Mises, Ludwig von. Theory and History: An Interpretation of Social and Economic Evolution

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202 EPISTEMOLOGICAL PROBLEMS OF HISTORY

ment moves in a circle. The periodization of economic

history presupposes knowledge of the economic laws

peculiar to each period, while these laws can only be

discovered by examining each period without any ref-

erence to the events that happened in other periods.

The periodalists' image of the course of history is

this:

There are various periods or stages of economic

evolution succeeding one another according to a defi-

nite order; throughout each of these periods the eco-

nomic laws remain unchanged. Nothing is said about

the transition from one period to the next one. If we

assume that it is not brought about at one blow, we

must assume that between two periods there is an in-

terval of transition, a transition period as it were. What

happens in this interval? What kind of economic laws

are operative in it? Is it a time of lawlessness or has it

its own laws? Besides, if one assumes that the laws of

economic becoming are historical facts and therefore

changing in the flux of historical events, it is manifestly

contradictory to assert that there are periods in which

there is no change, i.e., periods in which there is no his-

tory, and that between two such periods of rest there

is a period of transition.

The same fallacy is also implied in the concept of a

present age as resorted to by contemporary pseudo

economics. Studies dealing with the economic history

of the recent past are mislabeled as dealing with pres-

ent economic conditions. If we refer to a definite length

of time as the present, we mean that in regard to a

special issue conditions remain unchanged throughout

this period. The concept of the present is therefore dif-

HISTORICISM 203

ferent for various fields of action.

Besides, it is never

certain how long this absence of change will last and

consequently how much of the future has to be in-

cluded. What a man can say about the future is always

merely speculative anticipation. Dealing with some

conditions of the recent past under the heading "present

conditions" is a misnomer. The most that can be said

is:

Such were the conditions yesterday; we expect they

will remain unchanged for some time to come.

Economics deals with a regularity in the concatena-

tion and sequence of phenomena that is valid in the

whole field of human action. It can therefore contribute

to the elucidation of future events; it can predict within

the limits drawn to praxeological prediction.

If one

rejects the idea of an economic law necessarily valid for

all ages, one no longer has the possibility of discovering

any regularity that remains unchanged in the flux of

events. Then one can say no more than: If conditions

remain unchanged for some time, they will remain un-

changed. But whether or not they really remain un-

changed can only be known afterward.

The honest historicist would have to say: Nothing

can be asserted about the future. Nobody can know

how a definite policy will work in the future. All we

believe to know is how similar policies worked in the

past. Provided all relevant conditions remain un-

changed, we may expect that the future effects will not

widely differ from those of the past. But we do not

know whether or not these relevant conditions will re-

Mises, Human Action, p. 101.

Ibid., pp. 117-18. See below, p. 309.

204 EPISTEMOLOGICAL PROBLEMS OF HISTORY

main unchanged. Hence we cannot make any prognosti-

cation about the—necessarily future—effects of any

measure considered. We are dealing with the history of

the past, not with the history of the future.

A dogma supported by many historicists asserts that

tendencies of social and economic evolution as mani-

fested in the past, and especially in the recent past, will

prevail in the future too. Study of the past, they con-

clude, discloses therefore the shape of things to come.

Leaving aside all the metaphysical ideas with which

this trend-philosophy has been loaded, we have only to

realize that trends can change, have changed in the

past, and will change in the future too.

The historicist

does not know when the next change will occur. What

he can announce about trends refers only to the past,

never to the future.

Some of the German historicists liked to compare

their periodization of economic history with the periodi-

zation of the history of art. As the history of art deals

with the succession of various styles of artistic activities,

economic history deals with the succession of various

styles of economic activities (Wirtschaftsstile). This

metaphor is neither better nor worse than other meta-

phors.

But what the historicists who resorted to it failed

to say was that the historians of art talk only about the

styles of the past and do not develop doctrines about

the art styles of the future. However, the historicists are

writing and lecturing about the economic conditions of

the past only in order to derive from them conclusions

5. Mises, Planning

for

Freedom (South Holland,

111.,

1952),

pp.

HISTORICISM 205

about economic policies that necessarily are directed

toward the economic conditions of the future.

The Rejection of Economics

As historicism sees it, the essential error of economics

consists in its assumption that man is invariably egoistic

and aims exclusively at material well-being.

According to Gunnar Myrdal economics asserts that

human actions are "solely motivated by economic in-

terests" and considers as economic interests "the desire

for higher incomes and lower prices and, in addition,

perhaps stability of earnings and employment, reason-

able time for leisure and an environment conducive to

its satisfactory use, good working conditions, etc." This,

he says, is an error. One does not completely account

for human motivations by simply registering economic

interests. What really determines human conduct is not

interests alone but attitudes. "Attitude means the emo-

tive disposition of an individual or a group to respond

in certain ways to actual or potential situations." There

are "fortunately many people whose attitudes are not

identical with their interests."

Now, the assertion that economics ever maintained

that men are solely motivated by the striving after

higher incomes and lower prices is false. Because of

their failure to disentangle the apparent paradox of the

use-value concept, the Classical economists and their

Gunnar Myrdal, The Political Element in the Development of

Economic Theory, trans, by P. Streeten (Cambridge, Harvard Uni-

versity Press, 1954), pp. 199-200.

206 EPISTEMOLOGICAL PROBLEMS OF HISTORY

epigones were prevented from providing a satisfactory

interpretation of the conduct of the consumers. They

virtually dealt only with the conduct of the business-

men who serve the consumers and for whom the valua-

tions of their customers are the ultimate standard.

When they referred to the principle of buying on the

cheapest market and selling on the dearest market, they

were trying to interpret the actions of the businessman

in his capacity as a purveyor of the buyers, not in his

capacity as a consumer and spender of his own income.

They did not enter into an anJiysis of the motives

prompting the individual consumers to buy and to con-

sume. So they did not investigate whether individuals

try only to fill their bellies or whether they also spend

for other purposes, e.g., to perform what they consider

to be their ethical and religious duties. When they dis-

tinguished between purely economic motives and other

motives, the classical economists referred only to the

acquisitive side of human behavior. They never thought

of denying that men are also driven by other motives.

The approach of Classical economics appears highly

unsatisfactory from the point of view of modern subjec-

tive economics. Modern economics rejects as entirely

fallacious also the argument advanced for the epistemo-

logical justification of the Classical methods by their

last followers, especially John Stuart Mill. According to

this lame apology, pure economics deals only with the

"economic" aspect of the operations of mankind, only

with the phenomena of the production of wealth "as far

as those phenomena are not modified by the pursuit

of any other object." But, says Mill, in order to deal ade-

HISTORICISM 207

quately with reality "the didactic writer on the subject

will naturally combine in his exposition, with the truth

of pure science, as many of the practical modifications

as will, in his estimation, be most conducive to the use-

fulness of his work."

This certainly explodes Mr. Myr-

dal's assertion, so far as Classical economics is con-

cerned.

Modern economics traces all human actions back to

the value judgments of individuals. It never was so

foolish, as Myrdal charges, as to believe that all that

people are after is higher incomes and lower prices.

Against this unjustified criticism which has been re-

peated a hundred times, Bohm-Bawerk already in his

first contribution to the theory of value, and then later

again and again, explicitly emphasized that the term

"well-being" (Wohlfahrtszwecke) as he uses it in the

exposition of the theory of value does not refer only

to concerns commonly called egoistic but comprehends

everything that appears to an individual as desirable

and worthy of being aimed at (erstrebenswert)

In acting man prefers some things to other things,

and chooses between various modes of conduct. The

result of the mental process that makes a man prefer

one thing to another thing is called a judgment of value.

In speaking of value and valuations economics refers to

such judgments of value, whatever their content may

John Stuart Mill, Essays on Some Unsettled Questions of Politi-

cal Economy (3d ed. London, 1877), pp.

140-1.

Bohm-Bawerk, "Grundziige der Theorie des wirtschaftlichen

Giiterwerts," Jahrbiicher fur Nationalokonomie und Statistic, N.F.,

13 (1886), 479, n. 1; Kapital und Kapitalzins (3d ed. Innsbruck,

1909),

2, 316-17, n. 1.

208 EPISTEMOLOGICAL PROBLEMS OF HISTORY

be.

It is irrelevant for economics, up to now the best

developed part of praxeology, whether an individual

aims like a member of a labor union at higher wages or

like a saint at the best performance of religious duties.

The "institutional" fact that most people are eager to

get more tangible good is a datum of economic history,

not a theorem of economics.

All brands of historicism—the German and the Brit-

ish historical schools of the social sciences, American

institutionalism, the adepts of Sismondi, Le Play, and

Veblen, and many kindred "unorthodox" sects—em-

phatically reject economics. But their writings are full

of inferences drawn from general propositions about

the effects of various modes of acting. It is, of course,

impossible to deal with any "institutional" or historical

problem without referring to such general propositions.

Every historical report, no matter whether its theme is

the conditions and events of a remote past or those of

yesterday, is inevitably based on a definite kind of eco-

nomic theory. The historicists do not eliminate eco-

nomic reasoning from their treatises. While rejecting

an economic doctrine they do not like, they resort in

dealing with events to fallacious doctrines long since

refuted by the economists.

The theorems of economics, say the historicists, are

void because they are the product of a priori reasoning.

Only historical experience can lead to realistic econom-

ics.

They fail to see that historical experience is always

the experience of complex phenomena, of the joint

effects brought about by the operation of a multiplicity

of elements. Such historical experience does not give

HISTORICISM 209

the observer facts in the sense in which the natural sci-

ences apply this term to the results obtained in labora-

tory experiments. (People who call their offices, studies,

and libraries "laboratories" for research in economics,

statistics, or the social sciences are hopelessly muddle-

headed.

)

Historical facts need to be interpreted on the

ground of previously available theorems. They do not

comment upon themselves.

The antagonism between economics and historicism

does not concern the historical facts. It concerns the

interpretation of the facts. In investigating and narrat-

ing facts a scholar may provide a valuable contribution

to history, but he does not contribute to the increase

and perfection of economic knowledge.

Let us once more refer to the often repeated proposi-

tion that what the economists call economic laws are

merely principles governing conditions under capital-

ism and of no avail for a differently organized society,

especially not for the coming socialist management of

affairs. As these critics see it, it is only the capitalists

with their acquisitiveness who bother about costs and

about profit. Once production for use has been substi-

tuted for production for profit, the categories of cost

and profit will become meaningless. The primary error

of economics consists in considering these and other

categories as eternal principles determining action un-

der any kind of institutional conditions.

However, cost is an element in any kind of human

action, whatever the particular features of the individ-

ual case may be. Cost is the value of those things the

actor renounces in order to attain what he wants to

210 EPISTEMOLOGICAL PROBLEMS OF HISTORY

attain; it is the value he attaches to the most urgently

desired satisfaction among those satisfactions which he

cannot have because he preferred another to it. It is

the price paid for a thing. If a young man says: "This

examination cost me a week end with friends in the

country," he means: "If I had not chosen to prepare for

my examination, I would have spent this week end with

friends in the country." Things it costs no sacrifice to

attain are not economic goods but free goods and as

such no objects of any action. Economics does not deal

with them. Man does not have to choose between them

and other satisfactions.

Profit is the difference between the higher value of

the good obtained and the lower value of the good

sacrificed for its obtainment. If the action, due to bun-

gling, error, an unanticipated change in conditions, or

to other circumstances, results in obtaining something

to which the actor attaches a lower value than to the

price paid, the action generates a loss. Since action

invariably aims to substitute a state of affairs which the

actor considers as more satisfactory for a state which he

considers less satisfactory, action always aims at profit

and never at loss. This is valid not only for the actions

of individuals in a market economy but no less for the

actions of the economic director of a socialist society.

The Quest for Laws of Historical Change

A widespread error confuses historicism and history.

Yet the two have nothing in common. History is the

presentation of the course of past events and conditions,

HISTORICISM 211

a statement of facts and of their effects. Historicism is

an epistemological doctrine.

Some schools of historicism have declared that his-

tory is the only way to deal with human action and

have denied the adequacy, possibility, and meaning-

fulness of a general theoretical science of human action.

Other schools have condemned history as unscientific

and, paradoxically enough, have developed a sympa-

thetic attitude toward the negative part of the doctrines

of the positivists, who asked for a new science which,

modeled on the pattern of Newtonian physics, should

derive from historical experience laws of historical ev-

olution and of "dynamic" change.

The natural sciences have developed, on the basis of

Carnot's second law of thermodynamics, a doctrine

about the course of the history of the universe. Free

energy capable of work depends on thermodynamic in-

stability. The process producing such energy is irrever-

sible. Once all free energy produced by unstable systems

is exhausted, life and civilization will cease. In the light

of this cognition the universe as we know it appears as

an evanescent episode in the flux of eternity. It moves

toward its own extinction.

But the law from which this inference is drawn, Car-

not's second law, is in itself not a historical or dynamic

law. Like all other laws of the natural sciences, it is de-

rived from the observation of phenomena and verified

by experiments. We call it a law because it describes a

process that repeats itself whenever the conditions for

its operation are present. The process is irreversible,

and from this fact scientists infer that the conditions