative input to my value judgment, the basis for every choice I make.

If the statement were instead, "personal value judgments in the context of economic calculations," I would be in complete agreement.  I suspect that Dr. Hülsmann would change the phrasing himself if asked about this seeming separation of value judgments and economic calculation.

Update: Further on,  Dr. Hülsmann does, indeed, seem to come more into alignment with my understanding of the Austrian view.