Extrem Rationalism

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In Defense of Extreme Rationalism:Thoughts on Donald McCloskey'sThe Rhetoric of EconomicsHans-Hermann Hoppe

The Relativism of Hermeneutics and Rhetoricand the Claims of RationalismFor some tim e, the philosop hy establishm ent h as been unde r a ttack by the likesof Paul Feyerabend, Richard Rorty, Hans G. Gadamer, and Jacques Derrida.A movement of sorts that has already won over numerous members of thephilosophy profession is steadily gaining ground, not only in such soft fieldsas literary criticism and sociology, but even in the hard natural sciences. WithDonald McCloskey 's The Rhetoric of Economics (Madison: University ofWisconsin Press, 1985), this movement is ready to invade economics. Yet, itis not only the orthodox, neoclassical Chicago economist McCloskey whopreaches the new dispensation; there is also G.L.S. Shackle, and at the fringesof the Austrian school of economics are Ludwig Lachmann and the GeorgeMason University hermeneuticians who lend support to the new creed.

However, this creed is no t entirely new. It is the ancient tun e of skepticismand nihilism, of epistemological and ethical relativism that is sung here in ever-changing, modern voices. Richard Rorty, one of the outstanding championsof the creed, has presented it with admirable frankness in his Philosophy andthe Mirror of Nature.l The opponent of the new old movement is rationalisman d, in particular, epistemology as a product of rationalism. Rationalism, writesRorty:

is a desire for constrainta desire to find "foundations" to which one mightcling, frameworks beyond which one must not stray, objects which imposethemselves, representations, which cannot be gainsaid, (p. 315)The dominating notion of epistemology is that to be rationa l, to be fullyhuman, to do what we ought, we need to be able to find agreement with other

Review of Donald McCloskey, The Rhetoric of Economics (Madison: University of WisconsinPress, 19 85 by the Board of R egents of the U niversity of Wisc onsin System ).


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180 The Review of Austrian Economics, Volume 3human beings. To construct an epistemology is to find the maximum amountof common ground with others. The assumption that an epistemology canbe constructed is the assumption that such common ground exists, (p. 326)

However, Rorty claims that no such common ground exists: hence the falseidol of rationalism must fall and a "relativist" position termed hermeneuticsmust be adopted.Hermeneutics sees the relations between various discourses as those of strandsin a possible conversation, a conversation which presupposes no disciplinarymatrix which unites the speakers, but where the hope of agreement is neverlost so long as the conversation lasts. This hope is not a hope for the discoveryof antecedently existing common ground, but simply hope for agreement, or,at least, exciting and fruitful disagreement. Epistemology sees the hope of agree-ment as a token of the existence of common ground which, perhaps unbeknownto the speakers, unites them in common rationality. For hermeneutics, to berational is to be w illing to refrain from epistemologyfrom thinking that thereis a special set of terms in which all con tributions to the conversation shouldbe putand to be willing to pick up the jargon of the interlocutor rather thantranslating it into one's own. For epistemology, to be rational is to find theproper set of terms into w hich all contribution s should be translated if agree-ment is to become possible. For epistemology, conversation is implicit inquiry.For hermeneutics, inquiry is routine conversation, (p. 318)What Rorty terms hermeneutics, McCloskey calls rhetoric. In The Rhetoricof Economics, he attempts to persuade us that in economics, just as in anyother language game th at we might play, rationalist a nd epistemological claimsof providing a com m on g roun d that m akes agreement-on-something-objectively-true possible are out of place. Econ om ics, too, is merely rheto ric. It is ano thercontribu tion to the conversation of man kind , ano ther attem pt to keep a routinegoing. It exists not for the sake of inquiring about what is true, but for itsown sake; not in order to convince anyone of anything based on objective stan-

dards, but in the absence of any such standards, simply in order to be per-suasive and persuade for persuasion's sake.Rhetoric is the art of speaking. More broadly it is the study of how peoplepersuade, (p. 29)Rhetoric . . . is the box of tools for persuasion taken together, available topersuaders good and bad. (pp. 37-38)[Economics should learn its lesson from literary criticism.] "Literary criticismdoes not merely pass judgements of good or bad; in its more recent formsthe question seems hardly to arise. Chiefly it is concerned with m aking readerssee how poets and novelists accomplish their result. An economic critic ism .. . is


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Review Essays 181not a way of passing judgement on economics. It is a way of showing howit accomplishes its result. It applies the devices of literary criticism to theliterature of economics, (p. XIX)[The categories truth and falsehood play no role in this endeavor. Scholars]pursue other things, but things that have only an incidental relation with truth.They do so not because they are inferior to philosophers in moral fiber butbecause they are human. Truth-pursuing is a poor theory of human mot iva-tion and non-operat ional as a moral imperative. Th e hum an scientists pursuepersuasiveness, prettiness, the resolution of puzzlement, the conquest ofrecalcitrant details, the feeling of a job well don e, and the h o n o r and incomeof office. . . . The very idea of Truthwith a capital T, something beyondw h a t is merely persuasive to all concernedis a fifth wheel. . . . If we decidethat the quanti ty theory of money or the marginal productivity theory ofdistribution is persuasive, interesting, useful, reasonable, appealing, accept-able, we do not also need to know that it is True. . . . [There] are particulararguments , good or bad. After making them, there is no poin t in asking alast, summarizing question: "Well, is it True?" It 's w hatever it ispersuasive,interesting, useful, and so forth. . . . There is no reason to search for a generalquality called Truth, (p. 4 6 - 4 7 )

[Economics in particular, and science in general are like the arts;2 the lawof demand is persuasive or unpersuasive in exactly the same way as a Keatsp o em;3 and in just the same way as there exists no methodological formulafor advancing artistic expression there exists none for advancing economics.Rhetoric] believes that science advances by healthy conv ersation, not adherenceto a methodology. . . . Life is not so easy that an economist can be made bet-te r at w h a t he does merely by reading a book . (p. 174)

Surely, after all this one has to catch one's breath. Yet has not rationalism refutedthis doctrime time and again as self-contradictory and, if taken seriously, asfatally dangerous nonsense? Books such as McCloskey's may indeed not makelife better or easier. But is this not only insofar as one ignores their advice;and would not life in fact be worse if one were actually to follow it?

Consider this: after reading Rorty and McCloskey, would it not seem ap-propriate to ask "What, then, about their own pronouncements?" If there isnothing like truth based on common, objective ground, then all of the precedingtalk can surely not claim to say anything true. In fact, it would be self-defeatingto do what they seem to be doing: denying that an objective case can be madefor any statement, while at the same time claiming this to be the case for theirown views. In so doing, one would falsify the content of one's own statement.One cannot argue that one cannot argue.4 Thus, in order to understand Rortyand McCloskey correctly, one must first realize that they cannot truly be say-ing what they seem to be saying. Nor can I here say anything claiming to beobjectively so and true. No, their talk as well as mine can merely be understoodas contributions to their and my entertainment.


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182 The Review of Austrian Economics, Volume 3But then , why should they o r I listen and be entertained? After all, if thereis no such thing as truth and, accordingly, no objective distinction betweentruth-claiming propositions and any others, then we are evidently faced witha situation of all-pervasive intellectual permissiveness.5 With every statement

just another contribution to the conversation of mankind, anything at all thatis said is just as good a potential candidate for my entertainment as anythingelse. But why bother listening to such permissive, everything-goes talk?McCloskey might reply, "Because your talk or my talk is persuasive." But thatwill not change much, if anything at all. For according to his doctrine, thecategories "persuasive" and "unpersuasive" are not simply other names for "true"and "false." The whole point would be lost if they were. No, he is saying tha tsomething is persuasive because it has in fact persuaded; because it has resultedin agreement. To go beyond this and ask, "Well, has one been persuaded ofsomething correct?" would be an entirely inappropriate question. As a matterof fact, regarding any such question, he would have to point out that the veryproblem of determining whether or not a persuasion was based on correct talkwould once more have to be decided on the actual persuasion of having beencorrectly persuaded; hence, tha t he is consistent in his rejection of the idea ofobjective truth; that the idea of breaking out of mere talk and of groundingtalk in something that is not again simply talk is fallacious; and that tru th thenis itself no more than the subjective belief that what one believes is objectivelytrue.6 But if this is his position, then his talk, persuasive or unpersuasive asit may be, can indeed be no more than mere entertainment. N or can this state-ment regarding what it means to talk claim to be objectively true; it, too, canonly be meant to entertain.

Hence, it seems the first appropriate question regarding such books asMcCloskey's would have to be "Are we being entertained?" Without a doubt,many a reader will reply that he is and McCloskey might then think that hehas indeed achieved w hat he intended. But did he? Or was the readers' feelingof being well entertained only due to the fact that he misinterpreted what heread and understood it as something claiming to be true , which, in fact, it wasnever meant to be? And would not the reader, once he had realized this, haveto change his opinion? For then McCloskey's talk clearly would not fall intoany different category from that of a novelist or poet. But as compared withtheir prose, and in direct competition with any novel or poem written for ourentertainment, I submit that McCloskey's book is merely boring and failsmiserably in its objective.Yet, can his book be even bad entertainment without still having to be com-mitted indispensably to the notion of a comm on ground that serves as the basisof objective truth? Rationalism denies that it can. It claims that the notion oftruth, of objective truth, of truth grounded in some reality outside that oflanguage itself, is indispensable for talk of any sort, tha t language presupposesrationality, and hence that it is impossible to rid oneself of the notion of


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Review Essays 183objective truth as long as one is capable of engaging in any language gamewhatsoever. For how else could we find o ut w heth er som eone w as in fact enter-tained by something, or that he was persuaded by it , that he understood ormisunderstood what it was that had been said to entertain and persuade, andeven further, whether there was something that meant anything at all and socould be un dersto od, rather than merely being meaningless rustling in the wind?Clearly en oug h, we could no t claim to k now any of this unless we had a c om-mon language with commonly understood concepts such as "being persuaded"or "entertained" as well as any other term used in our talk. In fact, we couldno t meaningfully claim to deny all this w itho ut having to presuppo se yet ano the rset of com mo nly u nde rstood concepts. And just as clearly, this com mo n grou ndthat must be presupposed if we want to say anything meaningful at all is notsimply one of free-floating sounds in harmony with each other in midair. In-stead, it is the com m on groun d of terms being used an d ap plied cooperativelyin the course of a practical affair, an interaction. And again, in making thisclaim, one could not possibly deny that this is so without presupposing thatone in fact could cooperatively establish some common ground with respectto the practical application of some terms.

Language, then, is not some ethereal medium disconnected from reality,but is itself a form of action. It is an offshoot of practical cooperation andas such, via action, is inseparably connected with an objective world. Talk,whether fact or fiction, is inevitably a form of cooperation and thus presup-poses a common ground of objectively defined and applied terms.7 Not in thesense that one would always have to agree on the content of what was saidor that one would even have to understand everything said. But rather, in thesense that as long as one claimed to express anything meaningful at all, onewould have to assume the existence of some common standards, if only to beable to agree on whether or not and in what respect one was in fact in agree-men t with others, and whether or no t and to wha t extent one in fact u nderstoo dwhat had been said. And these common standards would have to be assumedto be objective in that they would involve the application of terms within reality.To say, then, that no common ground exists is contradictory. The very facttha t this statement can claim to convey me aning im plies tha t there is such com -mon ground. It implies that terms can be objectively applied and groundedin a common reality of action as the practical presupposition of language.Thus, if McCloskey were right and there were indeed no objective truth,he could not even claim to entertain anyone meaningfully with his book. Histalk would be meaningless, indistinguishable from the rattling of his typewrittenHe would advocate even greater intellectual permissiveness than first thought.N ot only would he have to drop the distinction between truth-claim ing p rop o-sitions and propositions that merely claim to be entertaining, but his per-missiveness wo uld go so far as to disallow any distinction between mean ingfultalk and a meaningless assemblage of sounds. For one cannot even claim to


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184 The Review of Austrian Economics, Volume 3entertain with talk that involves no truth-claim beyond that of being mean-ingful talk, without still having to know what objective truth is and be ableto distinguish between truth-claiming propositions and those statements (forexample, in fictional talk) that do not imply any such claim.

And there is more. For how can McCloskey or Rorty reconcile their viewof science as mere talk w ith their o wn advocacy of a talk-ethic, an ethic describedby McCloskey as follows:Don't lie [but how could we, if there were no such thing as objective truth?H.H.H.]; pay attention; don't sneer; cooperate; don't shout; let other peopletalk; be open-minded; explain yourself when asked; don't resort to violenceand conspiracy in aid of your ideas, (p. 24)

W hy shou ld we follow his advice of paying atten tion to talk an d no t reso rtingto violence, particularly in view of the fact that what is advocated here is talkof the sort where anything goes and where everything said is just as good acandidate for one's attention as anything else? It certainly is not evident thatone sh ould pay m uch attention to talk if tha t is w ha t talk is all abo ut! M oreover,it would be downright fatal to follow this ethic. For any viable human ethicmu st evidently allow peop le to do thing s othe r tha n ta lk, if only to have a singlehuman survivor who could possibly have any ethical questions; McCloskey'stalk-eth ic, however, gives us precisely such deadly advice of never to stop talk-ing or stop listening to others talk. In addition, McCloskey himself and hisfellow h erme neuticians m ust adm it that they can have no objective groun d forproposing their ethic anyway. For if there are no objective standards of truth,then it must also be the case that one's ethical proposals cannot claim to beobjectively justifiable either.8 But what is wrong, then, with not being per-suaded by all of this and, rather than listening further, hitt ing McCloskey onthe head straightaway rath er tha n w aiting until he perishes from following hisown prescription of endless talk? Clearly, if McCloskey were right, nothingcould be said to be objectively wrong with this. (In fact, would one not haveto conclude that McCloskey could not even say that anything objective hadhappened?) He might not regard my act of aggression as a contribution to theconversation of mankind (though we know by now that he could not even ob-jectively claim to know this to be the case), but if the talk-ethic cannot itselfbe grounded in something objective outside of talk, then if I happened to bepersuaded of an ethic of aggression instead, and I ended our conversation onceand for all with a preemptive strike, McCloskey could not find anything ob-jectively wrong with this either.

T h u s , it is not only intellectual permissiveness that is preached byherm eneutician s an d rhetoricia ns, it is total practical permissiveness as wellepistemological and, as the other side of the same coin, ethical relativism.9Yet such relativism is impossible to follow and thus wrong in the most objective


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Review Essays 185sense of being literally incompatible with our nature as actors. Just as it is im-possible to say and mean to say that there is no such thing as objective truthwithout in so doing actually presupposing objective criteria for the applica-tion of terms, so is it impossible to actually advocate ethical relativism. Becausein order to advocate any ethical position whatsoever, one must be allowed tocommunicate rather than be coercively shut up and silenced, and thus, con-trary to the relativist message itself, its messenger, in bringing it to us, mustin fact presuppose the existence of objectively defined absolute rights. Morespecifically, he must presuppose those norms of action as valid whose obser-vance makes talk as a special form of cooperation between physically separatetalkers possible, while they m ust also allow everybody to d o things othe r thanengage in endless talk; and whose validity must then be regarded as objectiveand abso lute in that n o on e could possibly ever be alive and talkingly challengethem.1 0

Hermeneut ics versus Empiric ism Rational i sm against BothR o u n d IM cCloskey's and Rorty's general thesis the n, the very thesis that brou ght themtheir notoriety, is dead w rong . In fact, McCloskey and Rorty can only do andsay what they do because what they say is false.There is certainly much left to be said about rationalism, the age-old op-ponent of relativism. However, the perennial claims of rationalism remain un-challenged by this most modern, relativist attack: the claim that there existsa common ground on the basis of which objectively true propositions can beformulated; the claim that a rational ethic objectively founded in the natureof man as actors and talkers exists; and finally, the claim, only somewhat in-directly established in the previous argum ent and still to be substa ntiated, thatone can know certain propositions to be objectively true a priori, (that is, in-dependent of contingent experiences) as they can be derived deductively frombasic, axiomatic propositions whose truth cannot be denied objectively withoutrunning into a practical contradiction, that is, without presupposing in the veryact of denial what is supposedly denied (so that it would be literally impossi-ble to undo the truth of these propositions).1 1With this fundamental criticism out of the way, what about McCloskey'spronouncements, if for the sake of argument we are willing to ignore that hecannot really claim to say anything? It is not entirely surprising, as will be seen,that the general flaw of the bookits lack of argumentative rigoralso comesto bear here.Th e very starting po int of McCloskey's argum ent is mark ed by a misconcep-tion of the problem he faces. For in order to advance the thesis tha t econ om ists


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186 The Review of Austrian Economics, Volume 3should conceive of their jobs as keeping the conversation between economistsgoing without ever claiming to say anything true (i.e., without ever supposingthat anyone might ever have a decisive, conversation-stopping argument at hisdisposal), McCloskey would have to direct his argument against and refute themost extreme available opposition. He would have to choose as his target theclaims of rationalism regarding the epistemological foundations and method-ology of economics. And while only accounting for a small minority amongtoday's theoreticians of economics, there surely exist some such dogm atic, doc-trinaire, extremist, absolutist (or whatever other depreciating label one maychoose) rationalists.12 The foremost representatives of this persuasion are Lud-wig von Mises and M urray N . Rothbard, who , within the general frameworkof a Kantian or, respectively, Aristotelian epistemology, conceive of economicsas part of a pure theory of action and choice (praxeology).13 Lionel Robbinsadvances only slightly less uncom promising views, in particular in the first edi-tion of his Nature and Significance of Economic Science.14 And from a verydifferent position within the political-ideological spectrum are Martin Hollisand Edward J. Nell, who in their Rational Economic M an propound similararchrationalist claims regarding the logic of economics.15 McCloskey wouldhave to attack all of them, since they are the most radical conversation stop-pers in that they all, despite some important differences, are completely un-compromising in insisting that economics not only can and does produce p ro-positions that are objectively true and can be distinguished from propositionsthat are not, bu t, moreover, that some propositions of economics are groundedin incontestably true axioms or real (as contrasted with arbitrary, stipulative)definitions, and hence can be given an a priori justification.16

However, nowhere in his book does McCloskey attack these variousrepresentatives of an archrationalist methodology of economics, nor does heattack anyone else who falls into this camp. Nowhere in his book does he at-tack , much less refute, the very position tha t is the polar opposite of his. Rob-bins, Rothbard, Hollis, and Nell are never mentioned in McCloskey's text, nordo they appear in his bibliography. Nor does Mises' name appear in thebibliography, but it is mentioned twice in the text in support of some ofMcCloskey's own pronouncements (pp. 15, 65). Yet there is no reference toMises' extremist, rationalist position. Austrian methodology is only cited inpassing and described in a way that would strike anyone only faintly familiarwith this intellectual tradition as no more than a naive misrepresentation:"Austrian methodology says: The history of all hitherto existing societies isthe history of interactions among selfish individuals. Use statistics gingerly ifat all, for they are transitory figments. Beware of remarks that do not accordwith Austrian Methodological precepts" (p. 25).17

Rather than doing battle with his direct logical adversary, McCloskeychooses to establish his own relativist position through an attack on empiricism-positivism. But knocking down empiricism-positivism is no more than knocking


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Review Essays 187down a straw man, in that from its downfall, absolutely nothing follows insupport of McCloskey's own claims. In fact, all of the previously mentionedarchrationalists have leveled much harsher criticism against empiricism-positivism and still apparently did not think that in so doing they would com-mit themselves to relativism. O n th e con trary, it is their view tha t any criticismof empiricism-positivism, if it is one tha t h as any intellectual weight at all, wou ldhave to vindicate the very claims of rationalism. T hu s, and this is the fundamen -tal misconstruction of his entire argument, McCloskey, given his objective,simply fires at the wrong target and, worse, does not seem to notice.

How ever, as mu ch as emp iricism-positivism may deserve to be intellectuallydestroyed, McCloskey does not even succeed here. He begins with a descrip-tion of empiricism-positivism or of econom ic mod ernism , as he terms the ap-plication of this philosop hy to the field of econom ics, and lists its major precepts(pp. 7-8): prediction is what ultimately counts in science; there is no objectivetruth without observations; only quantifiable observations are objective data;introspection is subjective and worthless; science is positive and does not dealwith normative questions; explaining something positively means bringing itunder a general law; and a general law's validity is forever hypothetical, re-quiring permanent testing against objective observational data.

The re is little to quarrel with regarding this characterization of m ode rnism .Quite correctly, McCloskey also cites the most influential modern exponentsof this creed: the Vienna Circle, analytical philosophy, and Popperianism inphilosophy proper,18 as well as such representative figures within the econom-ics profession as T.W. Hutchison, Milton Friedman, and Mark Blaug.19 A ndMcCloskey is certainly correct, too, in identifying this modernist worldviewas the current textbook orthodoxy. Nonetheless, from the outset, his under-stand ing of empiricism-po sitivism is insufficient in tha t he fails to reco nstru ctthe fundamental assum ptions of mod ernism (i.e., those assump tions that under-lie its vario us prec epts). H e neglects to assign them a specific place in a gener al,logically unified con cep tual structu re. H e fails to clarify t ha t the various specificm ode rnist precep ts flow essentially from the acceptance of one crucial assu mp -tion. The assu m ption , fundam ental to modern em piricism, is that k nowledgeregarding reality, or empirical knowledge, must be verifiable or at least falsifiableby experience; that whatever is known by experience could have been other-wise, or, put differently, that nothing about reality could be known to be truea priori; that all a priori true statements are simply analytical statements thathave no factual content, but are true by convention, representing merelytautological information about the use and the transformation rules of signs;that all cognitive meaningful statements are either empirical or analytical, butnever both ; and hence that normative statements, because they are neither em-pirical nor analytical, cannot legitimately contain any claim to truth, but mustbe regarded instead as mere expressions of emotions, saying in effect no morethan "wow" or "grr."20 And in failing to clarify this, McCloskey precipitates


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188 The R eview of Austrian Economics, Volume 3his subsequent failure to bring even empiricism-positivism, his chosen oppon-nen t, d ow n. H is attack is simply unsystematic, and it thereby necessarily m issesits goal.

McCloskey's first criticism is well targeted. He shows that contrary to theclaims of Popper and his school in particular, following the advice of theempiricist-falsificationist philosop hy wo uld ultimately lead one to skep ticism.Whenever a hypothetical law is empirically tested and found to be lacking,within the very framework of an empiricist methodology it is always possibleto imm unize one's theo ry by denying the recalcitrant observations ou trigh t anddeclaring them illusory, by acknowledging them but ascribing their recalcitranceto measurement errors, or by postulating some unobserved, intervening variable,whose lack of control is to blame for the seemingly falsifying observations.Observes McCloskey:Insulation from crucial test is the substance of most scientific disagreement.Economists and other scientists will complain to their fellows, "Your experi-ment was not properly controlled"; "You have not solved the identificationproblem"; "You have used an equilibrium (competitive, single-equation) modelwhen a disequilibrium (monopolistic, 500-equation) model is relevant" . . .There is no "falsification" going on. (p. 14)

And, he remarks further, have we not known since Thomas Kuhn's Structureof Scientific Revolutions21 that the actual history of natural science does notseem to come anything close to the Popperian illusion of science as a rationalenterprise steadily advancing through a never-ending process of successivefalsification. "Falsification, near enough, has been falsified" (p. 15).McCloskey also shows some understanding of the sociopsychology ofm odern ist methodo logy: a philosophy such as empiricism, that starts with theassumption that nothing about reali ty can be known with certainty and henceeverything is possible, and that has no place for anything such as objective apriori considerations; an epistemology, that is to say, that puts us under noconstraints whatsoever when it comes to choosing ou r variables to be m easured

and determining the relation between such variables (except insofar as thechosen relation must fit the data), can be followed by almost everyone andalmost everyone can justly feel that if this is what science is all about, he canbe as good a scientist as anyone else. Anyone can measure whatever he feelslike measuring, then with the help of a computer fit some curves or equationson his data m aterial , and finally change or n ot change the curves or equ ationsdepending on new, incoming material and/or new hypotheses about measure-ment error or uncontrolled intervening variables. Empiricism is a methodologysuited to the intellectually poor, hence its popularity.22 Notes McCloskey:Graduate students in the social sciences view courses in econometrics,sociometrics, or psychometrics as courses in how to become applied economists,


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Review Essays 189sociologists, or psychologists. . . . The delusion is nourished by democracy,which partly explains its special prevalence in America. Everyone of normalintelligence can after such a course decipher the output of the Statistical Packagefor Social Sciences. No elite culture is necessary, no longer subordination to Dok-tor H err Professor,23 no knowledge accumulated through middle age. (p. 163)Quite naturally, he sees all this as strong talk against modernist epistemology.And indeed, it might be enough to persuade someone to cease giving credenceto m ode rnism , an d th at w ould certainly be for the better. But even if true, doe sit constitute proof of a systematic flaw in the empiricist-positivist philosophy?And does it constitute proof in the hands of a hermeneutician?As regards this latter ques tion, it must be n oted tha t for McCloskey himself

to understand his statements abo ut m odernism as a criticism of this philosophyshould strike one as simply odd. For in his discussion of empiricism-positivism,he clearly blam es this philosop hy for allowing scientists to engage in som e all-too-pervasive intellectual permissiveness; for producing a science that advancesnowhere but is a mere random walk of ideas through time to be understoodonly ex post by historical or sociological explanation; and thereby for openingthe floodgates to the invasion of scholarship by intellectual barbarians. YetMcCloskey wants to replace this permissiveness with an even greater one. Hewants us to engage in talk, endless and unconstrained by any intellectualdiscipline whatsoever. T hu s, instead of criticizing emp iricism-positivism, shou ldhe not embrace it enthusiastically for already coming so very close indeed tohis own relativist ideals? If empiricism sounds ridiculous to McCloskey, hisreason for this can only be that it is just not ridiculous e nou gh , that empiricismis ridiculous because hermeneutics is even more so, and that pure nonsensemust prevail over only partial nonsense.Yet, apart from McCloskey's own position, his arguments directed againstmodernism cannot count as amounting to anything. "So what," the empiricistcould reply. McCloskey has shown that following the modernist precepts leadsto a peculiar form of relativism. Admittedly, some empiricists, most notablyPopper and his school, have not and still do not recognize this. 2 4 McCloskeyis right in pointing this out again. But then he must admit that this has alsobeen realized by empiricists without causing them much intellectual pain. Wasit not Feyerabend who first and most forcefully drove the relativist messagehome to Popperianism?25 And was not he himself a leader of this very schoolwho simply drew the ultimate logical conclusions of Popperianism? 26 Em -piricism cannot explain the process of scientific development as a rational enter-prise. True enough. But it cannot account for it because the process is not ra-tional. And what is wrong with this? What is wrong with empiricism onceit admits its own relativism?McCloskey gives no answer to these questions. He does not advance anyprincipled arguments that would prove empiricism to be a self-defeating


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190 The R eview of Austrian Economics, Volume 3position. Nor does he challenge empiricism on the much more obvious em-pirical front. It would seem to be evident that at least empiricism's claim ofproviding us with a correct epistemology of the natural sciences should, in viewof the facts, be regarded as incorrect. For whatever the true state of affairs withrespect to economics and the social sciences might be, with respect to the naturalsciences it seems difficult to deny that hand in hand with their developmentwent a steady, universally recognized process of technological advancement andimprovement, and th at this fact of technological progress can hardly be broughtin line with the empiricist view of science as a relativistic, noncumulative enter-prise. Empiricism then simply seems to have been empirically refuted as anappropriate methodology for the natural sciences.27Yet such a refutation in no way supports McCloskey's own position. For theexistence of technological progress would have to stand just as much in theway of hermeneutical relativism as in that of empiricism.28 Only a rationalistmethodology of the natural sciences could account for such progress. Onlya methodology tha t begins with the recognition of the fact, as an undeniablytrue fact of our human nature as actors and talkers, that language in generaland scientific theories in particular are ultimately grounded in a common,objective reality of action and cooperation can explain why such progress ispossible without thereby having to deny some partial correctness of Kuhn andFeyerabend's relativistic portrayals of the history of the natural sciences.

The relativistic impression is due to the fact that Kuhn and Feyerabend,typical of empiricists since Locke and Hum e, ultimately misconceive of scien-tific theories as mere systems of verbal propositions and systematically ignorethe foundation of these, or of any, propositions in a reality of action and in-teraction.29 Only if one regards observations and theories as being completelydetached from action and coopera tion, not only does any single theory becomeimmunizable, but any two rival theories whose respective terms cannot bereduced to and defined in terms of each other must then appear completelyincommensurable and no rational choice is possible. If statements are merelyand exclusively verbal expressions hanging in midair, what reason could therebe for any one statement to ever give way to another? Any one statement canperfectly well stand alongside any other one without ever being challengedunless we simply decide otherwise for whatever arbitrary reason. It is this th atKuhn and Feyerabend demonstrate. But this does not affect the refutability ofany one theory and the commensurability of rival theories on the entirelydifferent level of applying these theo ries in the reality of ac tion, of using themas instruments of action. On the level of mere words, theories may be irrefutableand incommensurable, but practically they can never be. In fact, one couldnot even state that any single theory was irrefutable or any two theories wereincomm ensurable and in what respect, unless one were to presuppose a com-mon categorical framework tha t could serve as a basis for such an assessment


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Review Essays 191or comparison. And it is this practical refutability and commensurability oftheories of natural science that explains the possibility of technologicalprogresseven though it accounted for technological progress in quite a dif-ferent manner than Popper's failed attempt.3 0Popper would have us throw out any theory that is contradicted by anyfact, which, if at all possible, would leave us virtually empty-handed, goingnow here. In recognizing the insoluble connection between theoretical k nowledge(language) and a ctions, rationalism w ould instead deem such falsificationism,even if possible, as completely irrational. There is no situation conceivable inwhich it would be reasonable to throw away any theoryconceived of as acognitive instrument of actionthat had been successfully applied in a pastsituation but proves unsuccessful in a new applicationunless one already hada more successful theory at hand. And to thus immunize a theory from ex-perience is perfectly rational from the point of view of an actor. And it is justas rational for an actor to regard any two rivals, in their range of applicationoverlapping theories t2 and t2 as incommensurable as long as there exists asingle application in which tj is more successful than t 2 or vice versa. Onlyif tj can be as successfully applied as t 2 to every single instance to which t2is applicable but still has more and different applications than t 2 can it everbe rational to discard t2. To discard it any earlier, because of unsuccessful ap-plications or because tx could in some or even in most situations have beenapplied more successfully, would from the point of view of a knowing actornot be progress but retrogression. And even if t 2 is rationally discarded, prog-ress is not achieved by falsifying it, as t2 would actually have had some suc-cessful applications that could never possibly be nullified by anything (in thefuture). Instead, t2 would outcompete t2 in such a way that any further cling-ing to t2 , though of course possible, would be possible only at the price ofnot being able to successfully do everything that an adherent of t2 could dowho could successfully do as much and more than any proponent of t2.

Trivial as such an acc ou nt of the possibility of progress (as well as retrogres-sion) in the natural sciences may seem, it is incompatible with empiricism. Insystematically ignoring the fact that observations and theories are those of anactor, made and built in order to act successfully, empiricism has naturallydeprived itself of the very criterion against wh ich kn ow ledge is con tinually testedand commensurated: the criterion of successfully or unsuccessfully reachinga set goal in applying knowledge in a given situation. 3 1 Without the explici trecognition of the universal operativeness of the criterion of instrumental suc-cess, relativism was inescapable. However, such relativism would once moreliterally be impossible to a do pt, because it is incom patible w ith o ur na ture asacting talkers and knowers. Relativism could not even meaningfully claim todeny the operativeness of this criterion, as this very denial would itself haveto be an action that presupposed some objective standard of success. Rather,in each of our actions, we confirm rationalism's claim (as regards the natural


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192 The Review of Austrian Economics, Volume 3sciences) that one can objectively identify a range of applications for someknowledge and then test it for its success within this range, and, hence, thatcompeting theories must be considered commensurable as regards such rangesof applications and success.

Hermeneutics versus EmpiricismRationalism against BothRound IIMcCloskey's first round against empiricism then is a complete failure. Nor ishis second round of criticism any more successful. There, McCloskey takesissue with the modernists' emphasis on prediction as the cornerstone of science.Though he does not deny the possibility of prediction in the natural sciences,he doubts its overwhelming importance. However, prediction in economics,he claims, is impossible. "Predicting the economic future is, as Ludwig vonMises put it, 'beyond the power of any mortal man' " (p. 15).In order to defend this thesis, we would expect him to establish two separatebut related claims. First would be the claim that something is wrong withmethodological monismthe program of an Einheitswissenschaftand meth-odological dualism should be adopted. O therwise it makes no sense to say thatpredictions are possible in one field of inquiry but impossible in another. Thesecond claim would be that on the basis of such a dualist position, it can bedemonstrated why predictions are possible in one field but not in another.McCloskey does nothing of this sort. It entirely escapes his notice that his posi-tion vis-a-vis modernism requires him to attack empiricism on account of itsmonism; that its monist stand makes it actually impossible for empiricism toexplain how predictions, which allegedly constitute the very heart of the em-piricist program , can conceivably be possibleand impossible for precisely thesame reason that empiricism could not account for the possibility of progressin natural science; and that a dualist position (which McCloskey would be re-quired to take if he wanted to systematically challenge modernism) would beincompatible with hermeneuticsitself being a monist position, though a dif-ferent sort th an empiricism'sand can again only be reconciled with a ration-alist methodology, which alone can account for the possibility of the empiricistdream of predictions.

Empiricism is observational monism, stating that all our empiricalknowledge is derived from observations and consists in interrelating these obser-vations; and, further, that observations as well as relations have the perma-nent status of only being true hypothetically. This is the case in economics aswell as in any other field concerned with empirical knowledge, and hence theproblem of prediction must be the same everywhere. McCloskey does notanswer this systematic challenge. He does not present the conclusive refutation


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Review Essays 193of such monism by pointing out that in claiming what empiricism claims, onein fact falsifies th e conte nt of one's statem ent. For to claim w ha t it claims, em-piricism must actually presuppose that in addition to observations, meaningfulobjects existw ords tied to reality via coope ration that, along w ith the rela-t ions amon g them , must be understood rather than observed. Hence the needfor methodological dualism.3 2

Nor does McCloskey notice the incompatibility of observational monismwith the notion of prediction. The idea of prediction and causality (i .e. , thatthere are constan t, t ime-invariantly o perating causes that allow one to projectpas t observations regarding the relationship between variables into the future)is something (as empiricism since H um e has noticed) that h as no observationalbasis and hence cannot be said to be justified (within the empiricist framework).O ne c ann ot observe the connecting link between ob servations, except that theyare somehow contingently related in time. And even if one could observe it,this observation would stil l not prove that such an observed connection wastime-invariant. Strictly speaking, within the framework of observationalmonism, it does not even make sense to place observations in objective time. 33Rather, the observed relationships are those between data in the temporal orderin which an observer happens to observe them (clearly something very differentfrom our notion of being able to distinguish between a real, causally effectiveorder an d sequence of observations and the mere temp oral order in which obser-vations are made). Hence, strictly speaking, according to empiricism, predic-tions are epistemologically impo ssible. It is irrational to w ant to p redict, be causethe very possibility of prediction cannot be rationally established. And this,then, is also the ultimate reason for empiricism's skeptical stand regarding thepossibility of scientific progress. For if one cannot rationally defend the veryidea of causality, how can one expect anything from science but an array ofincommensurable observational statements? Progress, as it is commonly under-stood, is the advancement of predictive knowledge. But surely no such thingcan be possible if prediction itself cannot be established as possible. 34McC loskey also does no t confront the challenge of explaining how herme n-eutics accounts for a dualism and the very possibility of prediction (if only inthe natural sciences). Nor could he have succeeded in this. For an argumentsuch as dualism would establish that certain propositions can be said to beobjectively truein fact to be a priori trueand this would contradict therelativist message of hermen eutics. Yet as a mo nist po sition , herme neu tics can -not account for causality any more than empiricism can. As an observationalm onis m , empiricism w ould like to reduce all ou r empirical knowledge to obser-vations and observations of contingent relations between observations, and itis therefore ultimately forced to a ba nd on the idea of time-invariantly ope ratingcauses. Herme neutics w ould like to reduce it to a talk-mon ism; to talk discon-nected to anything real outside of talk itself; to sequences of talk hanging inmidair with no objective, talk-constraining grounding whatsoever. For this


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194 The Review of Austrian Economics, Volume 3reason, hermeneutics cannot account for causality. For in the absence of anycom mon, objective standard, all talk is simply incomm ensurable, and no ob-jective connection whatsoever can exist between any talk apart from the meretemporal order of talking.Both dualism and causality can only be explained by rationalism. Ra-tionalism begins with the insight that empiricism is self-refuting, since it can-not actually state its own position without implicitly admitting that in addi-tion to observations and contingent relations of observations, other meaningfulthings and relations (i.e., words sustained through action and acquiring mean-ing in the course of such action) must also exist. Similarly, rationalism rejectshermeneutics as self-refuting, because a talk-monism , too , could no t be statedwithou t implicitly adm itting it as false in that it would have to presuppose thevery existence of actions guided by observations, if only in order to sustaintalkthus falsifying the claim of talk ever being unconstrained by anythingobjective. And rationalism then concludes that the key to the problem ofcausality must lie in the recognition of the fact (ignored by both empiricismand hermeneutics) that observations as well as words are constrained by ac-tion, and that this can be established neither by observation nor by mere talk,but rather must be understood on account of our knowledge of action as thepractical presupposition of any observation or talk as an a priori true fact ofhuman nature.

It is from such a priori understanding of action that the idea of causalitycan indeed be derived.35 Causality is not a category of observations. It is acategory of action whose knowledge as an a priori feature of reality is rootedin our very understanding of our nature as actors. Only because we are actorsand our experiences are those of acting individuals can observations be con-ceived of as occurring objectively earlier or later and as being related to eachother through time-invariantly operating causes.36 No one who did not knowwhat it meant to act could ever experience events occurring in real time andin invariant causal sequences. And no one's knowledge of the meaning of ac-tion and causality could ever be said to be derived from contingent observa-tional evidence, as the very fact of experiencing already presupposes actionand causally interpreted observations. Every action is and must be understoodas an interference with the observational world, made w ith the intent of divert-ing the "natural" course of events in order to produce (i.e., to cause to comeinto being) a different, preferred state of affairsof making things happen tha totherwise would not happen and thus presupposes the notions of events placedin objective time and of time-invariantly operating causes. An actor can errwith respect to his particular assumptions about which earlier interference pro-duced which later result, and thus his interference might not actually turn outto be successful. But successful or not, any action, changed or unchanged inlight of its success or failure, presupposes that there are constantly connectedevents in time, even if no pa rticular cause for any particular event can ever be


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Review Essays 195preknown to any actor at any time. In fact, attempting to disprove that obser-vational events are governed by time-invariantly operating causes would requireone to show that some given event cannot be observed or produced based onsome earlier interference. Yet trying to disprove this would again necessarilypresuppose that the occurrence or nonoccurrence of the phenomenon underscrutiny could, in fact, be effected by taking appropriate action, and that thephenomenon must thus presumably be embedded in a network of constant lyoperating causes. Hence, rationalism concludes that the validity of the princi-ple of causality cannot be falsified by taking any action, since any action wouldhave to presuppose it.37

McCloskey notices none of this. And so it is no surprise that the argum entsraised in support of his claim regarding the impossibility of prediction ineconom ics are off the m ark , too. Tho ug h in themselves correct argum ents, theysimply do not constitute the impossibility theorem that is needed.

What McCloskey offers as proof, wh ich he incidentally claims to be "m oreprecise" than some earlier, related Austrian thoughts (p. 90), is the followinginsight: "If economists could do [predict] better than business people, theeconomists would be rich. They are not" (p. 93). Hence, we should not trustpeople who claim to have information about future economic events. For ifthey really did have such knowledge, why would they no t strike it rich , insteadof telling us how to do it (p. 16)? Realistically, we should regard economicforecasters as providing information that, generally speaking, is economicallyworthless in that it tells us no more about future economic events than whatconcerned people on the average believe and expect anyway and have alreadyaccounted for in their present actions (p. 93f.).Good enough. However, a much more succinct presentation than this canalready be found in Mises.There are no rules according to which the duration of the boom or of thefollowing depression can be computed. And even if such rules were availablethey would be of no use to businessmen. What the individual businessmanneeds in order to avoid losses is knowledge abou t the date of the turning pointat a time when other businessmen still believe that the crash is farther awaythan is really the case. . . . Entrepreneurial judgement cannot be bought onthe market. The entrepreneurial idea that carries on and brings profit is preciselythat idea which did not occur to the majority. It is not correct foresight assuch that yields profits, but foresight better than that of the rest. 38Yet this, as M ises but n ot M cCloskey kno ws , does no t prove the impossibilityof causal predictions in economics.39 All it proves is th at differential profits canonly emerge from differences in knowledge. The question is, however, if suchknowledge regardless of whe ther it is unequally d istributed and th us allowsfor the possibility of differential profits and losses, or equally distributed andthus tends to only account for a uniform rate of return for the forecastersis


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196 The Review of Austrian Economics, Volume 3such that it could be expressed in a prediction formula tha t could legitimatelymake use of the assumption of time-invariant causes and hence could be con-ceived of as a systematically testable and improvable formula.Surely McCloskey does not want to deny the possibility of prediction assuch in economics. We constantly make such predictions. Moreover, whileeconomic forecasters may not generally be rich and thus evidently may notknow m ore than the rest of us, some of them are, and certainly there are somebusinessmen who are rich. Evidently, people not only can forecast, but canforecast correctly and successfully. The impossibility theorem cannot be meantto prove that no (successful) prediction whatsoever can be made in the fieldof economics, but rather only that a certain type of prediction is impossiblehere that is possible elsewhere. Yet the argument does not prove this. For wehave no difficulties applying the idea of differential predictive knowledge anddifferential returns from forecasting to the field of the natural sciences, andstill conceiving of them as gradually progressing and producing ever-improvedprediction formulae. One natural-science forecaster may know more thananother and even stay ahead of the competition permanently, but this doesnot imply that his relative advantage is not one that could not possibly be ex-pressed, at all times, in terms of a formula that uses predictive constants andis capable of systematic improvement by means of successive testings. Why,then, should this be any different in the realm of economic forecasting? Whycan the rich businessman not have gained his position in the same way as therelatively more successful natural-science forecaster?This is what must be answered by the impossibility theorem. On this,however, McCloskey is silent. Nor can an answer be formulated by a hermeneu-tician. For an impossibility theorem would be precisely the kind of conversation-stopping argument that McCloskey claims to be nonexistent. To prove thateconomic forecasting is categorically different from natural-science forecastingwould only mean confirming the claims of rationalism. Such proof would nothave relativistic consequences regarding economic predictions as it may at firstseemsuch as to say that no systematic mistake whatsoever could be madeby an econom ic forecaster and tha t any econom ic forecast's failure or successwould thus be due entirely to bad or good luck. Instead, even if it were to showthat there were indeed some ineradicable element of luck in economic fore-casting, making progress as it exists in technological forecasting impossiblein the field of econom ics, at the same time such proof would establish the ex-istence of a priori true propositions on the subject m atter of economics, whichwould then systematically constrain the range of possible predictions aboutfuture economic events and open up the possibility of predictions that weresystematically flawed in that they would be at variance with such fundamen-tal, a priori valid knowledge.And indeed, argues rationalism, economic predictions that would make useof the assumption of time-invariantly operating causes must thus be considered


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Review Essays 197systematically flawed.40 While every action presupposes causality, no actor canconceive of his actions as ever being predictable on the basis of constantlyoperating causes. Causality can only be assumed to exist outside of the fieldof human action, and economic predictions as predictions concerning futureactions are impossible. This follows from the very modernism that McCloskeycriticizes, incidentally proving this position a self-refuting one once again. Em-piricism claims that actions, just as any other phenomenon, can and must beexplained by means of causal hypotheses that can be confirmed or falsifiedby experience. Now, if this were the case, empiricism would be forced toassume contrary to its own doctrine that there is no a priori knowledge abo utrealitythat time-invariantly operating causes with respect to actions exist. Onewould not know a priori which particular event might be the cause of a par-ticular action. Experience would have to reveal this. But in order to proceedin the way that empiricism wants us to proceed (i.e., to relate different ex-periences rega rding sequ ences of events as either con firming or falsifying eachother and, if falsifying, then responding with a reformulation of the causalhypothesis), a constancy over time in the operation of causes as such must bepresupposed. (Without such an assumption, the different experiences wouldsimply be unrelated, incommensurable observations.41) However, if this weret rue , and action s could inde ed be conceived of as governed by time-invariantlyoperating causes, what about explaining the explainers (i .e. the persons whocarry on the very process of creating hypotheses), of verification and falsifica-tion? Evidently, in order to assimilate confirming or falsifying experiencesto replace old hypotheses with new on eso ne mu st presumably be able to learn.However, if one is able to learn from experience, then one cannot know at anygiven time what one will know at a later time and how one will act based onthis later know ledge. Rather, one can only reconstruct th e causes of one's ac-tions after the event, as one can o nly explain one's know ledge after one alreadypossesses it. Thus, the empiricist methodology applied to the field of knowledgeand action, which contains knowledge as its necessary ingredient, is simplycontradictorya logical absurdity.42

Moreover, it is plainly contradictory to argue that one could ever predictone's knowledge and actions based on antecedent, constantly operating causes.For to argue so is not only absurd because it implies that one can know nowwhat one will know in the future; it is also self-defeating, because to do sowo uld actually be saying tha t there was something th at was not yet un der stoo d,but rather had to be learned about and examined as regards the acceptabilityof its validity claims, with as yet unknown results with respect to the outcomeof this (either for our future kowledge, or for our and others' knowledge aboutthe knowledge of others).T h u s , as McCloskey states yet does not prove, causal empirical explana-tions regarding know ledge an d actions are indeed impossible. W hoever pretends,as emp iricist econo mists invariably do, to be able to predict future know ledge


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198 The Review of Austrian Economics, Volume 3and actions based on constantly operating antecedent variables is simply speak-ing nonsense. There are no such constants in the field of human action, asMises insisted over and over again. Economic forecasting is not and never canbe a science, but will always be a systematically unteachable art. Yet, and Ishall return to this shortly, this does not mean that such forecasts would notbe constrained by anything. While no particular action can ever be predictedscientifically, each and every prediction of future actions an d the conseq uence sof actions is constrained by our a priori knowledge of actions as such.

Rationalism and the Foundations of EconomicsIn the second round of its criticism of empiricism-positivism, hermeneutics failsjust as it failed in the first. And again it is philosophical rationalismequallycritical of herm eneutics an d em piricism that is vindicated. Yet McCloskey makesone more point w orth mentioning , as he reminds us that mo dern hermeneuticsis an outgrowth of the discipline of interpreting the Bible.43 In line with thistraditionalist orientation, the case for hermeneutics ultimately boils down to anuncritical appeal to and acceptance of authority. We are asked by McCloskeyto embrace the new old creed because some authorities tell us to do so. In hisview, empiricism is no t w rong as suchas a m atter of fact, there was a time w henit wa s quite all right to follow empiricist advice. But that w as wh en philosop hicalauthorities were all sold on empiricism. In the meantime, empiricism is out offavor with the philosopher kings and only the practitioners of science still clingto it not realizing tha t fashion ha s changed . It is high time, the n, that w e shiftand follow the new trend setters. Writes M cCloskey: "T he argu me nt that H utc h-ison, Sam uelson, Friedma n, M achlu p, and their followers gave for a dop ting theirmetaphysics was an argument from authority, at the time correct, namely thatthis was what philosophers were saying. The trust in philosophy was a tacticalerror, for philosophy itself was changing as they spoke" (p. 12). And the samegoes for the ma them atization of economics. On ce it was goo d; now it is becom -ing bad. T he w inds of fashion chan ge an d we had better pay attention to this."Eco nom ists before the reception of mathem atics fell headlong . . . into confu-sions that a little mathematics would have cleared up." Imagine, they

could not keep clear, for instance, the difference between a movement of anentire curve and a movement along a curve. . . . But now, so long after thevictory, one might ask whether the faith which supported it still serves a socialfunction. One might ask whether the strident talk of Science in economics,which served well in bringing clarity and rigor to the field, has outlived itsusefulness." (pp. 3-5)Surely, this lives up again to truly relativistic form. Yet as we have seen,there is no reason in the world to accept such relativism. Relativism is a self-


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Review Essays 199contradictory position. And just as it is impossible to defend the hermeneu-tical relativism as the methodology of today, so is it impossible to defend theempiricism-positivism of yesterday. Empiricism-positivism, too, is a self-defeating doctrine, and not only because of i ts observational monism, whichcannot be stated without implicitly admitting its falsehood and accepting adualism of observable and meaningful phenomena to be understood on ac-coun t of our knowledge of action and coo peration. Em piricism's fundam entaldistinction between analytical, empirical, and norm ative propositions is equallyindefensible. What then is the status of the very proposition introducing thisdistinction? Assuming that empiricist reasoning is correct, it must be eitheran analytical or an empirical propo sit ion, o r i t mu st be an expression of em o-tions. If it is understood as analytical, then according to its own doctrine itis merely verbal quibble, saying nothing about anything real but rather onlydefining one sound or sign by another, and hence one would simply have toreply "so wha t?" The sam e response wou ld be ap propria te, if, instead, the basicempiricist proposition were taken to be an empirical one. For if this were so,it wou ld no t only have to be admitted tha t the propositions might well be wron g.More decisively, as an empirical proposition, the most it could state would bea historical fact and it wou ld th us be entirely irrelevant in determ ining w heth eror not it would be impossible to ever produce either a priori true proposit ionsthat were no t analytical or norm ative proposit ions th at were not em otive. An dfinally, if the empiricist line of reasonin g were assum ed to be an emotive argu-m ent, the n according to i ts own p rono unce m ents, i t is cognitively meaninglessand one would not have to pay any more attention to i t than to a dog's bark.Thus, one must again conclude that empiricism-positivism is an utter failure.If it were correct, its basic premise could not even be stated as a cognitivelymeaningful proposition; and if it could be so stated and empiricism were in-deed m aking the proposition that we all along thou ght it did, then the analytical-empirical-normative distinction would be proven false by the very propositionintroducing it .44

H ow the n, co uld it ever have been right to follow a false doctrine? To con-ceive of economics, or more precisely of actions, as empiricism does, and ac-cordingly to treat economic phenomena as observable variables, measurableand tractable by mathematical reasoning, must have always been wrong. Andthe surge of positivism in economics could never have added to clarity, butfrom the very beginning must have helped instead to introduce ever morefalsehoods into the field.There is empirical knowledge that is valid a priori. And such knowledgeinforms us that it has never been correct to represent relationships betweeneconomic phenomena in terms of equations containing the assumption of em-pirical causal constants, because to conceive of actions as being caused by andpredictable o n the b asis of anteceden t variables is contradictory. M oreover, thevery same a priori knowledge reveals that it is at all times incorrect to conceive


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200 The Review of Austrian Economics, Volume 3of economic variables as observable magnitudes. Rather, all categories of ac-tion must be understood as existing only as subjective interpretations of observ-able events. The fact that knowledge and talk are those of an actor and con-strained by our nature as actors cannot be observed, but rather must beunderstood. Nor can causality or objective time ever be simply observed, butour knowledge of it is based on our prior understanding of what it is to act.And so it is regarding the rest of the economic categories, as Mises above allhas shown. There are no values to be observed, but things can be understoodas valued only because of our prior knowledge of action. As a matter of fact,that there is such a thing as actions also cannot be observed, but must beunderstood. It cannot be observed that with every action, an actor pursues agoal and that whatever his goal, the fact that it is pursued by an actor revealsthat he places a relatively higher value on it than on any other goal of actionthat he at the very start of his action could think of. Further, it can neitherbe observed that in order to achieve his most highly valued goal an actor mustinterfere (or decide not to interfere) at an earlier poin t in time to produce somelater result, nor that such interferences invariably imply the employment of somescarce means (at least those of the actors' body, its standing room, and thetime absorbed by the interference). It is unobservable (1) that these means mustalso have value for an actora value derived from that of the goalbecausethe actor m ust think their employment necessary in order to effectively achievethe goal and (2) that actions can only be performed sequentially, always in-volving the making of a choice (i.e., taking up that course of action that atsome given point in time promises the most highly valued result to the actorand excluding at the same time the pursual of other, less highly valued goals).It cannot be observed that as a consequence of having to choose and givepreference to one goal over anotherof not being able to realize all goalssimultaneouslyeach and every action implies the incurrence of costs (i.e., for-saking the value attached to the most highly valued alternative goal that can-not be realized or whose realization must be deferred because the meansnecessary to effect it are bound up in the production of another even morehighly valued end). And lastly, it is unobservable that at its starting point, everygoal of action must be considered (1) worth more to the actor than its costsand (2) capable of yielding a profit (i.e., a result whose value is ranked higherthan that of the forgone opportunities, and yet that every action is also in-variably open to the possibility of a loss if an actor finds, in retrospect, thatthe actually achieved resultcontrary to previous expectationsin fact has alower value than the relinquished alternative would have had.

All of these categories (values, ends, means, choice, preference, cost, profitand loss, time, and causality) are implied in the concept of action. That oneis able to interpret experiences in such categories requires that one already knowswhat it means to act. No one who is not an actor could ever understand them ,as they are not "given," ready to be experienced, but experience is cast in these


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Review Essays 201terms as it is constructed by an actor. And then to treat such concepts, asempiricism-positivism would, as things extending in space and allowing quan-tifiable me asure me nts is missing the goa l entirely. W hatever on e migh t ex plainin following empiricist advice, it has nothing whatsoever to do with explain-ing actions and experiences cast in the categories of action. These categoriesare ineradicably subjective ones. And yet they represent empirical knowledgein that they are conceptual organizations of real events and occurrences. Theyare not merely verbal definitions; they are real definitions of real things andreal observations.45 Furthermore, they are not only empirical knowledge; con-trary to all relativistic aspirations, they incorporate a priori valid empiricalknow ledge. For it wo uld clearly be impossible to disprove their em pirical valid-ity, as the attempt to do so would itself be an action aimed at a goal, requiringmeans, excluding other courses of action, incurring costs, and subjecting theactor to the possibility of achieving or not achieving the desired goal and somaking a profit or suffering a loss. The very possession of such knowledgecan never be disp uted , an d the validity of these concepts can never be falsifiedby any contingent experience, since disputing or falsifying anything alreadypresupposes its very existence. As a matter of fact, a situation in which thesecategories of action would cease to have a real existence could itself never beobserved, as making an observation is in itself an action.

Economic reasoning has its foundations in this a priori knowledge of themeaning of action.46 It concerns phenomena that, though existing objectively,can not be subjected to physical measu remen ts, but must be understood as con-ceptually distinct events. And it concerns ph eno m ena that ca nno t be predictedbased on co nstantly operating causes; and o ur predictive knowledge a bo ut suchphenomena, accordingly, cannot be said to be constrained by contingent em-pirical laws (i.e., laws that one would have to discover through a posterioriexperiences). Instead, it concerns objects and events that are constrained bythe existence of a priori valid, logical, or praxeological laws and constraints(i.e., laws whose validity is completely indepen dent of any kind of a posterioriexperience). Eco nom ic reasoning consists of (1) an un derstan ding of thecategories of action and the meaning of a change in values, preferences,knowledge, means, cost, profit, or loss, and so on, (2) a description of a situa-tion in which these categories assume specific m eanin g and definite individua lsare described as actors, with definite things specified as their goals, means,profits, and co sts, and (3) a logical ded uction of the conseque nces which resultfrom the introduction of some specified action in this situation, or of the con-sequences which result for an actor if this situation is changed in a specifiedway. Provided there is no flaw in the process of dedu ction , the conclusions tha tsuch reaso ning yields are valid a priori be cause their validity wo uld ultimatelygo back to the indisputable axiom of action. If the situation and the changesintroduced into it are fiction or assumptions, then the conclusions are true apriori only of a possible world. If, on the other and, the situation and situational


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202 The Review of Austrian Economics, Volume 3chang es can be identified as real, perceived, and co nceptua lized as such by realactors, then the conclusions are a priori true propositions about the world asit really is. And such realistic conclusions, which are the economists's mainconcern, act as logical constraints on our actual predictions of future economicevents. They do not guarantee correct predictionseven if the em pirical assu mp -tions are indeed correct and the deductions are flawlessbecause in reality,there can be all sorts of situational chang es happ enin g concu rrently or follow-ing the explicitly introduced change in the action-world data. A nd thou gh theyalso affect th e shap e of things to com e (and cancel, increase, decrease, accelerate,or decelerate effects stemming from other sources), such concurrent changescan in principle never be predicted or experimentally held constant, becauseto conceive of subjective knowledge (whose every change has an impact onaction) as predictable on the basis of antecedent variables and as capable ofbeing held constant is an outright absurdity. The experimenter who so wantedto hold it constan t wo uld in fact have to presuppose that his know ledge, specif-ically his knowledge regarding the experiment's outcome, could not be assumedto be cons tant over time . However, wh ile they can no t render any specific futureeconomic event certain or even predictable on the basis of a formula, such apriori conclusions nonetheless systematically restrict the range of possibly cor-rect predictions. Predictions that are not in line with such knowledge wouldbe systematically flawed and would lead to a systematically increased numberof forecasting errorsnot in the sense that anyone who based his predictionson correct praxeological reason ing w ould necessarily have to be a better predic-tor of future economic events than someone who arrived at his predictionsthrough logically flawed deliberations and chains of reasoning, but in the sensethat in the long run, certeris paribus, the first group of forecasters would averagea better record than the second.

Regarding any specific forecast, it is very possible to falter despite one'scorrect identification of a situation al chan ge as described in terms of the a prior icategories of action and one's correct analysis of the praxeological consequencesof such chang e, because one m ight err regarding one's identification of other,accompanying changes. It is equally possible to arrive at a correct forecast inspite of the fact that one's inferences drawn from one's correct description ofa situational change were praxeologically wrong, because other concurrentevents might be of such a kind as to counteract such a wrong assessment ofconsequences. However, if it is assumed that, on the average, forecasters withor without a solid grasp of praxeological laws and constants are both equallywell equipp ed to anticipate such othe r conc urrent ch anges in the action-w orldand to accoun t for them in their predictions, then the group of forecasters tha tmak es its predictions in recognition of and accordance with such laws will bemore successful than that which does not.

As are all econ om ic theorem s, the law of dem and (which causes empiricistsas well as hermeneuticians considerable uneasiness because of its apodictically


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Review Essays 203assumed central position in economics) is an a priori true co nstraint on actualpredictions regarding the consequences of certain actions. Empiricism tells usto conceive of it as an in-principle falsifiable hypothesis about the consequencesof price changes. Yet, if we accept this and empirically test the law, we fre-quently find that a price increase, for instance, goes hand in hand with an in-crease in the quantity demanded, or that a price decrease is accompanied bya reduced dem and . T he law holds sometimes and for some good s, but at oth ertimes, for the same or other goods, i t does not. How then, concludes em-piricism, can economists assign to this law the axiomatic position that i t oc-cupies in economic theory and build a complex network of thought based onit? To do so must seem to an empiricist to be nothing but bad metaphysicsthat needs to be expelled from the discipline as soon as possible in order tobring economics back onto the right track. 47

Hermeneutics is no more successful in justifying the law of demand.McCloskey realizes that the empiricist case for the law is weak at best. Yet hebelieves it acceptable to stick with itas, despite their professed empiricism,most economists indeed dobecause the law of demand is allegedly persuasivein light of other hermeneutical evidence (pp. 58-60). Such supportive evidencesupposedly comes from "introspection," from "thought experiments," and fromillustrative case sto ries; there is the persuasive fact th at "business p eo ple " believein the law, and "many wise economists"; the "symmetry of the law" makesit esthetically appealing; "mere definition" adds power; and "above all, thereis analogy. That the Law of Demand is true for ice cream and movies, as noone would want to deny, makes it more persuasive also for gasoline" (p. 60).N on e of this, however, could make the law of dem and any better founded andgive it the authority it indeed seems to command. To be sure, introspectionis the source of our knowledge of the law of demand. This particular law isno more founded in observations than are the laws of logic and mathematics.Yet introspections as such, or thou gh t experim ents, can no mo re establish thelaw of demand than can observational evidence. Introspective evidence, too,is nothing other than contingent experience. Here and now somebody arrivesat this thought, and there and then someone else reaches the same or a dif-ferent o ne. As M cClosk ey himself states, "if prope rly socialized in econo mics,"introspection and tho ug ht expe rimen tation m ake the law highly persuasive (p.59). But, mutatis m utan dis, then , if one is no t so socialized, introspection migh trender the law far less appealing. Then, however, introspection as such canhardly be said to lend any systematic support to it. In fact, to appeal to theeconomists' introspective evidence would amount to a begging of the question,as it would have to be explained why on e shou ld accept this econom ic socializa-tion or bra inw ashing in the first place. In the sam e way, case stories or convic-tions of certain businessmen or wise economists are not proof of anything.Aesthetic criteria a nd mere definitions, too , have no epistemological value. Andconclusions per analogiam are only conclusive if the analogy itself can be said


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204 The Review of Austrian Economics, Volume 3to be correctbesides the fact that it would certainly not be impossible forsomeone to say that the law of demand sounds unpersuasive even for ice creamand movies.48 Hence, hermeneutics offers nothing substantive to vindicate ourbelief in the law of demand.

An d yet the law of dem and is objectively true despite the fact tha t it is notbased o n conting ent externa l or internal experiences. Rather, its found ation liesin our introspective understanding of action as the practical presupposition ofou r externa l as well as our internal exp eriences and in the recognition of the factthat this understanding must be considered epistemologically prior to any con-tingent act of und erstand ing in that it could no t possibly be falsified by it. T hefact that in order to exchange successive units of a good A for successive unitsof a good B, the exchange ratio of A to B m ust fall follows from the law of m argina lutility: as the supply of A decreases and the marginal utility of a unit of A in-creases, the supply of B increases and B's marginal utility decreases, and hencesuccessive units of A will become exchangeable for successive units of B only ifcoun teracting these divergent changes in the valuation of As and Bs tha t followeach ex chang e, B becom es successively ch eaper in terms of A. An d as the foun-dation of the law of demand, this law of marginal utility then follows directlyfrom the und eniably true pro pos ition th at every actor always prefers wh at satisfieshim more over what satisfies him less.49 For then any increase in the supply ofa homogeneous good (i.e., a good w hose u nits are considered to b e interchangeableand of equal serviceability) by one additional unit can only be employed as am eans for th e attainm ent of a goal tha t is considered less valuable (or the removalof an u neasiness tha t is deem ed less urgent) tha n the least valuable goal satisfiedby means of a unit of such a good if the supply were one unit less.50 And, asrequired of any a priori law an d again indep enden t of any contingent e xperiences,this law also precisely delineates its range of ap plication and explains w hat possibleoccurrences ca nn ot be considered exce ptions or falsifying events. For one th ing ,the validity of the law of dim inishing m argin al utility is no t at all affected by thefact that the utility of the marginal unit of some good can increase as well asdecrease over time. If, for instance, a hitherto unknown use for a unit of somego od is found tha t is considered mo re valuable tha n the least urgen t present useof a unit of this good, the utility derived from the marginal employment wouldbe higher now than previously. \et despite such an increase in marginal utility,there is no question of such a thing as a law of increasing marginal utility. Fornot only would the actor who se supply of the good in question w as unch angedan d w ho realized such new em ploym ent have to give up so me previously satisfieddesire in order to satisfy another one; he would give up the less urgent one.Moreover, if w ith this new state of affairs regarding an actor's knowledg e ab ou tpossible employments for units of some given good, its supply increases by anadditional unit, its marginal utility would decrease as it would be employed tosatisfy precisely tha t desire th at previously h ad to be excluded from satisfactionbecause of its relatively lesser urgency.


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Review Essays 205Nor is i t an exception to the law of diminishing marginal utili ty that anincrease in the supply of a good from nton+1 units can lead to an increasein the utility attached to one unit of this good if such a larger supply, con-sidered and evaluated as a whole, can be employed for the satisfaction of aw ant deem ed m ore valuable than th e value attached to all the satisfaction tha tcould be attained if the units of supply were each employed separately for thevarious goals that could be achieved by means of one individual unit of suchgood .5 1 However, in such a case, the increase in supply would not be one ofsupply-units regarded as equally serviceable, because the units simply wouldno longer be evaluated separately. Rather, in increasing the supply from n ton + 1, a different, larger-sized-unit g oo d w ould be created th at w ould beevaluated as such , and the law of diminishing m arginal utility would then applyto this good in the same way as it applied to the smaller-sized good in thatthe first unit of this good of size n + 1 would again be employed for the mosturgent use to which a good of this size could be pu t, the second un it of supplyof such sized good would be employed for the second most important goalto be satisfied by such sized good, and so on.The law of demand then, as grounded in this a priori valid theorem, hasnever made the unqualified prediction that less of a good will be bought ifits price rises. Rather, it states that this will be the case only ceteris paribusi.e., if no increase in the demand for the good in question occurs over timean d if th e increa se in its sup ply do es no t effect a different, large r-sized -un itgood and, mutat is mutandis , the demand for money does not decrease nordoes its smaller supply effect separately evaluated smaller-sized money units. 52Since it is impossible to have a formula that allows one to predict whether orno t such chang es occu r concurren tly with th e given rise in price (such changesbeing depen dent o n people's future states of knowledge an d future know ledgebeing in principle unpredictable based on constantly operating causes), sucha priori knowledge then has a rather limited usefulness for one's business ofpredicting the economic future. Nevertheless it acts as a logical constraint onpredictions in that of all forecasters who equally correctly guess that no suchcon curren t chan ge will take place, only he w ho recognizes the law of d em an dwill indeed m ake a correct prediction, w hile he wh ose convictions are at variancewith the law will blunder. Such is the logic of economic predictions and thefunction of praxeological reasoning.Empiricism recommends the law of demand because it supposedly looksgoodyet we can neither see it, nor would it survive empirical testing.Herm eneutics, on the other han d, recomm ends it because it supposedly soundsgoodyet to some it sounds bad. And without some objective, extralinguisticcriterion of distinguishing between good or bad, i t is impossible to say morein support of the law of demand than somebody said so.Austrians, as should be clear by now, have no reason to take either theold empiricist fashion or the new hermeneutical one very seriously. Instead,


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206 The R eview of Austrian Economics, Volume 3they should take more seriously than ever the position of extreme rationalismand of praxeology as espoused above all by the "doctrinaire" Mises, as un-fashionable as such a stand might now be.

Notes1. Princeton, N.J.: Princeton University Press, 1979.2. This is also the thesis of a book by Paul Feyerabend, Wissenschaft als Kunst(Frankfurt/M.: Suhrkamp, 1984).3. See the interview with McCloskey in the Institute for Humane Studies Newslet-ter Institute Scholar, vol. 6, no. 1 (1986): 7.4. On this "Apriori of Argumentation," see K.O. Apel, Transformation der

Philosophie, vol. II (Frankfurt/M.: Suhrkamp, 1973).5. In connection with the hermeneutical movement, the phrase intellectual per-missiveness was coined by Henry Veatch in his essay "Deconstruction in Philosophy:Has Rorty M ade it the Denouement of Contemporary Analytical Philosophy?" Reviewof Metaphysics, 39, December 1985.6. McCloskey asks: "[Do we not] need something . . . besides the mere socialfact that an argument proved persuasive?" No, he counters, "talk against talk is self-refuting. The person making it [i.e., raising the preceding question] appeals to a social,nonepistemological standard of persuasiveness by the very act of trying to persuadesomeone that mere persuasion is not enough" (pp. 38-39).Ironically, however, this argument does not prove his point. On the contrary,the argument can be said to be persuasive only because a self-contradictory positionis considered to be false, and not regarded as false because it has been agreed upon.Otherwise, if I did not agree, would not the argument have to be considered false?7. On the inseparable connection between language and action, see esp. Lud-wig Wittgenstein, Philosophische Untersuchungen, in Schriften, vol. I (Frankfurt/M .:Suhrkamp, 1963).8. On this , see also H . Veatch (note 5), esp. p. 319f.9. It is by no means an accident, then, that advocates of every conceivable politicalideology can be found among the hermeneuticians. The creed goes with libertarianism

and anarchism (McCloskey and Feyerabend), with socialism (Ricoeur and Foucault),and with fascism (Heidegger) as well as with, in most cases, middle-of-the-roadism.Gadamerthe special hero of Don Lavoie and the George Mason University hermeneuti-cians and one of the murkiest "thinkers" of them all, who manages to fill hundredsof page

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