One Cannot Interpret Facts of Reality without Theories
Many economists, including Milton Friedman, have claimed that reality is elusive and that one cannot know its true nature. Most mainstream economists also believe that data gives us the state of the economy. By inspecting numbers such as gross domestic product (GDP) or the consumer price index, only then can an economist accurately assess the state of economic conditions.
Ludwig von Mises and the Austrian School of Economics have had a different view. According to Mises, the data is a historical display and, by itself, cannot provide the facts regarding the real world. To make sense of the data, one needs to have a theory beforehand that will allow one to interpret the data, and the theory must originate from something real that cannot be refuted. A theory resting on the foundation that human beings act consciously and purposefully fulfills this requirement.
One cannot refute that foundation since anyone trying to do so does it consciously and purposefully and thus contradicts himself, according to Hans-Hermann Hoppe. The knowledge that human actions are conscious and purposeful allows one to make sense of historical data, writes Murray N. Rothbard in the preface to Theory and History by Mises.
The Importance of Defining the Subject of Investigation
The key to examining data is establishing the subject and definition of what one is analyzing. To establish a definition, one should go back as far as one can to the point of time when that particular thing emerged.
For instance, when analyzing money supply, we would go back to when a particular commodity started to assume the role of money. In this case, one would establish that individuals began to use money to p
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