Responding to Noel Campbell on Human Action

Over at Division of Labor, Noel Campbell has thrown down the gauntlet (more here) regarding Mises’ Human Action. Art Carden responds. I was not invited to the fight, but here are my two cents. The way to understand what Mises is doing in developing a “pure logic of action” is developing theory -- that which is prior -- to Noel’s Step 1: Observation. For Mises, economic theory (praxeology) is logical system of human action. Economics, on the other hand, is the application of economic theory to empirical phenomena. This distinction is crucial to understanding Mises’ project in Human Action and elsewhere.

Continued below the fold.
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The observation of all facts and phenomena in the world take place through a lens of theory. For Mises, there is no such thing as observation without prior theory. Thus, empirical observations can either be seen through the lens of poor, under-developed theory, wrong theory, unacknowledged theory, etc etc or through the lens of refined economic theory of human action based on the ideas of marginal cost / marginal benefit thinking. For example, we look at relative prices when examining individual choice because our theory suggests that people evaluate their options on a marginal (not say, an average or absolute) basis. Either way, ‘the facts do not speak for themselves’.

The second part of Mises’ project is to emphasize that the purpose of developing a refined theory of human action is to interpret the world around us; to do proper history; to explain causal relationships from the perspective of individual action. In other words, theory influences the types of questions scientists ask. Theory determines what observations you see when you look out the window or back into history.

In other words, Noel’s point that Mises’ is “leaving off the most important step” is a criticism that I think Mises would level against the standard scientific method. Only in Mises view, that step is the theory informing history. If you take my reading of Mises, then he is saying something more along the line of “Hey guys, I’ve just outlined a method for developing an [unlimited number of relevant refutable hypotheses]. You’ve got about…oh…[two thousand years] worth of explaining [causal relationships of human history] to do. Get crackin’!”

Now that the distinction between economic theory and empirical economics is drawn, it is important to reconsider Noel’s criticism. It may still be that Mises’ development of economic theory is interesting and still irrelevant for the mainstay of economic as practiced. I disagree.

Taking a Misesian position in acknowledging the primacy of theory challenges mainstream views on what economists should do through the implications about what economists can do. If taken seriously, the relationship between economic theory and empirical investigation changes how our knowledge of economic phenomena advances.

There are serious complications (limitations) involved in advancing our stock of knowledge about social phenomena that are not present in the study of the natural sciences. We need the guide of theory to inform how we allocate our scare mental and perceptual resources to the task of making sense of the complexities of the social world. Why do social scientists need theory so desperately? Because the facts of the social sciences are not the same as the facts of the natural sciences. What we take as given are the constantly adjusting plans of millions of other individuals. The underlying variables of the social sciences (resources, tastes and preferences, skills and knowledge) do not have the stable, objective properties of the underlying variables of the natural sciences.

I would venture to speculate that the main reasons mainstream economists like Noel find the ‘primacy of theory’ point either irrelevant or uninteresting fall under some combination of the following: (a) they think their questions are already properly informed by theory, (b) the acceptable methods of investigation are well established in the profession, (c) no qualms of applying the methods of the natural science to the study of human action, maybe by adding a few caveats here and there, or (d) recognizing the differences between natural and social sciences, believe that little is “lost in translation” when applying the methods of the natural sciences to questions of individual action and social phenomena. In another post, I would argue that much of Hayek’s writings on knowledge and scientism are aimed particularly at these issues that arise from a Misesian view of the relationship between Theory and History.