Praxeology: Methodological Individualism for Economic Analysis

If one were to take a look at the state of modern economic analysis, it would be hard to distinguish the human behavior models of economists from that of simple coin tosses, or marginally better, input-output devices. Econometric and Macroeconomic models, in particular, classify individuals as mere homogenous data points, with nothing particular or unique about each data point that would merit a reframing of the conceptual modeling techniques.

In stark contrast to this view, however, stand the Austrian economists. Austrians are commonly known for their use of praxeology in order to understand human action and the role it plays in the process of economic decision making. Austrians see humans as heterogeneous collections of distinct individuals, with each data point being a unique and unrepeatable phenomenon. The reason for this lies in the fact that humans act purposefully. Rather than being mere responsive beings with little to no motivations driving them, humans are goal driven, and in order to achieve these goals, humans will act conscientiously.

While it may not seem so, the implications of this framework are numerous, to say the least. For starters, the entire field of Macroeconomics, with the focus on massive aggregates and spending based analysis is completely off the mark when praxeology is considered. Econometric analysis is also rendered useless for the most part, due to the homologous categorization of humans rather than the more accurate heterogenous understanding. Statistics offers little insight into heterogeneous data collections because it is effectively comparing apples with oranges. Therefore, while statistics can play a great role in understanding the probabilities of coin tosses, it falls short in helping us understand human action.

The question then arises, how can we properly understand human action and the way it relates to economics? The Austrian response is praxeology. Praxeology’s first axiom states that humans act purposefully to achieve certain goals. In order to act to achieve said goals, humans must engage in certain means. By engaging in these means, humans demonstrate that they value the ends they seek to obtain. From the basic principle of purposeful human action, we have already confirmed through philosophy alone that humans ascribe value to goals and that they pursue said goals by employing different means (cost-benefit analysis).

Furthermore, only in a world of scarcity will humans act. In superabundance, the means are readily and instantaneously available, meaning the goals have already been achieved. Without any goal, humans have no need to act. In reality, no matter how good division of labor becomes, there will always be at least one scarce resource for humans, time. For each unit of time allocated to one goal, there are an almost infinite amount of other goals that lose out on that unit of time. This means that action will always be necessary for humans, and praxeology will always be valid for understanding humans.

Many economists are uncomfortable with the notion that traditional proofs are not needed for the philosophically self-evident axioms of praxeology. However, it is important to understand what it means to prove something, and how that relates to the social sciences. To prove something is to make a truth that was not self-evident evident; to bring to light a new understanding of what was previously not understood in fullness. However, one cannot, and furthermore, need not, prove the fact that humans act purposefully to achieve goals since this statement is already self-evident. Any attempts to refute it would by necessity be fulfilling the observations made by this statement.

It would be far beyond the scope of this post to highlight all of the different implications that praxeology has on our understanding of economics, and subsequently, the world. There is plenty of relevant literature on the topic, however, such as Mises’ magnum opus Human Action, or Murray Rothbard’s works on praxeology in The Foundations of Modern Austrian Economics. Upon understanding praxeology, the distinction between the social sciences and hard sciences becomes immeasurably more tangible, and a proper way forward for handling the social sciences becomes harder to ignore.

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