Subjectivism and Economic Analysis: Essays in memory of Ludwig ...

ROGER KOPPLbusinessman who knows the monetary theory of the trade cycle islike a man with two heads: He is a monster and ruled out of court.A monster is a counterexample to your theory. When you call thecounterexample a monster, you deny that it counts as acounterexample. This is how Mises handled Lachmann’s commenton the elasticity of expectations. The case Lachmann mentions,according to Mises, is the one in which the businessman is also aneconomist. Mises takes his ‘pure a priori’ theory to discuss thebehaviour of businessmen and not economists. Thus, Lachmann’sexample brings in something that doesn’t pertain to the theory. Themonster is barred, no mention of him may be made in futurediscussions of the subject.Such monster-barring might seem so ad hoc that Mises wouldhave been forced to confront the subjectivism of expectations. ButMises’s epistemological views led him to see the problems ofsubjective interpretation as radically divorced from economictheory and the canons of scientific reason.In an essay published originally in 1933, Mises distinguishedbetween ‘Conception and Understanding’ (Mises 1933a).Conception is rational; it is ‘discursive reasoning’. Understanding isthe English translation of the German word ‘Verstehen’.‘Understanding seeks the meaning of action in empathic intuition ofthe whole’ (ibid.: 133). When both apply, conception ‘takesprecedence over understanding in every respect’ (ibid.: 133). Butunderstanding can penetrate to something conception cannot reach:‘the apprehension of the quality of values’ (ibid.: 134). It is whenunderstanding enters that ‘subjectivity begins’ (ibid.: 134). ForMises, ‘[c]onception is reasoning; understanding is beholding’(ibid.). Mises would later call understanding ‘the specificunderstanding of the historical sciences of human action’ (Mises1957:264).The ‘understanding’ Mises distinguishes from ‘conception’ ishistorical, he thought, not scientific. Economic theory is scientific,not historical. Thus, any knowledge we might have about the‘subjectivity’ of others is historical, not theoretical. (Mises’sdistinction and its relation to the problem of expectations isdiscussed by Butos 1997 and Koppl 1997.)It is very significant that Mises equates understanding with thesubjective. It relegated the issue raised by Lachmann to theextratheoretical categories of ‘historical understanding’ and‘intuition of the whole’. It neatly immunised economic theory fromthe issue that so occupied Lachmann. It is thus with good reason66