Austrian Economics is based on a science called Praxeology. Its name is derived from the word "praxis" which is the process of making an idea real. As you may have guessed it, it simply means making something in practical terms; practical as in common-sensical and doable, practical as in cooking, gardening, buying or selling.
But if something is focused on practical (not theoretical) issues, it must be simple, easy to understand and approachable. Praxeology indeed has such characteristics. Despite its horrible name you must think of it as a cuddly bear not the Encyclopaedia Economica.
What is Praxeology?
Oh, so you are looking for a definition? Very well then, we will give you a few.
But first we need to understand the concept of logic.
Logic (or deductive reasoning) is simply a way of thinking governed by a set of rules. The purpose of these rules is to ensure that our way of thinking is always correct within those rules.
Obviously, if we change the rules we will change our way of thinking.
Praxeology assumes that there is some sort of logic guiding what humans do (how they behave), and that such logic has a purpose. If such logic exists, then there must be some rules describing how it works. Saying that something is "logic" and then not providing the rules of such "logic" is the same as saying that it is random, which is the opposite of "logic". For something to be "logic" a set of rules must exist.
One definition of Praxeology reads:
Praxeology is the discipline that studies the logic behind what humans do.
Yet another definition reads:
Praxeology is a set of rules that allow us to understand the purposeful behaviour of human beings.
And yet another definition reads:
Praxeology is the discipline that explains how humans make decisions to achieve their goals.
And one more:
Praxeology is the discipline that seeks to understand the mechanisms behind the actions of individual humans.
Who created Praxeology?
There were many people (economists) who developed key concepts over many years (including Eugen von Bohm, Bawek, Friderich von Wieser and Menger), but two people in particular are usually held as its most profound modern developers: Ludwig Von Mises and Friedrich von Hayek. Its most current representative (arguably) is Murray Rothbard.
Is Praxeology a science?
Historically speaking it has been referred to as a science and Mises in his book "Human Action" presents the relevant arguments.
In order for Praxeology to be a natural science it would have to use the scientific method (observation, deduction, experimentation and conclusive results) which Praxeology does not use.
The problem with Praxeology is that it deals with a physical reality (people) and as such we would expect it to use the tools of natural sciences. Instead of using said tools, Praxeology uses the tools of abstract sciences (such as Mathematics). This is disconcerting and it is for this reason that so many people have a hard time looking at Praxeology as a science (which it is - really).
Laws of Action
As we mentioned before, if Praxeology assumes that there is some sort of logic guiding what humans do, then there must exist a set of rules by which this behaviour can be described. Such rules are called the Laws of Action.
Because the concept of law is more strict than a concept of rule. We intuitively understand that rules can be bent of broken with little consequence, but breaking a law carries a heavy penalty. In this case, breaking such laws of human behaviour carries severe economic consequences.
Because Praxeology describes the behaviour of humans and behaviours are simply sets of actions. A person cannot behave by thinking, it must do something in the physical world; in other words, it must act.
Can Praxeology be proven?
Of course! If you want the proof please contact us through our secret e-mail address so that we may provide you with our secret bank account in the Cayman Islands. Following a deposit of only one million golden ducats, we will be happy to provide you with the demonstration. Oh, yes, and while we are at it, we are selling the pyramids of Egypt cheap. Great tourist attraction, don’t miss this once-in-a-life-time opportunity!
And now back to reality.
No, Praxeology cannot be proven. It cannot be proven because Praxeology is a system of logic, which means that it depends of its rules. If we change the rules we change the logic. Therefore we can potentially generate an infinite number of such logic systems. The problem is that since each such system is independent from the other, it is impossible to know which one is "true" and which one is "false". As such, Praxeology (just like any other economic theory - really!) cannot be proven.
Furthermore, Praxeology is unique since it provides Laws of Action explaining why Praxeology (and any other economic discipline) can never be proven.
Is Praxeology useless?
If Praxeology cannot be proven, what's the point? The point is that as far as we can tell by looking at human action, all rules of Praxeology work. Un-provable does not mean useless. On the contrary. The closer a discipline is to explain reality, the more useful it is.
What is the use of Praxeology?
Praxeology is capable of explaining great many things dealing with human behaviours; and as human behaviours (actions) determine (for the most part) our lives and the world we live in, it would definitively make sense to study its laws. You could remain ignorant and believe that things "just happen" or you could study the Laws of Actions and understand how they are happening.
As such, Praxeology also describes the economic behaviour of humans; indeed this is how Praxeology started, as an attempt to explain human economic behaviour.
Praxeology is capable of explaining how markets work and why it is a terrible idea to interfere with their operation. As markets provide and elevate our standards of living, it would seem like a good idea to have the most efficient markets possible.
To achieve maximum efficiency there are two opposing politico/philosophical points of view:
The economy needs to be managed to be optimized
The economy optimizes itself
The first point of view is the opinion of all politicians who meddle into economic affairs. The second point of view is the Praxeological point of view: you cannot improve on a system that is already optimized.
For example, think in terms of the global economy. Nobody manages its economic transactions and somehow they occur harmoniously and smoothly. Why is this? Because every economy is a self-organizing network of cooperating people and Praxeology gives us the rules by which these people cooperate.
The beauty of every market or economy is that they create efficient production systems that deliver goods and services at a price we can afford but nobody controls. The classic example is the simple lead pencil. An essay to this regard was written in 1958 by Leonard Read, essay that even today holds true (its 50 anniversary version can be found attached at the bottom of this article - well worth the read).
In a sense, Praxeology could be defined as the theory of everything related to human actions. Wouldn't you agree that even if it is accurate to a small degree, it would still be an impressive achievement? But what if we tell you that so far with one minor exception that is still under research, it has proven close to infallible?
Would you spend some time getting to know it? We think so but as usual, it's your choice.
Note: please see the Glossary if you are unfamiliar with certain words.