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Ultimate Found Economics

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Ludwig von Mises published his first book in 1912 ("Theory of Money and Credit") and his final book - "The Ultimate Foundation of Economic Science" - in 1962 (although he continued to write articles until near the end of his incredibly productive life).

In "The Ultimate Foundation", von Mises returns to one of his central concerns: the foundation of economic theories. According to von Mises, the principles of economic thought are "a priori." In fact, they are a "subset" of more basic principles of human action. Von Mises called the study of human action "praxiology." According to Mises, the a priori categories "are the mental equipment by dint of which man is able to think and to experience and thus to acquire knowledge." [p. 18.] It is these categories which provide order and regularity to man's understanding. The category of human action is: "Man acts because he is dissatisfied with the state of affairs as it prevails in the absence of his intervention." [p. 3.] Further axioms follow logically from this axiom. [p. 45.] The principles of economics are therefore deductive. On the other hand, the principles of the physical sciences are inductive. The error of positivism is to apply the principles of the physical sciences to economics, where they are not applicable. Economics is closer to mathematics than it is to chemistry.

It's hard to summarize this book. Von Mises deals with a large number of topics in a relatively small number of pages. These include evolution, Marxism, theism, the use of statistics, and methodological individualism. Yet what shines through is von Mises' love of economics and his belief that the teachings of economics - which is to say free enterprise - is the key to increasing man's standard of living and promoting social cooperation.

Interestingly, von Hayek - Mises' best known student -- also returned to methodology in his final book, "The Fatal Conceit." While von Mises remained a rationalist until the end, Hayek drifted toward a more empirical approach to social and economic thought. It would make an interesting study to compare these two works. Joseph Salerno touches on some of these points in his essay "Mises as Social Rationalist" in Herbener, ed., "The Meaning of Ludwig von Mises."

The Ultimate Foundation of Science is the last in a series of important and insightful books by Ludwig von Mises. Mises reiterates his argument that economic science differs from the physical sciences. Physical sciences can be empirical because they deal with physical relationships of cause and effect. The adaptive and strategic nature of human action renders the empirical approach to discerning economic laws futile. Economic theory is distinct from economic history.

There is more to this book. Mises critiques the approach to economics taken by his contemporaries. Economists have changed since then. The profession has moved towards Mises in terms of methodological individualism. There has been less movement on positivism and the action principle. Mises also comments on some of the particulars of economic theory and on history. Perhaps the most remarkable thing about this book is its clarity- Mises write this book at a very advanced age. Ultimate Foundations is an impressive accomplishment, but not quite as good as his earlier book on epistemology Theory and History.