Reflection — what’s the point of it? Well, it works. But trying to get an economist to do it is like trying to get a child to check his figures — or a bad employee to check his work. A kid thinks, checking my figures just means doing my figures again, so why do that? A bad employee thinks checking his plumbing set-up or his electrical system just means more work. But if a person checks through his figures, and reflects on the correct procedures and answers, he can catch and make right a mistake. And if a plumber or an electrician takes a bit to reflect on how he’s connected thing up, it might dawn on him that he’s failed to connect up the system to what we actually care about — say the cold water line or the electrical power grid. It happens.
Well, what has happened in economics is that economists have failed to hook up the plumbing to the water line — i.e. they’ve been bad employees (or cranky children) who’ve overlooked the fact that they’ve failed to link up the math to the thinking and adjusting persons who make up the system, and trade one item with another — most importantly those most significant items of all, monies, credit instruments, and near monies and money substitutes. And they’ve been rather dogmatic about refusing to reflect on the matter.
In the 20th century the one grown up — the responsible executor — pounding on the table and insisting that the profession reflect on the matter and make this mistake right, was Ludwig von Mises.
And I want to suggest here that the point of departure that set Mises off on the right road — and the point of departure for his reflections on how to get the link up right between the explanatory problems of economics, our conceptual constructs, and the adjusting persons who make the thing go — is the example provided by Menger’s explanatory account of how money comes into existence. Mises bites into Menger’s explanatory paradigm and holds on like a rat terrier. Any economists’ fantasy construction of monetary theory or socialist economics which can’t hook up with the persons evaluating one item against another in Menger’s explanation of the origins of a common means of exchange, was a construction that didn’t hook up with the power grid required to give life to a real economy with an extended division of labor.
My second suggestion is that it is more helpful to reflect on this explanatory exemplar from Menger — and it’s extension to the more difficult problems of monetary theory, socialist calculation, and value and price theory, etc. — than it is to reflect upon “methodological individualism”, “human action”, “scientism”, “praxeology”, “positive economics” or any other abstract slogan. Mises is at his best when he does the former, rather than the later, although I will admit there is value in the later — although this value often diminishes to almost nothing when it gets separated too far from the explanatory examples which give these slogans their significance.