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Comparative advantage

2011-11-06T17:01:51Z

Huckelberry: /* Assumptions */ Fixing Boldness to follow wikipedia conventions

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{{cleanup}}

'''Comparative Advantage''' refers to the ability of an entity (individual, company, or country) to produce a [[good]] or service at a lower [[opportunity cost]] than another one. It is the ability to produce a product with a higher ''relative'' efficiency than one's trading partner, given all the other products that could be produced. It can be contrasted with [[Absolute Advantage]] which refers to the ability of one to produce a particular good or service at a lower absolute cost than another.

'''Comparative Advantage''' is also know as '''comparative cost''', '''the law of association''' or the '''Ricardian Law of Association'''.<ref name="Mises_law_of_association"></ref>

==Origins and Original Example==

In ''[[Principles of Political Economy and Taxation]]'', [[David Ricardo]] uses the example of wine production in [[Portugal]] and cloth production in [[England]] to illustrate comparative advantage. [[England]] can produce a certain quantity of cloth with 100 men for one year or a certain quantity of wine with 120 men in the same time. [[Portugal]], on the other hand, may only require 90 men for one year to produce the same quantity of cloth and 80 men for one year to produce the wine. [[Portugal]], in [[Richardo's]] example, has an [[absolute advantage]]: it makes both wine and cloth more efficiently than [[England]]. Yet, [[Ricardo]] concludes:

<blockquote>Though [Portugal] could make cloth with the labor of 90 men, she would import it from a country where it requires the labor of 100 men to produce it, because it would be advantageous to her rather to employ her capital in production of wine, for which she would obtain more cloth from [[England]], than she could produce by diverting a portion of her capital from cultivation of vines to the manufacture of cloth.<ref name="Ricardo_comparative_advantage">[[David Ricardo]] [[Principles of Political Economy and Taxation]], VII. On Foreign Trade, (Amherst, New York: Prometheus Books) 94-95</ref></blockquote>

If [[Portugal]] did not trade, she would need to produce the cloth locally, therefore devoting part of her capital to the manufacture of cloth, "which she would thus obtain probably inferior in quality as well as quantity."<ref name="Ricardo_comparative_advantage"></ref> The conclusion to be drawn is that the benefits of [[division of labor]] and [[specialization]] apply to international trade as well as to domestic trade.

==Examples==
In addressing the "paradox" where it is worthwhile for a country with [[absolute advantage]] to trade with a country who has absolute disadvantage (i.e., is more efficient in nothing), [[Paul Samuelson]] writes:

<blockquote>
A traditional example used to illustrate this paradox of comparative advantage is the case of the best lawyer in town who is also the best typist in town. Will she not specialize in law and leave typing to a secretary? How can she afford to give up precious time from the legal field, where her comparative advantage is very great, to perform typing activities in which she is efficient but in which she lacks ''comparative'' advantage? Or look at it from the secretary's point of view. She is less efficient than the lawyer in both activities; but her relative disadvantage compared with the lawyer's is least in typing. Relatively speaking, the secretary has a comparative advantage in typing.<ref name="samelson_comparative_advantage">[[Paul Samuelson]], ''Economics'' (McGraw-Hill, 1973) p. 669</ref></blockquote>

==The Meaning of Comparative Advantage==

Ricardo's explication is a particular instance of the more universal law of association: all [[division of labor]] brings advantages. Demonstrated above, cooperation between the more able and the less able brings advantages to both. The law of association allows us to understand the progressive increase in human cooperation and the intensification of the division of labor.<ref name="Mises_law_of_association">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association, [[Human Action]], online version, referenced 2011-02-06.</ref>

==Assumptions==

Comparative cost between countries is true under the assumption that capital and labor are immobile.<ref name="Ricardo_comparative_advantage"></ref><ref name="Mises_law_of_association"></ref> After Ricardo's publication, labor and capital increased in mobility, and countries with absolute advantages saw increases in migration and capital movements in the late 1800's. Towards the late 20th century capital and labor increasingly become less mobile. The mobility labor and capital can make it more advantageous for labor and capital to migrate in the case of [[absolute advantage]] rather than stay and trade under conditions of comparative advantage.<ref name="Mises_law_of_association_ce">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association: ''Current Errors Concerning the Law of Association'', [[Human Action]], online version, referenced 2011-02-07.</ref>

==References==
{{reflist}}

==Links==
* [http://www.econlib.org/library/Ricardo/ricP.html ''On the Principles of Political Economy and Taxation''], by David Ricardo. Complete, fully-searchable text at the Library of Economics and Liberty.
* [http://web.mit.edu/krugman/www/ricardo.htm Ricardo's Difficult Idea]
* {{md|3744|Tire Trade Tirade|[[Art Carden]]|October 2009}}
* {{mb|13752|Gains From Trade: An Example|Art Carden|September 2010}}
* {{mb|13753|Gains From Trade With Extreme Differences|Art Carden|September 2010}}
* {{mb|3386|comparative advantage versus absolute advantage|Gil Guillory|March 2005}}
* {{md|3015|Cooperation: How a Free Market Benefits Everyone|[[Jeffrey Tucker|Jeffrey A. Tucker]]|June 2008}}
* [http://www.mises.ca/posts/articles/fundamental-economic-concept-lost-in-translation/ "Fundamental Economic Concept Lost in Translation"] by Predrag Rajsic, February 2011
* [http://www.youtube.com/watch?v=y0gGyeA-8C4&feature=player_embedded Trade is Made of Win, Part 1: Wealth Creation]
* [http://www.youtube.com/watch?v=7yOHjRThM_o&feature=player_embedded Trade is Made of Win, Part 2: Cooperation]
* [http://www.youtube.com/watch?v=qdcQLWGaJoM&feature=player_embedded Trade is Made of Win, Part 3: Conservation]

[[Category:Economic concepts]]

Comparative advantage

2011-11-06T17:00:30Z

Huckelberry: /* Examples */

{{rightTOC}}

{{cleanup}}

'''Comparative Advantage''' refers to the ability of an entity (individual, company, or country) to produce a [[good]] or service at a lower [[opportunity cost]] than another one. It is the ability to produce a product with a higher ''relative'' efficiency than one's trading partner, given all the other products that could be produced. It can be contrasted with [[Absolute Advantage]] which refers to the ability of one to produce a particular good or service at a lower absolute cost than another.

'''Comparative Advantage''' is also know as '''comparative cost''', '''the law of association''' or the '''Ricardian Law of Association'''.<ref name="Mises_law_of_association"></ref>

==Origins and Original Example==

In ''[[Principles of Political Economy and Taxation]]'', [[David Ricardo]] uses the example of wine production in [[Portugal]] and cloth production in [[England]] to illustrate comparative advantage. [[England]] can produce a certain quantity of cloth with 100 men for one year or a certain quantity of wine with 120 men in the same time. [[Portugal]], on the other hand, may only require 90 men for one year to produce the same quantity of cloth and 80 men for one year to produce the wine. [[Portugal]], in [[Richardo's]] example, has an [[absolute advantage]]: it makes both wine and cloth more efficiently than [[England]]. Yet, [[Ricardo]] concludes:

<blockquote>Though [Portugal] could make cloth with the labor of 90 men, she would import it from a country where it requires the labor of 100 men to produce it, because it would be advantageous to her rather to employ her capital in production of wine, for which she would obtain more cloth from [[England]], than she could produce by diverting a portion of her capital from cultivation of vines to the manufacture of cloth.<ref name="Ricardo_comparative_advantage">[[David Ricardo]] [[Principles of Political Economy and Taxation]], VII. On Foreign Trade, (Amherst, New York: Prometheus Books) 94-95</ref></blockquote>

If [[Portugal]] did not trade, she would need to produce the cloth locally, therefore devoting part of her capital to the manufacture of cloth, "which she would thus obtain probably inferior in quality as well as quantity."<ref name="Ricardo_comparative_advantage"></ref> The conclusion to be drawn is that the benefits of [[division of labor]] and [[specialization]] apply to international trade as well as to domestic trade.

==Examples==
In addressing the "paradox" where it is worthwhile for a country with [[absolute advantage]] to trade with a country who has absolute disadvantage (i.e., is more efficient in nothing), [[Paul Samuelson]] writes:

<blockquote>
A traditional example used to illustrate this paradox of comparative advantage is the case of the best lawyer in town who is also the best typist in town. Will she not specialize in law and leave typing to a secretary? How can she afford to give up precious time from the legal field, where her comparative advantage is very great, to perform typing activities in which she is efficient but in which she lacks ''comparative'' advantage? Or look at it from the secretary's point of view. She is less efficient than the lawyer in both activities; but her relative disadvantage compared with the lawyer's is least in typing. Relatively speaking, the secretary has a comparative advantage in typing.<ref name="samelson_comparative_advantage">[[Paul Samuelson]], ''Economics'' (McGraw-Hill, 1973) p. 669</ref></blockquote>

==The Meaning of Comparative Advantage==

Ricardo's explication is a particular instance of the more universal law of association: all [[division of labor]] brings advantages. Demonstrated above, cooperation between the more able and the less able brings advantages to both. The law of association allows us to understand the progressive increase in human cooperation and the intensification of the division of labor.<ref name="Mises_law_of_association">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association, [[Human Action]], online version, referenced 2011-02-06.</ref>

==Assumptions==

Comparative cost between countries is true under the assumption that capital and labor are immobile.<ref name="Ricardo_comparative_advantage"></ref><ref name="Mises_law_of_association"></ref> After Ricardo's publication, labor and capital increased in mobility, and countries with absolute advantages saw increases in migration and capital movements in the late 1800's. Towards the late 20th century capital and labor increasingly become less mobile. The mobility labor and capital can make it more advantageous for labor and capital to migrate in the case of [[absolute advantage]] rather than stay and trade under conditions of [[comparative advantage]].<ref name="Mises_law_of_association_ce">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association: ''Current Errors Concerning the Law of Association'', [[Human Action]], online version, referenced 2011-02-07.</ref>

==References==
{{reflist}}

==Links==
* [http://www.econlib.org/library/Ricardo/ricP.html ''On the Principles of Political Economy and Taxation''], by David Ricardo. Complete, fully-searchable text at the Library of Economics and Liberty.
* [http://web.mit.edu/krugman/www/ricardo.htm Ricardo's Difficult Idea]
* {{md|3744|Tire Trade Tirade|[[Art Carden]]|October 2009}}
* {{mb|13752|Gains From Trade: An Example|Art Carden|September 2010}}
* {{mb|13753|Gains From Trade With Extreme Differences|Art Carden|September 2010}}
* {{mb|3386|comparative advantage versus absolute advantage|Gil Guillory|March 2005}}
* {{md|3015|Cooperation: How a Free Market Benefits Everyone|[[Jeffrey Tucker|Jeffrey A. Tucker]]|June 2008}}
* [http://www.mises.ca/posts/articles/fundamental-economic-concept-lost-in-translation/ "Fundamental Economic Concept Lost in Translation"] by Predrag Rajsic, February 2011
* [http://www.youtube.com/watch?v=y0gGyeA-8C4&feature=player_embedded Trade is Made of Win, Part 1: Wealth Creation]
* [http://www.youtube.com/watch?v=7yOHjRThM_o&feature=player_embedded Trade is Made of Win, Part 2: Cooperation]
* [http://www.youtube.com/watch?v=qdcQLWGaJoM&feature=player_embedded Trade is Made of Win, Part 3: Conservation]

[[Category:Economic concepts]]

Comparative advantage

2011-11-06T16:58:57Z

Huckelberry: /* Origins and Original Example */

{{rightTOC}}

{{cleanup}}

'''Comparative Advantage''' refers to the ability of an entity (individual, company, or country) to produce a [[good]] or service at a lower [[opportunity cost]] than another one. It is the ability to produce a product with a higher ''relative'' efficiency than one's trading partner, given all the other products that could be produced. It can be contrasted with [[Absolute Advantage]] which refers to the ability of one to produce a particular good or service at a lower absolute cost than another.

'''Comparative Advantage''' is also know as '''comparative cost''', '''the law of association''' or the '''Ricardian Law of Association'''.<ref name="Mises_law_of_association"></ref>

==Origins and Original Example==

In ''[[Principles of Political Economy and Taxation]]'', [[David Ricardo]] uses the example of wine production in [[Portugal]] and cloth production in [[England]] to illustrate comparative advantage. [[England]] can produce a certain quantity of cloth with 100 men for one year or a certain quantity of wine with 120 men in the same time. [[Portugal]], on the other hand, may only require 90 men for one year to produce the same quantity of cloth and 80 men for one year to produce the wine. [[Portugal]], in [[Richardo's]] example, has an [[absolute advantage]]: it makes both wine and cloth more efficiently than [[England]]. Yet, [[Ricardo]] concludes:

<blockquote>Though [Portugal] could make cloth with the labor of 90 men, she would import it from a country where it requires the labor of 100 men to produce it, because it would be advantageous to her rather to employ her capital in production of wine, for which she would obtain more cloth from [[England]], than she could produce by diverting a portion of her capital from cultivation of vines to the manufacture of cloth.<ref name="Ricardo_comparative_advantage">[[David Ricardo]] [[Principles of Political Economy and Taxation]], VII. On Foreign Trade, (Amherst, New York: Prometheus Books) 94-95</ref></blockquote>

If [[Portugal]] did not trade, she would need to produce the cloth locally, therefore devoting part of her capital to the manufacture of cloth, "which she would thus obtain probably inferior in quality as well as quantity."<ref name="Ricardo_comparative_advantage"></ref> The conclusion to be drawn is that the benefits of [[division of labor]] and [[specialization]] apply to international trade as well as to domestic trade.

==Examples==
In addressing the "paradox" where it is worthwhile for a country with [[absolute advantage]] to trade with a country who has ''absolute disadvantage (i.e., is more efficient in nothing)'', [[Paul Samuelson]] writes:

<blockquote>
A traditional example used to illustrate this paradox of comparative advantage is the case of the best lawyer in town who is also the best typist in town. Will she not specialize in law and leave typing to a secretary? How can she afford to give up precious time from the legal field, where her comparative advantage is very great, to perform typing activities in which she is efficient but in which she lacks ''comparative'' advantage? Or look at it from the secretary's point of view. She is less efficient than the lawyer in both activities; but her relative disadvantage compared with the lawyer's is least in typing. Relatively speaking, the secretary has a '''comparative advantage''' in typing.<ref name="samelson_comparative_advantage">[[Paul Samuelson]], ''Economics'' (McGraw-Hill, 1973) p. 669</ref></blockquote>

==The Meaning of Comparative Advantage==

Ricardo's explication is a particular instance of the more universal law of association: all [[division of labor]] brings advantages. Demonstrated above, cooperation between the more able and the less able brings advantages to both. The law of association allows us to understand the progressive increase in human cooperation and the intensification of the division of labor.<ref name="Mises_law_of_association">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association, [[Human Action]], online version, referenced 2011-02-06.</ref>

==Assumptions==

Comparative cost between countries is true under the assumption that capital and labor are immobile.<ref name="Ricardo_comparative_advantage"></ref><ref name="Mises_law_of_association"></ref> After Ricardo's publication, labor and capital increased in mobility, and countries with absolute advantages saw increases in migration and capital movements in the late 1800's. Towards the late 20th century capital and labor increasingly become less mobile. The mobility labor and capital can make it more advantageous for labor and capital to migrate in the case of [[absolute advantage]] rather than stay and trade under conditions of [[comparative advantage]].<ref name="Mises_law_of_association_ce">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association: ''Current Errors Concerning the Law of Association'', [[Human Action]], online version, referenced 2011-02-07.</ref>

==References==
{{reflist}}

==Links==
* [http://www.econlib.org/library/Ricardo/ricP.html ''On the Principles of Political Economy and Taxation''], by David Ricardo. Complete, fully-searchable text at the Library of Economics and Liberty.
* [http://web.mit.edu/krugman/www/ricardo.htm Ricardo's Difficult Idea]
* {{md|3744|Tire Trade Tirade|[[Art Carden]]|October 2009}}
* {{mb|13752|Gains From Trade: An Example|Art Carden|September 2010}}
* {{mb|13753|Gains From Trade With Extreme Differences|Art Carden|September 2010}}
* {{mb|3386|comparative advantage versus absolute advantage|Gil Guillory|March 2005}}
* {{md|3015|Cooperation: How a Free Market Benefits Everyone|[[Jeffrey Tucker|Jeffrey A. Tucker]]|June 2008}}
* [http://www.mises.ca/posts/articles/fundamental-economic-concept-lost-in-translation/ "Fundamental Economic Concept Lost in Translation"] by Predrag Rajsic, February 2011
* [http://www.youtube.com/watch?v=y0gGyeA-8C4&feature=player_embedded Trade is Made of Win, Part 1: Wealth Creation]
* [http://www.youtube.com/watch?v=7yOHjRThM_o&feature=player_embedded Trade is Made of Win, Part 2: Cooperation]
* [http://www.youtube.com/watch?v=qdcQLWGaJoM&feature=player_embedded Trade is Made of Win, Part 3: Conservation]

[[Category:Economic concepts]]

Human Action

2011-06-23T05:13:11Z

Huckelberry: /* XVI. Prices */

{{Infobox book
| name = Human Action: A Treatise on Economics
| title_orig =
| translator =
| image = 
| image_caption =
| author = [[Ludwig von Mises]]
| illustrator =
| cover_artist =
| country = [[United States]]
| language =
| series =
| subject = [[Economics]], [[Political economy]]
| genre = [[Non-fiction]]
| publisher = [[Yale University Press]]
| pub_date = [[1949]]
| english_pub_date =
| media_type = Print
| pages = 889 pp.
| isbn =
| oclc = 2595286
| dewey =
| congress =
| preceded_by =
| followed_by =
}}

'''''Human Action: A Treatise on Economics''''' is the [[magnum opus]] of [[Ludwig von Mises]], first published in 1949. It defined a large part of present [[Austrian Economics]].

<blockquote>"It is true that economics is a theoretical science and as such abstains from any judgment of value...Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends."<ref name="humanaction_intro_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/introsec3.asp Introduction], 3. Introduction, [[Human Action]], online version, referenced 2011-02-05.</ref></blockquote>

== Part One: Human Action ==

===I. Acting Man===

<blockquote>''Main Article: [[Action]].''</blockquote>

The science of human action is called [[praxeology]]. Human action always involves [[opportunity cost]] and it is always ''purposeful''. <ref name="humanaction_ch1sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap1sec1.asp I. Acting Man], 1. Purposeful Action and Animal Reaction, [[Human Action]], online version, referenced 2011-02-06.</ref>

===II. The Epistemological Problems of the Sciences of Human Action===

[[Ludwig von Mises]] takes the [[logical deductive]] approach to economics, as opposed to the [[empirical]] (or the [[logical positivist]] approach). Economic problems cannot be solved [[empirically]] because renunciation and long-term planning can not be seen. Humans act to attain definite ends--and economic phenomena can be understood as such.

<blockquote>"[[Praxeology]] is a theoretical and systematic, not a historical, science...It aims at knowledge valid for all instances in which the conditions exactly correspond to those implied in its assumptions and inferences. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, ''[[a priori]]''."<ref name="humanaction_ch2sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec1.asp II. Epistemological Problems of Human Action], 1. Praxeology and History, [[Human Action]], online version, referenced 2011-02-06.</ref></blockquote>

Like geometry, [[praxeology]] is not subject to disproof. This method may be called ''methodological apriorism''.<ref name="humanaction_ch2sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec2.asp II. Epistemological Problems of Human Action], 2. The Formal and Aprioristic Character of Praxeology, [[Human Action]], online version, referenced 2011-02-06.</ref>

===III. Economics and the Revolt Against Reason===

[[Mises]] dismisses the [[Historical School]], [[Hegel]] and [[Marx]] with it. In discussing the "bourgeois logic" and "bourgeois mentality" of [[Marx]], [[Mises]] is able to attack [[polylogism]] in general. There does not exist multiple logics, only differing interests and their logical conclusions--whether they are spurious or well-founded. [[Mises]] states with regard to the [[Historical School]], "History, in due time, will arrange everything for the best. It does not need the advice of mortal men."<ref name="humanaction_ch3sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap3sec1.asp III. Economics and the Revolt Against Reason], 1. The Revolt Against Reason, [[Human Action]], online version, referenced 2011-02-06.</ref>

<blockquote>''See [[German Idealism]].''</blockquote>

===IV. A First Analysis of the Category of Action===

<blockquote>''Main Article: [[Value]]''</blockquote>

All actions are directed toward goals, aims or ends. The end, speaking generally, is always to remove a ''felt uneasiness''. Means are the ways by which we reach an end. Things in the world, when applied to our ends, become means and are commonly referred to as [[goods]].<ref name="humanaction_ch4sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec1.asp IV. A First Analysis of The Category of Action], 1. Ends and Means, [[Human Action]], online version, referenced 2011-02-06.</ref> Means are [[Scarcity|scarce]].

Actions are reflective of our ''scale of [[value|values]]''. All things equal, we satisfy wants of higher [[value]] to us, and leave unsatisfied wants of lower [[value]] to us. Things in the world have no intrinsic [[value]], our actions give things [[value]].<ref name="humanaction_ch4sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec2.asp IV. A First Analysis of The Category of Action], 2. The Scale of Value, [[Human Action]], online version, referenced 2011-02-06.</ref>

Given that every action is an attempt to establish a more satisfactory state of affairs, viz., to remove a ''felt uneasiness'', all actions are in a sense an [[exchange]]. We [[exchange]] one state for another, hopefully better, state. Lastly, value judgments arrange wants, but do not measure them. They are expressive of sequence and order rather than of measurement and weight.<ref name="humanaction_ch4sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp IV. A First Analysis of The Category of Action], 4. Action as Exchange, [[Human Action]], online version, referenced 2011-02-06.</ref>

===V. Time===

Time is a [[Praxeology|praxeological]] category: all action is in time and is subject to time.<ref name="humanaction_ch5sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp V. Time], 2. Past, Present and Future, [[Human Action]], online version, referenced 2011-02-07.</ref> As humans, our time is [[Scarcity|scarce]] and we must economize it accordingly. Our scales of [[value]] and therefore our actions are always with reference to time. As we will see later, time is important in the determination of [[interest]] and consumption.<ref name="humanaction_ch5sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap5sec3.asp V. Time], 3. The Economization of Time, [[Human Action]], online version, referenced 2011-02-07.</ref>

===VI. Uncertainty===

All action is speculative. We never know exactly what will occur. The natural sciences make it possible to foretell results from specific actions. They do not make the future predictable.<ref name="humanaction_ch6sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec1.asp VI. Uncertainty], 1. Uncertainty and Acting, [[Human Action]], online version, referenced 2011-02-08.</ref> But, [[Mises]] tells us, probability is a primary concern of [[praxeology]].

He distinguished between two types of propability: [[class probability]] and [[case probability]].

<blockquote>"''[[Class probability]] means'': We know or assume to know, with regard to the problem concerned, everything about the behavior of a whole class of events or phenomena; but about the actual singular events or phenomena we know nothing but that they are elements of this class."<ref name="humanaction_ch6sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec3.asp VI. Uncertainty], 3. Class Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, car insurance works on the premise that with a large pool of policies, they can use class probability to decide upon an approriate premium given the ''class probability'' of accidents. But, they know nothing about the probability of the individual policy holder getting into an accident.

<blockquote>"''[[Case probability]]'' means: We know, with regard to a particular event, some of the factors which determine its outcome; but there are other determining factors about which we know nothing."<ref name="humanaction_ch6sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec4.asp VI. Uncertainty], 4. Case Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, foreign policy experts may make predictions about the settlement of foreign disputes. They are well informed but it is impossible for them to predict the outcome perfectly because they can not grasp all the data and all the opinions of individuals shaping decisions. Therefore, they may know some of the factors that will shape the future, but never perfectly.

For [[Mises]], we make decisions with incomplete knowledge. To say it again, all action is speculative in character. To this difficulty in decisions, specifically in social cooperation where selection occurs, competition serves as a function to select the most able person for specific positions. It assigns every member of society to the position where they best serve society.<ref name="humanaction_ch6sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec6.asp VI. Uncertainty], 6. Betting, Gambling, and Playing Games, [[Human Action]], online version, referenced 2011-02-08.</ref>

===VII. Action Within the World===

Each person possesses one scale of valuations, which is visible through action.<ref name="humanaction_ch7sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec1.asp VII. Action Within The World], 1. The Law of Marginal Utility, [[Human Action]], online version, referenced 2011-02-13.</ref> Goods and modes of action are chosen based on their utility, or their causal relevance for the removal of felt ''uneasiness''.<ref name="humanaction_ch7sec1"></ref> Here [[Mises]] discusses the [[paradox of value]]: why is ''gold'' more valuable than ''iron''? Despite the many uses of iron, gold is valued more on the market because of its value in exchange. Iron may have more technological prospects or ''objective use-value'' but it lacks ''subjective use-value'', that is, gold is valuable in exchange due to scarcity, appearance and its tradition as a form of money. [[Mises]], however, dismisses the question as one which never occurs in reality.<ref name="humanaction_ch7sec1"></ref>

The [[Law of Marginal Utility]] is implied by the category of action: If a supply increases from quantity ''n'' to ''n + 1'' the extra unit provides less [[utility]] than unit ''n''. This is because ''n'' is satisfying a more urgent want than unit ''n + 1''. We satisfy more urgent wants first by their definition. Unit ''n'' is satisfying the more urgent want, ''n + 1'' is satisfying a less urgent want. Therefore, increasing units of a homogeneous supply are each applied to decreasingly important wants (seeing as the more urgent wants are always satisfied first). The [[law of marginal utility]], "does not deal primarily with the [[value]] of things, but with the [[value]] of the services a man expects to get from them."<ref name="humanaction_ch7sec1"></ref>

"[[Labor]]," says [[Mises]], "is preferred to leisure only insofar as the yield of [[labor]] is more urgently desired than the enjoyment of leisure."<ref name="humanaction_ch7sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec3.asp VII. Action Within The World], 3. Labor as Means, [[Human Action]], online version, referenced 2011-02-13.</ref> Work involves disutility. To this note, [[labor]] is more scarce than other material factors of production:

<blockquote>"In our world there is no abundance, but a shortage of manpower, and there are unused material factors of production, i.e. land, mineral deposits, and even plants and equipment."<ref name="humanaction_ch7sec3"></ref></blockquote>

Labor saving devices reduce want, they do not bring about "technological unemployment." Man economizes both labor and material factors.<ref name="humanaction_ch7sec3"></ref>

Action is successful it it produces the intended result: it produces the product. The human mind directs [[action]] with a purpose and production is creative. It is not something physical, natural, and external; it is a spiritual and intellectual phenomenon. All material actions within the world are a product of the mind. "In this sense," [[Mises]] tells us, "[[praxeology]] can be called a moral science."<ref name="humanaction_ch7sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec4.asp VII. Action Within The World], 4. Production, [[Human Action]], online version, referenced 2011-02-13.</ref>

== Part Two: Actions Within the Framework of Society ==

===VIII. Human Society===

We are born into society and only in this sense does society exist before the individual. [[Society]] is the supreme example of the benefits of the [[division of labor]].<ref name="ch8sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec1.asp VIII. Human Society], 1. Human Cooperation, [[Human Action]], online version, referenced 2011-02-17.</ref> It is an institution for the preservation of peaceful human relations. It is the social apparatus of compulsion and coercion.<ref name="ch8sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec2.asp VIII. Human Society], 2. A Critique of the Holistic and Metaphysical View of Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

[[Democratic government]] provides a method for the peaceful adjustment of government to the will of the majority. Wisdom and science thrive in a peaceful and affluent society. <ref name="ch8sec2"></ref>

<blockquote>"[[Liberalism]] aims at a political constitution which safeguards the smooth working of social cooperation and the progressive intensification of mutual social relations. Its main objective is the avoidance of violent conflicts, of wars and revolutions that must disintegrate the social collaboration of men and throw people back into the primitive conditions of barbarism where all tribes and political bodies endlessly fought one another. Because the division of labor requires undisturbed peace, liberalism aims at the establishment of a system of government that is likely to preserve peace, viz., [[democracy]]."<ref name="ch8sec2"></ref></blockquote>

[[Mises]] expounds the Ricardian Law of Association or [[comparative advantage]] as the fundamental characteristic of society.<ref name="ch8sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association, [[Human Action]], online version, referenced 2011-02-17.</ref> The division of labor assigns to each man the best job for him in society.<ref name="humanaction_ch6sec6"></ref> However, the end result of division of labor in society--a diversity which attests to the innate inequalities between individuals--does not illistrate ideas of [[Social Darwinism]]. Biology and evolutionary views cannot pass value judgments on the benefits of civilization.<ref name="ch8sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec7.asp VIII. Human Society], 7. The Great Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

===IX. The Role of Ideas===

All [[action]] is preceded by thinking. Thinking is to deliberate before [[action]] and to reflect upon past [[action]]. Thinking is a tool of action and language is a tool of thinking. All action is based on a definite idea about causal relations. Thinking and ideas are, like material wealth, passed down the generations.<ref name="ch9sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec1.asp IX. Human Society], 1. Human Reason, [[Human Action]], online version, referenced 2011-02-18.</ref> Action is always directed by ideas.<ref name="ch9sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec3.asp IX. Human Society], 3. Might, [[Human Action]], online version, referenced 2011-02-18.</ref>

[[Ideologies|Ideology]] and world views are explanations of social phenomena and technologies for prescriptive politics. All political doctrines imply that: "the political system we support will render you more prosperous and more content."<ref name="ch9sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec2.asp IX. Human Society], 2. World View and Ideology, [[Human Action]], online version, referenced 2011-02-18.</ref> [[Ideologies]], to [[Mises]], are the most powerful form of control. The might of a politician is due to his [[ideology]], his interpretation of the world and his prescriptive measures to ensure his followers are more prosperous and more content. Thinking, the ideological interpretation, succeeds through the cooperation of other minds. No thinker is isolated in his thoughts, they have been influenced by others. A politician's power dwindles if his [[ideology]] loses support. To [[Mises]]:

<blockquote>"The power of an ideology consists precisely in the fact that people submit to it without any wavering and scruples."<ref name="ch9sec3"></ref></blockquote>

Traditionalism and the idea of progress are ideologies also. Progress toward a more prosperous life and evolutionary progress must not be confused with evolution toward higher forms of life. Progress may not continue, majorities may error.<ref name="ch9sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec4.asp IX. Human Society], 4. Meliorism and the Idea of Progress, [[Human Action]], online version, referenced 2011-02-18.</ref> Ideologies may protect the material interest of the race or they may destroy it.

===X. Exchange Within Society===

[[Action]] always is essentially the exchange of one state of affairs for another state of affairs.<ref name="ch10sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec1.asp X. Exchange Within Society], 1. Autistic Exchange and Interpersonal Exchange, [[Human Action]], online version, referenced 2011-02-25.</ref> The interpersonal exchange of goods weaves the bonds which unites men into societies.<ref name="ch10sec1"></ref> [[Mises]] defines two different kinds of social cooperation: cooperation by virtue of contract and coordination, and contract by virtue of command and subordination or hegemony.<ref name="ch10sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec2.asp X. Exchange Within Society], 2. Contractual Bonds and Hegemonic Bonds, [[Human Action]], online version, referenced 2011-02-25.</ref> In the former state there are men who cooperate to achieve goals--their plans are symmetrical and share a common goal. In the latter state their is always two classes of men, those who command and those who obey. Again [[Mises]] emphasizes the important of ideology to animate the social body. The individuals must share an [[ideology]] if they are to cooperate. Hegemonic control needs an ideology that the controlling system is the best or the traditional norm. [[Ideologies]] imply obedience to the [[ideology]]. Contractual relation order society by free association held together by the order of right and law.<ref name="ch10sec2"></ref>

The [[Praxeology|praxeological]] categories, [[Mises]] tells us, are eternal and unchangable. They are the categories within which all action takes place. No [[action]] is free from the facts of existence--of which the praxeological categories belong.<ref name="ch10sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec3.asp X. Exchange Within Society], 3. Calculative Action, [[Human Action]], online version, referenced 2011-02-25.</ref> Man can never comprehend anything that is neither [[action]] or none action.

Modern civilization is characterized by the fact that it has elaborated a method which makes use of the arithmetic possible in a broad field of activities. [[Economic calculation]], for example in modern capital [[accounting]], is a fundamental issue in all comprehension of economic phenomena.<ref name="ch10sec3"></ref>

Despite the extended use of capital [[accounting]] and arithmetic, [[action]] can only make use of ordinal numbers. That is, actions order desires but do not measure them. But in our rational and contractual society we are able to make use of cardinal numbers in capital accounting. By this feature of capital accounting and contractual relations civilization opened the door to computation and calculation regarding the planning of the future and measuring the effects of past actions. Still, the applicability of cardinal numbers to economic thinking require these circumstances and economic law and theory cannot be deduced from [[economic history]], namely, the history of prices.<ref name="ch10sec3"></ref>

== Part Three: Economic Calculation ==

===XI. Valuation Without Calculation===

We apply the [[value|values]] we attribute to the ends of [[action]], to the means necessary to achieve those ends: "Other things being equal, [acting man] assigns to the total amount of the various means the same value he attaches to the end which they are fit to bring about."<ref name="ch11sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec1.asp XI. Valuation Without Calculation], 1. Gradation of Means, [[Human Action]], online version, referenced 2011-02-26.</ref>

The preferences used in [[action]], the laying aside of some things for other things, allows--as said above--the use of ordinal numbers but not cardinal numbers. Again, [[value|values]] attributable to actions cannot be measured arithmetically. Yet, in the activity of using means to attain certain ends, the acquisition of countable and measurable supplies of things becomes an immediate goal of action.<ref name="ch11sec1"></ref> [[Economic calculation]] can occur, despite that the values we attribute to different means and ends cannot be measured, by the results of actions of interpersonal exchange:

<blockquote>"The modern theory of value and prices show how the choices of individuals, their preferring some things and setting aside of other things, results, in the sphere of interpersonal exchange, in the emergence of market prices."<ref name="ch11sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec2.asp XI. Valuation Without Calculation], 2. The Barter-Fiction of the Elementary Theory of Value and Prices, [[Human Action]], online version, referenced 2011-02-26.</ref></blockquote>

[[Mises]] reminds us that is it a fallacy to think things exchanged are of the same value. Rather, people buy and sell only because they appraise the things given up less than those received.<ref name="ch11sec2"></ref> "Market prices," [[Mises]] says in a later chapter, "are not expressive of equivalence, but of a divergence in the valuation of the exchanging parties."<ref name="ch26sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap26sec3.asp XXVI. Economic Calculation under Socialism], 3. Recent Suggestions for Socialist Economic Calculation, [[Human Action]], online version, referenced 2011-04-25.</ref>

In using technology, we are resorting to knowledge of causal relations. We are not, however, addressing the technologies applicability to human wants and desires.<ref name="ch11sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec3.asp XI. Valuation Without Calculation], 3. The Problem of Economic Calculation, [[Human Action]], online version, referenced 2011-02-26.</ref>

<blockquote>"Technology tells how a given end could be attained by the employment of various means which can be used together in various combinations, or how various available means could be employed for certain purposes. But it is at a loss to tell man which procedures he should choose out of the infinite variety of imaginable and possible modes of production."<ref name="ch11sec3"></ref></blockquote>

Engineering can tell us how to build a bridge but not whether its construction would draw resources from other areas where they would be used to satisfy more urgently felt needs. [[Action]], as opposed to the casual relations of engineering, must discover the relations between dissimilar projects. [[Money]], holding the status of "universally used medium of exchange," becomes the measure of the worthiness of differing possiblities in the realm of action. Because [[goods]] and services have money prices we can use these in planning and decisions.<ref name="ch11sec3"></ref>

With all action directed toward the future, all economic planning and calculation must be made in regards to the future state of prices. In entrepreneurial ventures the acting man wants the prices of goods produced and sold to be greater than the price of the goods used in production. The practical meaning of [[economic calculation]] is to show how much one is free to consume without impairing the future capacity to produce. The concepts of [[economic calculation]]--[[Profit]] and [[loss]], [[capital]] and [[income]], spending and [[saving]], cost and yield--are developed to ensure efficient use of the resources of society.<ref name="ch11sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec4.asp XI. Valuation Without Calculation], 4. Economic Calculation and The Market, [[Human Action]], online version, referenced 2011-02-26.</ref>

===XII. The Sphere of Economic Calculation===

The acting individual is always concerned with the future. In action he is either, (1) anticipating the future and acting accordingly, or (2) trying to change the outcomes of the future even if there are no other changes to the data. Economic calculation cannot predict the outcomes of the future, it can only assist man in adjusting his actions to his opinion of the future. The numerical exactitude of balance sheets and income statements must not prevent us from realizing their inherent uncertainty and estimation.<ref name="ch12sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec1.asp XII. The Sphere of Economic Calculation], 1. The Character of Monetary Entries, [[Human Action]], online version, referenced 2011-02-27.</ref>

[[Money]] is not a measuring stick. Money prices do not transmit the intrinsic value of a good. [[Prices]] are not measured in money, they consist in money. They are either prices of the past or prices of the future. Furthermore, although it is possible to aggregate prices paid in goods, it makes no sense to talk about a national income or any other aggregate of spending which "characterizes" a society.<ref name="ch12sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec2.asp XII. The Sphere of Economic Calculation], 2. The Limits of Economic Calculation [[Human Action]], online version, referenced 2011-02-27.</ref>

Economic calculation makes sense only in a society with private ownership of the means of production. Economic calculation is not to blame of the masses preferring detective stories to books of philosophy--that is an outcome of the desires and preferences of individuals acting in society. Economic calculation cannot be blamed for the less than ideal characters and habits of other members of society.<ref name="ch12sec2"></ref>

Prices, or exchange ratios, are in constant fluctuation with the changing data of the market and the changing whims of consumers.<ref name="ch12sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec3.asp XII. The Sphere of Economic Calculation], 3. The Changeability of Prices[[Human Action]], online version, referenced 2011-02-27.</ref>

[[Mises]] dismisses the idea of measurement in [[purchasing power]] as unfeasible:

<blockquote>"A measurement of purchasing power would have to rely upon the prices of the goods and services of the first order and, what is more, of ''all'' of them."<ref name="ch12sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec4.asp XII. The Sphere of Economic Calculation], 4. Stabilization [[Human Action]], online version, referenced 2011-02-27.</ref></blockquote>

Further, changes in the [[purchasing power]] of [[money]] must necessarily effect different goods and services at different times and therefore efforts to stabilize the purchasing power of money by attempting to change the money relation is an impossible feat.<ref name="ch12sec4"></ref>

===XIII. Monetary Calculation as a Tool of Action===

Monetary calculation is the decisive factor of action in the social system of [[division of labor]]. Every action of the [[entrepreneur]] is analyzed by monetary calculation. Only in the institutional settings of [[private property]] and [[division of labor]] where goods and services are exchanged by a money can the system of monetary calculation be used. The use of aggregates derived from the use of monetary calculation is useless. That is, monetary calculation is useful for individual acting but cannot be useful to determining "social" values or welfare. By the use of monetary calculation, for example in capital [[accounting]], arithmetic has become a tool in the struggle for a better life. Capital [[accounting]] allows us to analyze the success or failure of men in satisfying the needs of [[consumers]].<ref name="ch13sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap13sec1.asp XIII. Monetary Calculation as a Tool of Action], 1. Monetary Calculation as Method of Thinking [[Human Action]], online version, referenced 2011-03-14.</ref>

<blockquote>"Our civilization is inseparably linked with our methods of economic calculation. It would parish if we were to abandon this most precious intellectual tool of acting. Goethe was right in calling bookkeeping by double entry "one of the finest inventions of the human mind.'"<ref name="ch13sec1"></ref></blockquote>

== Part Four: Catallactics or Economics of the Market Society ==

=== XIV. The Scope and Method of Catallactics ===

<blockquote>"The subject matter of catallactics is all market phenomena with all their roots, ramifications, and consequences."<ref name="ch14sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec1.asp XIV. The Scope and Method of Catallactics], 1. The Delimitation of Catallactic Problems''[[Human Action]]'', online version, referenced 2011-5-30.</ref></blockquote>

The study of actions which are conducted on the basis of monetary calculation, or catallactics, does not care whether actions have good or bad motives. People purchase goods for material reasons and ideal reasons. They make purchases based on metaphysical beliefs and aesthetic value judgments. For economics it is inconsequential the reasons and motives for specific actions--it only cares if the beliefs are acted upon because they help determine the structure of market prices.<ref name="ch14sec1"></ref>

The method of economics, [[Mises]] tells us, is the method of imaginary constructions. This is also the method of praxeology. Imaginary constructions are products of deduction "ultimately derived from the fundamental category of action, the act of preferring and setting aside."<ref name="ch14sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec2.asp XIV. The Scope and Method of Catallactics], 2. The Method of Imaginary Constructions ''[[Human Action]]'', online version, referenced 2011-5-31.</ref> In reference to the imaginary construction [[Mises]] writes:

<blockquote>"The method of imaginary constructions in indispensable for praxeology; it is the only method of praxeological and economic inquiry. It is, to be sure, a method very difficult to handle because it can easily result in fallacious syllogisms. It leads along a sharp edge; on both sides yawns the chasm of absurdity and nonsense. Only merciless self-criticism can present a man from falling headlong into these abysmal depths."<ref name="ch14sec2"></ref></blockquote>

'''The Autistic Economy''': In order to study the effects of interpersonal exchanges, we study an imaginary construction in which they are absent. When it comes to a completely self-sufficient economy we have two imaginary systems we can hypothesize: the isolated individual and the socialist society. It does not matter whether these can calculate or whether they have historically existed, only that they can be thought of in theory.<ref name="ch14sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec4.asp XIV. The Scope and Method of Catallactics], 4. The Autistic Economy ''[[Human Action]]'', online version, referenced 2011-5-31.</ref>

'''The Evenly Rotating Economy''': In creating imaginary constructions we must conceive that all actions ultimately aim at bring about a state in which there is no longer any action, "whether because all uneasiness has been removed or because any further removal of felt uneasiness is out of the question." That is, we create an imaginary construction in which no one wants or needs to act and use this to determine the importance of various aspects of our society.<ref name="ch14sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec5.asp XIV. The Scope and Method of Catallactics], 5. The State of Rest and the Evenly Rotating Economy ''[[Human Action]]'', online version, referenced 2011-5-31.</ref>

:''See [[Evenly Rotating Economy]]''

=== XV. The Market ===

<blockquote>"The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of actions of various individuals cooperating under the division of labor."<ref name="ch15sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec1.asp XV. The Market], 1. Characteristics of the Market Economy, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref></blockquote>

In the market place everyone is an end in himself and an end for other people. Each individual acts on his own behalf, but everyones actions of the market also serve another. In acting everyone is serving everyone else's ends while serving their own. They each aim at the satisfaction of other peoples needs as much as at his own.<ref name="ch15sec1"></ref>

The state of the market is characterized by the totality of [[prices]] within the market which are determined by individuals eager to buy and sell. Additionally, there is no such thing as a "mixed" economy: "it is directed either by the market of by the decrees of a [[production]] tsar or a committee of production tsars."<ref name="ch15sec1"></ref> Publicly owned entities which operating in a market economy must obey the rules of profit and loss as others do. The characteristic feature of the [[market economy]] is its ability to [[calculate]]. Monetary calculation along with the determination of market prices allows the market to calculate. The rational ordering of the [[division of labor]] and of production are resultants of this.<ref name="ch15sec1"></ref>

<blockquote>"The market economy is real because it can calculate."<ref name="ch15sec1"></ref></blockquote>

The central principles in the market economy's calculation are [[income]] and [[capital]]. Income is the amount of resources which can be consumed without lowering the capital of the individual or business. If income is greater than the amount consumed, ''[[savings]]'' results. Conversely, if a man consumes more than his income is it referred to as ''capital consumption''. Capital, here, is the quantity of money representing ownership in the assets of a enterprise (using the term broadly) or the total [[assets]] less the total [[liabilities]].<ref name="ch15sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec2.asp XV. The Market], 2. Capital, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref>

"All civilizations" says [[Mises]], "have up to now been based on private ownership of the means of production." Our system of private ownership of the means of production has poured the horn of plenty on growing population figures. Capitalism has served to allow each man a higher material wealth than even the kings of past ages. Many who argue against capitalism do so because they look upon capitalism as an accidental phenomenon. They do not understand [[private property]] and the concept of free-associations causal relationship with the material wealth of the era. It is the critics of [[capitalism]], [[Mises]] contends, which lack historical understanding, not the economists. To capitalism's enemies, it is the policy advocated by big business, regardless of the fact that big business often advocates for "[[protectionism]], [[cartels]], and the abolition of [[competition]]." And today, it is considered a "legitimate task of government to prevent an efficient man from competing with the less efficient." Advocates of protection, and state imposed limitations on the free-market want to make us believe that the consequences of [[government intervention]] are produced by capitalism.<ref name="ch15sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec3.asp XV. The Market], 3. Capitalism, ''[[Human Action]]'', online version, referenced 2011-04-10.</ref>

In a market economy the [[The Sovereignty of the Consumers|consumers are sovereign]]. Only sellers of the [[first order]] goods are in contact with the consumers, but the consumers buying and abstention from buying is transmitted from the [[consumer goods]] to the [[higher order]] goods (the [[producers goods]]). Consumers, in their capricious buying, determine the income of every member of society and direct production into the hands of individuals best able to serve the consumers.<ref name="ch15sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec4.asp XV. The Market], 4. The Sovereignty of the Consumers, ''[[Human Action]]'', online version, referenced 2011-04-30.</ref>

The consumers designate everyones place in society. The classical economists favored the abolition of the all trade barriers because they protected the less efficient from the more efficient. Trade barriers curtail production and lower the standard of living of all those effected. It is the actions of consumers which determine the prices on the market, and it is these prices which push investors into new lines of business. The bigness of one business will not stop others from trying to compete with it. [[Mises]] writes:

<blockquote>"What a newcomer who wants to defy the vested interests of the old established firms needs most is brains and ideas. If his project is fit to fill the most urgent of the unsatisfied needs of the consumers or to purvey them at a cheaper price than their old purveyors, he will succeed in spite of the much talked of bigness and power of the old firms."<ref name="ch15sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec5.asp XV. The Market], 5. Competition, ''[[Human Action]]'', online version, referenced 2011-05-17.</ref></blockquote>

Competition in the [[catallactic]] sense (i.e., competition in the market place) has a different function than that of games and beauty contests. Its function is to select the individuals most able to control the resources of society to the greatest benefit of the consumers. Humans are not born equal and the consumers do not care: "Their only interest is to secure the best possible satisfaction of their needs."<ref name="ch15sec5"></ref>

In human society, the terms "[[freedom]]" and "[[liberty]]" reference to interhuman relations. For instance [[Mises]] writes, "man was not created free; what freedom he may possess has been given to him by society...Liberty and freedom are the conditions of man within a contractual society."<ref name="ch15sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec6.asp XV. The Market], 6. Freedom, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref> Man in this condition is free to exchange goods and services, but he is by no means independent. He depends on other members of society. We say that a man is free in a contractual society because he serves others to serve himself. The restrains of freedom a man may experience in this environment is due to natural phenomenon only--the laws of nature to which we all unconditionally submit.<ref name="ch15sec6"></ref>

The market system will invariably bestow unequal rewards. This is primarily due to the different levels of service people provide to each other on the [[market]]. That is, it rewards every effort according to its [[value]] as determined by the subjective valuations of the consumers. With respect to inequality, [[Mises]] says:

<blockquote>"No system of social division of labor can do without a method that makes individuals responsible for their contribution to the joint productive effort. If this responsibility is not brought about by the price structure of the market and the inequality of wealth and income it begets, it must be enforced by the methods of direct compulsion as practiced by the police."<ref name="ch15sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec7.asp XV. The Market], 7. Inequality of Wealth and Income, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref></blockquote>

The economic phenomenon of [[profit]] and [[loss]] can be analyzed from an psychic point of view. [[Profit]], in a boarder sense, is the gain derived from [[action]]; it is the increase in satisfaction brought about by the action. In this sense, then, profit is the end of every action. Profit in this psychic sense is not measurable. However in the market economy, [[goods]] and [[services]] are bought and sold with money prices. This allows for the computation of profit and loss using the market prices of the goods and services. [[Profit]], in monetary calculus, is the surplus of [[money]] received over the money expended. It is everyone acting to attain the highest psychic which actuates the market-price mechanism and allows for monetary calculus.

The [[entrepreneur]] encounters the ever changing price structure of the market and makes his profit from correctly anticipating the changes in money prices. In this sense, he is always a speculator.<ref name="ch15sec8">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec8.asp XV. The Market], 8. Entrepreneurial Profit and Loss, ''[[Human Action]]'', online version, referenced 2011-05-19.</ref>

In an expanding or progressing economy the amount of capital invested is increasing per capita. Income is increased either by an increase in technological methods brought about by the increase in capital or simply by an increase in production. Of the increase in wealth (the result of the progressing economy) the majority of it goes to non-entrepreneurial groups. To note again, the market has a tendency to eliminate entrepreneurial profit and it is therefore temporary. In the long run, i.e., when profits have been eliminated by competition, the increase in productivity benefits exclusively the workers and consumers. On progress [[Mises]] writes:

<blockquote>"The vehicle of economic progress is the accumulation of technological methods of production the execution of which is almost always conditioned by the availability of such new capital."<ref name="ch15sec9">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec9.asp XV. The Market], 9. Entrepreneurial Profits and Losses in a Progressing Economy, ''[[Human Action]]'', online version, referenced 2011-05-21.</ref></blockquote>

The greater profits are, the greater is the increment in general prosperity that the enterprise brings. The entrepreneurial function, the driving after profits, is the driving of capital into the most profitable line of business. Which is another way of saying, the driving of capital into which the greatest increase in general prosperity results. Profits and losses are the devices through which consumers exercise their superiority over the owners of capital.<ref name="ch15sec9"></ref>

The entrepreneur hires workers and acts as the mandatary of the consumers. In addressing the many problems and issues that a project encounters the entrepreneur and the technician approach the problem inherently differently. The technician may suggest a method of production which has the greatest physical output. But the entrepreneur must judge differently, namely, economically. Economic calculation saves the entrepreneur from having to look too deeply into problems. Profit and loss are not about prefect production, but about the production which reaps the highest profit--i.e., the production where the most is produced at the lowest cost to society. Managers in an enterprise are essentially an extension of the entrepreneur. They assist in the solving of problems, make use of economic calculation and discover the most economical solution to their problems.<ref name="ch15sec10">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec10.asp XV. The Market], 10. Promoters, Managers, Technicians, and Bureaucrats, ''[[Human Action]]'', online version, referenced 2011-05-30.</ref>

[[Mises]] distinguishes between ''bureaucratic management'' and ''profit management''. In profit management all activities of business are given their worth from the actions of consumers. They dictate the salaries of management and the profits of the entrepreneur and capitalist. Where ever the operation of a system can not be run by profit management, it must be directed by bureaucratic management--i.e., one not concerned with profit and loss.<ref name="ch15sec10"></ref>

<blockquote>"Bureaucratic conduct of affairs, as such, is not an evil. It is only appropriate methods of handling governmental affairs, i.e., the social apparatus of compulsion and coercion. As government is necessary, bureaucratism is--in this field--no less necessary. Where economic calculation is unfeasible, bureaucratic methods are indispensable."<ref name="ch15sec10"></ref></blockquote>

The interplay of market forces, the actions of individuals, their incessant choosing and renunciation, places each individual in their nook of society. It determines the number of copper mines and symphony orchestras. This selection process goes on adjusting peoples station to supply and demand. The owners of factories and capital are compelled to serve the interest of the consumers lest they go out of business. Their ownership in the factories and capital is a liability if they do not concede to the desires of the consumers.<ref name="ch15sec11">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec11.asp XV. The Market], 11. The Selective Process, ''[[Human Action]]'', online version, referenced 2011-06-03.</ref>

<blockquote>"The point of view from which the consumers choose the captains of industry and business is exclusively their qualification to adjust production to the needs of the consumers."<ref name="ch15sec11"></ref></blockquote>

It is common to speak of the automatic reactions of the [[market]]. But the market is not automatic: it is a social body made up of individuals acting, it "is the foremost social body."<ref name="ch15sec12">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec12.asp XV. The Market], 12. The Individual and the Market, ''[[Human Action]]'', online version, referenced 2011-06-04.</ref> Individuals on the market are both consumer and producer. They play both sides, which leads to contradictions: they want to be protected as a [[consumer]] and be protected as a [[producer]]. This is fundamental flaw in many social reforms. Politicians pander to this dichotomous interpretation, advocating interventions of various kinds. But the rhetoric is always the same: "my program will make you as affluent as conditions may permit, while my adversaries' program will bring you want and misery."<ref name="ch15sec12"></ref>

=== XVI. Prices ===

All that [[catallactics]] can assert with regards to the pricing process, is that exchanges only take place if each party values what he receives more highly than what he gives away. Money, being the generally accepted medium of exchange, stands as the common denominator in all exchanges. Money prices are discovered by the continuous exchanges in which individuals trade until what they have is worth more than what the would give away. [[Mises]] writes:

<blockquote>"[Money prices] are determined between extremely narrow margins: the valuations on the one hand of the marginal buyer and those of the marginal offerer who abstains from selling, and the valuations on the other hand of the marginal seller and those of the marginal potential buyer who abstains from buying."<ref name="ch16sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap16sec1.asp XV. The Market], 1. The Pricing Process, ''[[Human Action]]'', online version, referenced 2011-06-04.</ref></blockquote>

:''See [[Marginal utility]]''
:''See [[Final Utility]]''

Prices are the outcome of the valuation of preferring ''a'' to ''b''. The exchange ratio of goods, the price, is not the product of an equality of valuation, but, on the contrary, the product of a discrepancy. Appraisement can be clearly distinguished from valuation in that it is the anticipation of future prices.<ref name="ch16sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap16sec2.asp XV. The Market], 2. Valuation and Appraisement, ''[[Human Action]]'', online version, referenced 2011-06-06.</ref>

Our inability to grasp the entirity of the interplay of forces of the market force us to resort to make shift mental concepts. But all parts cannot be thought of without the context of the whole:

<blockquote>"The price of the goods of higher orders are ultimately determined by the prices of the goods of the first or lowest order, that is, the consumers' goods. As a consequence of this dependence they are ultimately determined by the subjective valuations of all members of the market society. It is, however, important to realize that we are faced with a connection of prices, not with a connection of valuations."<ref name="ch16sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap16sec3.asp XV. The Market], 3. The Prices of the Goods of Higher Orders, ''[[Human Action]]'', online version, referenced 2011-06-06.</ref></blockquote>

Valuation by itself does not bring about the calculating ability of the market. It is the interplay of many individuals preferring and abstaining which brings about market prices and allows for market prices to be used in economic calculation. The market prices the entrepreneur uses for deliberation are always prices of the immediate past. The entrepreneur, however, must focus on prices in the future. Since he must successfully appraise the future price of consumer goods so that he has a reference point from which to bid for the producers goods. Of the factors of production which can be used to produce a product, the factor must be chosen so that it is satisfying the need which it needs most.

<blockquote>"There the economic problem is to employ these factors in such a way that no unit of them should be used for the satisfaction of a less urgent need. It is this that the market solves in determining the prices of the factors of production."<ref name="ch16sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap16sec3.asp XV. The Market], 3. The Prices of the Goods of Higher Orders, ''[[Human Action]]'', online version, referenced 2011-06-22.</ref></blockquote>

<ol style="list-style-type:upper-roman;" start="15">
<li> Indirect Exchange</li>
<li> '''Action in the Passing of Time'''</li>
For humans considering [[action]], time matters: there is a ''too late'' and a ''too early''. [[Time preferences]] affect all action (see [[Value]]).<ref name="mises_action_in_passage_of_time_2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec2.asp XVIII. Action in the Passing of Time], 2. Time Preference as an Essential Requisite of Action, ''[[Human Action]]'', online version, referenced 2011-02-04.</ref>

Postponements of consumption, or [[saving]], is always embodied in concrete goods. "The act of saving," [[Mises]] tells us, "always has its counterpart in a supply of goods produced and not consumed...Man's savings are always embodied in concrete capital goods."<ref name="mises_action_in_passage_of_time_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec9.asp XVIII. Action in the Passing of Time], 9. Money and Capital; Saving and Investment, ''[[Human Action]]'', online version, referenced 2011-02-08.</ref>

The discussion of [[time preference]], and the postponment of consumption, is a lead in to [[interest]].

<li> '''Interest'''</li>

<blockquote>''Main Article: [[Interest]]''</blockquote>

Time preference manifests itself in the phenomenon of [[originary interest]], i.e., the discount of future goods as against present goods.<ref name="mises__human_action_chap19sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec1.asp XIX. The Rate of Interest], The Phenomenon of Interest, [[Human Action]], online version, referenced 2011-02-13.</ref> Originary interest is a ratio, like profit and loss, and not a price.<ref name="mises__human_action_chap19sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec2.asp XIX. The Rate of Interest], Originary Interest, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref> It is the ratio between the value assigned to presents goods against the value assigned to future goods. This discounting explains, for example, the reason why there is finite prices on usable land:

<blockquote>"If the future services which a piece of land can render were to be valued in the same way in which its present services are valued, no finite price would be high enough to impel its owner to sell it."<ref name="mises__human_action_chap19sec2"></ref></blockquote>

We [[discount]] future services and [[goods]] because of [[time preference]]. The fact that we can purchase land which is usable into the foreseeable future is proof of this. Furthermore, [[originary interest]] is not determined by supply and demand of [[loanable funds]]. Time preference, manifesting in the discount of future goods against present goods (i.e., originary interest) determines both the demand and supply of capital and capital goods.<ref name="mises__human_action_chap19sec2"></ref>

Interest rates in loans, in a changing economy, always have an element of entrepreneurial profit. The lender, taking a risk and and making a prediciton about the future state of the market, is engaging in an entrepreneurial venture. Therefore, interest rates on loans are never pure [[originary interest]] but also entrepreneurial profit.<ref name="mises__human_action_chap19sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec4.asp XIX. The Rate of Interest], Originary Interest in the Changing Economy, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref>

<li> Interest, Credit Expansion, and the Trade Cycle</li>
<li> Work and Wages</li>
<li> The Nonhuman Original Factors of Production</li>
<li> The Data of the Market</li>
<li> Harmony and Conflict of Interests</li>
</ol>

== Part Five: Social Cooperation Without a Market ==

<ol style="list-style-type:upper-roman;" start="25">
<li> The Imaginary Construction of a Socialist Society</li>
<li> The Impossibility of Economic Calculation Under Socialism</li>
</ol>

== Part Six: The Hampered Market Economy ==

<ol style="list-style-type:upper-roman;" start="27">
<li> The Government and the Market</li>
<li> Interference by Taxation</li>
<li> Restriction of Production</li>
<li> Interference with the Structure of Prices</li>
<li> Currency and Credit Manipulation</li>
<li> Confiscation and Redistribution</li>
<li> Syndicalism and Corporativism</li>
<li> The Economics of War</li>
<li> The Welfare Principle Versus the Market Principle</li>
<li> The Crisis of Interventionism</li>
</ol>

== Part Seven: The Place of Economics in Society ==
<ol style="list-style-type:upper-roman;" start="38">
<li> The Nondescript Character of Economics</li>
<li> The Place of Economics in Learning</li>
<li> Economics and the Essential Problems of Human Existence</li>
</ol>

==References==
{{Reflist|2}}

==Links==
''{{Store|http://www.mises.org/store/Human-Action-The-Scholars-Edition-P119.aspx|Human Action (Scholar's Edition)}}''

* Mises Made Easier: [http://mises.org/Easier/Easier.asp Glossary for Human Action]
* [http://mises.org/humanaction/theindex.asp Human Action interactive index]
* [http://mises.org/resources.aspx?Id=3250&html=1#Publication_History ''Human Action'' publication history]
* [http://mises.org/daily/137 "Human Action: What the Archives Tell Us"] by [[Jeffrey M. Herbener]], January 1999

===Editions===
* ''Human Action: A Treatise on Economics'', 1998 Scholar's Edition:
** {{mr|3250|Resources page}}
** {{mr|3810|Study Guide}}
*** [http://mises.org/daily/3262 "Study Guide to Human Action"] by [[Robert Murphy]], December 2008
*** [http://blog.mises.org/6708/weekend-study-guide/ "Weekend Study Guide"] (individual chapter downloads)
*** [http://blog.mises.org/15181/the-human-action-study-guide-as-our-armor/ "The Human Action Study Guide is our armor"] by Jim Fedako, December 2010
** [http://mises.org/media/category/139 Audiobook] read by [[Jeff Riggenbach]]
** Mises Daily excerpts
*** [http://mises.org/daily/3328 Introduction]
*** [http://mises.org/daily/2506 Chapter 1] "Acting Man"
*** [http://mises.org/daily/2565 Chapter 2] "The Sciences of Human Action" ([http://mises.org/daily/2606 study guide])
*** [http://mises.org/daily/2535 Chapter 3] "Economics and the Revolt Against Reason" ([http://mises.org/daily/2574 study guide])
*** [http://mises.org/daily/2711 Chapter 4] "A First Analysis of the Category of Action" ([http://mises.org/daily/2712 study guide])
*** [http://mises.org/daily/2730 Chapter 5] "Time and Praxeology" ([http://mises.org/daily/2731 study guide])
*** [http://mises.org/daily/2608 Chapter 6] "Uncertainty" ([http://mises.org/daily/2615 study guide])
*** [http://mises.org/daily/2774 Chapter 7] "Action Within the World" ([http://mises.org/daily/2778 study guide])
*** [http://mises.org/daily/2813 Chapter 8] "Human Society" ([http://mises.org/daily/2814 study guide])
*** [http://mises.org/daily/2841 Chapter 9] "The Role of Ideas" ([http://mises.org/daily/2843 study guide])
*** [http://mises.org/daily/2849 Chapter 10] "Exchange Within Society" ([http://mises.org/daily/2850 study guide])
*** [http://mises.org/daily/2880 Chapter 11] "Valuation Without Calculation" ([http://mises.org/daily/2881 study guide])
*** [http://mises.org/daily/2933 Chapter 12] "The Sphere of Economic Calculation" ([http://mises.org/daily/2939 study guide])
*** [http://mises.org/daily/2979 Chapter 14] "The Scope and Method of Catallactics" ([http://mises.org/daily/2980 study guide])
*** Chapter 15 ([http://mises.org/daily/3029 Part I], [http://mises.org/daily/3030 Part II]) "The Market" ([http://mises.org/daily/3005 study guide])
*** Chapter 16 ([http://mises.org/daily/3067 Part I], [http://mises.org/daily/3099 Part II], [http://mises.org/daily/3552 Part III]) "Prices" ([http://mises.org/daily/3068 study guide])

* ''Human Action: A Treatise on Economics'', 1996 4th Revised Edition:
** Foreword to the 4th edition by Bettina B. Greaves (p. v) ([http://mises.org/humanaction/forward.asp HTML], [http://mises.org/humanaction/pdf/ha_002.pdf PDF])
** Full text ([http://mises.org/books/humanaction.pdf PDF])

* ''Human Action: A Treatise on Economics'', 1966 3rd Revised Edition:
** Foreword to the 3rd edition by Ludwig von Mises ([http://mises.org/humanaction/foreword3.asp HTML], [http://mises.org/humanaction/pdf/ha_003.pdf PDF])
** Additions to Human Action in the 3rd edition ([http://mises.org/humanaction/ha3rd-addition.pdf PDF])

* ''Human Action: A Treatise on Economics'', Abridged Edition:
** Text ([http://blog.mises.org/9147/human-action-abridged/ HTML])

===Other resources===
*Articles, essays & reviews
** [http://mises.org/daily/2975 "Epistemological Relativism in the Sciences of Human Action"] Ludwig von Mises, 1960
** "The Place of Mises's Human Action in the Development of Modern Economic Thought" ([http://mises.org/journals/qjae/pdf/Qjae213.pdf PDF]) {{Nowrap|by [[Joseph T. Salerno]], Spring 1999}}
** [http://mises.org/resources/804 "Reflections on Human Action after 50 Years"] by [[Vernon L. Smith]], Fall 1999
** [http://mises.org/resources/805 "The Methodology of Human Action"] by [[Lawrence H. White]], Fall 1999
** [http://mises.org/daily/3363 "Human Action at Sixty"] by Richard M. Ebeling, March 2009
** [http://mises.org/daily/5237/Misess-Gift-of-Human-Action "Mises's Gift of Human Action"] by Jonathan M. Finegold Catalan, May 2011
** [http://mises.org/efandi/ch10.asp "The Why of Human Action"] by Ludwig von Mises, September 1949
** Mises Review: [http://mises.org/misesreview_detail.aspx?control=127 "Human Action, The Scholar's Edition"] by [[David Gordon]], Winter 1999 (republished as Mises Daily [http://mises.org/daily/3655 here])
** [http://blog.mises.org/14807/the-power-of-the-pocket-edition/ "The Power of the Pocket Edition"] by [[Jeffrey Tucker]], November 2010

* Other media
** In Studio: "Human Action: Pocket Edition" interview with [[Douglas French]], ([http://www.youtube.com/watch?v=Mou5ID13HqI YouTube])
** [http://www.apriorist.de/modx/hauyf/ ''Acting Man'' online lesson]
** [http://mises.org/quotes.aspx?action=source&Source=Human%20Action ''Human Action'' quotes]

* {{wplink}}

{{See also|Human Action Comics}}
{{Mises books}}

[[Category:Writings of Ludwig von Mises]]
[[Category:Writings on economics]]

Paradox of value

2011-06-22T16:58:14Z

Huckelberry: Created page with "The '''paradox of value''' is the peculiar difference between the value of something in exchange and its value in use. For instance, gold has a higher value in exchange than iron..."

The '''paradox of value''' is the peculiar difference between the value of something in exchange and its value in use. For instance, gold has a higher value in exchange than iron, but iron is much more useful. Adam Smith writes:

<blockquote>"What are the rules which men naturally observe in exchanging them [goods] for money or for one another, I shall now proceed to examine. These rules determine what may be called the relative or exchangeable value of goods. The word VALUE, it is to be observed, has two different meanings, and sometimes expresses the utility of some particular object, and sometimes the power of purchasing other goods which the possession of that object conveys. The one may be called "value in use;" the other, "value in exchange." The things which have the greatest value in use have frequently little or no value in exchange; on the contrary, those which have the greatest value in exchange have frequently little or no value in use. Nothing is more useful than water: but it will purchase scarce anything; scarce anything can be had in exchange for it. A diamond, on the contrary, has scarce any use-value; but a very great quantity of other goods may frequently be had in exchange for it."</blockquote>

{{stub}}

Human Action

2011-06-20T16:15:55Z

Huckelberry: /* XVI. Prices */

{{Infobox book
| name = Human Action: A Treatise on Economics
| title_orig =
| translator =
| image = 
| image_caption =
| author = [[Ludwig von Mises]]
| illustrator =
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| country = [[United States]]
| language =
| series =
| subject = [[Economics]], [[Political economy]]
| genre = [[Non-fiction]]
| publisher = [[Yale University Press]]
| pub_date = [[1949]]
| english_pub_date =
| media_type = Print
| pages = 889 pp.
| isbn =
| oclc = 2595286
| dewey =
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}}

'''''Human Action: A Treatise on Economics''''' is the [[magnum opus]] of [[Ludwig von Mises]], first published in 1949. It defined a large part of present [[Austrian Economics]].

<blockquote>"It is true that economics is a theoretical science and as such abstains from any judgment of value...Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends."<ref name="humanaction_intro_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/introsec3.asp Introduction], 3. Introduction, [[Human Action]], online version, referenced 2011-02-05.</ref></blockquote>

== Part One: Human Action ==

===I. Acting Man===

<blockquote>''Main Article: [[Action]].''</blockquote>

The science of human action is called [[praxeology]]. Human action always involves [[opportunity cost]] and it is always ''purposeful''. <ref name="humanaction_ch1sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap1sec1.asp I. Acting Man], 1. Purposeful Action and Animal Reaction, [[Human Action]], online version, referenced 2011-02-06.</ref>

===II. The Epistemological Problems of the Sciences of Human Action===

[[Ludwig von Mises]] takes the [[logical deductive]] approach to economics, as opposed to the [[empirical]] (or the [[logical positivist]] approach). Economic problems cannot be solved [[empirically]] because renunciation and long-term planning can not be seen. Humans act to attain definite ends--and economic phenomena can be understood as such.

<blockquote>"[[Praxeology]] is a theoretical and systematic, not a historical, science...It aims at knowledge valid for all instances in which the conditions exactly correspond to those implied in its assumptions and inferences. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, ''[[a priori]]''."<ref name="humanaction_ch2sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec1.asp II. Epistemological Problems of Human Action], 1. Praxeology and History, [[Human Action]], online version, referenced 2011-02-06.</ref></blockquote>

Like geometry, [[praxeology]] is not subject to disproof. This method may be called ''methodological apriorism''.<ref name="humanaction_ch2sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec2.asp II. Epistemological Problems of Human Action], 2. The Formal and Aprioristic Character of Praxeology, [[Human Action]], online version, referenced 2011-02-06.</ref>

===III. Economics and the Revolt Against Reason===

[[Mises]] dismisses the [[Historical School]], [[Hegel]] and [[Marx]] with it. In discussing the "bourgeois logic" and "bourgeois mentality" of [[Marx]], [[Mises]] is able to attack [[polylogism]] in general. There does not exist multiple logics, only differing interests and their logical conclusions--whether they are spurious or well-founded. [[Mises]] states with regard to the [[Historical School]], "History, in due time, will arrange everything for the best. It does not need the advice of mortal men."<ref name="humanaction_ch3sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap3sec1.asp III. Economics and the Revolt Against Reason], 1. The Revolt Against Reason, [[Human Action]], online version, referenced 2011-02-06.</ref>

<blockquote>''See [[German Idealism]].''</blockquote>

===IV. A First Analysis of the Category of Action===

<blockquote>''Main Article: [[Value]]''</blockquote>

All actions are directed toward goals, aims or ends. The end, speaking generally, is always to remove a ''felt uneasiness''. Means are the ways by which we reach an end. Things in the world, when applied to our ends, become means and are commonly referred to as [[goods]].<ref name="humanaction_ch4sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec1.asp IV. A First Analysis of The Category of Action], 1. Ends and Means, [[Human Action]], online version, referenced 2011-02-06.</ref> Means are [[Scarcity|scarce]].

Actions are reflective of our ''scale of [[value|values]]''. All things equal, we satisfy wants of higher [[value]] to us, and leave unsatisfied wants of lower [[value]] to us. Things in the world have no intrinsic [[value]], our actions give things [[value]].<ref name="humanaction_ch4sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec2.asp IV. A First Analysis of The Category of Action], 2. The Scale of Value, [[Human Action]], online version, referenced 2011-02-06.</ref>

Given that every action is an attempt to establish a more satisfactory state of affairs, viz., to remove a ''felt uneasiness'', all actions are in a sense an [[exchange]]. We [[exchange]] one state for another, hopefully better, state. Lastly, value judgments arrange wants, but do not measure them. They are expressive of sequence and order rather than of measurement and weight.<ref name="humanaction_ch4sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp IV. A First Analysis of The Category of Action], 4. Action as Exchange, [[Human Action]], online version, referenced 2011-02-06.</ref>

===V. Time===

Time is a [[Praxeology|praxeological]] category: all action is in time and is subject to time.<ref name="humanaction_ch5sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp V. Time], 2. Past, Present and Future, [[Human Action]], online version, referenced 2011-02-07.</ref> As humans, our time is [[Scarcity|scarce]] and we must economize it accordingly. Our scales of [[value]] and therefore our actions are always with reference to time. As we will see later, time is important in the determination of [[interest]] and consumption.<ref name="humanaction_ch5sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap5sec3.asp V. Time], 3. The Economization of Time, [[Human Action]], online version, referenced 2011-02-07.</ref>

===VI. Uncertainty===

All action is speculative. We never know exactly what will occur. The natural sciences make it possible to foretell results from specific actions. They do not make the future predictable.<ref name="humanaction_ch6sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec1.asp VI. Uncertainty], 1. Uncertainty and Acting, [[Human Action]], online version, referenced 2011-02-08.</ref> But, [[Mises]] tells us, probability is a primary concern of [[praxeology]].

He distinguished between two types of propability: [[class probability]] and [[case probability]].

<blockquote>"''[[Class probability]] means'': We know or assume to know, with regard to the problem concerned, everything about the behavior of a whole class of events or phenomena; but about the actual singular events or phenomena we know nothing but that they are elements of this class."<ref name="humanaction_ch6sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec3.asp VI. Uncertainty], 3. Class Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, car insurance works on the premise that with a large pool of policies, they can use class probability to decide upon an approriate premium given the ''class probability'' of accidents. But, they know nothing about the probability of the individual policy holder getting into an accident.

<blockquote>"''[[Case probability]]'' means: We know, with regard to a particular event, some of the factors which determine its outcome; but there are other determining factors about which we know nothing."<ref name="humanaction_ch6sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec4.asp VI. Uncertainty], 4. Case Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, foreign policy experts may make predictions about the settlement of foreign disputes. They are well informed but it is impossible for them to predict the outcome perfectly because they can not grasp all the data and all the opinions of individuals shaping decisions. Therefore, they may know some of the factors that will shape the future, but never perfectly.

For [[Mises]], we make decisions with incomplete knowledge. To say it again, all action is speculative in character. To this difficulty in decisions, specifically in social cooperation where selection occurs, competition serves as a function to select the most able person for specific positions. It assigns every member of society to the position where they best serve society.<ref name="humanaction_ch6sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec6.asp VI. Uncertainty], 6. Betting, Gambling, and Playing Games, [[Human Action]], online version, referenced 2011-02-08.</ref>

===VII. Action Within the World===

Each person possesses one scale of valuations, which is visible through action.<ref name="humanaction_ch7sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec1.asp VII. Action Within The World], 1. The Law of Marginal Utility, [[Human Action]], online version, referenced 2011-02-13.</ref> Goods and modes of action are chosen based on their utility, or their causal relevance for the removal of felt ''uneasiness''.<ref name="humanaction_ch7sec1"></ref> Here [[Mises]] discusses the [[paradox of value]]: why is ''gold'' more valuable than ''iron''? Despite the many uses of iron, gold is valued more on the market because of its value in exchange. Iron may have more technological prospects or ''objective use-value'' but it lacks ''subjective use-value'', that is, gold is valuable in exchange due to scarcity, appearance and its tradition as a form of money. [[Mises]], however, dismisses the question as one which never occurs in reality.<ref name="humanaction_ch7sec1"></ref>

The [[Law of Marginal Utility]] is implied by the category of action: If a supply increases from quantity ''n'' to ''n + 1'' the extra unit provides less [[utility]] than unit ''n''. This is because ''n'' is satisfying a more urgent want than unit ''n + 1''. We satisfy more urgent wants first by their definition. Unit ''n'' is satisfying the more urgent want, ''n + 1'' is satisfying a less urgent want. Therefore, increasing units of a homogeneous supply are each applied to decreasingly important wants (seeing as the more urgent wants are always satisfied first). The [[law of marginal utility]], "does not deal primarily with the [[value]] of things, but with the [[value]] of the services a man expects to get from them."<ref name="humanaction_ch7sec1"></ref>

"[[Labor]]," says [[Mises]], "is preferred to leisure only insofar as the yield of [[labor]] is more urgently desired than the enjoyment of leisure."<ref name="humanaction_ch7sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec3.asp VII. Action Within The World], 3. Labor as Means, [[Human Action]], online version, referenced 2011-02-13.</ref> Work involves disutility. To this note, [[labor]] is more scarce than other material factors of production:

<blockquote>"In our world there is no abundance, but a shortage of manpower, and there are unused material factors of production, i.e. land, mineral deposits, and even plants and equipment."<ref name="humanaction_ch7sec3"></ref></blockquote>

Labor saving devices reduce want, they do not bring about "technological unemployment." Man economizes both labor and material factors.<ref name="humanaction_ch7sec3"></ref>

Action is successful it it produces the intended result: it produces the product. The human mind directs [[action]] with a purpose and production is creative. It is not something physical, natural, and external; it is a spiritual and intellectual phenomenon. All material actions within the world are a product of the mind. "In this sense," [[Mises]] tells us, "[[praxeology]] can be called a moral science."<ref name="humanaction_ch7sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec4.asp VII. Action Within The World], 4. Production, [[Human Action]], online version, referenced 2011-02-13.</ref>

== Part Two: Actions Within the Framework of Society ==

===VIII. Human Society===

We are born into society and only in this sense does society exist before the individual. [[Society]] is the supreme example of the benefits of the [[division of labor]].<ref name="ch8sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec1.asp VIII. Human Society], 1. Human Cooperation, [[Human Action]], online version, referenced 2011-02-17.</ref> It is an institution for the preservation of peaceful human relations. It is the social apparatus of compulsion and coercion.<ref name="ch8sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec2.asp VIII. Human Society], 2. A Critique of the Holistic and Metaphysical View of Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

[[Democratic government]] provides a method for the peaceful adjustment of government to the will of the majority. Wisdom and science thrive in a peaceful and affluent society. <ref name="ch8sec2"></ref>

<blockquote>"[[Liberalism]] aims at a political constitution which safeguards the smooth working of social cooperation and the progressive intensification of mutual social relations. Its main objective is the avoidance of violent conflicts, of wars and revolutions that must disintegrate the social collaboration of men and throw people back into the primitive conditions of barbarism where all tribes and political bodies endlessly fought one another. Because the division of labor requires undisturbed peace, liberalism aims at the establishment of a system of government that is likely to preserve peace, viz., [[democracy]]."<ref name="ch8sec2"></ref></blockquote>

[[Mises]] expounds the Ricardian Law of Association or [[comparative advantage]] as the fundamental characteristic of society.<ref name="ch8sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association, [[Human Action]], online version, referenced 2011-02-17.</ref> The division of labor assigns to each man the best job for him in society.<ref name="humanaction_ch6sec6"></ref> However, the end result of division of labor in society--a diversity which attests to the innate inequalities between individuals--does not illistrate ideas of [[Social Darwinism]]. Biology and evolutionary views cannot pass value judgments on the benefits of civilization.<ref name="ch8sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec7.asp VIII. Human Society], 7. The Great Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

===IX. The Role of Ideas===

All [[action]] is preceded by thinking. Thinking is to deliberate before [[action]] and to reflect upon past [[action]]. Thinking is a tool of action and language is a tool of thinking. All action is based on a definite idea about causal relations. Thinking and ideas are, like material wealth, passed down the generations.<ref name="ch9sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec1.asp IX. Human Society], 1. Human Reason, [[Human Action]], online version, referenced 2011-02-18.</ref> Action is always directed by ideas.<ref name="ch9sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec3.asp IX. Human Society], 3. Might, [[Human Action]], online version, referenced 2011-02-18.</ref>

[[Ideologies|Ideology]] and world views are explanations of social phenomena and technologies for prescriptive politics. All political doctrines imply that: "the political system we support will render you more prosperous and more content."<ref name="ch9sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec2.asp IX. Human Society], 2. World View and Ideology, [[Human Action]], online version, referenced 2011-02-18.</ref> [[Ideologies]], to [[Mises]], are the most powerful form of control. The might of a politician is due to his [[ideology]], his interpretation of the world and his prescriptive measures to ensure his followers are more prosperous and more content. Thinking, the ideological interpretation, succeeds through the cooperation of other minds. No thinker is isolated in his thoughts, they have been influenced by others. A politician's power dwindles if his [[ideology]] loses support. To [[Mises]]:

<blockquote>"The power of an ideology consists precisely in the fact that people submit to it without any wavering and scruples."<ref name="ch9sec3"></ref></blockquote>

Traditionalism and the idea of progress are ideologies also. Progress toward a more prosperous life and evolutionary progress must not be confused with evolution toward higher forms of life. Progress may not continue, majorities may error.<ref name="ch9sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec4.asp IX. Human Society], 4. Meliorism and the Idea of Progress, [[Human Action]], online version, referenced 2011-02-18.</ref> Ideologies may protect the material interest of the race or they may destroy it.

===X. Exchange Within Society===

[[Action]] always is essentially the exchange of one state of affairs for another state of affairs.<ref name="ch10sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec1.asp X. Exchange Within Society], 1. Autistic Exchange and Interpersonal Exchange, [[Human Action]], online version, referenced 2011-02-25.</ref> The interpersonal exchange of goods weaves the bonds which unites men into societies.<ref name="ch10sec1"></ref> [[Mises]] defines two different kinds of social cooperation: cooperation by virtue of contract and coordination, and contract by virtue of command and subordination or hegemony.<ref name="ch10sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec2.asp X. Exchange Within Society], 2. Contractual Bonds and Hegemonic Bonds, [[Human Action]], online version, referenced 2011-02-25.</ref> In the former state there are men who cooperate to achieve goals--their plans are symmetrical and share a common goal. In the latter state their is always two classes of men, those who command and those who obey. Again [[Mises]] emphasizes the important of ideology to animate the social body. The individuals must share an [[ideology]] if they are to cooperate. Hegemonic control needs an ideology that the controlling system is the best or the traditional norm. [[Ideologies]] imply obedience to the [[ideology]]. Contractual relation order society by free association held together by the order of right and law.<ref name="ch10sec2"></ref>

The [[Praxeology|praxeological]] categories, [[Mises]] tells us, are eternal and unchangable. They are the categories within which all action takes place. No [[action]] is free from the facts of existence--of which the praxeological categories belong.<ref name="ch10sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec3.asp X. Exchange Within Society], 3. Calculative Action, [[Human Action]], online version, referenced 2011-02-25.</ref> Man can never comprehend anything that is neither [[action]] or none action.

Modern civilization is characterized by the fact that it has elaborated a method which makes use of the arithmetic possible in a broad field of activities. [[Economic calculation]], for example in modern capital [[accounting]], is a fundamental issue in all comprehension of economic phenomena.<ref name="ch10sec3"></ref>

Despite the extended use of capital [[accounting]] and arithmetic, [[action]] can only make use of ordinal numbers. That is, actions order desires but do not measure them. But in our rational and contractual society we are able to make use of cardinal numbers in capital accounting. By this feature of capital accounting and contractual relations civilization opened the door to computation and calculation regarding the planning of the future and measuring the effects of past actions. Still, the applicability of cardinal numbers to economic thinking require these circumstances and economic law and theory cannot be deduced from [[economic history]], namely, the history of prices.<ref name="ch10sec3"></ref>

== Part Three: Economic Calculation ==

===XI. Valuation Without Calculation===

We apply the [[value|values]] we attribute to the ends of [[action]], to the means necessary to achieve those ends: "Other things being equal, [acting man] assigns to the total amount of the various means the same value he attaches to the end which they are fit to bring about."<ref name="ch11sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec1.asp XI. Valuation Without Calculation], 1. Gradation of Means, [[Human Action]], online version, referenced 2011-02-26.</ref>

The preferences used in [[action]], the laying aside of some things for other things, allows--as said above--the use of ordinal numbers but not cardinal numbers. Again, [[value|values]] attributable to actions cannot be measured arithmetically. Yet, in the activity of using means to attain certain ends, the acquisition of countable and measurable supplies of things becomes an immediate goal of action.<ref name="ch11sec1"></ref> [[Economic calculation]] can occur, despite that the values we attribute to different means and ends cannot be measured, by the results of actions of interpersonal exchange:

<blockquote>"The modern theory of value and prices show how the choices of individuals, their preferring some things and setting aside of other things, results, in the sphere of interpersonal exchange, in the emergence of market prices."<ref name="ch11sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec2.asp XI. Valuation Without Calculation], 2. The Barter-Fiction of the Elementary Theory of Value and Prices, [[Human Action]], online version, referenced 2011-02-26.</ref></blockquote>

[[Mises]] reminds us that is it a fallacy to think things exchanged are of the same value. Rather, people buy and sell only because they appraise the things given up less than those received.<ref name="ch11sec2"></ref> "Market prices," [[Mises]] says in a later chapter, "are not expressive of equivalence, but of a divergence in the valuation of the exchanging parties."<ref name="ch26sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap26sec3.asp XXVI. Economic Calculation under Socialism], 3. Recent Suggestions for Socialist Economic Calculation, [[Human Action]], online version, referenced 2011-04-25.</ref>

In using technology, we are resorting to knowledge of causal relations. We are not, however, addressing the technologies applicability to human wants and desires.<ref name="ch11sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec3.asp XI. Valuation Without Calculation], 3. The Problem of Economic Calculation, [[Human Action]], online version, referenced 2011-02-26.</ref>

<blockquote>"Technology tells how a given end could be attained by the employment of various means which can be used together in various combinations, or how various available means could be employed for certain purposes. But it is at a loss to tell man which procedures he should choose out of the infinite variety of imaginable and possible modes of production."<ref name="ch11sec3"></ref></blockquote>

Engineering can tell us how to build a bridge but not whether its construction would draw resources from other areas where they would be used to satisfy more urgently felt needs. [[Action]], as opposed to the casual relations of engineering, must discover the relations between dissimilar projects. [[Money]], holding the status of "universally used medium of exchange," becomes the measure of the worthiness of differing possiblities in the realm of action. Because [[goods]] and services have money prices we can use these in planning and decisions.<ref name="ch11sec3"></ref>

With all action directed toward the future, all economic planning and calculation must be made in regards to the future state of prices. In entrepreneurial ventures the acting man wants the prices of goods produced and sold to be greater than the price of the goods used in production. The practical meaning of [[economic calculation]] is to show how much one is free to consume without impairing the future capacity to produce. The concepts of [[economic calculation]]--[[Profit]] and [[loss]], [[capital]] and [[income]], spending and [[saving]], cost and yield--are developed to ensure efficient use of the resources of society.<ref name="ch11sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec4.asp XI. Valuation Without Calculation], 4. Economic Calculation and The Market, [[Human Action]], online version, referenced 2011-02-26.</ref>

===XII. The Sphere of Economic Calculation===

The acting individual is always concerned with the future. In action he is either, (1) anticipating the future and acting accordingly, or (2) trying to change the outcomes of the future even if there are no other changes to the data. Economic calculation cannot predict the outcomes of the future, it can only assist man in adjusting his actions to his opinion of the future. The numerical exactitude of balance sheets and income statements must not prevent us from realizing their inherent uncertainty and estimation.<ref name="ch12sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec1.asp XII. The Sphere of Economic Calculation], 1. The Character of Monetary Entries, [[Human Action]], online version, referenced 2011-02-27.</ref>

[[Money]] is not a measuring stick. Money prices do not transmit the intrinsic value of a good. [[Prices]] are not measured in money, they consist in money. They are either prices of the past or prices of the future. Furthermore, although it is possible to aggregate prices paid in goods, it makes no sense to talk about a national income or any other aggregate of spending which "characterizes" a society.<ref name="ch12sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec2.asp XII. The Sphere of Economic Calculation], 2. The Limits of Economic Calculation [[Human Action]], online version, referenced 2011-02-27.</ref>

Economic calculation makes sense only in a society with private ownership of the means of production. Economic calculation is not to blame of the masses preferring detective stories to books of philosophy--that is an outcome of the desires and preferences of individuals acting in society. Economic calculation cannot be blamed for the less than ideal characters and habits of other members of society.<ref name="ch12sec2"></ref>

Prices, or exchange ratios, are in constant fluctuation with the changing data of the market and the changing whims of consumers.<ref name="ch12sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec3.asp XII. The Sphere of Economic Calculation], 3. The Changeability of Prices[[Human Action]], online version, referenced 2011-02-27.</ref>

[[Mises]] dismisses the idea of measurement in [[purchasing power]] as unfeasible:

<blockquote>"A measurement of purchasing power would have to rely upon the prices of the goods and services of the first order and, what is more, of ''all'' of them."<ref name="ch12sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec4.asp XII. The Sphere of Economic Calculation], 4. Stabilization [[Human Action]], online version, referenced 2011-02-27.</ref></blockquote>

Further, changes in the [[purchasing power]] of [[money]] must necessarily effect different goods and services at different times and therefore efforts to stabilize the purchasing power of money by attempting to change the money relation is an impossible feat.<ref name="ch12sec4"></ref>

===XIII. Monetary Calculation as a Tool of Action===

Monetary calculation is the decisive factor of action in the social system of [[division of labor]]. Every action of the [[entrepreneur]] is analyzed by monetary calculation. Only in the institutional settings of [[private property]] and [[division of labor]] where goods and services are exchanged by a money can the system of monetary calculation be used. The use of aggregates derived from the use of monetary calculation is useless. That is, monetary calculation is useful for individual acting but cannot be useful to determining "social" values or welfare. By the use of monetary calculation, for example in capital [[accounting]], arithmetic has become a tool in the struggle for a better life. Capital [[accounting]] allows us to analyze the success or failure of men in satisfying the needs of [[consumers]].<ref name="ch13sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap13sec1.asp XIII. Monetary Calculation as a Tool of Action], 1. Monetary Calculation as Method of Thinking [[Human Action]], online version, referenced 2011-03-14.</ref>

<blockquote>"Our civilization is inseparably linked with our methods of economic calculation. It would parish if we were to abandon this most precious intellectual tool of acting. Goethe was right in calling bookkeeping by double entry "one of the finest inventions of the human mind.'"<ref name="ch13sec1"></ref></blockquote>

== Part Four: Catallactics or Economics of the Market Society ==

=== XIV. The Scope and Method of Catallactics ===

<blockquote>"The subject matter of catallactics is all market phenomena with all their roots, ramifications, and consequences."<ref name="ch14sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec1.asp XIV. The Scope and Method of Catallactics], 1. The Delimitation of Catallactic Problems''[[Human Action]]'', online version, referenced 2011-5-30.</ref></blockquote>

The study of actions which are conducted on the basis of monetary calculation, or catallactics, does not care whether actions have good or bad motives. People purchase goods for material reasons and ideal reasons. They make purchases based on metaphysical beliefs and aesthetic value judgments. For economics it is inconsequential the reasons and motives for specific actions--it only cares if the beliefs are acted upon because they help determine the structure of market prices.<ref name="ch14sec1"></ref>

The method of economics, [[Mises]] tells us, is the method of imaginary constructions. This is also the method of praxeology. Imaginary constructions are products of deduction "ultimately derived from the fundamental category of action, the act of preferring and setting aside."<ref name="ch14sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec2.asp XIV. The Scope and Method of Catallactics], 2. The Method of Imaginary Constructions ''[[Human Action]]'', online version, referenced 2011-5-31.</ref> In reference to the imaginary construction [[Mises]] writes:

<blockquote>"The method of imaginary constructions in indispensable for praxeology; it is the only method of praxeological and economic inquiry. It is, to be sure, a method very difficult to handle because it can easily result in fallacious syllogisms. It leads along a sharp edge; on both sides yawns the chasm of absurdity and nonsense. Only merciless self-criticism can present a man from falling headlong into these abysmal depths."<ref name="ch14sec2"></ref></blockquote>

'''The Autistic Economy''': In order to study the effects of interpersonal exchanges, we study an imaginary construction in which they are absent. When it comes to a completely self-sufficient economy we have two imaginary systems we can hypothesize: the isolated individual and the socialist society. It does not matter whether these can calculate or whether they have historically existed, only that they can be thought of in theory.<ref name="ch14sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec4.asp XIV. The Scope and Method of Catallactics], 4. The Autistic Economy ''[[Human Action]]'', online version, referenced 2011-5-31.</ref>

'''The Evenly Rotating Economy''': In creating imaginary constructions we must conceive that all actions ultimately aim at bring about a state in which there is no longer any action, "whether because all uneasiness has been removed or because any further removal of felt uneasiness is out of the question." That is, we create an imaginary construction in which no one wants or needs to act and use this to determine the importance of various aspects of our society.<ref name="ch14sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec5.asp XIV. The Scope and Method of Catallactics], 5. The State of Rest and the Evenly Rotating Economy ''[[Human Action]]'', online version, referenced 2011-5-31.</ref>

:''See [[Evenly Rotating Economy]]''

=== XV. The Market ===

<blockquote>"The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of actions of various individuals cooperating under the division of labor."<ref name="ch15sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec1.asp XV. The Market], 1. Characteristics of the Market Economy, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref></blockquote>

In the market place everyone is an end in himself and an end for other people. Each individual acts on his own behalf, but everyones actions of the market also serve another. In acting everyone is serving everyone else's ends while serving their own. They each aim at the satisfaction of other peoples needs as much as at his own.<ref name="ch15sec1"></ref>

The state of the market is characterized by the totality of [[prices]] within the market which are determined by individuals eager to buy and sell. Additionally, there is no such thing as a "mixed" economy: "it is directed either by the market of by the decrees of a [[production]] tsar or a committee of production tsars."<ref name="ch15sec1"></ref> Publicly owned entities which operating in a market economy must obey the rules of profit and loss as others do. The characteristic feature of the [[market economy]] is its ability to [[calculate]]. Monetary calculation along with the determination of market prices allows the market to calculate. The rational ordering of the [[division of labor]] and of production are resultants of this.<ref name="ch15sec1"></ref>

<blockquote>"The market economy is real because it can calculate."<ref name="ch15sec1"></ref></blockquote>

The central principles in the market economy's calculation are [[income]] and [[capital]]. Income is the amount of resources which can be consumed without lowering the capital of the individual or business. If income is greater than the amount consumed, ''[[savings]]'' results. Conversely, if a man consumes more than his income is it referred to as ''capital consumption''. Capital, here, is the quantity of money representing ownership in the assets of a enterprise (using the term broadly) or the total [[assets]] less the total [[liabilities]].<ref name="ch15sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec2.asp XV. The Market], 2. Capital, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref>

"All civilizations" says [[Mises]], "have up to now been based on private ownership of the means of production." Our system of private ownership of the means of production has poured the horn of plenty on growing population figures. Capitalism has served to allow each man a higher material wealth than even the kings of past ages. Many who argue against capitalism do so because they look upon capitalism as an accidental phenomenon. They do not understand [[private property]] and the concept of free-associations causal relationship with the material wealth of the era. It is the critics of [[capitalism]], [[Mises]] contends, which lack historical understanding, not the economists. To capitalism's enemies, it is the policy advocated by big business, regardless of the fact that big business often advocates for "[[protectionism]], [[cartels]], and the abolition of [[competition]]." And today, it is considered a "legitimate task of government to prevent an efficient man from competing with the less efficient." Advocates of protection, and state imposed limitations on the free-market want to make us believe that the consequences of [[government intervention]] are produced by capitalism.<ref name="ch15sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec3.asp XV. The Market], 3. Capitalism, ''[[Human Action]]'', online version, referenced 2011-04-10.</ref>

In a market economy the [[The Sovereignty of the Consumers|consumers are sovereign]]. Only sellers of the [[first order]] goods are in contact with the consumers, but the consumers buying and abstention from buying is transmitted from the [[consumer goods]] to the [[higher order]] goods (the [[producers goods]]). Consumers, in their capricious buying, determine the income of every member of society and direct production into the hands of individuals best able to serve the consumers.<ref name="ch15sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec4.asp XV. The Market], 4. The Sovereignty of the Consumers, ''[[Human Action]]'', online version, referenced 2011-04-30.</ref>

The consumers designate everyones place in society. The classical economists favored the abolition of the all trade barriers because they protected the less efficient from the more efficient. Trade barriers curtail production and lower the standard of living of all those effected. It is the actions of consumers which determine the prices on the market, and it is these prices which push investors into new lines of business. The bigness of one business will not stop others from trying to compete with it. [[Mises]] writes:

<blockquote>"What a newcomer who wants to defy the vested interests of the old established firms needs most is brains and ideas. If his project is fit to fill the most urgent of the unsatisfied needs of the consumers or to purvey them at a cheaper price than their old purveyors, he will succeed in spite of the much talked of bigness and power of the old firms."<ref name="ch15sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec5.asp XV. The Market], 5. Competition, ''[[Human Action]]'', online version, referenced 2011-05-17.</ref></blockquote>

Competition in the [[catallactic]] sense (i.e., competition in the market place) has a different function than that of games and beauty contests. Its function is to select the individuals most able to control the resources of society to the greatest benefit of the consumers. Humans are not born equal and the consumers do not care: "Their only interest is to secure the best possible satisfaction of their needs."<ref name="ch15sec5"></ref>

In human society, the terms "[[freedom]]" and "[[liberty]]" reference to interhuman relations. For instance [[Mises]] writes, "man was not created free; what freedom he may possess has been given to him by society...Liberty and freedom are the conditions of man within a contractual society."<ref name="ch15sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec6.asp XV. The Market], 6. Freedom, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref> Man in this condition is free to exchange goods and services, but he is by no means independent. He depends on other members of society. We say that a man is free in a contractual society because he serves others to serve himself. The restrains of freedom a man may experience in this environment is due to natural phenomenon only--the laws of nature to which we all unconditionally submit.<ref name="ch15sec6"></ref>

The market system will invariably bestow unequal rewards. This is primarily due to the different levels of service people provide to each other on the [[market]]. That is, it rewards every effort according to its [[value]] as determined by the subjective valuations of the consumers. With respect to inequality, [[Mises]] says:

<blockquote>"No system of social division of labor can do without a method that makes individuals responsible for their contribution to the joint productive effort. If this responsibility is not brought about by the price structure of the market and the inequality of wealth and income it begets, it must be enforced by the methods of direct compulsion as practiced by the police."<ref name="ch15sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec7.asp XV. The Market], 7. Inequality of Wealth and Income, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref></blockquote>

The economic phenomenon of [[profit]] and [[loss]] can be analyzed from an psychic point of view. [[Profit]], in a boarder sense, is the gain derived from [[action]]; it is the increase in satisfaction brought about by the action. In this sense, then, profit is the end of every action. Profit in this psychic sense is not measurable. However in the market economy, [[goods]] and [[services]] are bought and sold with money prices. This allows for the computation of profit and loss using the market prices of the goods and services. [[Profit]], in monetary calculus, is the surplus of [[money]] received over the money expended. It is everyone acting to attain the highest psychic which actuates the market-price mechanism and allows for monetary calculus.

The [[entrepreneur]] encounters the ever changing price structure of the market and makes his profit from correctly anticipating the changes in money prices. In this sense, he is always a speculator.<ref name="ch15sec8">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec8.asp XV. The Market], 8. Entrepreneurial Profit and Loss, ''[[Human Action]]'', online version, referenced 2011-05-19.</ref>

In an expanding or progressing economy the amount of capital invested is increasing per capita. Income is increased either by an increase in technological methods brought about by the increase in capital or simply by an increase in production. Of the increase in wealth (the result of the progressing economy) the majority of it goes to non-entrepreneurial groups. To note again, the market has a tendency to eliminate entrepreneurial profit and it is therefore temporary. In the long run, i.e., when profits have been eliminated by competition, the increase in productivity benefits exclusively the workers and consumers. On progress [[Mises]] writes:

<blockquote>"The vehicle of economic progress is the accumulation of technological methods of production the execution of which is almost always conditioned by the availability of such new capital."<ref name="ch15sec9">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec9.asp XV. The Market], 9. Entrepreneurial Profits and Losses in a Progressing Economy, ''[[Human Action]]'', online version, referenced 2011-05-21.</ref></blockquote>

The greater profits are, the greater is the increment in general prosperity that the enterprise brings. The entrepreneurial function, the driving after profits, is the driving of capital into the most profitable line of business. Which is another way of saying, the driving of capital into which the greatest increase in general prosperity results. Profits and losses are the devices through which consumers exercise their superiority over the owners of capital.<ref name="ch15sec9"></ref>

The entrepreneur hires workers and acts as the mandatary of the consumers. In addressing the many problems and issues that a project encounters the entrepreneur and the technician approach the problem inherently differently. The technician may suggest a method of production which has the greatest physical output. But the entrepreneur must judge differently, namely, economically. Economic calculation saves the entrepreneur from having to look too deeply into problems. Profit and loss are not about prefect production, but about the production which reaps the highest profit--i.e., the production where the most is produced at the lowest cost to society. Managers in an enterprise are essentially an extension of the entrepreneur. They assist in the solving of problems, make use of economic calculation and discover the most economical solution to their problems.<ref name="ch15sec10">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec10.asp XV. The Market], 10. Promoters, Managers, Technicians, and Bureaucrats, ''[[Human Action]]'', online version, referenced 2011-05-30.</ref>

[[Mises]] distinguishes between ''bureaucratic management'' and ''profit management''. In profit management all activities of business are given their worth from the actions of consumers. They dictate the salaries of management and the profits of the entrepreneur and capitalist. Where ever the operation of a system can not be run by profit management, it must be directed by bureaucratic management--i.e., one not concerned with profit and loss.<ref name="ch15sec10"></ref>

<blockquote>"Bureaucratic conduct of affairs, as such, is not an evil. It is only appropriate methods of handling governmental affairs, i.e., the social apparatus of compulsion and coercion. As government is necessary, bureaucratism is--in this field--no less necessary. Where economic calculation is unfeasible, bureaucratic methods are indispensable."<ref name="ch15sec10"></ref></blockquote>

The interplay of market forces, the actions of individuals, their incessant choosing and renunciation, places each individual in their nook of society. It determines the number of copper mines and symphony orchestras. This selection process goes on adjusting peoples station to supply and demand. The owners of factories and capital are compelled to serve the interest of the consumers lest they go out of business. Their ownership in the factories and capital is a liability if they do not concede to the desires of the consumers.<ref name="ch15sec11">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec11.asp XV. The Market], 11. The Selective Process, ''[[Human Action]]'', online version, referenced 2011-06-03.</ref>

<blockquote>"The point of view from which the consumers choose the captains of industry and business is exclusively their qualification to adjust production to the needs of the consumers."<ref name="ch15sec11"></ref></blockquote>

It is common to speak of the automatic reactions of the [[market]]. But the market is not automatic: it is a social body made up of individuals acting, it "is the foremost social body."<ref name="ch15sec12">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec12.asp XV. The Market], 12. The Individual and the Market, ''[[Human Action]]'', online version, referenced 2011-06-04.</ref> Individuals on the market are both consumer and producer. They play both sides, which leads to contradictions: they want to be protected as a [[consumer]] and be protected as a [[producer]]. This is fundamental flaw in many social reforms. Politicians pander to this dichotomous interpretation, advocating interventions of various kinds. But the rhetoric is always the same: "my program will make you as affluent as conditions may permit, while my adversaries' program will bring you want and misery."<ref name="ch15sec12"></ref>

=== XVI. Prices ===

All that [[catallactics]] can assert with regards to the pricing process, is that exchanges only take place if each party values what he receives more highly than what he gives away. Money, being the generally accepted medium of exchange, stands as the common denominator in all exchanges. Money prices are discovered by the continuous exchanges in which individuals trade until what they have is worth more than what the would give away. [[Mises]] writes:

<blockquote>"[Money prices] are determined between extremely narrow margins: the valuations on the one hand of the marginal buyer and those of the marginal offerer who abstains from selling, and the valuations on the other hand of the marginal seller and those of the marginal potential buyer who abstains from buying."<ref name="ch16sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap16sec1.asp XV. The Market], 1. The Pricing Process, ''[[Human Action]]'', online version, referenced 2011-06-04.</ref></blockquote>

:''See [[Marginal utility]]''
:''See [[Final Utility]]''

Prices are the outcome of the valuation of preferring ''a'' to ''b''. The exchange ratio of goods, the price, is not the product of an equality of valuation, but, on the contrary, the product of a discrepancy. Appraisement can be clearly distinguished from valuation in that it is the anticipation of future prices.<ref name="ch16sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap16sec2.asp XV. The Market], 2. Valuation and Appraisement, ''[[Human Action]]'', online version, referenced 2011-06-06.</ref>

Our inability to grasp the entirity of the interplay of forces of the market force us to resort to make shift mental concepts. But all parts cannot be thought of without the context of the whole:

<blockquote>"The price of the goods of higher orders are ultimately determined by the prices of the goods of the first or lowest order, that is, the consumers' goods. As a consequence of this dependence they are ultimately determined by the subjective valuations of all members of the market society. It is, however, important to realize that we are faced with a connection of prices, not with a connection of valuations."<ref name="ch16sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap16sec3.asp XV. The Market], 3. The Prices of the Goods of Higher Orders, ''[[Human Action]]'', online version, referenced 2011-06-06.</ref></blockquote>

Valuation by itself does not bring about the calculating ability of the market. It is the interplay of many individuals preferring and abstaining which brings about market prices and allows for market prices to be used in economic calculation. The market prices the entrepreneur uses for deliberation are always prices of the immediate past. The entrepreneur, however, must focus on prices in the future. Since he must successfully appraise the future price of consumer goods so that he has a reference point from which to bid for the producers goods.

<ol style="list-style-type:upper-roman;" start="15">
<li> Indirect Exchange</li>
<li> '''Action in the Passing of Time'''</li>
For humans considering [[action]], time matters: there is a ''too late'' and a ''too early''. [[Time preferences]] affect all action (see [[Value]]).<ref name="mises_action_in_passage_of_time_2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec2.asp XVIII. Action in the Passing of Time], 2. Time Preference as an Essential Requisite of Action, ''[[Human Action]]'', online version, referenced 2011-02-04.</ref>

Postponements of consumption, or [[saving]], is always embodied in concrete goods. "The act of saving," [[Mises]] tells us, "always has its counterpart in a supply of goods produced and not consumed...Man's savings are always embodied in concrete capital goods."<ref name="mises_action_in_passage_of_time_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec9.asp XVIII. Action in the Passing of Time], 9. Money and Capital; Saving and Investment, ''[[Human Action]]'', online version, referenced 2011-02-08.</ref>

The discussion of [[time preference]], and the postponment of consumption, is a lead in to [[interest]].

<li> '''Interest'''</li>

<blockquote>''Main Article: [[Interest]]''</blockquote>

Time preference manifests itself in the phenomenon of [[originary interest]], i.e., the discount of future goods as against present goods.<ref name="mises__human_action_chap19sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec1.asp XIX. The Rate of Interest], The Phenomenon of Interest, [[Human Action]], online version, referenced 2011-02-13.</ref> Originary interest is a ratio, like profit and loss, and not a price.<ref name="mises__human_action_chap19sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec2.asp XIX. The Rate of Interest], Originary Interest, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref> It is the ratio between the value assigned to presents goods against the value assigned to future goods. This discounting explains, for example, the reason why there is finite prices on usable land:

<blockquote>"If the future services which a piece of land can render were to be valued in the same way in which its present services are valued, no finite price would be high enough to impel its owner to sell it."<ref name="mises__human_action_chap19sec2"></ref></blockquote>

We [[discount]] future services and [[goods]] because of [[time preference]]. The fact that we can purchase land which is usable into the foreseeable future is proof of this. Furthermore, [[originary interest]] is not determined by supply and demand of [[loanable funds]]. Time preference, manifesting in the discount of future goods against present goods (i.e., originary interest) determines both the demand and supply of capital and capital goods.<ref name="mises__human_action_chap19sec2"></ref>

Interest rates in loans, in a changing economy, always have an element of entrepreneurial profit. The lender, taking a risk and and making a prediciton about the future state of the market, is engaging in an entrepreneurial venture. Therefore, interest rates on loans are never pure [[originary interest]] but also entrepreneurial profit.<ref name="mises__human_action_chap19sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec4.asp XIX. The Rate of Interest], Originary Interest in the Changing Economy, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref>

<li> Interest, Credit Expansion, and the Trade Cycle</li>
<li> Work and Wages</li>
<li> The Nonhuman Original Factors of Production</li>
<li> The Data of the Market</li>
<li> Harmony and Conflict of Interests</li>
</ol>

== Part Five: Social Cooperation Without a Market ==

<ol style="list-style-type:upper-roman;" start="25">
<li> The Imaginary Construction of a Socialist Society</li>
<li> The Impossibility of Economic Calculation Under Socialism</li>
</ol>

== Part Six: The Hampered Market Economy ==

<ol style="list-style-type:upper-roman;" start="27">
<li> The Government and the Market</li>
<li> Interference by Taxation</li>
<li> Restriction of Production</li>
<li> Interference with the Structure of Prices</li>
<li> Currency and Credit Manipulation</li>
<li> Confiscation and Redistribution</li>
<li> Syndicalism and Corporativism</li>
<li> The Economics of War</li>
<li> The Welfare Principle Versus the Market Principle</li>
<li> The Crisis of Interventionism</li>
</ol>

== Part Seven: The Place of Economics in Society ==
<ol style="list-style-type:upper-roman;" start="38">
<li> The Nondescript Character of Economics</li>
<li> The Place of Economics in Learning</li>
<li> Economics and the Essential Problems of Human Existence</li>
</ol>

==References==
{{Reflist|2}}

==Links==
''{{Store|http://www.mises.org/store/Human-Action-The-Scholars-Edition-P119.aspx|Human Action (Scholar's Edition)}}''

* Mises Made Easier: [http://mises.org/Easier/Easier.asp Glossary for Human Action]
* [http://mises.org/humanaction/theindex.asp Human Action interactive index]
* [http://mises.org/resources.aspx?Id=3250&html=1#Publication_History ''Human Action'' publication history]
* [http://mises.org/daily/137 "Human Action: What the Archives Tell Us"] by [[Jeffrey M. Herbener]], January 1999

===Editions===
* ''Human Action: A Treatise on Economics'', 1998 Scholar's Edition:
** {{mr|3250|Resources page}}
** {{mr|3810|Study Guide}}
*** [http://mises.org/daily/3262 "Study Guide to Human Action"] by [[Robert Murphy]], December 2008
*** [http://blog.mises.org/6708/weekend-study-guide/ "Weekend Study Guide"] (individual chapter downloads)
*** [http://blog.mises.org/15181/the-human-action-study-guide-as-our-armor/ "The Human Action Study Guide is our armor"] by Jim Fedako, December 2010
** [http://mises.org/media/category/139 Audiobook] read by [[Jeff Riggenbach]]
** Mises Daily excerpts
*** [http://mises.org/daily/3328 Introduction]
*** [http://mises.org/daily/2506 Chapter 1] "Acting Man"
*** [http://mises.org/daily/2565 Chapter 2] "The Sciences of Human Action" ([http://mises.org/daily/2606 study guide])
*** [http://mises.org/daily/2535 Chapter 3] "Economics and the Revolt Against Reason" ([http://mises.org/daily/2574 study guide])
*** [http://mises.org/daily/2711 Chapter 4] "A First Analysis of the Category of Action" ([http://mises.org/daily/2712 study guide])
*** [http://mises.org/daily/2730 Chapter 5] "Time and Praxeology" ([http://mises.org/daily/2731 study guide])
*** [http://mises.org/daily/2608 Chapter 6] "Uncertainty" ([http://mises.org/daily/2615 study guide])
*** [http://mises.org/daily/2774 Chapter 7] "Action Within the World" ([http://mises.org/daily/2778 study guide])
*** [http://mises.org/daily/2813 Chapter 8] "Human Society" ([http://mises.org/daily/2814 study guide])
*** [http://mises.org/daily/2841 Chapter 9] "The Role of Ideas" ([http://mises.org/daily/2843 study guide])
*** [http://mises.org/daily/2849 Chapter 10] "Exchange Within Society" ([http://mises.org/daily/2850 study guide])
*** [http://mises.org/daily/2880 Chapter 11] "Valuation Without Calculation" ([http://mises.org/daily/2881 study guide])
*** [http://mises.org/daily/2933 Chapter 12] "The Sphere of Economic Calculation" ([http://mises.org/daily/2939 study guide])
*** [http://mises.org/daily/2979 Chapter 14] "The Scope and Method of Catallactics" ([http://mises.org/daily/2980 study guide])
*** Chapter 15 ([http://mises.org/daily/3029 Part I], [http://mises.org/daily/3030 Part II]) "The Market" ([http://mises.org/daily/3005 study guide])
*** Chapter 16 ([http://mises.org/daily/3067 Part I], [http://mises.org/daily/3099 Part II], [http://mises.org/daily/3552 Part III]) "Prices" ([http://mises.org/daily/3068 study guide])

* ''Human Action: A Treatise on Economics'', 1996 4th Revised Edition:
** Foreword to the 4th edition by Bettina B. Greaves (p. v) ([http://mises.org/humanaction/forward.asp HTML], [http://mises.org/humanaction/pdf/ha_002.pdf PDF])
** Full text ([http://mises.org/books/humanaction.pdf PDF])

* ''Human Action: A Treatise on Economics'', 1966 3rd Revised Edition:
** Foreword to the 3rd edition by Ludwig von Mises ([http://mises.org/humanaction/foreword3.asp HTML], [http://mises.org/humanaction/pdf/ha_003.pdf PDF])
** Additions to Human Action in the 3rd edition ([http://mises.org/humanaction/ha3rd-addition.pdf PDF])

* ''Human Action: A Treatise on Economics'', Abridged Edition:
** Text ([http://blog.mises.org/9147/human-action-abridged/ HTML])

===Other resources===
*Articles, essays & reviews
** [http://mises.org/daily/2975 "Epistemological Relativism in the Sciences of Human Action"] Ludwig von Mises, 1960
** "The Place of Mises's Human Action in the Development of Modern Economic Thought" ([http://mises.org/journals/qjae/pdf/Qjae213.pdf PDF]) {{Nowrap|by [[Joseph T. Salerno]], Spring 1999}}
** [http://mises.org/resources/804 "Reflections on Human Action after 50 Years"] by [[Vernon L. Smith]], Fall 1999
** [http://mises.org/resources/805 "The Methodology of Human Action"] by [[Lawrence H. White]], Fall 1999
** [http://mises.org/daily/3363 "Human Action at Sixty"] by Richard M. Ebeling, March 2009
** [http://mises.org/daily/5237/Misess-Gift-of-Human-Action "Mises's Gift of Human Action"] by Jonathan M. Finegold Catalan, May 2011
** [http://mises.org/efandi/ch10.asp "The Why of Human Action"] by Ludwig von Mises, September 1949
** Mises Review: [http://mises.org/misesreview_detail.aspx?control=127 "Human Action, The Scholar's Edition"] by [[David Gordon]], Winter 1999 (republished as Mises Daily [http://mises.org/daily/3655 here])
** [http://blog.mises.org/14807/the-power-of-the-pocket-edition/ "The Power of the Pocket Edition"] by [[Jeffrey Tucker]], November 2010

* Other media
** In Studio: "Human Action: Pocket Edition" interview with [[Douglas French]], ([http://www.youtube.com/watch?v=Mou5ID13HqI YouTube])
** [http://www.apriorist.de/modx/hauyf/ ''Acting Man'' online lesson]
** [http://mises.org/quotes.aspx?action=source&Source=Human%20Action ''Human Action'' quotes]

* {{wplink}}

{{See also|Human Action Comics}}
{{Mises books}}

[[Category:Writings of Ludwig von Mises]]
[[Category:Writings on economics]]

Human Action

2011-06-20T00:00:03Z

Huckelberry: /* XVI. Prices */

{{Infobox book
| name = Human Action: A Treatise on Economics
| title_orig =
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| image_caption =
| author = [[Ludwig von Mises]]
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| country = [[United States]]
| language =
| series =
| subject = [[Economics]], [[Political economy]]
| genre = [[Non-fiction]]
| publisher = [[Yale University Press]]
| pub_date = [[1949]]
| english_pub_date =
| media_type = Print
| pages = 889 pp.
| isbn =
| oclc = 2595286
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}}

'''''Human Action: A Treatise on Economics''''' is the [[magnum opus]] of [[Ludwig von Mises]], first published in 1949. It defined a large part of present [[Austrian Economics]].

<blockquote>"It is true that economics is a theoretical science and as such abstains from any judgment of value...Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends."<ref name="humanaction_intro_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/introsec3.asp Introduction], 3. Introduction, [[Human Action]], online version, referenced 2011-02-05.</ref></blockquote>

== Part One: Human Action ==

===I. Acting Man===

<blockquote>''Main Article: [[Action]].''</blockquote>

The science of human action is called [[praxeology]]. Human action always involves [[opportunity cost]] and it is always ''purposeful''. <ref name="humanaction_ch1sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap1sec1.asp I. Acting Man], 1. Purposeful Action and Animal Reaction, [[Human Action]], online version, referenced 2011-02-06.</ref>

===II. The Epistemological Problems of the Sciences of Human Action===

[[Ludwig von Mises]] takes the [[logical deductive]] approach to economics, as opposed to the [[empirical]] (or the [[logical positivist]] approach). Economic problems cannot be solved [[empirically]] because renunciation and long-term planning can not be seen. Humans act to attain definite ends--and economic phenomena can be understood as such.

<blockquote>"[[Praxeology]] is a theoretical and systematic, not a historical, science...It aims at knowledge valid for all instances in which the conditions exactly correspond to those implied in its assumptions and inferences. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, ''[[a priori]]''."<ref name="humanaction_ch2sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec1.asp II. Epistemological Problems of Human Action], 1. Praxeology and History, [[Human Action]], online version, referenced 2011-02-06.</ref></blockquote>

Like geometry, [[praxeology]] is not subject to disproof. This method may be called ''methodological apriorism''.<ref name="humanaction_ch2sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec2.asp II. Epistemological Problems of Human Action], 2. The Formal and Aprioristic Character of Praxeology, [[Human Action]], online version, referenced 2011-02-06.</ref>

===III. Economics and the Revolt Against Reason===

[[Mises]] dismisses the [[Historical School]], [[Hegel]] and [[Marx]] with it. In discussing the "bourgeois logic" and "bourgeois mentality" of [[Marx]], [[Mises]] is able to attack [[polylogism]] in general. There does not exist multiple logics, only differing interests and their logical conclusions--whether they are spurious or well-founded. [[Mises]] states with regard to the [[Historical School]], "History, in due time, will arrange everything for the best. It does not need the advice of mortal men."<ref name="humanaction_ch3sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap3sec1.asp III. Economics and the Revolt Against Reason], 1. The Revolt Against Reason, [[Human Action]], online version, referenced 2011-02-06.</ref>

<blockquote>''See [[German Idealism]].''</blockquote>

===IV. A First Analysis of the Category of Action===

<blockquote>''Main Article: [[Value]]''</blockquote>

All actions are directed toward goals, aims or ends. The end, speaking generally, is always to remove a ''felt uneasiness''. Means are the ways by which we reach an end. Things in the world, when applied to our ends, become means and are commonly referred to as [[goods]].<ref name="humanaction_ch4sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec1.asp IV. A First Analysis of The Category of Action], 1. Ends and Means, [[Human Action]], online version, referenced 2011-02-06.</ref> Means are [[Scarcity|scarce]].

Actions are reflective of our ''scale of [[value|values]]''. All things equal, we satisfy wants of higher [[value]] to us, and leave unsatisfied wants of lower [[value]] to us. Things in the world have no intrinsic [[value]], our actions give things [[value]].<ref name="humanaction_ch4sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec2.asp IV. A First Analysis of The Category of Action], 2. The Scale of Value, [[Human Action]], online version, referenced 2011-02-06.</ref>

Given that every action is an attempt to establish a more satisfactory state of affairs, viz., to remove a ''felt uneasiness'', all actions are in a sense an [[exchange]]. We [[exchange]] one state for another, hopefully better, state. Lastly, value judgments arrange wants, but do not measure them. They are expressive of sequence and order rather than of measurement and weight.<ref name="humanaction_ch4sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp IV. A First Analysis of The Category of Action], 4. Action as Exchange, [[Human Action]], online version, referenced 2011-02-06.</ref>

===V. Time===

Time is a [[Praxeology|praxeological]] category: all action is in time and is subject to time.<ref name="humanaction_ch5sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp V. Time], 2. Past, Present and Future, [[Human Action]], online version, referenced 2011-02-07.</ref> As humans, our time is [[Scarcity|scarce]] and we must economize it accordingly. Our scales of [[value]] and therefore our actions are always with reference to time. As we will see later, time is important in the determination of [[interest]] and consumption.<ref name="humanaction_ch5sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap5sec3.asp V. Time], 3. The Economization of Time, [[Human Action]], online version, referenced 2011-02-07.</ref>

===VI. Uncertainty===

All action is speculative. We never know exactly what will occur. The natural sciences make it possible to foretell results from specific actions. They do not make the future predictable.<ref name="humanaction_ch6sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec1.asp VI. Uncertainty], 1. Uncertainty and Acting, [[Human Action]], online version, referenced 2011-02-08.</ref> But, [[Mises]] tells us, probability is a primary concern of [[praxeology]].

He distinguished between two types of propability: [[class probability]] and [[case probability]].

<blockquote>"''[[Class probability]] means'': We know or assume to know, with regard to the problem concerned, everything about the behavior of a whole class of events or phenomena; but about the actual singular events or phenomena we know nothing but that they are elements of this class."<ref name="humanaction_ch6sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec3.asp VI. Uncertainty], 3. Class Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, car insurance works on the premise that with a large pool of policies, they can use class probability to decide upon an approriate premium given the ''class probability'' of accidents. But, they know nothing about the probability of the individual policy holder getting into an accident.

<blockquote>"''[[Case probability]]'' means: We know, with regard to a particular event, some of the factors which determine its outcome; but there are other determining factors about which we know nothing."<ref name="humanaction_ch6sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec4.asp VI. Uncertainty], 4. Case Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, foreign policy experts may make predictions about the settlement of foreign disputes. They are well informed but it is impossible for them to predict the outcome perfectly because they can not grasp all the data and all the opinions of individuals shaping decisions. Therefore, they may know some of the factors that will shape the future, but never perfectly.

For [[Mises]], we make decisions with incomplete knowledge. To say it again, all action is speculative in character. To this difficulty in decisions, specifically in social cooperation where selection occurs, competition serves as a function to select the most able person for specific positions. It assigns every member of society to the position where they best serve society.<ref name="humanaction_ch6sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec6.asp VI. Uncertainty], 6. Betting, Gambling, and Playing Games, [[Human Action]], online version, referenced 2011-02-08.</ref>

===VII. Action Within the World===

Each person possesses one scale of valuations, which is visible through action.<ref name="humanaction_ch7sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec1.asp VII. Action Within The World], 1. The Law of Marginal Utility, [[Human Action]], online version, referenced 2011-02-13.</ref> Goods and modes of action are chosen based on their utility, or their causal relevance for the removal of felt ''uneasiness''.<ref name="humanaction_ch7sec1"></ref> Here [[Mises]] discusses the [[paradox of value]]: why is ''gold'' more valuable than ''iron''? Despite the many uses of iron, gold is valued more on the market because of its value in exchange. Iron may have more technological prospects or ''objective use-value'' but it lacks ''subjective use-value'', that is, gold is valuable in exchange due to scarcity, appearance and its tradition as a form of money. [[Mises]], however, dismisses the question as one which never occurs in reality.<ref name="humanaction_ch7sec1"></ref>

The [[Law of Marginal Utility]] is implied by the category of action: If a supply increases from quantity ''n'' to ''n + 1'' the extra unit provides less [[utility]] than unit ''n''. This is because ''n'' is satisfying a more urgent want than unit ''n + 1''. We satisfy more urgent wants first by their definition. Unit ''n'' is satisfying the more urgent want, ''n + 1'' is satisfying a less urgent want. Therefore, increasing units of a homogeneous supply are each applied to decreasingly important wants (seeing as the more urgent wants are always satisfied first). The [[law of marginal utility]], "does not deal primarily with the [[value]] of things, but with the [[value]] of the services a man expects to get from them."<ref name="humanaction_ch7sec1"></ref>

"[[Labor]]," says [[Mises]], "is preferred to leisure only insofar as the yield of [[labor]] is more urgently desired than the enjoyment of leisure."<ref name="humanaction_ch7sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec3.asp VII. Action Within The World], 3. Labor as Means, [[Human Action]], online version, referenced 2011-02-13.</ref> Work involves disutility. To this note, [[labor]] is more scarce than other material factors of production:

<blockquote>"In our world there is no abundance, but a shortage of manpower, and there are unused material factors of production, i.e. land, mineral deposits, and even plants and equipment."<ref name="humanaction_ch7sec3"></ref></blockquote>

Labor saving devices reduce want, they do not bring about "technological unemployment." Man economizes both labor and material factors.<ref name="humanaction_ch7sec3"></ref>

Action is successful it it produces the intended result: it produces the product. The human mind directs [[action]] with a purpose and production is creative. It is not something physical, natural, and external; it is a spiritual and intellectual phenomenon. All material actions within the world are a product of the mind. "In this sense," [[Mises]] tells us, "[[praxeology]] can be called a moral science."<ref name="humanaction_ch7sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec4.asp VII. Action Within The World], 4. Production, [[Human Action]], online version, referenced 2011-02-13.</ref>

== Part Two: Actions Within the Framework of Society ==

===VIII. Human Society===

We are born into society and only in this sense does society exist before the individual. [[Society]] is the supreme example of the benefits of the [[division of labor]].<ref name="ch8sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec1.asp VIII. Human Society], 1. Human Cooperation, [[Human Action]], online version, referenced 2011-02-17.</ref> It is an institution for the preservation of peaceful human relations. It is the social apparatus of compulsion and coercion.<ref name="ch8sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec2.asp VIII. Human Society], 2. A Critique of the Holistic and Metaphysical View of Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

[[Democratic government]] provides a method for the peaceful adjustment of government to the will of the majority. Wisdom and science thrive in a peaceful and affluent society. <ref name="ch8sec2"></ref>

<blockquote>"[[Liberalism]] aims at a political constitution which safeguards the smooth working of social cooperation and the progressive intensification of mutual social relations. Its main objective is the avoidance of violent conflicts, of wars and revolutions that must disintegrate the social collaboration of men and throw people back into the primitive conditions of barbarism where all tribes and political bodies endlessly fought one another. Because the division of labor requires undisturbed peace, liberalism aims at the establishment of a system of government that is likely to preserve peace, viz., [[democracy]]."<ref name="ch8sec2"></ref></blockquote>

[[Mises]] expounds the Ricardian Law of Association or [[comparative advantage]] as the fundamental characteristic of society.<ref name="ch8sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association, [[Human Action]], online version, referenced 2011-02-17.</ref> The division of labor assigns to each man the best job for him in society.<ref name="humanaction_ch6sec6"></ref> However, the end result of division of labor in society--a diversity which attests to the innate inequalities between individuals--does not illistrate ideas of [[Social Darwinism]]. Biology and evolutionary views cannot pass value judgments on the benefits of civilization.<ref name="ch8sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec7.asp VIII. Human Society], 7. The Great Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

===IX. The Role of Ideas===

All [[action]] is preceded by thinking. Thinking is to deliberate before [[action]] and to reflect upon past [[action]]. Thinking is a tool of action and language is a tool of thinking. All action is based on a definite idea about causal relations. Thinking and ideas are, like material wealth, passed down the generations.<ref name="ch9sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec1.asp IX. Human Society], 1. Human Reason, [[Human Action]], online version, referenced 2011-02-18.</ref> Action is always directed by ideas.<ref name="ch9sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec3.asp IX. Human Society], 3. Might, [[Human Action]], online version, referenced 2011-02-18.</ref>

[[Ideologies|Ideology]] and world views are explanations of social phenomena and technologies for prescriptive politics. All political doctrines imply that: "the political system we support will render you more prosperous and more content."<ref name="ch9sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec2.asp IX. Human Society], 2. World View and Ideology, [[Human Action]], online version, referenced 2011-02-18.</ref> [[Ideologies]], to [[Mises]], are the most powerful form of control. The might of a politician is due to his [[ideology]], his interpretation of the world and his prescriptive measures to ensure his followers are more prosperous and more content. Thinking, the ideological interpretation, succeeds through the cooperation of other minds. No thinker is isolated in his thoughts, they have been influenced by others. A politician's power dwindles if his [[ideology]] loses support. To [[Mises]]:

<blockquote>"The power of an ideology consists precisely in the fact that people submit to it without any wavering and scruples."<ref name="ch9sec3"></ref></blockquote>

Traditionalism and the idea of progress are ideologies also. Progress toward a more prosperous life and evolutionary progress must not be confused with evolution toward higher forms of life. Progress may not continue, majorities may error.<ref name="ch9sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec4.asp IX. Human Society], 4. Meliorism and the Idea of Progress, [[Human Action]], online version, referenced 2011-02-18.</ref> Ideologies may protect the material interest of the race or they may destroy it.

===X. Exchange Within Society===

[[Action]] always is essentially the exchange of one state of affairs for another state of affairs.<ref name="ch10sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec1.asp X. Exchange Within Society], 1. Autistic Exchange and Interpersonal Exchange, [[Human Action]], online version, referenced 2011-02-25.</ref> The interpersonal exchange of goods weaves the bonds which unites men into societies.<ref name="ch10sec1"></ref> [[Mises]] defines two different kinds of social cooperation: cooperation by virtue of contract and coordination, and contract by virtue of command and subordination or hegemony.<ref name="ch10sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec2.asp X. Exchange Within Society], 2. Contractual Bonds and Hegemonic Bonds, [[Human Action]], online version, referenced 2011-02-25.</ref> In the former state there are men who cooperate to achieve goals--their plans are symmetrical and share a common goal. In the latter state their is always two classes of men, those who command and those who obey. Again [[Mises]] emphasizes the important of ideology to animate the social body. The individuals must share an [[ideology]] if they are to cooperate. Hegemonic control needs an ideology that the controlling system is the best or the traditional norm. [[Ideologies]] imply obedience to the [[ideology]]. Contractual relation order society by free association held together by the order of right and law.<ref name="ch10sec2"></ref>

The [[Praxeology|praxeological]] categories, [[Mises]] tells us, are eternal and unchangable. They are the categories within which all action takes place. No [[action]] is free from the facts of existence--of which the praxeological categories belong.<ref name="ch10sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec3.asp X. Exchange Within Society], 3. Calculative Action, [[Human Action]], online version, referenced 2011-02-25.</ref> Man can never comprehend anything that is neither [[action]] or none action.

Modern civilization is characterized by the fact that it has elaborated a method which makes use of the arithmetic possible in a broad field of activities. [[Economic calculation]], for example in modern capital [[accounting]], is a fundamental issue in all comprehension of economic phenomena.<ref name="ch10sec3"></ref>

Despite the extended use of capital [[accounting]] and arithmetic, [[action]] can only make use of ordinal numbers. That is, actions order desires but do not measure them. But in our rational and contractual society we are able to make use of cardinal numbers in capital accounting. By this feature of capital accounting and contractual relations civilization opened the door to computation and calculation regarding the planning of the future and measuring the effects of past actions. Still, the applicability of cardinal numbers to economic thinking require these circumstances and economic law and theory cannot be deduced from [[economic history]], namely, the history of prices.<ref name="ch10sec3"></ref>

== Part Three: Economic Calculation ==

===XI. Valuation Without Calculation===

We apply the [[value|values]] we attribute to the ends of [[action]], to the means necessary to achieve those ends: "Other things being equal, [acting man] assigns to the total amount of the various means the same value he attaches to the end which they are fit to bring about."<ref name="ch11sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec1.asp XI. Valuation Without Calculation], 1. Gradation of Means, [[Human Action]], online version, referenced 2011-02-26.</ref>

The preferences used in [[action]], the laying aside of some things for other things, allows--as said above--the use of ordinal numbers but not cardinal numbers. Again, [[value|values]] attributable to actions cannot be measured arithmetically. Yet, in the activity of using means to attain certain ends, the acquisition of countable and measurable supplies of things becomes an immediate goal of action.<ref name="ch11sec1"></ref> [[Economic calculation]] can occur, despite that the values we attribute to different means and ends cannot be measured, by the results of actions of interpersonal exchange:

<blockquote>"The modern theory of value and prices show how the choices of individuals, their preferring some things and setting aside of other things, results, in the sphere of interpersonal exchange, in the emergence of market prices."<ref name="ch11sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec2.asp XI. Valuation Without Calculation], 2. The Barter-Fiction of the Elementary Theory of Value and Prices, [[Human Action]], online version, referenced 2011-02-26.</ref></blockquote>

[[Mises]] reminds us that is it a fallacy to think things exchanged are of the same value. Rather, people buy and sell only because they appraise the things given up less than those received.<ref name="ch11sec2"></ref> "Market prices," [[Mises]] says in a later chapter, "are not expressive of equivalence, but of a divergence in the valuation of the exchanging parties."<ref name="ch26sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap26sec3.asp XXVI. Economic Calculation under Socialism], 3. Recent Suggestions for Socialist Economic Calculation, [[Human Action]], online version, referenced 2011-04-25.</ref>

In using technology, we are resorting to knowledge of causal relations. We are not, however, addressing the technologies applicability to human wants and desires.<ref name="ch11sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec3.asp XI. Valuation Without Calculation], 3. The Problem of Economic Calculation, [[Human Action]], online version, referenced 2011-02-26.</ref>

<blockquote>"Technology tells how a given end could be attained by the employment of various means which can be used together in various combinations, or how various available means could be employed for certain purposes. But it is at a loss to tell man which procedures he should choose out of the infinite variety of imaginable and possible modes of production."<ref name="ch11sec3"></ref></blockquote>

Engineering can tell us how to build a bridge but not whether its construction would draw resources from other areas where they would be used to satisfy more urgently felt needs. [[Action]], as opposed to the casual relations of engineering, must discover the relations between dissimilar projects. [[Money]], holding the status of "universally used medium of exchange," becomes the measure of the worthiness of differing possiblities in the realm of action. Because [[goods]] and services have money prices we can use these in planning and decisions.<ref name="ch11sec3"></ref>

With all action directed toward the future, all economic planning and calculation must be made in regards to the future state of prices. In entrepreneurial ventures the acting man wants the prices of goods produced and sold to be greater than the price of the goods used in production. The practical meaning of [[economic calculation]] is to show how much one is free to consume without impairing the future capacity to produce. The concepts of [[economic calculation]]--[[Profit]] and [[loss]], [[capital]] and [[income]], spending and [[saving]], cost and yield--are developed to ensure efficient use of the resources of society.<ref name="ch11sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec4.asp XI. Valuation Without Calculation], 4. Economic Calculation and The Market, [[Human Action]], online version, referenced 2011-02-26.</ref>

===XII. The Sphere of Economic Calculation===

The acting individual is always concerned with the future. In action he is either, (1) anticipating the future and acting accordingly, or (2) trying to change the outcomes of the future even if there are no other changes to the data. Economic calculation cannot predict the outcomes of the future, it can only assist man in adjusting his actions to his opinion of the future. The numerical exactitude of balance sheets and income statements must not prevent us from realizing their inherent uncertainty and estimation.<ref name="ch12sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec1.asp XII. The Sphere of Economic Calculation], 1. The Character of Monetary Entries, [[Human Action]], online version, referenced 2011-02-27.</ref>

[[Money]] is not a measuring stick. Money prices do not transmit the intrinsic value of a good. [[Prices]] are not measured in money, they consist in money. They are either prices of the past or prices of the future. Furthermore, although it is possible to aggregate prices paid in goods, it makes no sense to talk about a national income or any other aggregate of spending which "characterizes" a society.<ref name="ch12sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec2.asp XII. The Sphere of Economic Calculation], 2. The Limits of Economic Calculation [[Human Action]], online version, referenced 2011-02-27.</ref>

Economic calculation makes sense only in a society with private ownership of the means of production. Economic calculation is not to blame of the masses preferring detective stories to books of philosophy--that is an outcome of the desires and preferences of individuals acting in society. Economic calculation cannot be blamed for the less than ideal characters and habits of other members of society.<ref name="ch12sec2"></ref>

Prices, or exchange ratios, are in constant fluctuation with the changing data of the market and the changing whims of consumers.<ref name="ch12sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec3.asp XII. The Sphere of Economic Calculation], 3. The Changeability of Prices[[Human Action]], online version, referenced 2011-02-27.</ref>

[[Mises]] dismisses the idea of measurement in [[purchasing power]] as unfeasible:

<blockquote>"A measurement of purchasing power would have to rely upon the prices of the goods and services of the first order and, what is more, of ''all'' of them."<ref name="ch12sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec4.asp XII. The Sphere of Economic Calculation], 4. Stabilization [[Human Action]], online version, referenced 2011-02-27.</ref></blockquote>

Further, changes in the [[purchasing power]] of [[money]] must necessarily effect different goods and services at different times and therefore efforts to stabilize the purchasing power of money by attempting to change the money relation is an impossible feat.<ref name="ch12sec4"></ref>

===XIII. Monetary Calculation as a Tool of Action===

Monetary calculation is the decisive factor of action in the social system of [[division of labor]]. Every action of the [[entrepreneur]] is analyzed by monetary calculation. Only in the institutional settings of [[private property]] and [[division of labor]] where goods and services are exchanged by a money can the system of monetary calculation be used. The use of aggregates derived from the use of monetary calculation is useless. That is, monetary calculation is useful for individual acting but cannot be useful to determining "social" values or welfare. By the use of monetary calculation, for example in capital [[accounting]], arithmetic has become a tool in the struggle for a better life. Capital [[accounting]] allows us to analyze the success or failure of men in satisfying the needs of [[consumers]].<ref name="ch13sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap13sec1.asp XIII. Monetary Calculation as a Tool of Action], 1. Monetary Calculation as Method of Thinking [[Human Action]], online version, referenced 2011-03-14.</ref>

<blockquote>"Our civilization is inseparably linked with our methods of economic calculation. It would parish if we were to abandon this most precious intellectual tool of acting. Goethe was right in calling bookkeeping by double entry "one of the finest inventions of the human mind.'"<ref name="ch13sec1"></ref></blockquote>

== Part Four: Catallactics or Economics of the Market Society ==

=== XIV. The Scope and Method of Catallactics ===

<blockquote>"The subject matter of catallactics is all market phenomena with all their roots, ramifications, and consequences."<ref name="ch14sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec1.asp XIV. The Scope and Method of Catallactics], 1. The Delimitation of Catallactic Problems''[[Human Action]]'', online version, referenced 2011-5-30.</ref></blockquote>

The study of actions which are conducted on the basis of monetary calculation, or catallactics, does not care whether actions have good or bad motives. People purchase goods for material reasons and ideal reasons. They make purchases based on metaphysical beliefs and aesthetic value judgments. For economics it is inconsequential the reasons and motives for specific actions--it only cares if the beliefs are acted upon because they help determine the structure of market prices.<ref name="ch14sec1"></ref>

The method of economics, [[Mises]] tells us, is the method of imaginary constructions. This is also the method of praxeology. Imaginary constructions are products of deduction "ultimately derived from the fundamental category of action, the act of preferring and setting aside."<ref name="ch14sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec2.asp XIV. The Scope and Method of Catallactics], 2. The Method of Imaginary Constructions ''[[Human Action]]'', online version, referenced 2011-5-31.</ref> In reference to the imaginary construction [[Mises]] writes:

<blockquote>"The method of imaginary constructions in indispensable for praxeology; it is the only method of praxeological and economic inquiry. It is, to be sure, a method very difficult to handle because it can easily result in fallacious syllogisms. It leads along a sharp edge; on both sides yawns the chasm of absurdity and nonsense. Only merciless self-criticism can present a man from falling headlong into these abysmal depths."<ref name="ch14sec2"></ref></blockquote>

'''The Autistic Economy''': In order to study the effects of interpersonal exchanges, we study an imaginary construction in which they are absent. When it comes to a completely self-sufficient economy we have two imaginary systems we can hypothesize: the isolated individual and the socialist society. It does not matter whether these can calculate or whether they have historically existed, only that they can be thought of in theory.<ref name="ch14sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec4.asp XIV. The Scope and Method of Catallactics], 4. The Autistic Economy ''[[Human Action]]'', online version, referenced 2011-5-31.</ref>

'''The Evenly Rotating Economy''': In creating imaginary constructions we must conceive that all actions ultimately aim at bring about a state in which there is no longer any action, "whether because all uneasiness has been removed or because any further removal of felt uneasiness is out of the question." That is, we create an imaginary construction in which no one wants or needs to act and use this to determine the importance of various aspects of our society.<ref name="ch14sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec5.asp XIV. The Scope and Method of Catallactics], 5. The State of Rest and the Evenly Rotating Economy ''[[Human Action]]'', online version, referenced 2011-5-31.</ref>

:''See [[Evenly Rotating Economy]]''

=== XV. The Market ===

<blockquote>"The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of actions of various individuals cooperating under the division of labor."<ref name="ch15sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec1.asp XV. The Market], 1. Characteristics of the Market Economy, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref></blockquote>

In the market place everyone is an end in himself and an end for other people. Each individual acts on his own behalf, but everyones actions of the market also serve another. In acting everyone is serving everyone else's ends while serving their own. They each aim at the satisfaction of other peoples needs as much as at his own.<ref name="ch15sec1"></ref>

The state of the market is characterized by the totality of [[prices]] within the market which are determined by individuals eager to buy and sell. Additionally, there is no such thing as a "mixed" economy: "it is directed either by the market of by the decrees of a [[production]] tsar or a committee of production tsars."<ref name="ch15sec1"></ref> Publicly owned entities which operating in a market economy must obey the rules of profit and loss as others do. The characteristic feature of the [[market economy]] is its ability to [[calculate]]. Monetary calculation along with the determination of market prices allows the market to calculate. The rational ordering of the [[division of labor]] and of production are resultants of this.<ref name="ch15sec1"></ref>

<blockquote>"The market economy is real because it can calculate."<ref name="ch15sec1"></ref></blockquote>

The central principles in the market economy's calculation are [[income]] and [[capital]]. Income is the amount of resources which can be consumed without lowering the capital of the individual or business. If income is greater than the amount consumed, ''[[savings]]'' results. Conversely, if a man consumes more than his income is it referred to as ''capital consumption''. Capital, here, is the quantity of money representing ownership in the assets of a enterprise (using the term broadly) or the total [[assets]] less the total [[liabilities]].<ref name="ch15sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec2.asp XV. The Market], 2. Capital, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref>

"All civilizations" says [[Mises]], "have up to now been based on private ownership of the means of production." Our system of private ownership of the means of production has poured the horn of plenty on growing population figures. Capitalism has served to allow each man a higher material wealth than even the kings of past ages. Many who argue against capitalism do so because they look upon capitalism as an accidental phenomenon. They do not understand [[private property]] and the concept of free-associations causal relationship with the material wealth of the era. It is the critics of [[capitalism]], [[Mises]] contends, which lack historical understanding, not the economists. To capitalism's enemies, it is the policy advocated by big business, regardless of the fact that big business often advocates for "[[protectionism]], [[cartels]], and the abolition of [[competition]]." And today, it is considered a "legitimate task of government to prevent an efficient man from competing with the less efficient." Advocates of protection, and state imposed limitations on the free-market want to make us believe that the consequences of [[government intervention]] are produced by capitalism.<ref name="ch15sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec3.asp XV. The Market], 3. Capitalism, ''[[Human Action]]'', online version, referenced 2011-04-10.</ref>

In a market economy the [[The Sovereignty of the Consumers|consumers are sovereign]]. Only sellers of the [[first order]] goods are in contact with the consumers, but the consumers buying and abstention from buying is transmitted from the [[consumer goods]] to the [[higher order]] goods (the [[producers goods]]). Consumers, in their capricious buying, determine the income of every member of society and direct production into the hands of individuals best able to serve the consumers.<ref name="ch15sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec4.asp XV. The Market], 4. The Sovereignty of the Consumers, ''[[Human Action]]'', online version, referenced 2011-04-30.</ref>

The consumers designate everyones place in society. The classical economists favored the abolition of the all trade barriers because they protected the less efficient from the more efficient. Trade barriers curtail production and lower the standard of living of all those effected. It is the actions of consumers which determine the prices on the market, and it is these prices which push investors into new lines of business. The bigness of one business will not stop others from trying to compete with it. [[Mises]] writes:

<blockquote>"What a newcomer who wants to defy the vested interests of the old established firms needs most is brains and ideas. If his project is fit to fill the most urgent of the unsatisfied needs of the consumers or to purvey them at a cheaper price than their old purveyors, he will succeed in spite of the much talked of bigness and power of the old firms."<ref name="ch15sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec5.asp XV. The Market], 5. Competition, ''[[Human Action]]'', online version, referenced 2011-05-17.</ref></blockquote>

Competition in the [[catallactic]] sense (i.e., competition in the market place) has a different function than that of games and beauty contests. Its function is to select the individuals most able to control the resources of society to the greatest benefit of the consumers. Humans are not born equal and the consumers do not care: "Their only interest is to secure the best possible satisfaction of their needs."<ref name="ch15sec5"></ref>

In human society, the terms "[[freedom]]" and "[[liberty]]" reference to interhuman relations. For instance [[Mises]] writes, "man was not created free; what freedom he may possess has been given to him by society...Liberty and freedom are the conditions of man within a contractual society."<ref name="ch15sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec6.asp XV. The Market], 6. Freedom, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref> Man in this condition is free to exchange goods and services, but he is by no means independent. He depends on other members of society. We say that a man is free in a contractual society because he serves others to serve himself. The restrains of freedom a man may experience in this environment is due to natural phenomenon only--the laws of nature to which we all unconditionally submit.<ref name="ch15sec6"></ref>

The market system will invariably bestow unequal rewards. This is primarily due to the different levels of service people provide to each other on the [[market]]. That is, it rewards every effort according to its [[value]] as determined by the subjective valuations of the consumers. With respect to inequality, [[Mises]] says:

<blockquote>"No system of social division of labor can do without a method that makes individuals responsible for their contribution to the joint productive effort. If this responsibility is not brought about by the price structure of the market and the inequality of wealth and income it begets, it must be enforced by the methods of direct compulsion as practiced by the police."<ref name="ch15sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec7.asp XV. The Market], 7. Inequality of Wealth and Income, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref></blockquote>

The economic phenomenon of [[profit]] and [[loss]] can be analyzed from an psychic point of view. [[Profit]], in a boarder sense, is the gain derived from [[action]]; it is the increase in satisfaction brought about by the action. In this sense, then, profit is the end of every action. Profit in this psychic sense is not measurable. However in the market economy, [[goods]] and [[services]] are bought and sold with money prices. This allows for the computation of profit and loss using the market prices of the goods and services. [[Profit]], in monetary calculus, is the surplus of [[money]] received over the money expended. It is everyone acting to attain the highest psychic which actuates the market-price mechanism and allows for monetary calculus.

The [[entrepreneur]] encounters the ever changing price structure of the market and makes his profit from correctly anticipating the changes in money prices. In this sense, he is always a speculator.<ref name="ch15sec8">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec8.asp XV. The Market], 8. Entrepreneurial Profit and Loss, ''[[Human Action]]'', online version, referenced 2011-05-19.</ref>

In an expanding or progressing economy the amount of capital invested is increasing per capita. Income is increased either by an increase in technological methods brought about by the increase in capital or simply by an increase in production. Of the increase in wealth (the result of the progressing economy) the majority of it goes to non-entrepreneurial groups. To note again, the market has a tendency to eliminate entrepreneurial profit and it is therefore temporary. In the long run, i.e., when profits have been eliminated by competition, the increase in productivity benefits exclusively the workers and consumers. On progress [[Mises]] writes:

<blockquote>"The vehicle of economic progress is the accumulation of technological methods of production the execution of which is almost always conditioned by the availability of such new capital."<ref name="ch15sec9">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec9.asp XV. The Market], 9. Entrepreneurial Profits and Losses in a Progressing Economy, ''[[Human Action]]'', online version, referenced 2011-05-21.</ref></blockquote>

The greater profits are, the greater is the increment in general prosperity that the enterprise brings. The entrepreneurial function, the driving after profits, is the driving of capital into the most profitable line of business. Which is another way of saying, the driving of capital into which the greatest increase in general prosperity results. Profits and losses are the devices through which consumers exercise their superiority over the owners of capital.<ref name="ch15sec9"></ref>

The entrepreneur hires workers and acts as the mandatary of the consumers. In addressing the many problems and issues that a project encounters the entrepreneur and the technician approach the problem inherently differently. The technician may suggest a method of production which has the greatest physical output. But the entrepreneur must judge differently, namely, economically. Economic calculation saves the entrepreneur from having to look too deeply into problems. Profit and loss are not about prefect production, but about the production which reaps the highest profit--i.e., the production where the most is produced at the lowest cost to society. Managers in an enterprise are essentially an extension of the entrepreneur. They assist in the solving of problems, make use of economic calculation and discover the most economical solution to their problems.<ref name="ch15sec10">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec10.asp XV. The Market], 10. Promoters, Managers, Technicians, and Bureaucrats, ''[[Human Action]]'', online version, referenced 2011-05-30.</ref>

[[Mises]] distinguishes between ''bureaucratic management'' and ''profit management''. In profit management all activities of business are given their worth from the actions of consumers. They dictate the salaries of management and the profits of the entrepreneur and capitalist. Where ever the operation of a system can not be run by profit management, it must be directed by bureaucratic management--i.e., one not concerned with profit and loss.<ref name="ch15sec10"></ref>

<blockquote>"Bureaucratic conduct of affairs, as such, is not an evil. It is only appropriate methods of handling governmental affairs, i.e., the social apparatus of compulsion and coercion. As government is necessary, bureaucratism is--in this field--no less necessary. Where economic calculation is unfeasible, bureaucratic methods are indispensable."<ref name="ch15sec10"></ref></blockquote>

The interplay of market forces, the actions of individuals, their incessant choosing and renunciation, places each individual in their nook of society. It determines the number of copper mines and symphony orchestras. This selection process goes on adjusting peoples station to supply and demand. The owners of factories and capital are compelled to serve the interest of the consumers lest they go out of business. Their ownership in the factories and capital is a liability if they do not concede to the desires of the consumers.<ref name="ch15sec11">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec11.asp XV. The Market], 11. The Selective Process, ''[[Human Action]]'', online version, referenced 2011-06-03.</ref>

<blockquote>"The point of view from which the consumers choose the captains of industry and business is exclusively their qualification to adjust production to the needs of the consumers."<ref name="ch15sec11"></ref></blockquote>

It is common to speak of the automatic reactions of the [[market]]. But the market is not automatic: it is a social body made up of individuals acting, it "is the foremost social body."<ref name="ch15sec12">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec12.asp XV. The Market], 12. The Individual and the Market, ''[[Human Action]]'', online version, referenced 2011-06-04.</ref> Individuals on the market are both consumer and producer. They play both sides, which leads to contradictions: they want to be protected as a [[consumer]] and be protected as a [[producer]]. This is fundamental flaw in many social reforms. Politicians pander to this dichotomous interpretation, advocating interventions of various kinds. But the rhetoric is always the same: "my program will make you as affluent as conditions may permit, while my adversaries' program will bring you want and misery."<ref name="ch15sec12"></ref>

=== XVI. Prices ===

All that [[catallactics]] can assert with regards to the pricing process, is that exchanges only take place if each party values what he receives more highly than what he gives away. Money, being the generally accepted medium of exchange, stands as the common denominator in all exchanges. Money prices are discovered by the continuous exchanges in which individuals trade until what they have is worth more than what the would give away. [[Mises]] writes:

<blockquote>"[Money prices] are determined between extremely narrow margins: the valuations on the one hand of the marginal buyer and those of the marginal offerer who abstains from selling, and the valuations on the other hand of the marginal seller and those of the marginal potential buyer who abstains from buying."<ref name="ch16sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap16sec1.asp XV. The Market], 1. The Pricing Process, ''[[Human Action]]'', online version, referenced 2011-06-04.</ref></blockquote>

:''See [[Marginal utility]]''
:''See [[Final Utility]]''

Prices are the outcome of the valuation of preferring ''a'' to ''b''. The exchange ratio of goods, the price, is not the product of an equality of valuation, but, on the contrary, the product of a discrepancy. Appraisement can be clearly distinguished from valuation in that it is the anticipation of future prices.<ref name="ch16sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap16sec2.asp XV. The Market], 2. Valuation and Appraisement, ''[[Human Action]]'', online version, referenced 2011-06-06.</ref>

Our inability to grasp the entirity of the interplay of forces of the market force us to resort to make shift mental concepts. But all parts cannot be thought of without the context of the whole:

<blockquote>"The price of the goods of higher orders are ultimately determined by the prices of the goods of the first or lowest order, that is, the consumers' goods. As a consequence of this dependence they are ultimately determined by the subjective valuations of all members of the market society. It is, however, important to realize that we are faced with a connection of prices, not with a connection of valuations."<ref name="ch16sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap16sec3.asp XV. The Market], 3. The Prices of the Goods of Higher Orders, ''[[Human Action]]'', online version, referenced 2011-06-06.</ref></blockquote>

<ol style="list-style-type:upper-roman;" start="15">
<li> Indirect Exchange</li>
<li> '''Action in the Passing of Time'''</li>
For humans considering [[action]], time matters: there is a ''too late'' and a ''too early''. [[Time preferences]] affect all action (see [[Value]]).<ref name="mises_action_in_passage_of_time_2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec2.asp XVIII. Action in the Passing of Time], 2. Time Preference as an Essential Requisite of Action, ''[[Human Action]]'', online version, referenced 2011-02-04.</ref>

Postponements of consumption, or [[saving]], is always embodied in concrete goods. "The act of saving," [[Mises]] tells us, "always has its counterpart in a supply of goods produced and not consumed...Man's savings are always embodied in concrete capital goods."<ref name="mises_action_in_passage_of_time_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec9.asp XVIII. Action in the Passing of Time], 9. Money and Capital; Saving and Investment, ''[[Human Action]]'', online version, referenced 2011-02-08.</ref>

The discussion of [[time preference]], and the postponment of consumption, is a lead in to [[interest]].

<li> '''Interest'''</li>

<blockquote>''Main Article: [[Interest]]''</blockquote>

Time preference manifests itself in the phenomenon of [[originary interest]], i.e., the discount of future goods as against present goods.<ref name="mises__human_action_chap19sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec1.asp XIX. The Rate of Interest], The Phenomenon of Interest, [[Human Action]], online version, referenced 2011-02-13.</ref> Originary interest is a ratio, like profit and loss, and not a price.<ref name="mises__human_action_chap19sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec2.asp XIX. The Rate of Interest], Originary Interest, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref> It is the ratio between the value assigned to presents goods against the value assigned to future goods. This discounting explains, for example, the reason why there is finite prices on usable land:

<blockquote>"If the future services which a piece of land can render were to be valued in the same way in which its present services are valued, no finite price would be high enough to impel its owner to sell it."<ref name="mises__human_action_chap19sec2"></ref></blockquote>

We [[discount]] future services and [[goods]] because of [[time preference]]. The fact that we can purchase land which is usable into the foreseeable future is proof of this. Furthermore, [[originary interest]] is not determined by supply and demand of [[loanable funds]]. Time preference, manifesting in the discount of future goods against present goods (i.e., originary interest) determines both the demand and supply of capital and capital goods.<ref name="mises__human_action_chap19sec2"></ref>

Interest rates in loans, in a changing economy, always have an element of entrepreneurial profit. The lender, taking a risk and and making a prediciton about the future state of the market, is engaging in an entrepreneurial venture. Therefore, interest rates on loans are never pure [[originary interest]] but also entrepreneurial profit.<ref name="mises__human_action_chap19sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec4.asp XIX. The Rate of Interest], Originary Interest in the Changing Economy, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref>

<li> Interest, Credit Expansion, and the Trade Cycle</li>
<li> Work and Wages</li>
<li> The Nonhuman Original Factors of Production</li>
<li> The Data of the Market</li>
<li> Harmony and Conflict of Interests</li>
</ol>

== Part Five: Social Cooperation Without a Market ==

<ol style="list-style-type:upper-roman;" start="25">
<li> The Imaginary Construction of a Socialist Society</li>
<li> The Impossibility of Economic Calculation Under Socialism</li>
</ol>

== Part Six: The Hampered Market Economy ==

<ol style="list-style-type:upper-roman;" start="27">
<li> The Government and the Market</li>
<li> Interference by Taxation</li>
<li> Restriction of Production</li>
<li> Interference with the Structure of Prices</li>
<li> Currency and Credit Manipulation</li>
<li> Confiscation and Redistribution</li>
<li> Syndicalism and Corporativism</li>
<li> The Economics of War</li>
<li> The Welfare Principle Versus the Market Principle</li>
<li> The Crisis of Interventionism</li>
</ol>

== Part Seven: The Place of Economics in Society ==
<ol style="list-style-type:upper-roman;" start="38">
<li> The Nondescript Character of Economics</li>
<li> The Place of Economics in Learning</li>
<li> Economics and the Essential Problems of Human Existence</li>
</ol>

==References==
{{Reflist|2}}

==Links==
''{{Store|http://www.mises.org/store/Human-Action-The-Scholars-Edition-P119.aspx|Human Action (Scholar's Edition)}}''

* Mises Made Easier: [http://mises.org/Easier/Easier.asp Glossary for Human Action]
* [http://mises.org/humanaction/theindex.asp Human Action interactive index]
* [http://mises.org/resources.aspx?Id=3250&html=1#Publication_History ''Human Action'' publication history]
* [http://mises.org/daily/137 "Human Action: What the Archives Tell Us"] by [[Jeffrey M. Herbener]], January 1999

===Editions===
* ''Human Action: A Treatise on Economics'', 1998 Scholar's Edition:
** {{mr|3250|Resources page}}
** {{mr|3810|Study Guide}}
*** [http://mises.org/daily/3262 "Study Guide to Human Action"] by [[Robert Murphy]], December 2008
*** [http://blog.mises.org/6708/weekend-study-guide/ "Weekend Study Guide"] (individual chapter downloads)
*** [http://blog.mises.org/15181/the-human-action-study-guide-as-our-armor/ "The Human Action Study Guide is our armor"] by Jim Fedako, December 2010
** [http://mises.org/media/category/139 Audiobook] read by [[Jeff Riggenbach]]
** Mises Daily excerpts
*** [http://mises.org/daily/3328 Introduction]
*** [http://mises.org/daily/2506 Chapter 1] "Acting Man"
*** [http://mises.org/daily/2565 Chapter 2] "The Sciences of Human Action" ([http://mises.org/daily/2606 study guide])
*** [http://mises.org/daily/2535 Chapter 3] "Economics and the Revolt Against Reason" ([http://mises.org/daily/2574 study guide])
*** [http://mises.org/daily/2711 Chapter 4] "A First Analysis of the Category of Action" ([http://mises.org/daily/2712 study guide])
*** [http://mises.org/daily/2730 Chapter 5] "Time and Praxeology" ([http://mises.org/daily/2731 study guide])
*** [http://mises.org/daily/2608 Chapter 6] "Uncertainty" ([http://mises.org/daily/2615 study guide])
*** [http://mises.org/daily/2774 Chapter 7] "Action Within the World" ([http://mises.org/daily/2778 study guide])
*** [http://mises.org/daily/2813 Chapter 8] "Human Society" ([http://mises.org/daily/2814 study guide])
*** [http://mises.org/daily/2841 Chapter 9] "The Role of Ideas" ([http://mises.org/daily/2843 study guide])
*** [http://mises.org/daily/2849 Chapter 10] "Exchange Within Society" ([http://mises.org/daily/2850 study guide])
*** [http://mises.org/daily/2880 Chapter 11] "Valuation Without Calculation" ([http://mises.org/daily/2881 study guide])
*** [http://mises.org/daily/2933 Chapter 12] "The Sphere of Economic Calculation" ([http://mises.org/daily/2939 study guide])
*** [http://mises.org/daily/2979 Chapter 14] "The Scope and Method of Catallactics" ([http://mises.org/daily/2980 study guide])
*** Chapter 15 ([http://mises.org/daily/3029 Part I], [http://mises.org/daily/3030 Part II]) "The Market" ([http://mises.org/daily/3005 study guide])
*** Chapter 16 ([http://mises.org/daily/3067 Part I], [http://mises.org/daily/3099 Part II], [http://mises.org/daily/3552 Part III]) "Prices" ([http://mises.org/daily/3068 study guide])

* ''Human Action: A Treatise on Economics'', 1996 4th Revised Edition:
** Foreword to the 4th edition by Bettina B. Greaves (p. v) ([http://mises.org/humanaction/forward.asp HTML], [http://mises.org/humanaction/pdf/ha_002.pdf PDF])
** Full text ([http://mises.org/books/humanaction.pdf PDF])

* ''Human Action: A Treatise on Economics'', 1966 3rd Revised Edition:
** Foreword to the 3rd edition by Ludwig von Mises ([http://mises.org/humanaction/foreword3.asp HTML], [http://mises.org/humanaction/pdf/ha_003.pdf PDF])
** Additions to Human Action in the 3rd edition ([http://mises.org/humanaction/ha3rd-addition.pdf PDF])

* ''Human Action: A Treatise on Economics'', Abridged Edition:
** Text ([http://blog.mises.org/9147/human-action-abridged/ HTML])

===Other resources===
*Articles, essays & reviews
** [http://mises.org/daily/2975 "Epistemological Relativism in the Sciences of Human Action"] Ludwig von Mises, 1960
** "The Place of Mises's Human Action in the Development of Modern Economic Thought" ([http://mises.org/journals/qjae/pdf/Qjae213.pdf PDF]) {{Nowrap|by [[Joseph T. Salerno]], Spring 1999}}
** [http://mises.org/resources/804 "Reflections on Human Action after 50 Years"] by [[Vernon L. Smith]], Fall 1999
** [http://mises.org/resources/805 "The Methodology of Human Action"] by [[Lawrence H. White]], Fall 1999
** [http://mises.org/daily/3363 "Human Action at Sixty"] by Richard M. Ebeling, March 2009
** [http://mises.org/daily/5237/Misess-Gift-of-Human-Action "Mises's Gift of Human Action"] by Jonathan M. Finegold Catalan, May 2011
** [http://mises.org/efandi/ch10.asp "The Why of Human Action"] by Ludwig von Mises, September 1949
** Mises Review: [http://mises.org/misesreview_detail.aspx?control=127 "Human Action, The Scholar's Edition"] by [[David Gordon]], Winter 1999 (republished as Mises Daily [http://mises.org/daily/3655 here])
** [http://blog.mises.org/14807/the-power-of-the-pocket-edition/ "The Power of the Pocket Edition"] by [[Jeffrey Tucker]], November 2010

* Other media
** In Studio: "Human Action: Pocket Edition" interview with [[Douglas French]], ([http://www.youtube.com/watch?v=Mou5ID13HqI YouTube])
** [http://www.apriorist.de/modx/hauyf/ ''Acting Man'' online lesson]
** [http://mises.org/quotes.aspx?action=source&Source=Human%20Action ''Human Action'' quotes]

* {{wplink}}

{{See also|Human Action Comics}}
{{Mises books}}

[[Category:Writings of Ludwig von Mises]]
[[Category:Writings on economics]]

Human Action

2011-06-06T18:09:35Z

Huckelberry: /* XVI. Prices */

{{Infobox book
| name = Human Action: A Treatise on Economics
| title_orig =
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| author = [[Ludwig von Mises]]
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| country = [[United States]]
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| subject = [[Economics]], [[Political economy]]
| genre = [[Non-fiction]]
| publisher = [[Yale University Press]]
| pub_date = [[1949]]
| english_pub_date =
| media_type = Print
| pages = 889 pp.
| isbn =
| oclc = 2595286
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'''''Human Action: A Treatise on Economics''''' is the [[magnum opus]] of [[Ludwig von Mises]], first published in 1949. It defined a large part of present [[Austrian Economics]].

<blockquote>"It is true that economics is a theoretical science and as such abstains from any judgment of value...Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends."<ref name="humanaction_intro_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/introsec3.asp Introduction], 3. Introduction, [[Human Action]], online version, referenced 2011-02-05.</ref></blockquote>

== Part One: Human Action ==

===I. Acting Man===

<blockquote>''Main Article: [[Action]].''</blockquote>

The science of human action is called [[praxeology]]. Human action always involves [[opportunity cost]] and it is always ''purposeful''. <ref name="humanaction_ch1sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap1sec1.asp I. Acting Man], 1. Purposeful Action and Animal Reaction, [[Human Action]], online version, referenced 2011-02-06.</ref>

===II. The Epistemological Problems of the Sciences of Human Action===

[[Ludwig von Mises]] takes the [[logical deductive]] approach to economics, as opposed to the [[empirical]] (or the [[logical positivist]] approach). Economic problems cannot be solved [[empirically]] because renunciation and long-term planning can not be seen. Humans act to attain definite ends--and economic phenomena can be understood as such.

<blockquote>"[[Praxeology]] is a theoretical and systematic, not a historical, science...It aims at knowledge valid for all instances in which the conditions exactly correspond to those implied in its assumptions and inferences. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, ''[[a priori]]''."<ref name="humanaction_ch2sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec1.asp II. Epistemological Problems of Human Action], 1. Praxeology and History, [[Human Action]], online version, referenced 2011-02-06.</ref></blockquote>

Like geometry, [[praxeology]] is not subject to disproof. This method may be called ''methodological apriorism''.<ref name="humanaction_ch2sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec2.asp II. Epistemological Problems of Human Action], 2. The Formal and Aprioristic Character of Praxeology, [[Human Action]], online version, referenced 2011-02-06.</ref>

===III. Economics and the Revolt Against Reason===

[[Mises]] dismisses the [[Historical School]], [[Hegel]] and [[Marx]] with it. In discussing the "bourgeois logic" and "bourgeois mentality" of [[Marx]], [[Mises]] is able to attack [[polylogism]] in general. There does not exist multiple logics, only differing interests and their logical conclusions--whether they are spurious or well-founded. [[Mises]] states with regard to the [[Historical School]], "History, in due time, will arrange everything for the best. It does not need the advice of mortal men."<ref name="humanaction_ch3sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap3sec1.asp III. Economics and the Revolt Against Reason], 1. The Revolt Against Reason, [[Human Action]], online version, referenced 2011-02-06.</ref>

<blockquote>''See [[German Idealism]].''</blockquote>

===IV. A First Analysis of the Category of Action===

<blockquote>''Main Article: [[Value]]''</blockquote>

All actions are directed toward goals, aims or ends. The end, speaking generally, is always to remove a ''felt uneasiness''. Means are the ways by which we reach an end. Things in the world, when applied to our ends, become means and are commonly referred to as [[goods]].<ref name="humanaction_ch4sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec1.asp IV. A First Analysis of The Category of Action], 1. Ends and Means, [[Human Action]], online version, referenced 2011-02-06.</ref> Means are [[Scarcity|scarce]].

Actions are reflective of our ''scale of [[value|values]]''. All things equal, we satisfy wants of higher [[value]] to us, and leave unsatisfied wants of lower [[value]] to us. Things in the world have no intrinsic [[value]], our actions give things [[value]].<ref name="humanaction_ch4sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec2.asp IV. A First Analysis of The Category of Action], 2. The Scale of Value, [[Human Action]], online version, referenced 2011-02-06.</ref>

Given that every action is an attempt to establish a more satisfactory state of affairs, viz., to remove a ''felt uneasiness'', all actions are in a sense an [[exchange]]. We [[exchange]] one state for another, hopefully better, state. Lastly, value judgments arrange wants, but do not measure them. They are expressive of sequence and order rather than of measurement and weight.<ref name="humanaction_ch4sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp IV. A First Analysis of The Category of Action], 4. Action as Exchange, [[Human Action]], online version, referenced 2011-02-06.</ref>

===V. Time===

Time is a [[Praxeology|praxeological]] category: all action is in time and is subject to time.<ref name="humanaction_ch5sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp V. Time], 2. Past, Present and Future, [[Human Action]], online version, referenced 2011-02-07.</ref> As humans, our time is [[Scarcity|scarce]] and we must economize it accordingly. Our scales of [[value]] and therefore our actions are always with reference to time. As we will see later, time is important in the determination of [[interest]] and consumption.<ref name="humanaction_ch5sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap5sec3.asp V. Time], 3. The Economization of Time, [[Human Action]], online version, referenced 2011-02-07.</ref>

===VI. Uncertainty===

All action is speculative. We never know exactly what will occur. The natural sciences make it possible to foretell results from specific actions. They do not make the future predictable.<ref name="humanaction_ch6sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec1.asp VI. Uncertainty], 1. Uncertainty and Acting, [[Human Action]], online version, referenced 2011-02-08.</ref> But, [[Mises]] tells us, probability is a primary concern of [[praxeology]].

He distinguished between two types of propability: [[class probability]] and [[case probability]].

<blockquote>"''[[Class probability]] means'': We know or assume to know, with regard to the problem concerned, everything about the behavior of a whole class of events or phenomena; but about the actual singular events or phenomena we know nothing but that they are elements of this class."<ref name="humanaction_ch6sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec3.asp VI. Uncertainty], 3. Class Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, car insurance works on the premise that with a large pool of policies, they can use class probability to decide upon an approriate premium given the ''class probability'' of accidents. But, they know nothing about the probability of the individual policy holder getting into an accident.

<blockquote>"''[[Case probability]]'' means: We know, with regard to a particular event, some of the factors which determine its outcome; but there are other determining factors about which we know nothing."<ref name="humanaction_ch6sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec4.asp VI. Uncertainty], 4. Case Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, foreign policy experts may make predictions about the settlement of foreign disputes. They are well informed but it is impossible for them to predict the outcome perfectly because they can not grasp all the data and all the opinions of individuals shaping decisions. Therefore, they may know some of the factors that will shape the future, but never perfectly.

For [[Mises]], we make decisions with incomplete knowledge. To say it again, all action is speculative in character. To this difficulty in decisions, specifically in social cooperation where selection occurs, competition serves as a function to select the most able person for specific positions. It assigns every member of society to the position where they best serve society.<ref name="humanaction_ch6sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec6.asp VI. Uncertainty], 6. Betting, Gambling, and Playing Games, [[Human Action]], online version, referenced 2011-02-08.</ref>

===VII. Action Within the World===

Each person possesses one scale of valuations, which is visible through action.<ref name="humanaction_ch7sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec1.asp VII. Action Within The World], 1. The Law of Marginal Utility, [[Human Action]], online version, referenced 2011-02-13.</ref> Goods and modes of action are chosen based on their utility, or their causal relevance for the removal of felt ''uneasiness''.<ref name="humanaction_ch7sec1"></ref> Here [[Mises]] discusses the [[paradox of value]]: why is ''gold'' more valuable than ''iron''? Despite the many uses of iron, gold is valued more on the market because of its value in exchange. Iron may have more technological prospects or ''objective use-value'' but it lacks ''subjective use-value'', that is, gold is valuable in exchange due to scarcity, appearance and its tradition as a form of money. [[Mises]], however, dismisses the question as one which never occurs in reality.<ref name="humanaction_ch7sec1"></ref>

The [[Law of Marginal Utility]] is implied by the category of action: If a supply increases from quantity ''n'' to ''n + 1'' the extra unit provides less [[utility]] than unit ''n''. This is because ''n'' is satisfying a more urgent want than unit ''n + 1''. We satisfy more urgent wants first by their definition. Unit ''n'' is satisfying the more urgent want, ''n + 1'' is satisfying a less urgent want. Therefore, increasing units of a homogeneous supply are each applied to decreasingly important wants (seeing as the more urgent wants are always satisfied first). The [[law of marginal utility]], "does not deal primarily with the [[value]] of things, but with the [[value]] of the services a man expects to get from them."<ref name="humanaction_ch7sec1"></ref>

"[[Labor]]," says [[Mises]], "is preferred to leisure only insofar as the yield of [[labor]] is more urgently desired than the enjoyment of leisure."<ref name="humanaction_ch7sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec3.asp VII. Action Within The World], 3. Labor as Means, [[Human Action]], online version, referenced 2011-02-13.</ref> Work involves disutility. To this note, [[labor]] is more scarce than other material factors of production:

<blockquote>"In our world there is no abundance, but a shortage of manpower, and there are unused material factors of production, i.e. land, mineral deposits, and even plants and equipment."<ref name="humanaction_ch7sec3"></ref></blockquote>

Labor saving devices reduce want, they do not bring about "technological unemployment." Man economizes both labor and material factors.<ref name="humanaction_ch7sec3"></ref>

Action is successful it it produces the intended result: it produces the product. The human mind directs [[action]] with a purpose and production is creative. It is not something physical, natural, and external; it is a spiritual and intellectual phenomenon. All material actions within the world are a product of the mind. "In this sense," [[Mises]] tells us, "[[praxeology]] can be called a moral science."<ref name="humanaction_ch7sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec4.asp VII. Action Within The World], 4. Production, [[Human Action]], online version, referenced 2011-02-13.</ref>

== Part Two: Actions Within the Framework of Society ==

===VIII. Human Society===

We are born into society and only in this sense does society exist before the individual. [[Society]] is the supreme example of the benefits of the [[division of labor]].<ref name="ch8sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec1.asp VIII. Human Society], 1. Human Cooperation, [[Human Action]], online version, referenced 2011-02-17.</ref> It is an institution for the preservation of peaceful human relations. It is the social apparatus of compulsion and coercion.<ref name="ch8sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec2.asp VIII. Human Society], 2. A Critique of the Holistic and Metaphysical View of Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

[[Democratic government]] provides a method for the peaceful adjustment of government to the will of the majority. Wisdom and science thrive in a peaceful and affluent society. <ref name="ch8sec2"></ref>

<blockquote>"[[Liberalism]] aims at a political constitution which safeguards the smooth working of social cooperation and the progressive intensification of mutual social relations. Its main objective is the avoidance of violent conflicts, of wars and revolutions that must disintegrate the social collaboration of men and throw people back into the primitive conditions of barbarism where all tribes and political bodies endlessly fought one another. Because the division of labor requires undisturbed peace, liberalism aims at the establishment of a system of government that is likely to preserve peace, viz., [[democracy]]."<ref name="ch8sec2"></ref></blockquote>

[[Mises]] expounds the Ricardian Law of Association or [[comparative advantage]] as the fundamental characteristic of society.<ref name="ch8sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association, [[Human Action]], online version, referenced 2011-02-17.</ref> The division of labor assigns to each man the best job for him in society.<ref name="humanaction_ch6sec6"></ref> However, the end result of division of labor in society--a diversity which attests to the innate inequalities between individuals--does not illistrate ideas of [[Social Darwinism]]. Biology and evolutionary views cannot pass value judgments on the benefits of civilization.<ref name="ch8sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec7.asp VIII. Human Society], 7. The Great Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

===IX. The Role of Ideas===

All [[action]] is preceded by thinking. Thinking is to deliberate before [[action]] and to reflect upon past [[action]]. Thinking is a tool of action and language is a tool of thinking. All action is based on a definite idea about causal relations. Thinking and ideas are, like material wealth, passed down the generations.<ref name="ch9sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec1.asp IX. Human Society], 1. Human Reason, [[Human Action]], online version, referenced 2011-02-18.</ref> Action is always directed by ideas.<ref name="ch9sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec3.asp IX. Human Society], 3. Might, [[Human Action]], online version, referenced 2011-02-18.</ref>

[[Ideologies|Ideology]] and world views are explanations of social phenomena and technologies for prescriptive politics. All political doctrines imply that: "the political system we support will render you more prosperous and more content."<ref name="ch9sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec2.asp IX. Human Society], 2. World View and Ideology, [[Human Action]], online version, referenced 2011-02-18.</ref> [[Ideologies]], to [[Mises]], are the most powerful form of control. The might of a politician is due to his [[ideology]], his interpretation of the world and his prescriptive measures to ensure his followers are more prosperous and more content. Thinking, the ideological interpretation, succeeds through the cooperation of other minds. No thinker is isolated in his thoughts, they have been influenced by others. A politician's power dwindles if his [[ideology]] loses support. To [[Mises]]:

<blockquote>"The power of an ideology consists precisely in the fact that people submit to it without any wavering and scruples."<ref name="ch9sec3"></ref></blockquote>

Traditionalism and the idea of progress are ideologies also. Progress toward a more prosperous life and evolutionary progress must not be confused with evolution toward higher forms of life. Progress may not continue, majorities may error.<ref name="ch9sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec4.asp IX. Human Society], 4. Meliorism and the Idea of Progress, [[Human Action]], online version, referenced 2011-02-18.</ref> Ideologies may protect the material interest of the race or they may destroy it.

===X. Exchange Within Society===

[[Action]] always is essentially the exchange of one state of affairs for another state of affairs.<ref name="ch10sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec1.asp X. Exchange Within Society], 1. Autistic Exchange and Interpersonal Exchange, [[Human Action]], online version, referenced 2011-02-25.</ref> The interpersonal exchange of goods weaves the bonds which unites men into societies.<ref name="ch10sec1"></ref> [[Mises]] defines two different kinds of social cooperation: cooperation by virtue of contract and coordination, and contract by virtue of command and subordination or hegemony.<ref name="ch10sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec2.asp X. Exchange Within Society], 2. Contractual Bonds and Hegemonic Bonds, [[Human Action]], online version, referenced 2011-02-25.</ref> In the former state there are men who cooperate to achieve goals--their plans are symmetrical and share a common goal. In the latter state their is always two classes of men, those who command and those who obey. Again [[Mises]] emphasizes the important of ideology to animate the social body. The individuals must share an [[ideology]] if they are to cooperate. Hegemonic control needs an ideology that the controlling system is the best or the traditional norm. [[Ideologies]] imply obedience to the [[ideology]]. Contractual relation order society by free association held together by the order of right and law.<ref name="ch10sec2"></ref>

The [[Praxeology|praxeological]] categories, [[Mises]] tells us, are eternal and unchangable. They are the categories within which all action takes place. No [[action]] is free from the facts of existence--of which the praxeological categories belong.<ref name="ch10sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec3.asp X. Exchange Within Society], 3. Calculative Action, [[Human Action]], online version, referenced 2011-02-25.</ref> Man can never comprehend anything that is neither [[action]] or none action.

Modern civilization is characterized by the fact that it has elaborated a method which makes use of the arithmetic possible in a broad field of activities. [[Economic calculation]], for example in modern capital [[accounting]], is a fundamental issue in all comprehension of economic phenomena.<ref name="ch10sec3"></ref>

Despite the extended use of capital [[accounting]] and arithmetic, [[action]] can only make use of ordinal numbers. That is, actions order desires but do not measure them. But in our rational and contractual society we are able to make use of cardinal numbers in capital accounting. By this feature of capital accounting and contractual relations civilization opened the door to computation and calculation regarding the planning of the future and measuring the effects of past actions. Still, the applicability of cardinal numbers to economic thinking require these circumstances and economic law and theory cannot be deduced from [[economic history]], namely, the history of prices.<ref name="ch10sec3"></ref>

== Part Three: Economic Calculation ==

===XI. Valuation Without Calculation===

We apply the [[value|values]] we attribute to the ends of [[action]], to the means necessary to achieve those ends: "Other things being equal, [acting man] assigns to the total amount of the various means the same value he attaches to the end which they are fit to bring about."<ref name="ch11sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec1.asp XI. Valuation Without Calculation], 1. Gradation of Means, [[Human Action]], online version, referenced 2011-02-26.</ref>

The preferences used in [[action]], the laying aside of some things for other things, allows--as said above--the use of ordinal numbers but not cardinal numbers. Again, [[value|values]] attributable to actions cannot be measured arithmetically. Yet, in the activity of using means to attain certain ends, the acquisition of countable and measurable supplies of things becomes an immediate goal of action.<ref name="ch11sec1"></ref> [[Economic calculation]] can occur, despite that the values we attribute to different means and ends cannot be measured, by the results of actions of interpersonal exchange:

<blockquote>"The modern theory of value and prices show how the choices of individuals, their preferring some things and setting aside of other things, results, in the sphere of interpersonal exchange, in the emergence of market prices."<ref name="ch11sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec2.asp XI. Valuation Without Calculation], 2. The Barter-Fiction of the Elementary Theory of Value and Prices, [[Human Action]], online version, referenced 2011-02-26.</ref></blockquote>

[[Mises]] reminds us that is it a fallacy to think things exchanged are of the same value. Rather, people buy and sell only because they appraise the things given up less than those received.<ref name="ch11sec2"></ref> "Market prices," [[Mises]] says in a later chapter, "are not expressive of equivalence, but of a divergence in the valuation of the exchanging parties."<ref name="ch26sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap26sec3.asp XXVI. Economic Calculation under Socialism], 3. Recent Suggestions for Socialist Economic Calculation, [[Human Action]], online version, referenced 2011-04-25.</ref>

In using technology, we are resorting to knowledge of causal relations. We are not, however, addressing the technologies applicability to human wants and desires.<ref name="ch11sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec3.asp XI. Valuation Without Calculation], 3. The Problem of Economic Calculation, [[Human Action]], online version, referenced 2011-02-26.</ref>

<blockquote>"Technology tells how a given end could be attained by the employment of various means which can be used together in various combinations, or how various available means could be employed for certain purposes. But it is at a loss to tell man which procedures he should choose out of the infinite variety of imaginable and possible modes of production."<ref name="ch11sec3"></ref></blockquote>

Engineering can tell us how to build a bridge but not whether its construction would draw resources from other areas where they would be used to satisfy more urgently felt needs. [[Action]], as opposed to the casual relations of engineering, must discover the relations between dissimilar projects. [[Money]], holding the status of "universally used medium of exchange," becomes the measure of the worthiness of differing possiblities in the realm of action. Because [[goods]] and services have money prices we can use these in planning and decisions.<ref name="ch11sec3"></ref>

With all action directed toward the future, all economic planning and calculation must be made in regards to the future state of prices. In entrepreneurial ventures the acting man wants the prices of goods produced and sold to be greater than the price of the goods used in production. The practical meaning of [[economic calculation]] is to show how much one is free to consume without impairing the future capacity to produce. The concepts of [[economic calculation]]--[[Profit]] and [[loss]], [[capital]] and [[income]], spending and [[saving]], cost and yield--are developed to ensure efficient use of the resources of society.<ref name="ch11sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec4.asp XI. Valuation Without Calculation], 4. Economic Calculation and The Market, [[Human Action]], online version, referenced 2011-02-26.</ref>

===XII. The Sphere of Economic Calculation===

The acting individual is always concerned with the future. In action he is either, (1) anticipating the future and acting accordingly, or (2) trying to change the outcomes of the future even if there are no other changes to the data. Economic calculation cannot predict the outcomes of the future, it can only assist man in adjusting his actions to his opinion of the future. The numerical exactitude of balance sheets and income statements must not prevent us from realizing their inherent uncertainty and estimation.<ref name="ch12sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec1.asp XII. The Sphere of Economic Calculation], 1. The Character of Monetary Entries, [[Human Action]], online version, referenced 2011-02-27.</ref>

[[Money]] is not a measuring stick. Money prices do not transmit the intrinsic value of a good. [[Prices]] are not measured in money, they consist in money. They are either prices of the past or prices of the future. Furthermore, although it is possible to aggregate prices paid in goods, it makes no sense to talk about a national income or any other aggregate of spending which "characterizes" a society.<ref name="ch12sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec2.asp XII. The Sphere of Economic Calculation], 2. The Limits of Economic Calculation [[Human Action]], online version, referenced 2011-02-27.</ref>

Economic calculation makes sense only in a society with private ownership of the means of production. Economic calculation is not to blame of the masses preferring detective stories to books of philosophy--that is an outcome of the desires and preferences of individuals acting in society. Economic calculation cannot be blamed for the less than ideal characters and habits of other members of society.<ref name="ch12sec2"></ref>

Prices, or exchange ratios, are in constant fluctuation with the changing data of the market and the changing whims of consumers.<ref name="ch12sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec3.asp XII. The Sphere of Economic Calculation], 3. The Changeability of Prices[[Human Action]], online version, referenced 2011-02-27.</ref>

[[Mises]] dismisses the idea of measurement in [[purchasing power]] as unfeasible:

<blockquote>"A measurement of purchasing power would have to rely upon the prices of the goods and services of the first order and, what is more, of ''all'' of them."<ref name="ch12sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec4.asp XII. The Sphere of Economic Calculation], 4. Stabilization [[Human Action]], online version, referenced 2011-02-27.</ref></blockquote>

Further, changes in the [[purchasing power]] of [[money]] must necessarily effect different goods and services at different times and therefore efforts to stabilize the purchasing power of money by attempting to change the money relation is an impossible feat.<ref name="ch12sec4"></ref>

===XIII. Monetary Calculation as a Tool of Action===

Monetary calculation is the decisive factor of action in the social system of [[division of labor]]. Every action of the [[entrepreneur]] is analyzed by monetary calculation. Only in the institutional settings of [[private property]] and [[division of labor]] where goods and services are exchanged by a money can the system of monetary calculation be used. The use of aggregates derived from the use of monetary calculation is useless. That is, monetary calculation is useful for individual acting but cannot be useful to determining "social" values or welfare. By the use of monetary calculation, for example in capital [[accounting]], arithmetic has become a tool in the struggle for a better life. Capital [[accounting]] allows us to analyze the success or failure of men in satisfying the needs of [[consumers]].<ref name="ch13sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap13sec1.asp XIII. Monetary Calculation as a Tool of Action], 1. Monetary Calculation as Method of Thinking [[Human Action]], online version, referenced 2011-03-14.</ref>

<blockquote>"Our civilization is inseparably linked with our methods of economic calculation. It would parish if we were to abandon this most precious intellectual tool of acting. Goethe was right in calling bookkeeping by double entry "one of the finest inventions of the human mind.'"<ref name="ch13sec1"></ref></blockquote>

== Part Four: Catallactics or Economics of the Market Society ==

=== XIV. The Scope and Method of Catallactics ===

<blockquote>"The subject matter of catallactics is all market phenomena with all their roots, ramifications, and consequences."<ref name="ch14sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec1.asp XIV. The Scope and Method of Catallactics], 1. The Delimitation of Catallactic Problems''[[Human Action]]'', online version, referenced 2011-5-30.</ref></blockquote>

The study of actions which are conducted on the basis of monetary calculation, or catallactics, does not care whether actions have good or bad motives. People purchase goods for material reasons and ideal reasons. They make purchases based on metaphysical beliefs and aesthetic value judgments. For economics it is inconsequential the reasons and motives for specific actions--it only cares if the beliefs are acted upon because they help determine the structure of market prices.<ref name="ch14sec1"></ref>

The method of economics, [[Mises]] tells us, is the method of imaginary constructions. This is also the method of praxeology. Imaginary constructions are products of deduction "ultimately derived from the fundamental category of action, the act of preferring and setting aside."<ref name="ch14sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec2.asp XIV. The Scope and Method of Catallactics], 2. The Method of Imaginary Constructions ''[[Human Action]]'', online version, referenced 2011-5-31.</ref> In reference to the imaginary construction [[Mises]] writes:

<blockquote>"The method of imaginary constructions in indispensable for praxeology; it is the only method of praxeological and economic inquiry. It is, to be sure, a method very difficult to handle because it can easily result in fallacious syllogisms. It leads along a sharp edge; on both sides yawns the chasm of absurdity and nonsense. Only merciless self-criticism can present a man from falling headlong into these abysmal depths."<ref name="ch14sec2"></ref></blockquote>

'''The Autistic Economy''': In order to study the effects of interpersonal exchanges, we study an imaginary construction in which they are absent. When it comes to a completely self-sufficient economy we have two imaginary systems we can hypothesize: the isolated individual and the socialist society. It does not matter whether these can calculate or whether they have historically existed, only that they can be thought of in theory.<ref name="ch14sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec4.asp XIV. The Scope and Method of Catallactics], 4. The Autistic Economy ''[[Human Action]]'', online version, referenced 2011-5-31.</ref>

'''The Evenly Rotating Economy''': In creating imaginary constructions we must conceive that all actions ultimately aim at bring about a state in which there is no longer any action, "whether because all uneasiness has been removed or because any further removal of felt uneasiness is out of the question." That is, we create an imaginary construction in which no one wants or needs to act and use this to determine the importance of various aspects of our society.<ref name="ch14sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec5.asp XIV. The Scope and Method of Catallactics], 5. The State of Rest and the Evenly Rotating Economy ''[[Human Action]]'', online version, referenced 2011-5-31.</ref>

:''See [[Evenly Rotating Economy]]''

=== XV. The Market ===

<blockquote>"The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of actions of various individuals cooperating under the division of labor."<ref name="ch15sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec1.asp XV. The Market], 1. Characteristics of the Market Economy, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref></blockquote>

In the market place everyone is an end in himself and an end for other people. Each individual acts on his own behalf, but everyones actions of the market also serve another. In acting everyone is serving everyone else's ends while serving their own. They each aim at the satisfaction of other peoples needs as much as at his own.<ref name="ch15sec1"></ref>

The state of the market is characterized by the totality of [[prices]] within the market which are determined by individuals eager to buy and sell. Additionally, there is no such thing as a "mixed" economy: "it is directed either by the market of by the decrees of a [[production]] tsar or a committee of production tsars."<ref name="ch15sec1"></ref> Publicly owned entities which operating in a market economy must obey the rules of profit and loss as others do. The characteristic feature of the [[market economy]] is its ability to [[calculate]]. Monetary calculation along with the determination of market prices allows the market to calculate. The rational ordering of the [[division of labor]] and of production are resultants of this.<ref name="ch15sec1"></ref>

<blockquote>"The market economy is real because it can calculate."<ref name="ch15sec1"></ref></blockquote>

The central principles in the market economy's calculation are [[income]] and [[capital]]. Income is the amount of resources which can be consumed without lowering the capital of the individual or business. If income is greater than the amount consumed, ''[[savings]]'' results. Conversely, if a man consumes more than his income is it referred to as ''capital consumption''. Capital, here, is the quantity of money representing ownership in the assets of a enterprise (using the term broadly) or the total [[assets]] less the total [[liabilities]].<ref name="ch15sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec2.asp XV. The Market], 2. Capital, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref>

"All civilizations" says [[Mises]], "have up to now been based on private ownership of the means of production." Our system of private ownership of the means of production has poured the horn of plenty on growing population figures. Capitalism has served to allow each man a higher material wealth than even the kings of past ages. Many who argue against capitalism do so because they look upon capitalism as an accidental phenomenon. They do not understand [[private property]] and the concept of free-associations causal relationship with the material wealth of the era. It is the critics of [[capitalism]], [[Mises]] contends, which lack historical understanding, not the economists. To capitalism's enemies, it is the policy advocated by big business, regardless of the fact that big business often advocates for "[[protectionism]], [[cartels]], and the abolition of [[competition]]." And today, it is considered a "legitimate task of government to prevent an efficient man from competing with the less efficient." Advocates of protection, and state imposed limitations on the free-market want to make us believe that the consequences of [[government intervention]] are produced by capitalism.<ref name="ch15sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec3.asp XV. The Market], 3. Capitalism, ''[[Human Action]]'', online version, referenced 2011-04-10.</ref>

In a market economy the [[The Sovereignty of the Consumers|consumers are sovereign]]. Only sellers of the [[first order]] goods are in contact with the consumers, but the consumers buying and abstention from buying is transmitted from the [[consumer goods]] to the [[higher order]] goods (the [[producers goods]]). Consumers, in their capricious buying, determine the income of every member of society and direct production into the hands of individuals best able to serve the consumers.<ref name="ch15sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec4.asp XV. The Market], 4. The Sovereignty of the Consumers, ''[[Human Action]]'', online version, referenced 2011-04-30.</ref>

The consumers designate everyones place in society. The classical economists favored the abolition of the all trade barriers because they protected the less efficient from the more efficient. Trade barriers curtail production and lower the standard of living of all those effected. It is the actions of consumers which determine the prices on the market, and it is these prices which push investors into new lines of business. The bigness of one business will not stop others from trying to compete with it. [[Mises]] writes:

<blockquote>"What a newcomer who wants to defy the vested interests of the old established firms needs most is brains and ideas. If his project is fit to fill the most urgent of the unsatisfied needs of the consumers or to purvey them at a cheaper price than their old purveyors, he will succeed in spite of the much talked of bigness and power of the old firms."<ref name="ch15sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec5.asp XV. The Market], 5. Competition, ''[[Human Action]]'', online version, referenced 2011-05-17.</ref></blockquote>

Competition in the [[catallactic]] sense (i.e., competition in the market place) has a different function than that of games and beauty contests. Its function is to select the individuals most able to control the resources of society to the greatest benefit of the consumers. Humans are not born equal and the consumers do not care: "Their only interest is to secure the best possible satisfaction of their needs."<ref name="ch15sec5"></ref>

In human society, the terms "[[freedom]]" and "[[liberty]]" reference to interhuman relations. For instance [[Mises]] writes, "man was not created free; what freedom he may possess has been given to him by society...Liberty and freedom are the conditions of man within a contractual society."<ref name="ch15sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec6.asp XV. The Market], 6. Freedom, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref> Man in this condition is free to exchange goods and services, but he is by no means independent. He depends on other members of society. We say that a man is free in a contractual society because he serves others to serve himself. The restrains of freedom a man may experience in this environment is due to natural phenomenon only--the laws of nature to which we all unconditionally submit.<ref name="ch15sec6"></ref>

The market system will invariably bestow unequal rewards. This is primarily due to the different levels of service people provide to each other on the [[market]]. That is, it rewards every effort according to its [[value]] as determined by the subjective valuations of the consumers. With respect to inequality, [[Mises]] says:

<blockquote>"No system of social division of labor can do without a method that makes individuals responsible for their contribution to the joint productive effort. If this responsibility is not brought about by the price structure of the market and the inequality of wealth and income it begets, it must be enforced by the methods of direct compulsion as practiced by the police."<ref name="ch15sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec7.asp XV. The Market], 7. Inequality of Wealth and Income, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref></blockquote>

The economic phenomenon of [[profit]] and [[loss]] can be analyzed from an psychic point of view. [[Profit]], in a boarder sense, is the gain derived from [[action]]; it is the increase in satisfaction brought about by the action. In this sense, then, profit is the end of every action. Profit in this psychic sense is not measurable. However in the market economy, [[goods]] and [[services]] are bought and sold with money prices. This allows for the computation of profit and loss using the market prices of the goods and services. [[Profit]], in monetary calculus, is the surplus of [[money]] received over the money expended. It is everyone acting to attain the highest psychic which actuates the market-price mechanism and allows for monetary calculus.

The [[entrepreneur]] encounters the ever changing price structure of the market and makes his profit from correctly anticipating the changes in money prices. In this sense, he is always a speculator.<ref name="ch15sec8">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec8.asp XV. The Market], 8. Entrepreneurial Profit and Loss, ''[[Human Action]]'', online version, referenced 2011-05-19.</ref>

In an expanding or progressing economy the amount of capital invested is increasing per capita. Income is increased either by an increase in technological methods brought about by the increase in capital or simply by an increase in production. Of the increase in wealth (the result of the progressing economy) the majority of it goes to non-entrepreneurial groups. To note again, the market has a tendency to eliminate entrepreneurial profit and it is therefore temporary. In the long run, i.e., when profits have been eliminated by competition, the increase in productivity benefits exclusively the workers and consumers. On progress [[Mises]] writes:

<blockquote>"The vehicle of economic progress is the accumulation of technological methods of production the execution of which is almost always conditioned by the availability of such new capital."<ref name="ch15sec9">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec9.asp XV. The Market], 9. Entrepreneurial Profits and Losses in a Progressing Economy, ''[[Human Action]]'', online version, referenced 2011-05-21.</ref></blockquote>

The greater profits are, the greater is the increment in general prosperity that the enterprise brings. The entrepreneurial function, the driving after profits, is the driving of capital into the most profitable line of business. Which is another way of saying, the driving of capital into which the greatest increase in general prosperity results. Profits and losses are the devices through which consumers exercise their superiority over the owners of capital.<ref name="ch15sec9"></ref>

The entrepreneur hires workers and acts as the mandatary of the consumers. In addressing the many problems and issues that a project encounters the entrepreneur and the technician approach the problem inherently differently. The technician may suggest a method of production which has the greatest physical output. But the entrepreneur must judge differently, namely, economically. Economic calculation saves the entrepreneur from having to look too deeply into problems. Profit and loss are not about prefect production, but about the production which reaps the highest profit--i.e., the production where the most is produced at the lowest cost to society. Managers in an enterprise are essentially an extension of the entrepreneur. They assist in the solving of problems, make use of economic calculation and discover the most economical solution to their problems.<ref name="ch15sec10">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec10.asp XV. The Market], 10. Promoters, Managers, Technicians, and Bureaucrats, ''[[Human Action]]'', online version, referenced 2011-05-30.</ref>

[[Mises]] distinguishes between ''bureaucratic management'' and ''profit management''. In profit management all activities of business are given their worth from the actions of consumers. They dictate the salaries of management and the profits of the entrepreneur and capitalist. Where ever the operation of a system can not be run by profit management, it must be directed by bureaucratic management--i.e., one not concerned with profit and loss.<ref name="ch15sec10"></ref>

<blockquote>"Bureaucratic conduct of affairs, as such, is not an evil. It is only appropriate methods of handling governmental affairs, i.e., the social apparatus of compulsion and coercion. As government is necessary, bureaucratism is--in this field--no less necessary. Where economic calculation is unfeasible, bureaucratic methods are indispensable."<ref name="ch15sec10"></ref></blockquote>

The interplay of market forces, the actions of individuals, their incessant choosing and renunciation, places each individual in their nook of society. It determines the number of copper mines and symphony orchestras. This selection process goes on adjusting peoples station to supply and demand. The owners of factories and capital are compelled to serve the interest of the consumers lest they go out of business. Their ownership in the factories and capital is a liability if they do not concede to the desires of the consumers.<ref name="ch15sec11">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec11.asp XV. The Market], 11. The Selective Process, ''[[Human Action]]'', online version, referenced 2011-06-03.</ref>

<blockquote>"The point of view from which the consumers choose the captains of industry and business is exclusively their qualification to adjust production to the needs of the consumers."<ref name="ch15sec11"></ref></blockquote>

It is common to speak of the automatic reactions of the [[market]]. But the market is not automatic: it is a social body made up of individuals acting, it "is the foremost social body."<ref name="ch15sec12">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec12.asp XV. The Market], 12. The Individual and the Market, ''[[Human Action]]'', online version, referenced 2011-06-04.</ref> Individuals on the market are both consumer and producer. They play both sides, which leads to contradictions: they want to be protected as a [[consumer]] and be protected as a [[producer]]. This is fundamental flaw in many social reforms. Politicians pander to this dichotomous interpretation, advocating interventions of various kinds. But the rhetoric is always the same: "my program will make you as affluent as conditions may permit, while my adversaries' program will bring you want and misery."<ref name="ch15sec12"></ref>

=== XVI. Prices ===

All that [[catallactics]] can assert with regards to the pricing process, is that exchanges only take place if each party values what he receives more highly than what he gives away. Money, being the generally accepted medium of exchange, stands as the common denominator in all exchanges. Money prices are discovered by the continuous exchanges in which individuals trade until what they have is worth more than what the would give away. [[Mises]] writes:

<blockquote>"[Money prices] are determined between extremely narrow margins: the valuations on the one hand of the marginal buyer and those of the marginal offerer who abstains from selling, and the valuations on the other hand of the marginal seller and those of the marginal potential buyer who abstains from buying."<ref name="ch16sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap16sec1.asp XV. The Market], 1. The Pricing Process, ''[[Human Action]]'', online version, referenced 2011-06-04.</ref></blockquote>

:''See [[Marginal utility]]''
:''See [[Final Utility]]''

Prices are the outcome of the valuation of preferring ''a'' to ''b''. The exchange ratio of goods, the price, is not the product of an equality of valuation, but, on the contrary, the product of a discrepancy. Appraisement can be clearly distinguished from valuation in that it is the anticipation of future prices.<ref name="ch16sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap16sec2.asp XV. The Market], 2. Valuation and Appraisement, ''[[Human Action]]'', online version, referenced 2011-06-06.</ref>

<ol style="list-style-type:upper-roman;" start="15">
<li> Indirect Exchange</li>
<li> '''Action in the Passing of Time'''</li>
For humans considering [[action]], time matters: there is a ''too late'' and a ''too early''. [[Time preferences]] affect all action (see [[Value]]).<ref name="mises_action_in_passage_of_time_2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec2.asp XVIII. Action in the Passing of Time], 2. Time Preference as an Essential Requisite of Action, ''[[Human Action]]'', online version, referenced 2011-02-04.</ref>

Postponements of consumption, or [[saving]], is always embodied in concrete goods. "The act of saving," [[Mises]] tells us, "always has its counterpart in a supply of goods produced and not consumed...Man's savings are always embodied in concrete capital goods."<ref name="mises_action_in_passage_of_time_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec9.asp XVIII. Action in the Passing of Time], 9. Money and Capital; Saving and Investment, ''[[Human Action]]'', online version, referenced 2011-02-08.</ref>

The discussion of [[time preference]], and the postponment of consumption, is a lead in to [[interest]].

<li> '''Interest'''</li>

<blockquote>''Main Article: [[Interest]]''</blockquote>

Time preference manifests itself in the phenomenon of [[originary interest]], i.e., the discount of future goods as against present goods.<ref name="mises__human_action_chap19sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec1.asp XIX. The Rate of Interest], The Phenomenon of Interest, [[Human Action]], online version, referenced 2011-02-13.</ref> Originary interest is a ratio, like profit and loss, and not a price.<ref name="mises__human_action_chap19sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec2.asp XIX. The Rate of Interest], Originary Interest, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref> It is the ratio between the value assigned to presents goods against the value assigned to future goods. This discounting explains, for example, the reason why there is finite prices on usable land:

<blockquote>"If the future services which a piece of land can render were to be valued in the same way in which its present services are valued, no finite price would be high enough to impel its owner to sell it."<ref name="mises__human_action_chap19sec2"></ref></blockquote>

We [[discount]] future services and [[goods]] because of [[time preference]]. The fact that we can purchase land which is usable into the foreseeable future is proof of this. Furthermore, [[originary interest]] is not determined by supply and demand of [[loanable funds]]. Time preference, manifesting in the discount of future goods against present goods (i.e., originary interest) determines both the demand and supply of capital and capital goods.<ref name="mises__human_action_chap19sec2"></ref>

Interest rates in loans, in a changing economy, always have an element of entrepreneurial profit. The lender, taking a risk and and making a prediciton about the future state of the market, is engaging in an entrepreneurial venture. Therefore, interest rates on loans are never pure [[originary interest]] but also entrepreneurial profit.<ref name="mises__human_action_chap19sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec4.asp XIX. The Rate of Interest], Originary Interest in the Changing Economy, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref>

<li> Interest, Credit Expansion, and the Trade Cycle</li>
<li> Work and Wages</li>
<li> The Nonhuman Original Factors of Production</li>
<li> The Data of the Market</li>
<li> Harmony and Conflict of Interests</li>
</ol>

== Part Five: Social Cooperation Without a Market ==

<ol style="list-style-type:upper-roman;" start="25">
<li> The Imaginary Construction of a Socialist Society</li>
<li> The Impossibility of Economic Calculation Under Socialism</li>
</ol>

== Part Six: The Hampered Market Economy ==

<ol style="list-style-type:upper-roman;" start="27">
<li> The Government and the Market</li>
<li> Interference by Taxation</li>
<li> Restriction of Production</li>
<li> Interference with the Structure of Prices</li>
<li> Currency and Credit Manipulation</li>
<li> Confiscation and Redistribution</li>
<li> Syndicalism and Corporativism</li>
<li> The Economics of War</li>
<li> The Welfare Principle Versus the Market Principle</li>
<li> The Crisis of Interventionism</li>
</ol>

== Part Seven: The Place of Economics in Society ==
<ol style="list-style-type:upper-roman;" start="38">
<li> The Nondescript Character of Economics</li>
<li> The Place of Economics in Learning</li>
<li> Economics and the Essential Problems of Human Existence</li>
</ol>

==References==
{{Reflist|2}}

==Links==
''{{Store|http://www.mises.org/store/Human-Action-The-Scholars-Edition-P119.aspx|Human Action (Scholar's Edition)}}''

* Mises Made Easier: [http://mises.org/Easier/Easier.asp Glossary for Human Action]
* [http://mises.org/humanaction/theindex.asp Human Action interactive index]
* [http://mises.org/resources.aspx?Id=3250&html=1#Publication_History ''Human Action'' publication history]
* [http://mises.org/daily/137 "Human Action: What the Archives Tell Us"] by [[Jeffrey M. Herbener]], January 1999

===Editions===
* ''Human Action: A Treatise on Economics'', 1998 Scholar's Edition:
** {{mr|3250|Resources page}}
** {{mr|3810|Study Guide}}
*** [http://mises.org/daily/3262 "Study Guide to Human Action"] by [[Robert Murphy]], December 2008
*** [http://blog.mises.org/6708/weekend-study-guide/ "Weekend Study Guide"] (individual chapter downloads)
*** [http://blog.mises.org/15181/the-human-action-study-guide-as-our-armor/ "The Human Action Study Guide is our armor"] by Jim Fedako, December 2010
** [http://mises.org/media/category/139 Audiobook] read by [[Jeff Riggenbach]]
** Mises Daily excerpts
*** [http://mises.org/daily/3328 Introduction]
*** [http://mises.org/daily/2506 Chapter 1] "Acting Man"
*** [http://mises.org/daily/2565 Chapter 2] "The Sciences of Human Action" ([http://mises.org/daily/2606 study guide])
*** [http://mises.org/daily/2535 Chapter 3] "Economics and the Revolt Against Reason" ([http://mises.org/daily/2574 study guide])
*** [http://mises.org/daily/2711 Chapter 4] "A First Analysis of the Category of Action" ([http://mises.org/daily/2712 study guide])
*** [http://mises.org/daily/2730 Chapter 5] "Time and Praxeology" ([http://mises.org/daily/2731 study guide])
*** [http://mises.org/daily/2608 Chapter 6] "Uncertainty" ([http://mises.org/daily/2615 study guide])
*** [http://mises.org/daily/2774 Chapter 7] "Action Within the World" ([http://mises.org/daily/2778 study guide])
*** [http://mises.org/daily/2813 Chapter 8] "Human Society" ([http://mises.org/daily/2814 study guide])
*** [http://mises.org/daily/2841 Chapter 9] "The Role of Ideas" ([http://mises.org/daily/2843 study guide])
*** [http://mises.org/daily/2849 Chapter 10] "Exchange Within Society" ([http://mises.org/daily/2850 study guide])
*** [http://mises.org/daily/2880 Chapter 11] "Valuation Without Calculation" ([http://mises.org/daily/2881 study guide])
*** [http://mises.org/daily/2933 Chapter 12] "The Sphere of Economic Calculation" ([http://mises.org/daily/2939 study guide])
*** [http://mises.org/daily/2979 Chapter 14] "The Scope and Method of Catallactics" ([http://mises.org/daily/2980 study guide])
*** Chapter 15 ([http://mises.org/daily/3029 Part I], [http://mises.org/daily/3030 Part II]) "The Market" ([http://mises.org/daily/3005 study guide])
*** Chapter 16 ([http://mises.org/daily/3067 Part I], [http://mises.org/daily/3099 Part II], [http://mises.org/daily/3552 Part III]) "Prices" ([http://mises.org/daily/3068 study guide])

* ''Human Action: A Treatise on Economics'', 1996 4th Revised Edition:
** Foreword to the 4th edition by Bettina B. Greaves (p. v) ([http://mises.org/humanaction/forward.asp HTML], [http://mises.org/humanaction/pdf/ha_002.pdf PDF])
** Full text ([http://mises.org/books/humanaction.pdf PDF])

* ''Human Action: A Treatise on Economics'', 1966 3rd Revised Edition:
** Foreword to the 3rd edition by Ludwig von Mises ([http://mises.org/humanaction/foreword3.asp HTML], [http://mises.org/humanaction/pdf/ha_003.pdf PDF])
** Additions to Human Action in the 3rd edition ([http://mises.org/humanaction/ha3rd-addition.pdf PDF])

* ''Human Action: A Treatise on Economics'', Abridged Edition:
** Text ([http://blog.mises.org/9147/human-action-abridged/ HTML])

===Other resources===
*Articles, essays & reviews
** [http://mises.org/daily/2975 "Epistemological Relativism in the Sciences of Human Action"] Ludwig von Mises, 1960
** "The Place of Mises's Human Action in the Development of Modern Economic Thought" ([http://mises.org/journals/qjae/pdf/Qjae213.pdf PDF]) {{Nowrap|by [[Joseph T. Salerno]], Spring 1999}}
** [http://mises.org/resources/804 "Reflections on Human Action after 50 Years"] by [[Vernon L. Smith]], Fall 1999
** [http://mises.org/resources/805 "The Methodology of Human Action"] by [[Lawrence H. White]], Fall 1999
** [http://mises.org/daily/3363 "Human Action at Sixty"] by Richard M. Ebeling, March 2009
** [http://mises.org/daily/5237/Misess-Gift-of-Human-Action "Mises's Gift of Human Action"] by Jonathan M. Finegold Catalan, May 2011
** [http://mises.org/efandi/ch10.asp "The Why of Human Action"] by Ludwig von Mises, September 1949
** Mises Review: [http://mises.org/misesreview_detail.aspx?control=127 "Human Action, The Scholar's Edition"] by [[David Gordon]], Winter 1999 (republished as Mises Daily [http://mises.org/daily/3655 here])
** [http://blog.mises.org/14807/the-power-of-the-pocket-edition/ "The Power of the Pocket Edition"] by [[Jeffrey Tucker]], November 2010

* Other media
** In Studio: "Human Action: Pocket Edition" interview with [[Douglas French]], ([http://www.youtube.com/watch?v=Mou5ID13HqI YouTube])
** [http://www.apriorist.de/modx/hauyf/ ''Acting Man'' online lesson]
** [http://mises.org/quotes.aspx?action=source&Source=Human%20Action ''Human Action'' quotes]

* {{wplink}}

{{See also|Human Action Comics}}
{{Mises books}}

[[Category:Writings of Ludwig von Mises]]
[[Category:Writings on economics]]

Mises global

2011-06-05T19:30:24Z

Huckelberry: add some links (please add more..)

'''Mises Global''' is the phrase used to designate the rise and proliferation of Mises Institutes in many countries and regions. Institutes by country are:

:*[http://www.mises.org.br/ Brazil (portuguese)]
:*[http://www.mises.ca/ Canada]
:*[http://www.vonmisesinstitute-europe.org/newsite/ Europe]
:*[http://www.mises.se Sweden (Swedish)]

Final Utility

2011-06-05T19:08:04Z

Huckelberry: Clarify, clarify

'''Final Utility''' is the [[utility]] of a [[good]] applied to our least desirable use of it. That is, the last (i.e., least important) use of a supply. If a use of a good must be given up, it will logically be the last use of the good we would choose: we give up the least important of our satisfactions first--which would be satisfied by the last good.
:''See [[Law of Marginal Utility]]''
For example, if we lost a unit of a good, the ''[[value]]'' of the loss would be the value of the least important use of the good. This last good, which represents its final utility, was being applied to our least important wants. In the case of the lost good, it is replaced and the value to which we can assign the loss is not the value of the first most important use of the good, but the least important--what we call the final utility.<ref>[[Böhm-Bawerk]], Eugen von. "The Law of Final Utility - Eugen von Böhm-Bawerk - Mises Daily ." The Ludwig von Mises Institute . http://mises.org/daily/4637 (accessed April 29, 2011).</ref>

According to the [[law of marginal utility]], the value of each good in a stock of identical goods is [[utility]] of the last and most easily dispensable unit.<ref>von Böhm-Bawerk, Eugen, trans. George Reisman. "Eugen von Böhm-Bawerk’s “Value, Cost, and Marginal Utility”." Ludwig von Mises Institute. mises.org/pdf/asc/2002/asc8-reisman.pdf (accessed April 30, 2011).</ref> That is why price is said to be determined by supply and demand: the price reflects the (approximate and average) value of the good, but most closely reflects the value of the last use. If there is a shortage of supply, the good will cease being applied to its least important uses. All else being equal, the price will increase and the increase in price represents, so to speak, the value we attribute to the ''new'' last use. Before, with a larger supply, the last use was of less value to us. With a smaller supply the value of the last use is necessarily more important because we always satisfy our more important wants first. Therefore the increase in price can be seen as a reflection of the increase in value we attribute to the last use of the supply.

[[Ludwig von Mises]] writes:

<blockquote>"When face with the problem of the value to be attached to one unit of a homogeneous supply, man decides on the basis of the value of the least important use he makes of the units of the whole supply; he decides on the basis of marginal utility."<ref name="humanaction_ch7sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec1.asp VII. Action Within The World], 1. The Law of Marginal Utility, ''[[Human Action]]'', online version, referenced 2011-04-30.</ref></blockquote>

==Example==

If a hurricane struck Florida and there was a shortage of water, everything else equal, the [[price]] of bottled water would increase. Water in Florida, before this [[shortage]], was used for drinking water, cooking, watering plants, and bathing. With the tap off, the price of bottled water has increased to such an extent that bottled water will surely not be purchased for watering plants or bathing. That is, the increase in price reflects the increase in the value we attribute to the last use of the last unit in the [[supply]] of the [[good]]. To explain, before the hurricane water was valued according to the fact that it would be used for bathing and watering plants. Now, with a shortage, it is valued according to its ability to quench thirst and cook food. The latter uses importance is "approximated" in the price of the good. The bottled water which now costs, say, $20 dollars a bottle, is an approximation of the [[value]] attribute to drinking water, cooking water, and whatever else it might be used for at the higher price--given that previous uses are not considered due to the shortage of supply and its corollary, the increase in price. That is why it is said that a homogeneous stock of goods is valued according to its final utility--according to its last use of a stock of a good.

A supply of a good will be applied to most important wants first and least important wants last. When there is a shortage, all else being equal, the price increases. The small supply is being used for the most important wants, but is not being used for the least important wants. In this sense, we can say the increase in price represents the increase in value which the last unit of the supply is filling. Before water cost very little and was used for washing and watering plants. Now, since there is not enough for washing and watering plants and it is instead being used exclusively to drink and cook--the value we attribute to those activities is, in a sense, communicated through the higher price. The price reflects that importance of the last use of a supply--and in this case the supply was truncated to only allow for the more important uses.

Final utility is the logical conclusion of [[marginal utility]] and a corner stone of [[price]] theory.

==Reference==
{{reflist}}

{{stub}}

Human Action

2011-06-05T18:59:18Z

Huckelberry: /* XVI. Prices */ edit

{{Infobox book
| name = Human Action: A Treatise on Economics
| title_orig =
| translator =
| image = 
| image_caption =
| author = [[Ludwig von Mises]]
| illustrator =
| cover_artist =
| country = [[United States]]
| language =
| series =
| subject = [[Economics]], [[Political economy]]
| genre = [[Non-fiction]]
| publisher = [[Yale University Press]]
| pub_date = [[1949]]
| english_pub_date =
| media_type = Print
| pages = 889 pp.
| isbn =
| oclc = 2595286
| dewey =
| congress =
| preceded_by =
| followed_by =
}}

'''''Human Action: A Treatise on Economics''''' is the [[magnum opus]] of [[Ludwig von Mises]], first published in 1949. It defined a large part of present [[Austrian Economics]].

<blockquote>"It is true that economics is a theoretical science and as such abstains from any judgment of value...Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends."<ref name="humanaction_intro_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/introsec3.asp Introduction], 3. Introduction, [[Human Action]], online version, referenced 2011-02-05.</ref></blockquote>

== Part One: Human Action ==

===I. Acting Man===

<blockquote>''Main Article: [[Action]].''</blockquote>

The science of human action is called [[praxeology]]. Human action always involves [[opportunity cost]] and it is always ''purposeful''. <ref name="humanaction_ch1sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap1sec1.asp I. Acting Man], 1. Purposeful Action and Animal Reaction, [[Human Action]], online version, referenced 2011-02-06.</ref>

===II. The Epistemological Problems of the Sciences of Human Action===

[[Ludwig von Mises]] takes the [[logical deductive]] approach to economics, as opposed to the [[empirical]] (or the [[logical positivist]] approach). Economic problems cannot be solved [[empirically]] because renunciation and long-term planning can not be seen. Humans act to attain definite ends--and economic phenomena can be understood as such.

<blockquote>"[[Praxeology]] is a theoretical and systematic, not a historical, science...It aims at knowledge valid for all instances in which the conditions exactly correspond to those implied in its assumptions and inferences. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, ''[[a priori]]''."<ref name="humanaction_ch2sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec1.asp II. Epistemological Problems of Human Action], 1. Praxeology and History, [[Human Action]], online version, referenced 2011-02-06.</ref></blockquote>

Like geometry, [[praxeology]] is not subject to disproof. This method may be called ''methodological apriorism''.<ref name="humanaction_ch2sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec2.asp II. Epistemological Problems of Human Action], 2. The Formal and Aprioristic Character of Praxeology, [[Human Action]], online version, referenced 2011-02-06.</ref>

===III. Economics and the Revolt Against Reason===

[[Mises]] dismisses the [[Historical School]], [[Hegel]] and [[Marx]] with it. In discussing the "bourgeois logic" and "bourgeois mentality" of [[Marx]], [[Mises]] is able to attack [[polylogism]] in general. There does not exist multiple logics, only differing interests and their logical conclusions--whether they are spurious or well-founded. [[Mises]] states with regard to the [[Historical School]], "History, in due time, will arrange everything for the best. It does not need the advice of mortal men."<ref name="humanaction_ch3sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap3sec1.asp III. Economics and the Revolt Against Reason], 1. The Revolt Against Reason, [[Human Action]], online version, referenced 2011-02-06.</ref>

<blockquote>''See [[German Idealism]].''</blockquote>

===IV. A First Analysis of the Category of Action===

<blockquote>''Main Article: [[Value]]''</blockquote>

All actions are directed toward goals, aims or ends. The end, speaking generally, is always to remove a ''felt uneasiness''. Means are the ways by which we reach an end. Things in the world, when applied to our ends, become means and are commonly referred to as [[goods]].<ref name="humanaction_ch4sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec1.asp IV. A First Analysis of The Category of Action], 1. Ends and Means, [[Human Action]], online version, referenced 2011-02-06.</ref> Means are [[Scarcity|scarce]].

Actions are reflective of our ''scale of [[value|values]]''. All things equal, we satisfy wants of higher [[value]] to us, and leave unsatisfied wants of lower [[value]] to us. Things in the world have no intrinsic [[value]], our actions give things [[value]].<ref name="humanaction_ch4sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec2.asp IV. A First Analysis of The Category of Action], 2. The Scale of Value, [[Human Action]], online version, referenced 2011-02-06.</ref>

Given that every action is an attempt to establish a more satisfactory state of affairs, viz., to remove a ''felt uneasiness'', all actions are in a sense an [[exchange]]. We [[exchange]] one state for another, hopefully better, state. Lastly, value judgments arrange wants, but do not measure them. They are expressive of sequence and order rather than of measurement and weight.<ref name="humanaction_ch4sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp IV. A First Analysis of The Category of Action], 4. Action as Exchange, [[Human Action]], online version, referenced 2011-02-06.</ref>

===V. Time===

Time is a [[Praxeology|praxeological]] category: all action is in time and is subject to time.<ref name="humanaction_ch5sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp V. Time], 2. Past, Present and Future, [[Human Action]], online version, referenced 2011-02-07.</ref> As humans, our time is [[Scarcity|scarce]] and we must economize it accordingly. Our scales of [[value]] and therefore our actions are always with reference to time. As we will see later, time is important in the determination of [[interest]] and consumption.<ref name="humanaction_ch5sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap5sec3.asp V. Time], 3. The Economization of Time, [[Human Action]], online version, referenced 2011-02-07.</ref>

===VI. Uncertainty===

All action is speculative. We never know exactly what will occur. The natural sciences make it possible to foretell results from specific actions. They do not make the future predictable.<ref name="humanaction_ch6sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec1.asp VI. Uncertainty], 1. Uncertainty and Acting, [[Human Action]], online version, referenced 2011-02-08.</ref> But, [[Mises]] tells us, probability is a primary concern of [[praxeology]].

He distinguished between two types of propability: [[class probability]] and [[case probability]].

<blockquote>"''[[Class probability]] means'': We know or assume to know, with regard to the problem concerned, everything about the behavior of a whole class of events or phenomena; but about the actual singular events or phenomena we know nothing but that they are elements of this class."<ref name="humanaction_ch6sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec3.asp VI. Uncertainty], 3. Class Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, car insurance works on the premise that with a large pool of policies, they can use class probability to decide upon an approriate premium given the ''class probability'' of accidents. But, they know nothing about the probability of the individual policy holder getting into an accident.

<blockquote>"''[[Case probability]]'' means: We know, with regard to a particular event, some of the factors which determine its outcome; but there are other determining factors about which we know nothing."<ref name="humanaction_ch6sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec4.asp VI. Uncertainty], 4. Case Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, foreign policy experts may make predictions about the settlement of foreign disputes. They are well informed but it is impossible for them to predict the outcome perfectly because they can not grasp all the data and all the opinions of individuals shaping decisions. Therefore, they may know some of the factors that will shape the future, but never perfectly.

For [[Mises]], we make decisions with incomplete knowledge. To say it again, all action is speculative in character. To this difficulty in decisions, specifically in social cooperation where selection occurs, competition serves as a function to select the most able person for specific positions. It assigns every member of society to the position where they best serve society.<ref name="humanaction_ch6sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec6.asp VI. Uncertainty], 6. Betting, Gambling, and Playing Games, [[Human Action]], online version, referenced 2011-02-08.</ref>

===VII. Action Within the World===

Each person possesses one scale of valuations, which is visible through action.<ref name="humanaction_ch7sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec1.asp VII. Action Within The World], 1. The Law of Marginal Utility, [[Human Action]], online version, referenced 2011-02-13.</ref> Goods and modes of action are chosen based on their utility, or their causal relevance for the removal of felt ''uneasiness''.<ref name="humanaction_ch7sec1"></ref> Here [[Mises]] discusses the [[paradox of value]]: why is ''gold'' more valuable than ''iron''? Despite the many uses of iron, gold is valued more on the market because of its value in exchange. Iron may have more technological prospects or ''objective use-value'' but it lacks ''subjective use-value'', that is, gold is valuable in exchange due to scarcity, appearance and its tradition as a form of money. [[Mises]], however, dismisses the question as one which never occurs in reality.<ref name="humanaction_ch7sec1"></ref>

The [[Law of Marginal Utility]] is implied by the category of action: If a supply increases from quantity ''n'' to ''n + 1'' the extra unit provides less [[utility]] than unit ''n''. This is because ''n'' is satisfying a more urgent want than unit ''n + 1''. We satisfy more urgent wants first by their definition. Unit ''n'' is satisfying the more urgent want, ''n + 1'' is satisfying a less urgent want. Therefore, increasing units of a homogeneous supply are each applied to decreasingly important wants (seeing as the more urgent wants are always satisfied first). The [[law of marginal utility]], "does not deal primarily with the [[value]] of things, but with the [[value]] of the services a man expects to get from them."<ref name="humanaction_ch7sec1"></ref>

"[[Labor]]," says [[Mises]], "is preferred to leisure only insofar as the yield of [[labor]] is more urgently desired than the enjoyment of leisure."<ref name="humanaction_ch7sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec3.asp VII. Action Within The World], 3. Labor as Means, [[Human Action]], online version, referenced 2011-02-13.</ref> Work involves disutility. To this note, [[labor]] is more scarce than other material factors of production:

<blockquote>"In our world there is no abundance, but a shortage of manpower, and there are unused material factors of production, i.e. land, mineral deposits, and even plants and equipment."<ref name="humanaction_ch7sec3"></ref></blockquote>

Labor saving devices reduce want, they do not bring about "technological unemployment." Man economizes both labor and material factors.<ref name="humanaction_ch7sec3"></ref>

Action is successful it it produces the intended result: it produces the product. The human mind directs [[action]] with a purpose and production is creative. It is not something physical, natural, and external; it is a spiritual and intellectual phenomenon. All material actions within the world are a product of the mind. "In this sense," [[Mises]] tells us, "[[praxeology]] can be called a moral science."<ref name="humanaction_ch7sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec4.asp VII. Action Within The World], 4. Production, [[Human Action]], online version, referenced 2011-02-13.</ref>

== Part Two: Actions Within the Framework of Society ==

===VIII. Human Society===

We are born into society and only in this sense does society exist before the individual. [[Society]] is the supreme example of the benefits of the [[division of labor]].<ref name="ch8sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec1.asp VIII. Human Society], 1. Human Cooperation, [[Human Action]], online version, referenced 2011-02-17.</ref> It is an institution for the preservation of peaceful human relations. It is the social apparatus of compulsion and coercion.<ref name="ch8sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec2.asp VIII. Human Society], 2. A Critique of the Holistic and Metaphysical View of Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

[[Democratic government]] provides a method for the peaceful adjustment of government to the will of the majority. Wisdom and science thrive in a peaceful and affluent society. <ref name="ch8sec2"></ref>

<blockquote>"[[Liberalism]] aims at a political constitution which safeguards the smooth working of social cooperation and the progressive intensification of mutual social relations. Its main objective is the avoidance of violent conflicts, of wars and revolutions that must disintegrate the social collaboration of men and throw people back into the primitive conditions of barbarism where all tribes and political bodies endlessly fought one another. Because the division of labor requires undisturbed peace, liberalism aims at the establishment of a system of government that is likely to preserve peace, viz., [[democracy]]."<ref name="ch8sec2"></ref></blockquote>

[[Mises]] expounds the Ricardian Law of Association or [[comparative advantage]] as the fundamental characteristic of society.<ref name="ch8sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association, [[Human Action]], online version, referenced 2011-02-17.</ref> The division of labor assigns to each man the best job for him in society.<ref name="humanaction_ch6sec6"></ref> However, the end result of division of labor in society--a diversity which attests to the innate inequalities between individuals--does not illistrate ideas of [[Social Darwinism]]. Biology and evolutionary views cannot pass value judgments on the benefits of civilization.<ref name="ch8sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec7.asp VIII. Human Society], 7. The Great Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

===IX. The Role of Ideas===

All [[action]] is preceded by thinking. Thinking is to deliberate before [[action]] and to reflect upon past [[action]]. Thinking is a tool of action and language is a tool of thinking. All action is based on a definite idea about causal relations. Thinking and ideas are, like material wealth, passed down the generations.<ref name="ch9sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec1.asp IX. Human Society], 1. Human Reason, [[Human Action]], online version, referenced 2011-02-18.</ref> Action is always directed by ideas.<ref name="ch9sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec3.asp IX. Human Society], 3. Might, [[Human Action]], online version, referenced 2011-02-18.</ref>

[[Ideologies|Ideology]] and world views are explanations of social phenomena and technologies for prescriptive politics. All political doctrines imply that: "the political system we support will render you more prosperous and more content."<ref name="ch9sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec2.asp IX. Human Society], 2. World View and Ideology, [[Human Action]], online version, referenced 2011-02-18.</ref> [[Ideologies]], to [[Mises]], are the most powerful form of control. The might of a politician is due to his [[ideology]], his interpretation of the world and his prescriptive measures to ensure his followers are more prosperous and more content. Thinking, the ideological interpretation, succeeds through the cooperation of other minds. No thinker is isolated in his thoughts, they have been influenced by others. A politician's power dwindles if his [[ideology]] loses support. To [[Mises]]:

<blockquote>"The power of an ideology consists precisely in the fact that people submit to it without any wavering and scruples."<ref name="ch9sec3"></ref></blockquote>

Traditionalism and the idea of progress are ideologies also. Progress toward a more prosperous life and evolutionary progress must not be confused with evolution toward higher forms of life. Progress may not continue, majorities may error.<ref name="ch9sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec4.asp IX. Human Society], 4. Meliorism and the Idea of Progress, [[Human Action]], online version, referenced 2011-02-18.</ref> Ideologies may protect the material interest of the race or they may destroy it.

===X. Exchange Within Society===

[[Action]] always is essentially the exchange of one state of affairs for another state of affairs.<ref name="ch10sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec1.asp X. Exchange Within Society], 1. Autistic Exchange and Interpersonal Exchange, [[Human Action]], online version, referenced 2011-02-25.</ref> The interpersonal exchange of goods weaves the bonds which unites men into societies.<ref name="ch10sec1"></ref> [[Mises]] defines two different kinds of social cooperation: cooperation by virtue of contract and coordination, and contract by virtue of command and subordination or hegemony.<ref name="ch10sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec2.asp X. Exchange Within Society], 2. Contractual Bonds and Hegemonic Bonds, [[Human Action]], online version, referenced 2011-02-25.</ref> In the former state there are men who cooperate to achieve goals--their plans are symmetrical and share a common goal. In the latter state their is always two classes of men, those who command and those who obey. Again [[Mises]] emphasizes the important of ideology to animate the social body. The individuals must share an [[ideology]] if they are to cooperate. Hegemonic control needs an ideology that the controlling system is the best or the traditional norm. [[Ideologies]] imply obedience to the [[ideology]]. Contractual relation order society by free association held together by the order of right and law.<ref name="ch10sec2"></ref>

The [[Praxeology|praxeological]] categories, [[Mises]] tells us, are eternal and unchangable. They are the categories within which all action takes place. No [[action]] is free from the facts of existence--of which the praxeological categories belong.<ref name="ch10sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec3.asp X. Exchange Within Society], 3. Calculative Action, [[Human Action]], online version, referenced 2011-02-25.</ref> Man can never comprehend anything that is neither [[action]] or none action.

Modern civilization is characterized by the fact that it has elaborated a method which makes use of the arithmetic possible in a broad field of activities. [[Economic calculation]], for example in modern capital [[accounting]], is a fundamental issue in all comprehension of economic phenomena.<ref name="ch10sec3"></ref>

Despite the extended use of capital [[accounting]] and arithmetic, [[action]] can only make use of ordinal numbers. That is, actions order desires but do not measure them. But in our rational and contractual society we are able to make use of cardinal numbers in capital accounting. By this feature of capital accounting and contractual relations civilization opened the door to computation and calculation regarding the planning of the future and measuring the effects of past actions. Still, the applicability of cardinal numbers to economic thinking require these circumstances and economic law and theory cannot be deduced from [[economic history]], namely, the history of prices.<ref name="ch10sec3"></ref>

== Part Three: Economic Calculation ==

===XI. Valuation Without Calculation===

We apply the [[value|values]] we attribute to the ends of [[action]], to the means necessary to achieve those ends: "Other things being equal, [acting man] assigns to the total amount of the various means the same value he attaches to the end which they are fit to bring about."<ref name="ch11sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec1.asp XI. Valuation Without Calculation], 1. Gradation of Means, [[Human Action]], online version, referenced 2011-02-26.</ref>

The preferences used in [[action]], the laying aside of some things for other things, allows--as said above--the use of ordinal numbers but not cardinal numbers. Again, [[value|values]] attributable to actions cannot be measured arithmetically. Yet, in the activity of using means to attain certain ends, the acquisition of countable and measurable supplies of things becomes an immediate goal of action.<ref name="ch11sec1"></ref> [[Economic calculation]] can occur, despite that the values we attribute to different means and ends cannot be measured, by the results of actions of interpersonal exchange:

<blockquote>"The modern theory of value and prices show how the choices of individuals, their preferring some things and setting aside of other things, results, in the sphere of interpersonal exchange, in the emergence of market prices."<ref name="ch11sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec2.asp XI. Valuation Without Calculation], 2. The Barter-Fiction of the Elementary Theory of Value and Prices, [[Human Action]], online version, referenced 2011-02-26.</ref></blockquote>

[[Mises]] reminds us that is it a fallacy to think things exchanged are of the same value. Rather, people buy and sell only because they appraise the things given up less than those received.<ref name="ch11sec2"></ref> "Market prices," [[Mises]] says in a later chapter, "are not expressive of equivalence, but of a divergence in the valuation of the exchanging parties."<ref name="ch26sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap26sec3.asp XXVI. Economic Calculation under Socialism], 3. Recent Suggestions for Socialist Economic Calculation, [[Human Action]], online version, referenced 2011-04-25.</ref>

In using technology, we are resorting to knowledge of causal relations. We are not, however, addressing the technologies applicability to human wants and desires.<ref name="ch11sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec3.asp XI. Valuation Without Calculation], 3. The Problem of Economic Calculation, [[Human Action]], online version, referenced 2011-02-26.</ref>

<blockquote>"Technology tells how a given end could be attained by the employment of various means which can be used together in various combinations, or how various available means could be employed for certain purposes. But it is at a loss to tell man which procedures he should choose out of the infinite variety of imaginable and possible modes of production."<ref name="ch11sec3"></ref></blockquote>

Engineering can tell us how to build a bridge but not whether its construction would draw resources from other areas where they would be used to satisfy more urgently felt needs. [[Action]], as opposed to the casual relations of engineering, must discover the relations between dissimilar projects. [[Money]], holding the status of "universally used medium of exchange," becomes the measure of the worthiness of differing possiblities in the realm of action. Because [[goods]] and services have money prices we can use these in planning and decisions.<ref name="ch11sec3"></ref>

With all action directed toward the future, all economic planning and calculation must be made in regards to the future state of prices. In entrepreneurial ventures the acting man wants the prices of goods produced and sold to be greater than the price of the goods used in production. The practical meaning of [[economic calculation]] is to show how much one is free to consume without impairing the future capacity to produce. The concepts of [[economic calculation]]--[[Profit]] and [[loss]], [[capital]] and [[income]], spending and [[saving]], cost and yield--are developed to ensure efficient use of the resources of society.<ref name="ch11sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec4.asp XI. Valuation Without Calculation], 4. Economic Calculation and The Market, [[Human Action]], online version, referenced 2011-02-26.</ref>

===XII. The Sphere of Economic Calculation===

The acting individual is always concerned with the future. In action he is either, (1) anticipating the future and acting accordingly, or (2) trying to change the outcomes of the future even if there are no other changes to the data. Economic calculation cannot predict the outcomes of the future, it can only assist man in adjusting his actions to his opinion of the future. The numerical exactitude of balance sheets and income statements must not prevent us from realizing their inherent uncertainty and estimation.<ref name="ch12sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec1.asp XII. The Sphere of Economic Calculation], 1. The Character of Monetary Entries, [[Human Action]], online version, referenced 2011-02-27.</ref>

[[Money]] is not a measuring stick. Money prices do not transmit the intrinsic value of a good. [[Prices]] are not measured in money, they consist in money. They are either prices of the past or prices of the future. Furthermore, although it is possible to aggregate prices paid in goods, it makes no sense to talk about a national income or any other aggregate of spending which "characterizes" a society.<ref name="ch12sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec2.asp XII. The Sphere of Economic Calculation], 2. The Limits of Economic Calculation [[Human Action]], online version, referenced 2011-02-27.</ref>

Economic calculation makes sense only in a society with private ownership of the means of production. Economic calculation is not to blame of the masses preferring detective stories to books of philosophy--that is an outcome of the desires and preferences of individuals acting in society. Economic calculation cannot be blamed for the less than ideal characters and habits of other members of society.<ref name="ch12sec2"></ref>

Prices, or exchange ratios, are in constant fluctuation with the changing data of the market and the changing whims of consumers.<ref name="ch12sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec3.asp XII. The Sphere of Economic Calculation], 3. The Changeability of Prices[[Human Action]], online version, referenced 2011-02-27.</ref>

[[Mises]] dismisses the idea of measurement in [[purchasing power]] as unfeasible:

<blockquote>"A measurement of purchasing power would have to rely upon the prices of the goods and services of the first order and, what is more, of ''all'' of them."<ref name="ch12sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec4.asp XII. The Sphere of Economic Calculation], 4. Stabilization [[Human Action]], online version, referenced 2011-02-27.</ref></blockquote>

Further, changes in the [[purchasing power]] of [[money]] must necessarily effect different goods and services at different times and therefore efforts to stabilize the purchasing power of money by attempting to change the money relation is an impossible feat.<ref name="ch12sec4"></ref>

===XIII. Monetary Calculation as a Tool of Action===

Monetary calculation is the decisive factor of action in the social system of [[division of labor]]. Every action of the [[entrepreneur]] is analyzed by monetary calculation. Only in the institutional settings of [[private property]] and [[division of labor]] where goods and services are exchanged by a money can the system of monetary calculation be used. The use of aggregates derived from the use of monetary calculation is useless. That is, monetary calculation is useful for individual acting but cannot be useful to determining "social" values or welfare. By the use of monetary calculation, for example in capital [[accounting]], arithmetic has become a tool in the struggle for a better life. Capital [[accounting]] allows us to analyze the success or failure of men in satisfying the needs of [[consumers]].<ref name="ch13sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap13sec1.asp XIII. Monetary Calculation as a Tool of Action], 1. Monetary Calculation as Method of Thinking [[Human Action]], online version, referenced 2011-03-14.</ref>

<blockquote>"Our civilization is inseparably linked with our methods of economic calculation. It would parish if we were to abandon this most precious intellectual tool of acting. Goethe was right in calling bookkeeping by double entry "one of the finest inventions of the human mind.'"<ref name="ch13sec1"></ref></blockquote>

== Part Four: Catallactics or Economics of the Market Society ==

=== XIV. The Scope and Method of Catallactics ===

<blockquote>"The subject matter of catallactics is all market phenomena with all their roots, ramifications, and consequences."<ref name="ch14sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec1.asp XIV. The Scope and Method of Catallactics], 1. The Delimitation of Catallactic Problems''[[Human Action]]'', online version, referenced 2011-5-30.</ref></blockquote>

The study of actions which are conducted on the basis of monetary calculation, or catallactics, does not care whether actions have good or bad motives. People purchase goods for material reasons and ideal reasons. They make purchases based on metaphysical beliefs and aesthetic value judgments. For economics it is inconsequential the reasons and motives for specific actions--it only cares if the beliefs are acted upon because they help determine the structure of market prices.<ref name="ch14sec1"></ref>

The method of economics, [[Mises]] tells us, is the method of imaginary constructions. This is also the method of praxeology. Imaginary constructions are products of deduction "ultimately derived from the fundamental category of action, the act of preferring and setting aside."<ref name="ch14sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec2.asp XIV. The Scope and Method of Catallactics], 2. The Method of Imaginary Constructions ''[[Human Action]]'', online version, referenced 2011-5-31.</ref> In reference to the imaginary construction [[Mises]] writes:

<blockquote>"The method of imaginary constructions in indispensable for praxeology; it is the only method of praxeological and economic inquiry. It is, to be sure, a method very difficult to handle because it can easily result in fallacious syllogisms. It leads along a sharp edge; on both sides yawns the chasm of absurdity and nonsense. Only merciless self-criticism can present a man from falling headlong into these abysmal depths."<ref name="ch14sec2"></ref></blockquote>

'''The Autistic Economy''': In order to study the effects of interpersonal exchanges, we study an imaginary construction in which they are absent. When it comes to a completely self-sufficient economy we have two imaginary systems we can hypothesize: the isolated individual and the socialist society. It does not matter whether these can calculate or whether they have historically existed, only that they can be thought of in theory.<ref name="ch14sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec4.asp XIV. The Scope and Method of Catallactics], 4. The Autistic Economy ''[[Human Action]]'', online version, referenced 2011-5-31.</ref>

'''The Evenly Rotating Economy''': In creating imaginary constructions we must conceive that all actions ultimately aim at bring about a state in which there is no longer any action, "whether because all uneasiness has been removed or because any further removal of felt uneasiness is out of the question." That is, we create an imaginary construction in which no one wants or needs to act and use this to determine the importance of various aspects of our society.<ref name="ch14sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec5.asp XIV. The Scope and Method of Catallactics], 5. The State of Rest and the Evenly Rotating Economy ''[[Human Action]]'', online version, referenced 2011-5-31.</ref>

:''See [[Evenly Rotating Economy]]''

=== XV. The Market ===

<blockquote>"The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of actions of various individuals cooperating under the division of labor."<ref name="ch15sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec1.asp XV. The Market], 1. Characteristics of the Market Economy, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref></blockquote>

In the market place everyone is an end in himself and an end for other people. Each individual acts on his own behalf, but everyones actions of the market also serve another. In acting everyone is serving everyone else's ends while serving their own. They each aim at the satisfaction of other peoples needs as much as at his own.<ref name="ch15sec1"></ref>

The state of the market is characterized by the totality of [[prices]] within the market which are determined by individuals eager to buy and sell. Additionally, there is no such thing as a "mixed" economy: "it is directed either by the market of by the decrees of a [[production]] tsar or a committee of production tsars."<ref name="ch15sec1"></ref> Publicly owned entities which operating in a market economy must obey the rules of profit and loss as others do. The characteristic feature of the [[market economy]] is its ability to [[calculate]]. Monetary calculation along with the determination of market prices allows the market to calculate. The rational ordering of the [[division of labor]] and of production are resultants of this.<ref name="ch15sec1"></ref>

<blockquote>"The market economy is real because it can calculate."<ref name="ch15sec1"></ref></blockquote>

The central principles in the market economy's calculation are [[income]] and [[capital]]. Income is the amount of resources which can be consumed without lowering the capital of the individual or business. If income is greater than the amount consumed, ''[[savings]]'' results. Conversely, if a man consumes more than his income is it referred to as ''capital consumption''. Capital, here, is the quantity of money representing ownership in the assets of a enterprise (using the term broadly) or the total [[assets]] less the total [[liabilities]].<ref name="ch15sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec2.asp XV. The Market], 2. Capital, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref>

"All civilizations" says [[Mises]], "have up to now been based on private ownership of the means of production." Our system of private ownership of the means of production has poured the horn of plenty on growing population figures. Capitalism has served to allow each man a higher material wealth than even the kings of past ages. Many who argue against capitalism do so because they look upon capitalism as an accidental phenomenon. They do not understand [[private property]] and the concept of free-associations causal relationship with the material wealth of the era. It is the critics of [[capitalism]], [[Mises]] contends, which lack historical understanding, not the economists. To capitalism's enemies, it is the policy advocated by big business, regardless of the fact that big business often advocates for "[[protectionism]], [[cartels]], and the abolition of [[competition]]." And today, it is considered a "legitimate task of government to prevent an efficient man from competing with the less efficient." Advocates of protection, and state imposed limitations on the free-market want to make us believe that the consequences of [[government intervention]] are produced by capitalism.<ref name="ch15sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec3.asp XV. The Market], 3. Capitalism, ''[[Human Action]]'', online version, referenced 2011-04-10.</ref>

In a market economy the [[The Sovereignty of the Consumers|consumers are sovereign]]. Only sellers of the [[first order]] goods are in contact with the consumers, but the consumers buying and abstention from buying is transmitted from the [[consumer goods]] to the [[higher order]] goods (the [[producers goods]]). Consumers, in their capricious buying, determine the income of every member of society and direct production into the hands of individuals best able to serve the consumers.<ref name="ch15sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec4.asp XV. The Market], 4. The Sovereignty of the Consumers, ''[[Human Action]]'', online version, referenced 2011-04-30.</ref>

The consumers designate everyones place in society. The classical economists favored the abolition of the all trade barriers because they protected the less efficient from the more efficient. Trade barriers curtail production and lower the standard of living of all those effected. It is the actions of consumers which determine the prices on the market, and it is these prices which push investors into new lines of business. The bigness of one business will not stop others from trying to compete with it. [[Mises]] writes:

<blockquote>"What a newcomer who wants to defy the vested interests of the old established firms needs most is brains and ideas. If his project is fit to fill the most urgent of the unsatisfied needs of the consumers or to purvey them at a cheaper price than their old purveyors, he will succeed in spite of the much talked of bigness and power of the old firms."<ref name="ch15sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec5.asp XV. The Market], 5. Competition, ''[[Human Action]]'', online version, referenced 2011-05-17.</ref></blockquote>

Competition in the [[catallactic]] sense (i.e., competition in the market place) has a different function than that of games and beauty contests. Its function is to select the individuals most able to control the resources of society to the greatest benefit of the consumers. Humans are not born equal and the consumers do not care: "Their only interest is to secure the best possible satisfaction of their needs."<ref name="ch15sec5"></ref>

In human society, the terms "[[freedom]]" and "[[liberty]]" reference to interhuman relations. For instance [[Mises]] writes, "man was not created free; what freedom he may possess has been given to him by society...Liberty and freedom are the conditions of man within a contractual society."<ref name="ch15sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec6.asp XV. The Market], 6. Freedom, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref> Man in this condition is free to exchange goods and services, but he is by no means independent. He depends on other members of society. We say that a man is free in a contractual society because he serves others to serve himself. The restrains of freedom a man may experience in this environment is due to natural phenomenon only--the laws of nature to which we all unconditionally submit.<ref name="ch15sec6"></ref>

The market system will invariably bestow unequal rewards. This is primarily due to the different levels of service people provide to each other on the [[market]]. That is, it rewards every effort according to its [[value]] as determined by the subjective valuations of the consumers. With respect to inequality, [[Mises]] says:

<blockquote>"No system of social division of labor can do without a method that makes individuals responsible for their contribution to the joint productive effort. If this responsibility is not brought about by the price structure of the market and the inequality of wealth and income it begets, it must be enforced by the methods of direct compulsion as practiced by the police."<ref name="ch15sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec7.asp XV. The Market], 7. Inequality of Wealth and Income, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref></blockquote>

The economic phenomenon of [[profit]] and [[loss]] can be analyzed from an psychic point of view. [[Profit]], in a boarder sense, is the gain derived from [[action]]; it is the increase in satisfaction brought about by the action. In this sense, then, profit is the end of every action. Profit in this psychic sense is not measurable. However in the market economy, [[goods]] and [[services]] are bought and sold with money prices. This allows for the computation of profit and loss using the market prices of the goods and services. [[Profit]], in monetary calculus, is the surplus of [[money]] received over the money expended. It is everyone acting to attain the highest psychic which actuates the market-price mechanism and allows for monetary calculus.

The [[entrepreneur]] encounters the ever changing price structure of the market and makes his profit from correctly anticipating the changes in money prices. In this sense, he is always a speculator.<ref name="ch15sec8">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec8.asp XV. The Market], 8. Entrepreneurial Profit and Loss, ''[[Human Action]]'', online version, referenced 2011-05-19.</ref>

In an expanding or progressing economy the amount of capital invested is increasing per capita. Income is increased either by an increase in technological methods brought about by the increase in capital or simply by an increase in production. Of the increase in wealth (the result of the progressing economy) the majority of it goes to non-entrepreneurial groups. To note again, the market has a tendency to eliminate entrepreneurial profit and it is therefore temporary. In the long run, i.e., when profits have been eliminated by competition, the increase in productivity benefits exclusively the workers and consumers. On progress [[Mises]] writes:

<blockquote>"The vehicle of economic progress is the accumulation of technological methods of production the execution of which is almost always conditioned by the availability of such new capital."<ref name="ch15sec9">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec9.asp XV. The Market], 9. Entrepreneurial Profits and Losses in a Progressing Economy, ''[[Human Action]]'', online version, referenced 2011-05-21.</ref></blockquote>

The greater profits are, the greater is the increment in general prosperity that the enterprise brings. The entrepreneurial function, the driving after profits, is the driving of capital into the most profitable line of business. Which is another way of saying, the driving of capital into which the greatest increase in general prosperity results. Profits and losses are the devices through which consumers exercise their superiority over the owners of capital.<ref name="ch15sec9"></ref>

The entrepreneur hires workers and acts as the mandatary of the consumers. In addressing the many problems and issues that a project encounters the entrepreneur and the technician approach the problem inherently differently. The technician may suggest a method of production which has the greatest physical output. But the entrepreneur must judge differently, namely, economically. Economic calculation saves the entrepreneur from having to look too deeply into problems. Profit and loss are not about prefect production, but about the production which reaps the highest profit--i.e., the production where the most is produced at the lowest cost to society. Managers in an enterprise are essentially an extension of the entrepreneur. They assist in the solving of problems, make use of economic calculation and discover the most economical solution to their problems.<ref name="ch15sec10">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec10.asp XV. The Market], 10. Promoters, Managers, Technicians, and Bureaucrats, ''[[Human Action]]'', online version, referenced 2011-05-30.</ref>

[[Mises]] distinguishes between ''bureaucratic management'' and ''profit management''. In profit management all activities of business are given their worth from the actions of consumers. They dictate the salaries of management and the profits of the entrepreneur and capitalist. Where ever the operation of a system can not be run by profit management, it must be directed by bureaucratic management--i.e., one not concerned with profit and loss.<ref name="ch15sec10"></ref>

<blockquote>"Bureaucratic conduct of affairs, as such, is not an evil. It is only appropriate methods of handling governmental affairs, i.e., the social apparatus of compulsion and coercion. As government is necessary, bureaucratism is--in this field--no less necessary. Where economic calculation is unfeasible, bureaucratic methods are indispensable."<ref name="ch15sec10"></ref></blockquote>

The interplay of market forces, the actions of individuals, their incessant choosing and renunciation, places each individual in their nook of society. It determines the number of copper mines and symphony orchestras. This selection process goes on adjusting peoples station to supply and demand. The owners of factories and capital are compelled to serve the interest of the consumers lest they go out of business. Their ownership in the factories and capital is a liability if they do not concede to the desires of the consumers.<ref name="ch15sec11">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec11.asp XV. The Market], 11. The Selective Process, ''[[Human Action]]'', online version, referenced 2011-06-03.</ref>

<blockquote>"The point of view from which the consumers choose the captains of industry and business is exclusively their qualification to adjust production to the needs of the consumers."<ref name="ch15sec11"></ref></blockquote>

It is common to speak of the automatic reactions of the [[market]]. But the market is not automatic: it is a social body made up of individuals acting, it "is the foremost social body."<ref name="ch15sec12">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec12.asp XV. The Market], 12. The Individual and the Market, ''[[Human Action]]'', online version, referenced 2011-06-04.</ref> Individuals on the market are both consumer and producer. They play both sides, which leads to contradictions: they want to be protected as a [[consumer]] and be protected as a [[producer]]. This is fundamental flaw in many social reforms. Politicians pander to this dichotomous interpretation, advocating interventions of various kinds. But the rhetoric is always the same: "my program will make you as affluent as conditions may permit, while my adversaries' program will bring you want and misery."<ref name="ch15sec12"></ref>

=== XVI. Prices ===

All that [[catallactics]] can assert with regards to the pricing process, is that exchanges only take place if each party values what he receives more highly than what he gives away. Money, being the generally accepted medium of exchange, stands as the common denominator in all exchanges. Money prices are discovered by the continuous exchanges in which individuals trade until what they have is worth more than what the would give away. [[Mises]] writes:

<blockquote>"[Money prices] are determined between extremely narrow margins: the valuations on the one hand of the marginal buyer and those of the marginal offerer who abstains from selling, and the valuations on the other hand of the marginal seller and those of the marginal potential buyer who abstains from buying."<ref name="ch16sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap16sec1.asp XV. The Market], 1. The Pricing Process, ''[[Human Action]]'', online version, referenced 2011-06-04.</ref></blockquote>

:''See [[Marginal utility]]''
:''See [[Final Utility]]''

<ol style="list-style-type:upper-roman;" start="15">
<li> Indirect Exchange</li>
<li> '''Action in the Passing of Time'''</li>
For humans considering [[action]], time matters: there is a ''too late'' and a ''too early''. [[Time preferences]] affect all action (see [[Value]]).<ref name="mises_action_in_passage_of_time_2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec2.asp XVIII. Action in the Passing of Time], 2. Time Preference as an Essential Requisite of Action, ''[[Human Action]]'', online version, referenced 2011-02-04.</ref>

Postponements of consumption, or [[saving]], is always embodied in concrete goods. "The act of saving," [[Mises]] tells us, "always has its counterpart in a supply of goods produced and not consumed...Man's savings are always embodied in concrete capital goods."<ref name="mises_action_in_passage_of_time_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec9.asp XVIII. Action in the Passing of Time], 9. Money and Capital; Saving and Investment, ''[[Human Action]]'', online version, referenced 2011-02-08.</ref>

The discussion of [[time preference]], and the postponment of consumption, is a lead in to [[interest]].

<li> '''Interest'''</li>

<blockquote>''Main Article: [[Interest]]''</blockquote>

Time preference manifests itself in the phenomenon of [[originary interest]], i.e., the discount of future goods as against present goods.<ref name="mises__human_action_chap19sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec1.asp XIX. The Rate of Interest], The Phenomenon of Interest, [[Human Action]], online version, referenced 2011-02-13.</ref> Originary interest is a ratio, like profit and loss, and not a price.<ref name="mises__human_action_chap19sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec2.asp XIX. The Rate of Interest], Originary Interest, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref> It is the ratio between the value assigned to presents goods against the value assigned to future goods. This discounting explains, for example, the reason why there is finite prices on usable land:

<blockquote>"If the future services which a piece of land can render were to be valued in the same way in which its present services are valued, no finite price would be high enough to impel its owner to sell it."<ref name="mises__human_action_chap19sec2"></ref></blockquote>

We [[discount]] future services and [[goods]] because of [[time preference]]. The fact that we can purchase land which is usable into the foreseeable future is proof of this. Furthermore, [[originary interest]] is not determined by supply and demand of [[loanable funds]]. Time preference, manifesting in the discount of future goods against present goods (i.e., originary interest) determines both the demand and supply of capital and capital goods.<ref name="mises__human_action_chap19sec2"></ref>

Interest rates in loans, in a changing economy, always have an element of entrepreneurial profit. The lender, taking a risk and and making a prediciton about the future state of the market, is engaging in an entrepreneurial venture. Therefore, interest rates on loans are never pure [[originary interest]] but also entrepreneurial profit.<ref name="mises__human_action_chap19sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec4.asp XIX. The Rate of Interest], Originary Interest in the Changing Economy, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref>

<li> Interest, Credit Expansion, and the Trade Cycle</li>
<li> Work and Wages</li>
<li> The Nonhuman Original Factors of Production</li>
<li> The Data of the Market</li>
<li> Harmony and Conflict of Interests</li>
</ol>

== Part Five: Social Cooperation Without a Market ==

<ol style="list-style-type:upper-roman;" start="25">
<li> The Imaginary Construction of a Socialist Society</li>
<li> The Impossibility of Economic Calculation Under Socialism</li>
</ol>

== Part Six: The Hampered Market Economy ==

<ol style="list-style-type:upper-roman;" start="27">
<li> The Government and the Market</li>
<li> Interference by Taxation</li>
<li> Restriction of Production</li>
<li> Interference with the Structure of Prices</li>
<li> Currency and Credit Manipulation</li>
<li> Confiscation and Redistribution</li>
<li> Syndicalism and Corporativism</li>
<li> The Economics of War</li>
<li> The Welfare Principle Versus the Market Principle</li>
<li> The Crisis of Interventionism</li>
</ol>

== Part Seven: The Place of Economics in Society ==
<ol style="list-style-type:upper-roman;" start="38">
<li> The Nondescript Character of Economics</li>
<li> The Place of Economics in Learning</li>
<li> Economics and the Essential Problems of Human Existence</li>
</ol>

==References==
{{Reflist|2}}

==Links==
''{{Store|http://www.mises.org/store/Human-Action-The-Scholars-Edition-P119.aspx|Human Action (Scholar's Edition)}}''

* Mises Made Easier: [http://mises.org/Easier/Easier.asp Glossary for Human Action]
* [http://mises.org/humanaction/theindex.asp Human Action interactive index]
* [http://mises.org/resources.aspx?Id=3250&html=1#Publication_History ''Human Action'' publication history]
* [http://mises.org/daily/137 "Human Action: What the Archives Tell Us"] by [[Jeffrey M. Herbener]], January 1999

===Editions===
* ''Human Action: A Treatise on Economics'', 1998 Scholar's Edition:
** {{mr|3250|Resources page}}
** {{mr|3810|Study Guide}}
*** [http://mises.org/daily/3262 "Study Guide to Human Action"] by [[Robert Murphy]], December 2008
*** [http://blog.mises.org/6708/weekend-study-guide/ "Weekend Study Guide"] (individual chapter downloads)
*** [http://blog.mises.org/15181/the-human-action-study-guide-as-our-armor/ "The Human Action Study Guide is our armor"] by Jim Fedako, December 2010
** [http://mises.org/media/category/139 Audiobook] read by [[Jeff Riggenbach]]
** Mises Daily excerpts
*** [http://mises.org/daily/3328 Introduction]
*** [http://mises.org/daily/2506 Chapter 1] "Acting Man"
*** [http://mises.org/daily/2565 Chapter 2] "The Sciences of Human Action" ([http://mises.org/daily/2606 study guide])
*** [http://mises.org/daily/2535 Chapter 3] "Economics and the Revolt Against Reason" ([http://mises.org/daily/2574 study guide])
*** [http://mises.org/daily/2711 Chapter 4] "A First Analysis of the Category of Action" ([http://mises.org/daily/2712 study guide])
*** [http://mises.org/daily/2730 Chapter 5] "Time and Praxeology" ([http://mises.org/daily/2731 study guide])
*** [http://mises.org/daily/2608 Chapter 6] "Uncertainty" ([http://mises.org/daily/2615 study guide])
*** [http://mises.org/daily/2774 Chapter 7] "Action Within the World" ([http://mises.org/daily/2778 study guide])
*** [http://mises.org/daily/2813 Chapter 8] "Human Society" ([http://mises.org/daily/2814 study guide])
*** [http://mises.org/daily/2841 Chapter 9] "The Role of Ideas" ([http://mises.org/daily/2843 study guide])
*** [http://mises.org/daily/2849 Chapter 10] "Exchange Within Society" ([http://mises.org/daily/2850 study guide])
*** [http://mises.org/daily/2880 Chapter 11] "Valuation Without Calculation" ([http://mises.org/daily/2881 study guide])
*** [http://mises.org/daily/2933 Chapter 12] "The Sphere of Economic Calculation" ([http://mises.org/daily/2939 study guide])
*** [http://mises.org/daily/2979 Chapter 14] "The Scope and Method of Catallactics" ([http://mises.org/daily/2980 study guide])
*** Chapter 15 ([http://mises.org/daily/3029 Part I], [http://mises.org/daily/3030 Part II]) "The Market" ([http://mises.org/daily/3005 study guide])
*** Chapter 16 ([http://mises.org/daily/3067 Part I], [http://mises.org/daily/3099 Part II], [http://mises.org/daily/3552 Part III]) "Prices" ([http://mises.org/daily/3068 study guide])

* ''Human Action: A Treatise on Economics'', 1996 4th Revised Edition:
** Foreword to the 4th edition by Bettina B. Greaves (p. v) ([http://mises.org/humanaction/forward.asp HTML], [http://mises.org/humanaction/pdf/ha_002.pdf PDF])
** Full text ([http://mises.org/books/humanaction.pdf PDF])

* ''Human Action: A Treatise on Economics'', 1966 3rd Revised Edition:
** Foreword to the 3rd edition by Ludwig von Mises ([http://mises.org/humanaction/foreword3.asp HTML], [http://mises.org/humanaction/pdf/ha_003.pdf PDF])
** Additions to Human Action in the 3rd edition ([http://mises.org/humanaction/ha3rd-addition.pdf PDF])

* ''Human Action: A Treatise on Economics'', Abridged Edition:
** Text ([http://blog.mises.org/9147/human-action-abridged/ HTML])

===Other resources===
*Articles, essays & reviews
** [http://mises.org/daily/2975 "Epistemological Relativism in the Sciences of Human Action"] Ludwig von Mises, 1960
** "The Place of Mises's Human Action in the Development of Modern Economic Thought" ([http://mises.org/journals/qjae/pdf/Qjae213.pdf PDF]) {{Nowrap|by [[Joseph T. Salerno]], Spring 1999}}
** [http://mises.org/resources/804 "Reflections on Human Action after 50 Years"] by [[Vernon L. Smith]], Fall 1999
** [http://mises.org/resources/805 "The Methodology of Human Action"] by [[Lawrence H. White]], Fall 1999
** [http://mises.org/daily/3363 "Human Action at Sixty"] by Richard M. Ebeling, March 2009
** [http://mises.org/daily/5237/Misess-Gift-of-Human-Action "Mises's Gift of Human Action"] by Jonathan M. Finegold Catalan, May 2011
** [http://mises.org/efandi/ch10.asp "The Why of Human Action"] by Ludwig von Mises, September 1949
** Mises Review: [http://mises.org/misesreview_detail.aspx?control=127 "Human Action, The Scholar's Edition"] by [[David Gordon]], Winter 1999 (republished as Mises Daily [http://mises.org/daily/3655 here])
** [http://blog.mises.org/14807/the-power-of-the-pocket-edition/ "The Power of the Pocket Edition"] by [[Jeffrey Tucker]], November 2010

* Other media
** In Studio: "Human Action: Pocket Edition" interview with [[Douglas French]], ([http://www.youtube.com/watch?v=Mou5ID13HqI YouTube])
** [http://www.apriorist.de/modx/hauyf/ ''Acting Man'' online lesson]
** [http://mises.org/quotes.aspx?action=source&Source=Human%20Action ''Human Action'' quotes]

* {{wplink}}

{{See also|Human Action Comics}}
{{Mises books}}

[[Category:Writings of Ludwig von Mises]]
[[Category:Writings on economics]]

Catallactics

2011-06-04T21:30:26Z

Huckelberry:

'''Catallactics''' is the theory of exchange ratios and prices. The subject matter of catallactics is all market phenomena with all their roots, ramifications, and consequences.<ref name="ch14sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec1.asp XIV. The Scope and Method of Catallactics], 1. The Delimitation of Catallactic Problems, ''[[Human Action]]'', online version, referenced 2011-5-30.</ref>

==References==
{{reflist}}

{{stub}}

Human Action

2011-06-04T21:26:30Z

Huckelberry: /* XV. The Market */

{{Infobox book
| name = Human Action: A Treatise on Economics
| title_orig =
| translator =
| image = 
| image_caption =
| author = [[Ludwig von Mises]]
| illustrator =
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| country = [[United States]]
| language =
| series =
| subject = [[Economics]], [[Political economy]]
| genre = [[Non-fiction]]
| publisher = [[Yale University Press]]
| pub_date = [[1949]]
| english_pub_date =
| media_type = Print
| pages = 889 pp.
| isbn =
| oclc = 2595286
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}}

'''''Human Action: A Treatise on Economics''''' is the [[magnum opus]] of [[Ludwig von Mises]], first published in 1949. It defined a large part of present [[Austrian Economics]].

<blockquote>"It is true that economics is a theoretical science and as such abstains from any judgment of value...Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends."<ref name="humanaction_intro_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/introsec3.asp Introduction], 3. Introduction, [[Human Action]], online version, referenced 2011-02-05.</ref></blockquote>

== Part One: Human Action ==

===I. Acting Man===

<blockquote>''Main Article: [[Action]].''</blockquote>

The science of human action is called [[praxeology]]. Human action always involves [[opportunity cost]] and it is always ''purposeful''. <ref name="humanaction_ch1sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap1sec1.asp I. Acting Man], 1. Purposeful Action and Animal Reaction, [[Human Action]], online version, referenced 2011-02-06.</ref>

===II. The Epistemological Problems of the Sciences of Human Action===

[[Ludwig von Mises]] takes the [[logical deductive]] approach to economics, as opposed to the [[empirical]] (or the [[logical positivist]] approach). Economic problems cannot be solved [[empirically]] because renunciation and long-term planning can not be seen. Humans act to attain definite ends--and economic phenomena can be understood as such.

<blockquote>"[[Praxeology]] is a theoretical and systematic, not a historical, science...It aims at knowledge valid for all instances in which the conditions exactly correspond to those implied in its assumptions and inferences. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, ''[[a priori]]''."<ref name="humanaction_ch2sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec1.asp II. Epistemological Problems of Human Action], 1. Praxeology and History, [[Human Action]], online version, referenced 2011-02-06.</ref></blockquote>

Like geometry, [[praxeology]] is not subject to disproof. This method may be called ''methodological apriorism''.<ref name="humanaction_ch2sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec2.asp II. Epistemological Problems of Human Action], 2. The Formal and Aprioristic Character of Praxeology, [[Human Action]], online version, referenced 2011-02-06.</ref>

===III. Economics and the Revolt Against Reason===

[[Mises]] dismisses the [[Historical School]], [[Hegel]] and [[Marx]] with it. In discussing the "bourgeois logic" and "bourgeois mentality" of [[Marx]], [[Mises]] is able to attack [[polylogism]] in general. There does not exist multiple logics, only differing interests and their logical conclusions--whether they are spurious or well-founded. [[Mises]] states with regard to the [[Historical School]], "History, in due time, will arrange everything for the best. It does not need the advice of mortal men."<ref name="humanaction_ch3sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap3sec1.asp III. Economics and the Revolt Against Reason], 1. The Revolt Against Reason, [[Human Action]], online version, referenced 2011-02-06.</ref>

<blockquote>''See [[German Idealism]].''</blockquote>

===IV. A First Analysis of the Category of Action===

<blockquote>''Main Article: [[Value]]''</blockquote>

All actions are directed toward goals, aims or ends. The end, speaking generally, is always to remove a ''felt uneasiness''. Means are the ways by which we reach an end. Things in the world, when applied to our ends, become means and are commonly referred to as [[goods]].<ref name="humanaction_ch4sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec1.asp IV. A First Analysis of The Category of Action], 1. Ends and Means, [[Human Action]], online version, referenced 2011-02-06.</ref> Means are [[Scarcity|scarce]].

Actions are reflective of our ''scale of [[value|values]]''. All things equal, we satisfy wants of higher [[value]] to us, and leave unsatisfied wants of lower [[value]] to us. Things in the world have no intrinsic [[value]], our actions give things [[value]].<ref name="humanaction_ch4sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec2.asp IV. A First Analysis of The Category of Action], 2. The Scale of Value, [[Human Action]], online version, referenced 2011-02-06.</ref>

Given that every action is an attempt to establish a more satisfactory state of affairs, viz., to remove a ''felt uneasiness'', all actions are in a sense an [[exchange]]. We [[exchange]] one state for another, hopefully better, state. Lastly, value judgments arrange wants, but do not measure them. They are expressive of sequence and order rather than of measurement and weight.<ref name="humanaction_ch4sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp IV. A First Analysis of The Category of Action], 4. Action as Exchange, [[Human Action]], online version, referenced 2011-02-06.</ref>

===V. Time===

Time is a [[Praxeology|praxeological]] category: all action is in time and is subject to time.<ref name="humanaction_ch5sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp V. Time], 2. Past, Present and Future, [[Human Action]], online version, referenced 2011-02-07.</ref> As humans, our time is [[Scarcity|scarce]] and we must economize it accordingly. Our scales of [[value]] and therefore our actions are always with reference to time. As we will see later, time is important in the determination of [[interest]] and consumption.<ref name="humanaction_ch5sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap5sec3.asp V. Time], 3. The Economization of Time, [[Human Action]], online version, referenced 2011-02-07.</ref>

===VI. Uncertainty===

All action is speculative. We never know exactly what will occur. The natural sciences make it possible to foretell results from specific actions. They do not make the future predictable.<ref name="humanaction_ch6sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec1.asp VI. Uncertainty], 1. Uncertainty and Acting, [[Human Action]], online version, referenced 2011-02-08.</ref> But, [[Mises]] tells us, probability is a primary concern of [[praxeology]].

He distinguished between two types of propability: [[class probability]] and [[case probability]].

<blockquote>"''[[Class probability]] means'': We know or assume to know, with regard to the problem concerned, everything about the behavior of a whole class of events or phenomena; but about the actual singular events or phenomena we know nothing but that they are elements of this class."<ref name="humanaction_ch6sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec3.asp VI. Uncertainty], 3. Class Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, car insurance works on the premise that with a large pool of policies, they can use class probability to decide upon an approriate premium given the ''class probability'' of accidents. But, they know nothing about the probability of the individual policy holder getting into an accident.

<blockquote>"''[[Case probability]]'' means: We know, with regard to a particular event, some of the factors which determine its outcome; but there are other determining factors about which we know nothing."<ref name="humanaction_ch6sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec4.asp VI. Uncertainty], 4. Case Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, foreign policy experts may make predictions about the settlement of foreign disputes. They are well informed but it is impossible for them to predict the outcome perfectly because they can not grasp all the data and all the opinions of individuals shaping decisions. Therefore, they may know some of the factors that will shape the future, but never perfectly.

For [[Mises]], we make decisions with incomplete knowledge. To say it again, all action is speculative in character. To this difficulty in decisions, specifically in social cooperation where selection occurs, competition serves as a function to select the most able person for specific positions. It assigns every member of society to the position where they best serve society.<ref name="humanaction_ch6sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec6.asp VI. Uncertainty], 6. Betting, Gambling, and Playing Games, [[Human Action]], online version, referenced 2011-02-08.</ref>

===VII. Action Within the World===

Each person possesses one scale of valuations, which is visible through action.<ref name="humanaction_ch7sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec1.asp VII. Action Within The World], 1. The Law of Marginal Utility, [[Human Action]], online version, referenced 2011-02-13.</ref> Goods and modes of action are chosen based on their utility, or their causal relevance for the removal of felt ''uneasiness''.<ref name="humanaction_ch7sec1"></ref> Here [[Mises]] discusses the [[paradox of value]]: why is ''gold'' more valuable than ''iron''? Despite the many uses of iron, gold is valued more on the market because of its value in exchange. Iron may have more technological prospects or ''objective use-value'' but it lacks ''subjective use-value'', that is, gold is valuable in exchange due to scarcity, appearance and its tradition as a form of money. [[Mises]], however, dismisses the question as one which never occurs in reality.<ref name="humanaction_ch7sec1"></ref>

The [[Law of Marginal Utility]] is implied by the category of action: If a supply increases from quantity ''n'' to ''n + 1'' the extra unit provides less [[utility]] than unit ''n''. This is because ''n'' is satisfying a more urgent want than unit ''n + 1''. We satisfy more urgent wants first by their definition. Unit ''n'' is satisfying the more urgent want, ''n + 1'' is satisfying a less urgent want. Therefore, increasing units of a homogeneous supply are each applied to decreasingly important wants (seeing as the more urgent wants are always satisfied first). The [[law of marginal utility]], "does not deal primarily with the [[value]] of things, but with the [[value]] of the services a man expects to get from them."<ref name="humanaction_ch7sec1"></ref>

"[[Labor]]," says [[Mises]], "is preferred to leisure only insofar as the yield of [[labor]] is more urgently desired than the enjoyment of leisure."<ref name="humanaction_ch7sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec3.asp VII. Action Within The World], 3. Labor as Means, [[Human Action]], online version, referenced 2011-02-13.</ref> Work involves disutility. To this note, [[labor]] is more scarce than other material factors of production:

<blockquote>"In our world there is no abundance, but a shortage of manpower, and there are unused material factors of production, i.e. land, mineral deposits, and even plants and equipment."<ref name="humanaction_ch7sec3"></ref></blockquote>

Labor saving devices reduce want, they do not bring about "technological unemployment." Man economizes both labor and material factors.<ref name="humanaction_ch7sec3"></ref>

Action is successful it it produces the intended result: it produces the product. The human mind directs [[action]] with a purpose and production is creative. It is not something physical, natural, and external; it is a spiritual and intellectual phenomenon. All material actions within the world are a product of the mind. "In this sense," [[Mises]] tells us, "[[praxeology]] can be called a moral science."<ref name="humanaction_ch7sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec4.asp VII. Action Within The World], 4. Production, [[Human Action]], online version, referenced 2011-02-13.</ref>

== Part Two: Actions Within the Framework of Society ==

===VIII. Human Society===

We are born into society and only in this sense does society exist before the individual. [[Society]] is the supreme example of the benefits of the [[division of labor]].<ref name="ch8sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec1.asp VIII. Human Society], 1. Human Cooperation, [[Human Action]], online version, referenced 2011-02-17.</ref> It is an institution for the preservation of peaceful human relations. It is the social apparatus of compulsion and coercion.<ref name="ch8sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec2.asp VIII. Human Society], 2. A Critique of the Holistic and Metaphysical View of Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

[[Democratic government]] provides a method for the peaceful adjustment of government to the will of the majority. Wisdom and science thrive in a peaceful and affluent society. <ref name="ch8sec2"></ref>

<blockquote>"[[Liberalism]] aims at a political constitution which safeguards the smooth working of social cooperation and the progressive intensification of mutual social relations. Its main objective is the avoidance of violent conflicts, of wars and revolutions that must disintegrate the social collaboration of men and throw people back into the primitive conditions of barbarism where all tribes and political bodies endlessly fought one another. Because the division of labor requires undisturbed peace, liberalism aims at the establishment of a system of government that is likely to preserve peace, viz., [[democracy]]."<ref name="ch8sec2"></ref></blockquote>

[[Mises]] expounds the Ricardian Law of Association or [[comparative advantage]] as the fundamental characteristic of society.<ref name="ch8sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association, [[Human Action]], online version, referenced 2011-02-17.</ref> The division of labor assigns to each man the best job for him in society.<ref name="humanaction_ch6sec6"></ref> However, the end result of division of labor in society--a diversity which attests to the innate inequalities between individuals--does not illistrate ideas of [[Social Darwinism]]. Biology and evolutionary views cannot pass value judgments on the benefits of civilization.<ref name="ch8sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec7.asp VIII. Human Society], 7. The Great Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

===IX. The Role of Ideas===

All [[action]] is preceded by thinking. Thinking is to deliberate before [[action]] and to reflect upon past [[action]]. Thinking is a tool of action and language is a tool of thinking. All action is based on a definite idea about causal relations. Thinking and ideas are, like material wealth, passed down the generations.<ref name="ch9sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec1.asp IX. Human Society], 1. Human Reason, [[Human Action]], online version, referenced 2011-02-18.</ref> Action is always directed by ideas.<ref name="ch9sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec3.asp IX. Human Society], 3. Might, [[Human Action]], online version, referenced 2011-02-18.</ref>

[[Ideologies|Ideology]] and world views are explanations of social phenomena and technologies for prescriptive politics. All political doctrines imply that: "the political system we support will render you more prosperous and more content."<ref name="ch9sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec2.asp IX. Human Society], 2. World View and Ideology, [[Human Action]], online version, referenced 2011-02-18.</ref> [[Ideologies]], to [[Mises]], are the most powerful form of control. The might of a politician is due to his [[ideology]], his interpretation of the world and his prescriptive measures to ensure his followers are more prosperous and more content. Thinking, the ideological interpretation, succeeds through the cooperation of other minds. No thinker is isolated in his thoughts, they have been influenced by others. A politician's power dwindles if his [[ideology]] loses support. To [[Mises]]:

<blockquote>"The power of an ideology consists precisely in the fact that people submit to it without any wavering and scruples."<ref name="ch9sec3"></ref></blockquote>

Traditionalism and the idea of progress are ideologies also. Progress toward a more prosperous life and evolutionary progress must not be confused with evolution toward higher forms of life. Progress may not continue, majorities may error.<ref name="ch9sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec4.asp IX. Human Society], 4. Meliorism and the Idea of Progress, [[Human Action]], online version, referenced 2011-02-18.</ref> Ideologies may protect the material interest of the race or they may destroy it.

===X. Exchange Within Society===

[[Action]] always is essentially the exchange of one state of affairs for another state of affairs.<ref name="ch10sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec1.asp X. Exchange Within Society], 1. Autistic Exchange and Interpersonal Exchange, [[Human Action]], online version, referenced 2011-02-25.</ref> The interpersonal exchange of goods weaves the bonds which unites men into societies.<ref name="ch10sec1"></ref> [[Mises]] defines two different kinds of social cooperation: cooperation by virtue of contract and coordination, and contract by virtue of command and subordination or hegemony.<ref name="ch10sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec2.asp X. Exchange Within Society], 2. Contractual Bonds and Hegemonic Bonds, [[Human Action]], online version, referenced 2011-02-25.</ref> In the former state there are men who cooperate to achieve goals--their plans are symmetrical and share a common goal. In the latter state their is always two classes of men, those who command and those who obey. Again [[Mises]] emphasizes the important of ideology to animate the social body. The individuals must share an [[ideology]] if they are to cooperate. Hegemonic control needs an ideology that the controlling system is the best or the traditional norm. [[Ideologies]] imply obedience to the [[ideology]]. Contractual relation order society by free association held together by the order of right and law.<ref name="ch10sec2"></ref>

The [[Praxeology|praxeological]] categories, [[Mises]] tells us, are eternal and unchangable. They are the categories within which all action takes place. No [[action]] is free from the facts of existence--of which the praxeological categories belong.<ref name="ch10sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec3.asp X. Exchange Within Society], 3. Calculative Action, [[Human Action]], online version, referenced 2011-02-25.</ref> Man can never comprehend anything that is neither [[action]] or none action.

Modern civilization is characterized by the fact that it has elaborated a method which makes use of the arithmetic possible in a broad field of activities. [[Economic calculation]], for example in modern capital [[accounting]], is a fundamental issue in all comprehension of economic phenomena.<ref name="ch10sec3"></ref>

Despite the extended use of capital [[accounting]] and arithmetic, [[action]] can only make use of ordinal numbers. That is, actions order desires but do not measure them. But in our rational and contractual society we are able to make use of cardinal numbers in capital accounting. By this feature of capital accounting and contractual relations civilization opened the door to computation and calculation regarding the planning of the future and measuring the effects of past actions. Still, the applicability of cardinal numbers to economic thinking require these circumstances and economic law and theory cannot be deduced from [[economic history]], namely, the history of prices.<ref name="ch10sec3"></ref>

== Part Three: Economic Calculation ==

===XI. Valuation Without Calculation===

We apply the [[value|values]] we attribute to the ends of [[action]], to the means necessary to achieve those ends: "Other things being equal, [acting man] assigns to the total amount of the various means the same value he attaches to the end which they are fit to bring about."<ref name="ch11sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec1.asp XI. Valuation Without Calculation], 1. Gradation of Means, [[Human Action]], online version, referenced 2011-02-26.</ref>

The preferences used in [[action]], the laying aside of some things for other things, allows--as said above--the use of ordinal numbers but not cardinal numbers. Again, [[value|values]] attributable to actions cannot be measured arithmetically. Yet, in the activity of using means to attain certain ends, the acquisition of countable and measurable supplies of things becomes an immediate goal of action.<ref name="ch11sec1"></ref> [[Economic calculation]] can occur, despite that the values we attribute to different means and ends cannot be measured, by the results of actions of interpersonal exchange:

<blockquote>"The modern theory of value and prices show how the choices of individuals, their preferring some things and setting aside of other things, results, in the sphere of interpersonal exchange, in the emergence of market prices."<ref name="ch11sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec2.asp XI. Valuation Without Calculation], 2. The Barter-Fiction of the Elementary Theory of Value and Prices, [[Human Action]], online version, referenced 2011-02-26.</ref></blockquote>

[[Mises]] reminds us that is it a fallacy to think things exchanged are of the same value. Rather, people buy and sell only because they appraise the things given up less than those received.<ref name="ch11sec2"></ref> "Market prices," [[Mises]] says in a later chapter, "are not expressive of equivalence, but of a divergence in the valuation of the exchanging parties."<ref name="ch26sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap26sec3.asp XXVI. Economic Calculation under Socialism], 3. Recent Suggestions for Socialist Economic Calculation, [[Human Action]], online version, referenced 2011-04-25.</ref>

In using technology, we are resorting to knowledge of causal relations. We are not, however, addressing the technologies applicability to human wants and desires.<ref name="ch11sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec3.asp XI. Valuation Without Calculation], 3. The Problem of Economic Calculation, [[Human Action]], online version, referenced 2011-02-26.</ref>

<blockquote>"Technology tells how a given end could be attained by the employment of various means which can be used together in various combinations, or how various available means could be employed for certain purposes. But it is at a loss to tell man which procedures he should choose out of the infinite variety of imaginable and possible modes of production."<ref name="ch11sec3"></ref></blockquote>

Engineering can tell us how to build a bridge but not whether its construction would draw resources from other areas where they would be used to satisfy more urgently felt needs. [[Action]], as opposed to the casual relations of engineering, must discover the relations between dissimilar projects. [[Money]], holding the status of "universally used medium of exchange," becomes the measure of the worthiness of differing possiblities in the realm of action. Because [[goods]] and services have money prices we can use these in planning and decisions.<ref name="ch11sec3"></ref>

With all action directed toward the future, all economic planning and calculation must be made in regards to the future state of prices. In entrepreneurial ventures the acting man wants the prices of goods produced and sold to be greater than the price of the goods used in production. The practical meaning of [[economic calculation]] is to show how much one is free to consume without impairing the future capacity to produce. The concepts of [[economic calculation]]--[[Profit]] and [[loss]], [[capital]] and [[income]], spending and [[saving]], cost and yield--are developed to ensure efficient use of the resources of society.<ref name="ch11sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec4.asp XI. Valuation Without Calculation], 4. Economic Calculation and The Market, [[Human Action]], online version, referenced 2011-02-26.</ref>

===XII. The Sphere of Economic Calculation===

The acting individual is always concerned with the future. In action he is either, (1) anticipating the future and acting accordingly, or (2) trying to change the outcomes of the future even if there are no other changes to the data. Economic calculation cannot predict the outcomes of the future, it can only assist man in adjusting his actions to his opinion of the future. The numerical exactitude of balance sheets and income statements must not prevent us from realizing their inherent uncertainty and estimation.<ref name="ch12sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec1.asp XII. The Sphere of Economic Calculation], 1. The Character of Monetary Entries, [[Human Action]], online version, referenced 2011-02-27.</ref>

[[Money]] is not a measuring stick. Money prices do not transmit the intrinsic value of a good. [[Prices]] are not measured in money, they consist in money. They are either prices of the past or prices of the future. Furthermore, although it is possible to aggregate prices paid in goods, it makes no sense to talk about a national income or any other aggregate of spending which "characterizes" a society.<ref name="ch12sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec2.asp XII. The Sphere of Economic Calculation], 2. The Limits of Economic Calculation [[Human Action]], online version, referenced 2011-02-27.</ref>

Economic calculation makes sense only in a society with private ownership of the means of production. Economic calculation is not to blame of the masses preferring detective stories to books of philosophy--that is an outcome of the desires and preferences of individuals acting in society. Economic calculation cannot be blamed for the less than ideal characters and habits of other members of society.<ref name="ch12sec2"></ref>

Prices, or exchange ratios, are in constant fluctuation with the changing data of the market and the changing whims of consumers.<ref name="ch12sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec3.asp XII. The Sphere of Economic Calculation], 3. The Changeability of Prices[[Human Action]], online version, referenced 2011-02-27.</ref>

[[Mises]] dismisses the idea of measurement in [[purchasing power]] as unfeasible:

<blockquote>"A measurement of purchasing power would have to rely upon the prices of the goods and services of the first order and, what is more, of ''all'' of them."<ref name="ch12sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec4.asp XII. The Sphere of Economic Calculation], 4. Stabilization [[Human Action]], online version, referenced 2011-02-27.</ref></blockquote>

Further, changes in the [[purchasing power]] of [[money]] must necessarily effect different goods and services at different times and therefore efforts to stabilize the purchasing power of money by attempting to change the money relation is an impossible feat.<ref name="ch12sec4"></ref>

===XIII. Monetary Calculation as a Tool of Action===

Monetary calculation is the decisive factor of action in the social system of [[division of labor]]. Every action of the [[entrepreneur]] is analyzed by monetary calculation. Only in the institutional settings of [[private property]] and [[division of labor]] where goods and services are exchanged by a money can the system of monetary calculation be used. The use of aggregates derived from the use of monetary calculation is useless. That is, monetary calculation is useful for individual acting but cannot be useful to determining "social" values or welfare. By the use of monetary calculation, for example in capital [[accounting]], arithmetic has become a tool in the struggle for a better life. Capital [[accounting]] allows us to analyze the success or failure of men in satisfying the needs of [[consumers]].<ref name="ch13sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap13sec1.asp XIII. Monetary Calculation as a Tool of Action], 1. Monetary Calculation as Method of Thinking [[Human Action]], online version, referenced 2011-03-14.</ref>

<blockquote>"Our civilization is inseparably linked with our methods of economic calculation. It would parish if we were to abandon this most precious intellectual tool of acting. Goethe was right in calling bookkeeping by double entry "one of the finest inventions of the human mind.'"<ref name="ch13sec1"></ref></blockquote>

== Part Four: Catallactics or Economics of the Market Society ==

=== XIV. The Scope and Method of Catallactics ===

<blockquote>"The subject matter of catallactics is all market phenomena with all their roots, ramifications, and consequences."<ref name="ch14sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec1.asp XIV. The Scope and Method of Catallactics], 1. The Delimitation of Catallactic Problems''[[Human Action]]'', online version, referenced 2011-5-30.</ref></blockquote>

The study of actions which are conducted on the basis of monetary calculation, or catallactics, does not care whether actions have good or bad motives. People purchase goods for material reasons and ideal reasons. They make purchases based on metaphysical beliefs and aesthetic value judgments. For economics it is inconsequential the reasons and motives for specific actions--it only cares if the beliefs are acted upon because they help determine the structure of market prices.<ref name="ch14sec1"></ref>

The method of economics, [[Mises]] tells us, is the method of imaginary constructions. This is also the method of praxeology. Imaginary constructions are products of deduction "ultimately derived from the fundamental category of action, the act of preferring and setting aside."<ref name="ch14sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec2.asp XIV. The Scope and Method of Catallactics], 2. The Method of Imaginary Constructions ''[[Human Action]]'', online version, referenced 2011-5-31.</ref> In reference to the imaginary construction [[Mises]] writes:

<blockquote>"The method of imaginary constructions in indispensable for praxeology; it is the only method of praxeological and economic inquiry. It is, to be sure, a method very difficult to handle because it can easily result in fallacious syllogisms. It leads along a sharp edge; on both sides yawns the chasm of absurdity and nonsense. Only merciless self-criticism can present a man from falling headlong into these abysmal depths."<ref name="ch14sec2"></ref></blockquote>

'''The Autistic Economy''': In order to study the effects of interpersonal exchanges, we study an imaginary construction in which they are absent. When it comes to a completely self-sufficient economy we have two imaginary systems we can hypothesize: the isolated individual and the socialist society. It does not matter whether these can calculate or whether they have historically existed, only that they can be thought of in theory.<ref name="ch14sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec4.asp XIV. The Scope and Method of Catallactics], 4. The Autistic Economy ''[[Human Action]]'', online version, referenced 2011-5-31.</ref>

'''The Evenly Rotating Economy''': In creating imaginary constructions we must conceive that all actions ultimately aim at bring about a state in which there is no longer any action, "whether because all uneasiness has been removed or because any further removal of felt uneasiness is out of the question." That is, we create an imaginary construction in which no one wants or needs to act and use this to determine the importance of various aspects of our society.<ref name="ch14sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec5.asp XIV. The Scope and Method of Catallactics], 5. The State of Rest and the Evenly Rotating Economy ''[[Human Action]]'', online version, referenced 2011-5-31.</ref>

:''See [[Evenly Rotating Economy]]''

=== XV. The Market ===

<blockquote>"The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of actions of various individuals cooperating under the division of labor."<ref name="ch15sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec1.asp XV. The Market], 1. Characteristics of the Market Economy, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref></blockquote>

In the market place everyone is an end in himself and an end for other people. Each individual acts on his own behalf, but everyones actions of the market also serve another. In acting everyone is serving everyone else's ends while serving their own. They each aim at the satisfaction of other peoples needs as much as at his own.<ref name="ch15sec1"></ref>

The state of the market is characterized by the totality of [[prices]] within the market which are determined by individuals eager to buy and sell. Additionally, there is no such thing as a "mixed" economy: "it is directed either by the market of by the decrees of a [[production]] tsar or a committee of production tsars."<ref name="ch15sec1"></ref> Publicly owned entities which operating in a market economy must obey the rules of profit and loss as others do. The characteristic feature of the [[market economy]] is its ability to [[calculate]]. Monetary calculation along with the determination of market prices allows the market to calculate. The rational ordering of the [[division of labor]] and of production are resultants of this.<ref name="ch15sec1"></ref>

<blockquote>"The market economy is real because it can calculate."<ref name="ch15sec1"></ref></blockquote>

The central principles in the market economy's calculation are [[income]] and [[capital]]. Income is the amount of resources which can be consumed without lowering the capital of the individual or business. If income is greater than the amount consumed, ''[[savings]]'' results. Conversely, if a man consumes more than his income is it referred to as ''capital consumption''. Capital, here, is the quantity of money representing ownership in the assets of a enterprise (using the term broadly) or the total [[assets]] less the total [[liabilities]].<ref name="ch15sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec2.asp XV. The Market], 2. Capital, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref>

"All civilizations" says [[Mises]], "have up to now been based on private ownership of the means of production." Our system of private ownership of the means of production has poured the horn of plenty on growing population figures. Capitalism has served to allow each man a higher material wealth than even the kings of past ages. Many who argue against capitalism do so because they look upon capitalism as an accidental phenomenon. They do not understand [[private property]] and the concept of free-associations causal relationship with the material wealth of the era. It is the critics of [[capitalism]], [[Mises]] contends, which lack historical understanding, not the economists. To capitalism's enemies, it is the policy advocated by big business, regardless of the fact that big business often advocates for "[[protectionism]], [[cartels]], and the abolition of [[competition]]." And today, it is considered a "legitimate task of government to prevent an efficient man from competing with the less efficient." Advocates of protection, and state imposed limitations on the free-market want to make us believe that the consequences of [[government intervention]] are produced by capitalism.<ref name="ch15sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec3.asp XV. The Market], 3. Capitalism, ''[[Human Action]]'', online version, referenced 2011-04-10.</ref>

In a market economy the [[The Sovereignty of the Consumers|consumers are sovereign]]. Only sellers of the [[first order]] goods are in contact with the consumers, but the consumers buying and abstention from buying is transmitted from the [[consumer goods]] to the [[higher order]] goods (the [[producers goods]]). Consumers, in their capricious buying, determine the income of every member of society and direct production into the hands of individuals best able to serve the consumers.<ref name="ch15sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec4.asp XV. The Market], 4. The Sovereignty of the Consumers, ''[[Human Action]]'', online version, referenced 2011-04-30.</ref>

The consumers designate everyones place in society. The classical economists favored the abolition of the all trade barriers because they protected the less efficient from the more efficient. Trade barriers curtail production and lower the standard of living of all those effected. It is the actions of consumers which determine the prices on the market, and it is these prices which push investors into new lines of business. The bigness of one business will not stop others from trying to compete with it. [[Mises]] writes:

<blockquote>"What a newcomer who wants to defy the vested interests of the old established firms needs most is brains and ideas. If his project is fit to fill the most urgent of the unsatisfied needs of the consumers or to purvey them at a cheaper price than their old purveyors, he will succeed in spite of the much talked of bigness and power of the old firms."<ref name="ch15sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec5.asp XV. The Market], 5. Competition, ''[[Human Action]]'', online version, referenced 2011-05-17.</ref></blockquote>

Competition in the [[catallactic]] sense (i.e., competition in the market place) has a different function than that of games and beauty contests. Its function is to select the individuals most able to control the resources of society to the greatest benefit of the consumers. Humans are not born equal and the consumers do not care: "Their only interest is to secure the best possible satisfaction of their needs."<ref name="ch15sec5"></ref>

In human society, the terms "[[freedom]]" and "[[liberty]]" reference to interhuman relations. For instance [[Mises]] writes, "man was not created free; what freedom he may possess has been given to him by society...Liberty and freedom are the conditions of man within a contractual society."<ref name="ch15sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec6.asp XV. The Market], 6. Freedom, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref> Man in this condition is free to exchange goods and services, but he is by no means independent. He depends on other members of society. We say that a man is free in a contractual society because he serves others to serve himself. The restrains of freedom a man may experience in this environment is due to natural phenomenon only--the laws of nature to which we all unconditionally submit.<ref name="ch15sec6"></ref>

The market system will invariably bestow unequal rewards. This is primarily due to the different levels of service people provide to each other on the [[market]]. That is, it rewards every effort according to its [[value]] as determined by the subjective valuations of the consumers. With respect to inequality, [[Mises]] says:

<blockquote>"No system of social division of labor can do without a method that makes individuals responsible for their contribution to the joint productive effort. If this responsibility is not brought about by the price structure of the market and the inequality of wealth and income it begets, it must be enforced by the methods of direct compulsion as practiced by the police."<ref name="ch15sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec7.asp XV. The Market], 7. Inequality of Wealth and Income, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref></blockquote>

The economic phenomenon of [[profit]] and [[loss]] can be analyzed from an psychic point of view. [[Profit]], in a boarder sense, is the gain derived from [[action]]; it is the increase in satisfaction brought about by the action. In this sense, then, profit is the end of every action. Profit in this psychic sense is not measurable. However in the market economy, [[goods]] and [[services]] are bought and sold with money prices. This allows for the computation of profit and loss using the market prices of the goods and services. [[Profit]], in monetary calculus, is the surplus of [[money]] received over the money expended. It is everyone acting to attain the highest psychic which actuates the market-price mechanism and allows for monetary calculus.

The [[entrepreneur]] encounters the ever changing price structure of the market and makes his profit from correctly anticipating the changes in money prices. In this sense, he is always a speculator.<ref name="ch15sec8">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec8.asp XV. The Market], 8. Entrepreneurial Profit and Loss, ''[[Human Action]]'', online version, referenced 2011-05-19.</ref>

In an expanding or progressing economy the amount of capital invested is increasing per capita. Income is increased either by an increase in technological methods brought about by the increase in capital or simply by an increase in production. Of the increase in wealth (the result of the progressing economy) the majority of it goes to non-entrepreneurial groups. To note again, the market has a tendency to eliminate entrepreneurial profit and it is therefore temporary. In the long run, i.e., when profits have been eliminated by competition, the increase in productivity benefits exclusively the workers and consumers. On progress [[Mises]] writes:

<blockquote>"The vehicle of economic progress is the accumulation of technological methods of production the execution of which is almost always conditioned by the availability of such new capital."<ref name="ch15sec9">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec9.asp XV. The Market], 9. Entrepreneurial Profits and Losses in a Progressing Economy, ''[[Human Action]]'', online version, referenced 2011-05-21.</ref></blockquote>

The greater profits are, the greater is the increment in general prosperity that the enterprise brings. The entrepreneurial function, the driving after profits, is the driving of capital into the most profitable line of business. Which is another way of saying, the driving of capital into which the greatest increase in general prosperity results. Profits and losses are the devices through which consumers exercise their superiority over the owners of capital.<ref name="ch15sec9"></ref>

The entrepreneur hires workers and acts as the mandatary of the consumers. In addressing the many problems and issues that a project encounters the entrepreneur and the technician approach the problem inherently differently. The technician may suggest a method of production which has the greatest physical output. But the entrepreneur must judge differently, namely, economically. Economic calculation saves the entrepreneur from having to look too deeply into problems. Profit and loss are not about prefect production, but about the production which reaps the highest profit--i.e., the production where the most is produced at the lowest cost to society. Managers in an enterprise are essentially an extension of the entrepreneur. They assist in the solving of problems, make use of economic calculation and discover the most economical solution to their problems.<ref name="ch15sec10">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec10.asp XV. The Market], 10. Promoters, Managers, Technicians, and Bureaucrats, ''[[Human Action]]'', online version, referenced 2011-05-30.</ref>

[[Mises]] distinguishes between ''bureaucratic management'' and ''profit management''. In profit management all activities of business are given their worth from the actions of consumers. They dictate the salaries of management and the profits of the entrepreneur and capitalist. Where ever the operation of a system can not be run by profit management, it must be directed by bureaucratic management--i.e., one not concerned with profit and loss.<ref name="ch15sec10"></ref>

<blockquote>"Bureaucratic conduct of affairs, as such, is not an evil. It is only appropriate methods of handling governmental affairs, i.e., the social apparatus of compulsion and coercion. As government is necessary, bureaucratism is--in this field--no less necessary. Where economic calculation is unfeasible, bureaucratic methods are indispensable."<ref name="ch15sec10"></ref></blockquote>

The interplay of market forces, the actions of individuals, their incessant choosing and renunciation, places each individual in their nook of society. It determines the number of copper mines and symphony orchestras. This selection process goes on adjusting peoples station to supply and demand. The owners of factories and capital are compelled to serve the interest of the consumers lest they go out of business. Their ownership in the factories and capital is a liability if they do not concede to the desires of the consumers.<ref name="ch15sec11">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec11.asp XV. The Market], 11. The Selective Process, ''[[Human Action]]'', online version, referenced 2011-06-03.</ref>

<blockquote>"The point of view from which the consumers choose the captains of industry and business is exclusively their qualification to adjust production to the needs of the consumers."<ref name="ch15sec11"></ref></blockquote>

It is common to speak of the automatic reactions of the [[market]]. But the market is not automatic: it is a social body made up of individuals acting, it "is the foremost social body."<ref name="ch15sec12">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec12.asp XV. The Market], 12. The Individual and the Market, ''[[Human Action]]'', online version, referenced 2011-06-04.</ref> Individuals on the market are both consumer and producer. They play both sides, which leads to contradictions: they want to be protected as a [[consumer]] and be protected as a [[producer]]. This is fundamental flaw in many social reforms. Politicians pander to this dichotomous interpretation, advocating interventions of various kinds. But the rhetoric is always the same: "my program will make you as affluent as conditions may permit, while my adversaries' program will bring you want and misery."<ref name="ch15sec12"></ref>

=== XVI. Prices ===

All that [[catallactics]] can assert with regards to the pricing process, is that exchanges only take place if each party values what he receives more highly than what he gives away. The continuous exchanges makes up the structure of market prices--and therefore assigns each person their place in the market society. In direct exchange or barter, prices are not perfected. With indirect exchange, i.e., exchange with money, the market is split into two. The sale and the purchase. With money standing as the common denominator in all exchanges, and with the actuation of the market process of individuals exchanging when the value what the receive more than what they give away, prices are discovered in time which allows for the whole rational economic calculation to occur. In logical explication of prices as a process actuated by marginal utility, [[Mises]] writes:

<blockquote>"[Money prices] are determined between extremely narrow margins: the valuations on the one hand of the marginal buyer and those of the marginal offerer who abstains from selling, and the valuations on the other hand of the marginal seller and those of the marginal potential buyer who abstains from buying."<ref name="ch16sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap16sec1.asp XV. The Market], 1. The Pricing Process, ''[[Human Action]]'', online version, referenced 2011-06-04.</ref></blockquote>

<ol style="list-style-type:upper-roman;" start="15">
<li> Indirect Exchange</li>
<li> '''Action in the Passing of Time'''</li>
For humans considering [[action]], time matters: there is a ''too late'' and a ''too early''. [[Time preferences]] affect all action (see [[Value]]).<ref name="mises_action_in_passage_of_time_2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec2.asp XVIII. Action in the Passing of Time], 2. Time Preference as an Essential Requisite of Action, ''[[Human Action]]'', online version, referenced 2011-02-04.</ref>

Postponements of consumption, or [[saving]], is always embodied in concrete goods. "The act of saving," [[Mises]] tells us, "always has its counterpart in a supply of goods produced and not consumed...Man's savings are always embodied in concrete capital goods."<ref name="mises_action_in_passage_of_time_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec9.asp XVIII. Action in the Passing of Time], 9. Money and Capital; Saving and Investment, ''[[Human Action]]'', online version, referenced 2011-02-08.</ref>

The discussion of [[time preference]], and the postponment of consumption, is a lead in to [[interest]].

<li> '''Interest'''</li>

<blockquote>''Main Article: [[Interest]]''</blockquote>

Time preference manifests itself in the phenomenon of [[originary interest]], i.e., the discount of future goods as against present goods.<ref name="mises__human_action_chap19sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec1.asp XIX. The Rate of Interest], The Phenomenon of Interest, [[Human Action]], online version, referenced 2011-02-13.</ref> Originary interest is a ratio, like profit and loss, and not a price.<ref name="mises__human_action_chap19sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec2.asp XIX. The Rate of Interest], Originary Interest, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref> It is the ratio between the value assigned to presents goods against the value assigned to future goods. This discounting explains, for example, the reason why there is finite prices on usable land:

<blockquote>"If the future services which a piece of land can render were to be valued in the same way in which its present services are valued, no finite price would be high enough to impel its owner to sell it."<ref name="mises__human_action_chap19sec2"></ref></blockquote>

We [[discount]] future services and [[goods]] because of [[time preference]]. The fact that we can purchase land which is usable into the foreseeable future is proof of this. Furthermore, [[originary interest]] is not determined by supply and demand of [[loanable funds]]. Time preference, manifesting in the discount of future goods against present goods (i.e., originary interest) determines both the demand and supply of capital and capital goods.<ref name="mises__human_action_chap19sec2"></ref>

Interest rates in loans, in a changing economy, always have an element of entrepreneurial profit. The lender, taking a risk and and making a prediciton about the future state of the market, is engaging in an entrepreneurial venture. Therefore, interest rates on loans are never pure [[originary interest]] but also entrepreneurial profit.<ref name="mises__human_action_chap19sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec4.asp XIX. The Rate of Interest], Originary Interest in the Changing Economy, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref>

<li> Interest, Credit Expansion, and the Trade Cycle</li>
<li> Work and Wages</li>
<li> The Nonhuman Original Factors of Production</li>
<li> The Data of the Market</li>
<li> Harmony and Conflict of Interests</li>
</ol>

== Part Five: Social Cooperation Without a Market ==

<ol style="list-style-type:upper-roman;" start="25">
<li> The Imaginary Construction of a Socialist Society</li>
<li> The Impossibility of Economic Calculation Under Socialism</li>
</ol>

== Part Six: The Hampered Market Economy ==

<ol style="list-style-type:upper-roman;" start="27">
<li> The Government and the Market</li>
<li> Interference by Taxation</li>
<li> Restriction of Production</li>
<li> Interference with the Structure of Prices</li>
<li> Currency and Credit Manipulation</li>
<li> Confiscation and Redistribution</li>
<li> Syndicalism and Corporativism</li>
<li> The Economics of War</li>
<li> The Welfare Principle Versus the Market Principle</li>
<li> The Crisis of Interventionism</li>
</ol>

== Part Seven: The Place of Economics in Society ==
<ol style="list-style-type:upper-roman;" start="38">
<li> The Nondescript Character of Economics</li>
<li> The Place of Economics in Learning</li>
<li> Economics and the Essential Problems of Human Existence</li>
</ol>

==References==
{{Reflist|2}}

==Links==
''{{Store|http://www.mises.org/store/Human-Action-The-Scholars-Edition-P119.aspx|Human Action (Scholar's Edition)}}''

* Mises Made Easier: [http://mises.org/Easier/Easier.asp Glossary for Human Action]
* [http://mises.org/humanaction/theindex.asp Human Action interactive index]
* [http://mises.org/resources.aspx?Id=3250&html=1#Publication_History ''Human Action'' publication history]
* [http://mises.org/daily/137 "Human Action: What the Archives Tell Us"] by [[Jeffrey M. Herbener]], January 1999

===Editions===
* ''Human Action: A Treatise on Economics'', 1998 Scholar's Edition:
** {{mr|3250|Resources page}}
** {{mr|3810|Study Guide}}
*** [http://mises.org/daily/3262 "Study Guide to Human Action"] by [[Robert Murphy]], December 2008
*** [http://blog.mises.org/6708/weekend-study-guide/ "Weekend Study Guide"] (individual chapter downloads)
*** [http://blog.mises.org/15181/the-human-action-study-guide-as-our-armor/ "The Human Action Study Guide is our armor"] by Jim Fedako, December 2010
** [http://mises.org/media/category/139 Audiobook] read by [[Jeff Riggenbach]]
** Mises Daily excerpts
*** [http://mises.org/daily/3328 Introduction]
*** [http://mises.org/daily/2506 Chapter 1] "Acting Man"
*** [http://mises.org/daily/2565 Chapter 2] "The Sciences of Human Action" ([http://mises.org/daily/2606 study guide])
*** [http://mises.org/daily/2535 Chapter 3] "Economics and the Revolt Against Reason" ([http://mises.org/daily/2574 study guide])
*** [http://mises.org/daily/2711 Chapter 4] "A First Analysis of the Category of Action" ([http://mises.org/daily/2712 study guide])
*** [http://mises.org/daily/2730 Chapter 5] "Time and Praxeology" ([http://mises.org/daily/2731 study guide])
*** [http://mises.org/daily/2608 Chapter 6] "Uncertainty" ([http://mises.org/daily/2615 study guide])
*** [http://mises.org/daily/2774 Chapter 7] "Action Within the World" ([http://mises.org/daily/2778 study guide])
*** [http://mises.org/daily/2813 Chapter 8] "Human Society" ([http://mises.org/daily/2814 study guide])
*** [http://mises.org/daily/2841 Chapter 9] "The Role of Ideas" ([http://mises.org/daily/2843 study guide])
*** [http://mises.org/daily/2849 Chapter 10] "Exchange Within Society" ([http://mises.org/daily/2850 study guide])
*** [http://mises.org/daily/2880 Chapter 11] "Valuation Without Calculation" ([http://mises.org/daily/2881 study guide])
*** [http://mises.org/daily/2933 Chapter 12] "The Sphere of Economic Calculation" ([http://mises.org/daily/2939 study guide])
*** [http://mises.org/daily/2979 Chapter 14] "The Scope and Method of Catallactics" ([http://mises.org/daily/2980 study guide])
*** Chapter 15 ([http://mises.org/daily/3029 Part I], [http://mises.org/daily/3030 Part II]) "The Market" ([http://mises.org/daily/3005 study guide])
*** Chapter 16 ([http://mises.org/daily/3067 Part I], [http://mises.org/daily/3099 Part II], [http://mises.org/daily/3552 Part III]) "Prices" ([http://mises.org/daily/3068 study guide])

* ''Human Action: A Treatise on Economics'', 1996 4th Revised Edition:
** Foreword to the 4th edition by Bettina B. Greaves (p. v) ([http://mises.org/humanaction/forward.asp HTML], [http://mises.org/humanaction/pdf/ha_002.pdf PDF])
** Full text ([http://mises.org/books/humanaction.pdf PDF])

* ''Human Action: A Treatise on Economics'', 1966 3rd Revised Edition:
** Foreword to the 3rd edition by Ludwig von Mises ([http://mises.org/humanaction/foreword3.asp HTML], [http://mises.org/humanaction/pdf/ha_003.pdf PDF])
** Additions to Human Action in the 3rd edition ([http://mises.org/humanaction/ha3rd-addition.pdf PDF])

* ''Human Action: A Treatise on Economics'', Abridged Edition:
** Text ([http://blog.mises.org/9147/human-action-abridged/ HTML])

===Other resources===
*Articles, essays & reviews
** [http://mises.org/daily/2975 "Epistemological Relativism in the Sciences of Human Action"] Ludwig von Mises, 1960
** "The Place of Mises's Human Action in the Development of Modern Economic Thought" ([http://mises.org/journals/qjae/pdf/Qjae213.pdf PDF]) {{Nowrap|by [[Joseph T. Salerno]], Spring 1999}}
** [http://mises.org/resources/804 "Reflections on Human Action after 50 Years"] by [[Vernon L. Smith]], Fall 1999
** [http://mises.org/resources/805 "The Methodology of Human Action"] by [[Lawrence H. White]], Fall 1999
** [http://mises.org/daily/3363 "Human Action at Sixty"] by Richard M. Ebeling, March 2009
** [http://mises.org/daily/5237/Misess-Gift-of-Human-Action "Mises's Gift of Human Action"] by Jonathan M. Finegold Catalan, May 2011
** [http://mises.org/efandi/ch10.asp "The Why of Human Action"] by Ludwig von Mises, September 1949
** Mises Review: [http://mises.org/misesreview_detail.aspx?control=127 "Human Action, The Scholar's Edition"] by [[David Gordon]], Winter 1999 (republished as Mises Daily [http://mises.org/daily/3655 here])
** [http://blog.mises.org/14807/the-power-of-the-pocket-edition/ "The Power of the Pocket Edition"] by [[Jeffrey Tucker]], November 2010

* Other media
** In Studio: "Human Action: Pocket Edition" interview with [[Douglas French]], ([http://www.youtube.com/watch?v=Mou5ID13HqI YouTube])
** [http://www.apriorist.de/modx/hauyf/ ''Acting Man'' online lesson]
** [http://mises.org/quotes.aspx?action=source&Source=Human%20Action ''Human Action'' quotes]

* {{wplink}}

{{See also|Human Action Comics}}
{{Mises books}}

[[Category:Writings of Ludwig von Mises]]
[[Category:Writings on economics]]

Catallactics

2011-06-04T21:25:05Z

Huckelberry: create... finally!

'''Catallactics''' is the theory of exchange ratios and prices. The subject matter of catallactics is all market phenomena with all their roots, ramifications, and consequences.<ref name="ch14sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec1.asp XIV. The Scope and Method of Catallactics], 1. The Delimitation of Catallactic Problems''[[Human Action]]'', online version, referenced 2011-5-30.</ref>

==References==
{{reflist}}

{{stub}}

Human Action

2011-06-04T21:21:17Z

Huckelberry: /* Part Four: Catallactics or Economics of the Market Society */ Prices...

{{Infobox book
| name = Human Action: A Treatise on Economics
| title_orig =
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| image_caption =
| author = [[Ludwig von Mises]]
| illustrator =
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| country = [[United States]]
| language =
| series =
| subject = [[Economics]], [[Political economy]]
| genre = [[Non-fiction]]
| publisher = [[Yale University Press]]
| pub_date = [[1949]]
| english_pub_date =
| media_type = Print
| pages = 889 pp.
| isbn =
| oclc = 2595286
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}}

'''''Human Action: A Treatise on Economics''''' is the [[magnum opus]] of [[Ludwig von Mises]], first published in 1949. It defined a large part of present [[Austrian Economics]].

<blockquote>"It is true that economics is a theoretical science and as such abstains from any judgment of value...Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends."<ref name="humanaction_intro_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/introsec3.asp Introduction], 3. Introduction, [[Human Action]], online version, referenced 2011-02-05.</ref></blockquote>

== Part One: Human Action ==

===I. Acting Man===

<blockquote>''Main Article: [[Action]].''</blockquote>

The science of human action is called [[praxeology]]. Human action always involves [[opportunity cost]] and it is always ''purposeful''. <ref name="humanaction_ch1sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap1sec1.asp I. Acting Man], 1. Purposeful Action and Animal Reaction, [[Human Action]], online version, referenced 2011-02-06.</ref>

===II. The Epistemological Problems of the Sciences of Human Action===

[[Ludwig von Mises]] takes the [[logical deductive]] approach to economics, as opposed to the [[empirical]] (or the [[logical positivist]] approach). Economic problems cannot be solved [[empirically]] because renunciation and long-term planning can not be seen. Humans act to attain definite ends--and economic phenomena can be understood as such.

<blockquote>"[[Praxeology]] is a theoretical and systematic, not a historical, science...It aims at knowledge valid for all instances in which the conditions exactly correspond to those implied in its assumptions and inferences. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, ''[[a priori]]''."<ref name="humanaction_ch2sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec1.asp II. Epistemological Problems of Human Action], 1. Praxeology and History, [[Human Action]], online version, referenced 2011-02-06.</ref></blockquote>

Like geometry, [[praxeology]] is not subject to disproof. This method may be called ''methodological apriorism''.<ref name="humanaction_ch2sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec2.asp II. Epistemological Problems of Human Action], 2. The Formal and Aprioristic Character of Praxeology, [[Human Action]], online version, referenced 2011-02-06.</ref>

===III. Economics and the Revolt Against Reason===

[[Mises]] dismisses the [[Historical School]], [[Hegel]] and [[Marx]] with it. In discussing the "bourgeois logic" and "bourgeois mentality" of [[Marx]], [[Mises]] is able to attack [[polylogism]] in general. There does not exist multiple logics, only differing interests and their logical conclusions--whether they are spurious or well-founded. [[Mises]] states with regard to the [[Historical School]], "History, in due time, will arrange everything for the best. It does not need the advice of mortal men."<ref name="humanaction_ch3sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap3sec1.asp III. Economics and the Revolt Against Reason], 1. The Revolt Against Reason, [[Human Action]], online version, referenced 2011-02-06.</ref>

<blockquote>''See [[German Idealism]].''</blockquote>

===IV. A First Analysis of the Category of Action===

<blockquote>''Main Article: [[Value]]''</blockquote>

All actions are directed toward goals, aims or ends. The end, speaking generally, is always to remove a ''felt uneasiness''. Means are the ways by which we reach an end. Things in the world, when applied to our ends, become means and are commonly referred to as [[goods]].<ref name="humanaction_ch4sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec1.asp IV. A First Analysis of The Category of Action], 1. Ends and Means, [[Human Action]], online version, referenced 2011-02-06.</ref> Means are [[Scarcity|scarce]].

Actions are reflective of our ''scale of [[value|values]]''. All things equal, we satisfy wants of higher [[value]] to us, and leave unsatisfied wants of lower [[value]] to us. Things in the world have no intrinsic [[value]], our actions give things [[value]].<ref name="humanaction_ch4sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec2.asp IV. A First Analysis of The Category of Action], 2. The Scale of Value, [[Human Action]], online version, referenced 2011-02-06.</ref>

Given that every action is an attempt to establish a more satisfactory state of affairs, viz., to remove a ''felt uneasiness'', all actions are in a sense an [[exchange]]. We [[exchange]] one state for another, hopefully better, state. Lastly, value judgments arrange wants, but do not measure them. They are expressive of sequence and order rather than of measurement and weight.<ref name="humanaction_ch4sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp IV. A First Analysis of The Category of Action], 4. Action as Exchange, [[Human Action]], online version, referenced 2011-02-06.</ref>

===V. Time===

Time is a [[Praxeology|praxeological]] category: all action is in time and is subject to time.<ref name="humanaction_ch5sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp V. Time], 2. Past, Present and Future, [[Human Action]], online version, referenced 2011-02-07.</ref> As humans, our time is [[Scarcity|scarce]] and we must economize it accordingly. Our scales of [[value]] and therefore our actions are always with reference to time. As we will see later, time is important in the determination of [[interest]] and consumption.<ref name="humanaction_ch5sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap5sec3.asp V. Time], 3. The Economization of Time, [[Human Action]], online version, referenced 2011-02-07.</ref>

===VI. Uncertainty===

All action is speculative. We never know exactly what will occur. The natural sciences make it possible to foretell results from specific actions. They do not make the future predictable.<ref name="humanaction_ch6sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec1.asp VI. Uncertainty], 1. Uncertainty and Acting, [[Human Action]], online version, referenced 2011-02-08.</ref> But, [[Mises]] tells us, probability is a primary concern of [[praxeology]].

He distinguished between two types of propability: [[class probability]] and [[case probability]].

<blockquote>"''[[Class probability]] means'': We know or assume to know, with regard to the problem concerned, everything about the behavior of a whole class of events or phenomena; but about the actual singular events or phenomena we know nothing but that they are elements of this class."<ref name="humanaction_ch6sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec3.asp VI. Uncertainty], 3. Class Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, car insurance works on the premise that with a large pool of policies, they can use class probability to decide upon an approriate premium given the ''class probability'' of accidents. But, they know nothing about the probability of the individual policy holder getting into an accident.

<blockquote>"''[[Case probability]]'' means: We know, with regard to a particular event, some of the factors which determine its outcome; but there are other determining factors about which we know nothing."<ref name="humanaction_ch6sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec4.asp VI. Uncertainty], 4. Case Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, foreign policy experts may make predictions about the settlement of foreign disputes. They are well informed but it is impossible for them to predict the outcome perfectly because they can not grasp all the data and all the opinions of individuals shaping decisions. Therefore, they may know some of the factors that will shape the future, but never perfectly.

For [[Mises]], we make decisions with incomplete knowledge. To say it again, all action is speculative in character. To this difficulty in decisions, specifically in social cooperation where selection occurs, competition serves as a function to select the most able person for specific positions. It assigns every member of society to the position where they best serve society.<ref name="humanaction_ch6sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec6.asp VI. Uncertainty], 6. Betting, Gambling, and Playing Games, [[Human Action]], online version, referenced 2011-02-08.</ref>

===VII. Action Within the World===

Each person possesses one scale of valuations, which is visible through action.<ref name="humanaction_ch7sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec1.asp VII. Action Within The World], 1. The Law of Marginal Utility, [[Human Action]], online version, referenced 2011-02-13.</ref> Goods and modes of action are chosen based on their utility, or their causal relevance for the removal of felt ''uneasiness''.<ref name="humanaction_ch7sec1"></ref> Here [[Mises]] discusses the [[paradox of value]]: why is ''gold'' more valuable than ''iron''? Despite the many uses of iron, gold is valued more on the market because of its value in exchange. Iron may have more technological prospects or ''objective use-value'' but it lacks ''subjective use-value'', that is, gold is valuable in exchange due to scarcity, appearance and its tradition as a form of money. [[Mises]], however, dismisses the question as one which never occurs in reality.<ref name="humanaction_ch7sec1"></ref>

The [[Law of Marginal Utility]] is implied by the category of action: If a supply increases from quantity ''n'' to ''n + 1'' the extra unit provides less [[utility]] than unit ''n''. This is because ''n'' is satisfying a more urgent want than unit ''n + 1''. We satisfy more urgent wants first by their definition. Unit ''n'' is satisfying the more urgent want, ''n + 1'' is satisfying a less urgent want. Therefore, increasing units of a homogeneous supply are each applied to decreasingly important wants (seeing as the more urgent wants are always satisfied first). The [[law of marginal utility]], "does not deal primarily with the [[value]] of things, but with the [[value]] of the services a man expects to get from them."<ref name="humanaction_ch7sec1"></ref>

"[[Labor]]," says [[Mises]], "is preferred to leisure only insofar as the yield of [[labor]] is more urgently desired than the enjoyment of leisure."<ref name="humanaction_ch7sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec3.asp VII. Action Within The World], 3. Labor as Means, [[Human Action]], online version, referenced 2011-02-13.</ref> Work involves disutility. To this note, [[labor]] is more scarce than other material factors of production:

<blockquote>"In our world there is no abundance, but a shortage of manpower, and there are unused material factors of production, i.e. land, mineral deposits, and even plants and equipment."<ref name="humanaction_ch7sec3"></ref></blockquote>

Labor saving devices reduce want, they do not bring about "technological unemployment." Man economizes both labor and material factors.<ref name="humanaction_ch7sec3"></ref>

Action is successful it it produces the intended result: it produces the product. The human mind directs [[action]] with a purpose and production is creative. It is not something physical, natural, and external; it is a spiritual and intellectual phenomenon. All material actions within the world are a product of the mind. "In this sense," [[Mises]] tells us, "[[praxeology]] can be called a moral science."<ref name="humanaction_ch7sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec4.asp VII. Action Within The World], 4. Production, [[Human Action]], online version, referenced 2011-02-13.</ref>

== Part Two: Actions Within the Framework of Society ==

===VIII. Human Society===

We are born into society and only in this sense does society exist before the individual. [[Society]] is the supreme example of the benefits of the [[division of labor]].<ref name="ch8sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec1.asp VIII. Human Society], 1. Human Cooperation, [[Human Action]], online version, referenced 2011-02-17.</ref> It is an institution for the preservation of peaceful human relations. It is the social apparatus of compulsion and coercion.<ref name="ch8sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec2.asp VIII. Human Society], 2. A Critique of the Holistic and Metaphysical View of Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

[[Democratic government]] provides a method for the peaceful adjustment of government to the will of the majority. Wisdom and science thrive in a peaceful and affluent society. <ref name="ch8sec2"></ref>

<blockquote>"[[Liberalism]] aims at a political constitution which safeguards the smooth working of social cooperation and the progressive intensification of mutual social relations. Its main objective is the avoidance of violent conflicts, of wars and revolutions that must disintegrate the social collaboration of men and throw people back into the primitive conditions of barbarism where all tribes and political bodies endlessly fought one another. Because the division of labor requires undisturbed peace, liberalism aims at the establishment of a system of government that is likely to preserve peace, viz., [[democracy]]."<ref name="ch8sec2"></ref></blockquote>

[[Mises]] expounds the Ricardian Law of Association or [[comparative advantage]] as the fundamental characteristic of society.<ref name="ch8sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association, [[Human Action]], online version, referenced 2011-02-17.</ref> The division of labor assigns to each man the best job for him in society.<ref name="humanaction_ch6sec6"></ref> However, the end result of division of labor in society--a diversity which attests to the innate inequalities between individuals--does not illistrate ideas of [[Social Darwinism]]. Biology and evolutionary views cannot pass value judgments on the benefits of civilization.<ref name="ch8sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec7.asp VIII. Human Society], 7. The Great Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

===IX. The Role of Ideas===

All [[action]] is preceded by thinking. Thinking is to deliberate before [[action]] and to reflect upon past [[action]]. Thinking is a tool of action and language is a tool of thinking. All action is based on a definite idea about causal relations. Thinking and ideas are, like material wealth, passed down the generations.<ref name="ch9sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec1.asp IX. Human Society], 1. Human Reason, [[Human Action]], online version, referenced 2011-02-18.</ref> Action is always directed by ideas.<ref name="ch9sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec3.asp IX. Human Society], 3. Might, [[Human Action]], online version, referenced 2011-02-18.</ref>

[[Ideologies|Ideology]] and world views are explanations of social phenomena and technologies for prescriptive politics. All political doctrines imply that: "the political system we support will render you more prosperous and more content."<ref name="ch9sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec2.asp IX. Human Society], 2. World View and Ideology, [[Human Action]], online version, referenced 2011-02-18.</ref> [[Ideologies]], to [[Mises]], are the most powerful form of control. The might of a politician is due to his [[ideology]], his interpretation of the world and his prescriptive measures to ensure his followers are more prosperous and more content. Thinking, the ideological interpretation, succeeds through the cooperation of other minds. No thinker is isolated in his thoughts, they have been influenced by others. A politician's power dwindles if his [[ideology]] loses support. To [[Mises]]:

<blockquote>"The power of an ideology consists precisely in the fact that people submit to it without any wavering and scruples."<ref name="ch9sec3"></ref></blockquote>

Traditionalism and the idea of progress are ideologies also. Progress toward a more prosperous life and evolutionary progress must not be confused with evolution toward higher forms of life. Progress may not continue, majorities may error.<ref name="ch9sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec4.asp IX. Human Society], 4. Meliorism and the Idea of Progress, [[Human Action]], online version, referenced 2011-02-18.</ref> Ideologies may protect the material interest of the race or they may destroy it.

===X. Exchange Within Society===

[[Action]] always is essentially the exchange of one state of affairs for another state of affairs.<ref name="ch10sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec1.asp X. Exchange Within Society], 1. Autistic Exchange and Interpersonal Exchange, [[Human Action]], online version, referenced 2011-02-25.</ref> The interpersonal exchange of goods weaves the bonds which unites men into societies.<ref name="ch10sec1"></ref> [[Mises]] defines two different kinds of social cooperation: cooperation by virtue of contract and coordination, and contract by virtue of command and subordination or hegemony.<ref name="ch10sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec2.asp X. Exchange Within Society], 2. Contractual Bonds and Hegemonic Bonds, [[Human Action]], online version, referenced 2011-02-25.</ref> In the former state there are men who cooperate to achieve goals--their plans are symmetrical and share a common goal. In the latter state their is always two classes of men, those who command and those who obey. Again [[Mises]] emphasizes the important of ideology to animate the social body. The individuals must share an [[ideology]] if they are to cooperate. Hegemonic control needs an ideology that the controlling system is the best or the traditional norm. [[Ideologies]] imply obedience to the [[ideology]]. Contractual relation order society by free association held together by the order of right and law.<ref name="ch10sec2"></ref>

The [[Praxeology|praxeological]] categories, [[Mises]] tells us, are eternal and unchangable. They are the categories within which all action takes place. No [[action]] is free from the facts of existence--of which the praxeological categories belong.<ref name="ch10sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec3.asp X. Exchange Within Society], 3. Calculative Action, [[Human Action]], online version, referenced 2011-02-25.</ref> Man can never comprehend anything that is neither [[action]] or none action.

Modern civilization is characterized by the fact that it has elaborated a method which makes use of the arithmetic possible in a broad field of activities. [[Economic calculation]], for example in modern capital [[accounting]], is a fundamental issue in all comprehension of economic phenomena.<ref name="ch10sec3"></ref>

Despite the extended use of capital [[accounting]] and arithmetic, [[action]] can only make use of ordinal numbers. That is, actions order desires but do not measure them. But in our rational and contractual society we are able to make use of cardinal numbers in capital accounting. By this feature of capital accounting and contractual relations civilization opened the door to computation and calculation regarding the planning of the future and measuring the effects of past actions. Still, the applicability of cardinal numbers to economic thinking require these circumstances and economic law and theory cannot be deduced from [[economic history]], namely, the history of prices.<ref name="ch10sec3"></ref>

== Part Three: Economic Calculation ==

===XI. Valuation Without Calculation===

We apply the [[value|values]] we attribute to the ends of [[action]], to the means necessary to achieve those ends: "Other things being equal, [acting man] assigns to the total amount of the various means the same value he attaches to the end which they are fit to bring about."<ref name="ch11sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec1.asp XI. Valuation Without Calculation], 1. Gradation of Means, [[Human Action]], online version, referenced 2011-02-26.</ref>

The preferences used in [[action]], the laying aside of some things for other things, allows--as said above--the use of ordinal numbers but not cardinal numbers. Again, [[value|values]] attributable to actions cannot be measured arithmetically. Yet, in the activity of using means to attain certain ends, the acquisition of countable and measurable supplies of things becomes an immediate goal of action.<ref name="ch11sec1"></ref> [[Economic calculation]] can occur, despite that the values we attribute to different means and ends cannot be measured, by the results of actions of interpersonal exchange:

<blockquote>"The modern theory of value and prices show how the choices of individuals, their preferring some things and setting aside of other things, results, in the sphere of interpersonal exchange, in the emergence of market prices."<ref name="ch11sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec2.asp XI. Valuation Without Calculation], 2. The Barter-Fiction of the Elementary Theory of Value and Prices, [[Human Action]], online version, referenced 2011-02-26.</ref></blockquote>

[[Mises]] reminds us that is it a fallacy to think things exchanged are of the same value. Rather, people buy and sell only because they appraise the things given up less than those received.<ref name="ch11sec2"></ref> "Market prices," [[Mises]] says in a later chapter, "are not expressive of equivalence, but of a divergence in the valuation of the exchanging parties."<ref name="ch26sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap26sec3.asp XXVI. Economic Calculation under Socialism], 3. Recent Suggestions for Socialist Economic Calculation, [[Human Action]], online version, referenced 2011-04-25.</ref>

In using technology, we are resorting to knowledge of causal relations. We are not, however, addressing the technologies applicability to human wants and desires.<ref name="ch11sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec3.asp XI. Valuation Without Calculation], 3. The Problem of Economic Calculation, [[Human Action]], online version, referenced 2011-02-26.</ref>

<blockquote>"Technology tells how a given end could be attained by the employment of various means which can be used together in various combinations, or how various available means could be employed for certain purposes. But it is at a loss to tell man which procedures he should choose out of the infinite variety of imaginable and possible modes of production."<ref name="ch11sec3"></ref></blockquote>

Engineering can tell us how to build a bridge but not whether its construction would draw resources from other areas where they would be used to satisfy more urgently felt needs. [[Action]], as opposed to the casual relations of engineering, must discover the relations between dissimilar projects. [[Money]], holding the status of "universally used medium of exchange," becomes the measure of the worthiness of differing possiblities in the realm of action. Because [[goods]] and services have money prices we can use these in planning and decisions.<ref name="ch11sec3"></ref>

With all action directed toward the future, all economic planning and calculation must be made in regards to the future state of prices. In entrepreneurial ventures the acting man wants the prices of goods produced and sold to be greater than the price of the goods used in production. The practical meaning of [[economic calculation]] is to show how much one is free to consume without impairing the future capacity to produce. The concepts of [[economic calculation]]--[[Profit]] and [[loss]], [[capital]] and [[income]], spending and [[saving]], cost and yield--are developed to ensure efficient use of the resources of society.<ref name="ch11sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec4.asp XI. Valuation Without Calculation], 4. Economic Calculation and The Market, [[Human Action]], online version, referenced 2011-02-26.</ref>

===XII. The Sphere of Economic Calculation===

The acting individual is always concerned with the future. In action he is either, (1) anticipating the future and acting accordingly, or (2) trying to change the outcomes of the future even if there are no other changes to the data. Economic calculation cannot predict the outcomes of the future, it can only assist man in adjusting his actions to his opinion of the future. The numerical exactitude of balance sheets and income statements must not prevent us from realizing their inherent uncertainty and estimation.<ref name="ch12sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec1.asp XII. The Sphere of Economic Calculation], 1. The Character of Monetary Entries, [[Human Action]], online version, referenced 2011-02-27.</ref>

[[Money]] is not a measuring stick. Money prices do not transmit the intrinsic value of a good. [[Prices]] are not measured in money, they consist in money. They are either prices of the past or prices of the future. Furthermore, although it is possible to aggregate prices paid in goods, it makes no sense to talk about a national income or any other aggregate of spending which "characterizes" a society.<ref name="ch12sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec2.asp XII. The Sphere of Economic Calculation], 2. The Limits of Economic Calculation [[Human Action]], online version, referenced 2011-02-27.</ref>

Economic calculation makes sense only in a society with private ownership of the means of production. Economic calculation is not to blame of the masses preferring detective stories to books of philosophy--that is an outcome of the desires and preferences of individuals acting in society. Economic calculation cannot be blamed for the less than ideal characters and habits of other members of society.<ref name="ch12sec2"></ref>

Prices, or exchange ratios, are in constant fluctuation with the changing data of the market and the changing whims of consumers.<ref name="ch12sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec3.asp XII. The Sphere of Economic Calculation], 3. The Changeability of Prices[[Human Action]], online version, referenced 2011-02-27.</ref>

[[Mises]] dismisses the idea of measurement in [[purchasing power]] as unfeasible:

<blockquote>"A measurement of purchasing power would have to rely upon the prices of the goods and services of the first order and, what is more, of ''all'' of them."<ref name="ch12sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec4.asp XII. The Sphere of Economic Calculation], 4. Stabilization [[Human Action]], online version, referenced 2011-02-27.</ref></blockquote>

Further, changes in the [[purchasing power]] of [[money]] must necessarily effect different goods and services at different times and therefore efforts to stabilize the purchasing power of money by attempting to change the money relation is an impossible feat.<ref name="ch12sec4"></ref>

===XIII. Monetary Calculation as a Tool of Action===

Monetary calculation is the decisive factor of action in the social system of [[division of labor]]. Every action of the [[entrepreneur]] is analyzed by monetary calculation. Only in the institutional settings of [[private property]] and [[division of labor]] where goods and services are exchanged by a money can the system of monetary calculation be used. The use of aggregates derived from the use of monetary calculation is useless. That is, monetary calculation is useful for individual acting but cannot be useful to determining "social" values or welfare. By the use of monetary calculation, for example in capital [[accounting]], arithmetic has become a tool in the struggle for a better life. Capital [[accounting]] allows us to analyze the success or failure of men in satisfying the needs of [[consumers]].<ref name="ch13sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap13sec1.asp XIII. Monetary Calculation as a Tool of Action], 1. Monetary Calculation as Method of Thinking [[Human Action]], online version, referenced 2011-03-14.</ref>

<blockquote>"Our civilization is inseparably linked with our methods of economic calculation. It would parish if we were to abandon this most precious intellectual tool of acting. Goethe was right in calling bookkeeping by double entry "one of the finest inventions of the human mind.'"<ref name="ch13sec1"></ref></blockquote>

== Part Four: Catallactics or Economics of the Market Society ==

=== XIV. The Scope and Method of Catallactics ===

<blockquote>"The subject matter of catallactics is all market phenomena with all their roots, ramifications, and consequences."<ref name="ch14sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec1.asp XIV. The Scope and Method of Catallactics], 1. The Delimitation of Catallactic Problems''[[Human Action]]'', online version, referenced 2011-5-30.</ref></blockquote>

The study of actions which are conducted on the basis of monetary calculation, or catallactics, does not care whether actions have good or bad motives. People purchase goods for material reasons and ideal reasons. They make purchases based on metaphysical beliefs and aesthetic value judgments. For economics it is inconsequential the reasons and motives for specific actions--it only cares if the beliefs are acted upon because they help determine the structure of market prices.<ref name="ch14sec1"></ref>

The method of economics, [[Mises]] tells us, is the method of imaginary constructions. This is also the method of praxeology. Imaginary constructions are products of deduction "ultimately derived from the fundamental category of action, the act of preferring and setting aside."<ref name="ch14sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec2.asp XIV. The Scope and Method of Catallactics], 2. The Method of Imaginary Constructions ''[[Human Action]]'', online version, referenced 2011-5-31.</ref> In reference to the imaginary construction [[Mises]] writes:

<blockquote>"The method of imaginary constructions in indispensable for praxeology; it is the only method of praxeological and economic inquiry. It is, to be sure, a method very difficult to handle because it can easily result in fallacious syllogisms. It leads along a sharp edge; on both sides yawns the chasm of absurdity and nonsense. Only merciless self-criticism can present a man from falling headlong into these abysmal depths."<ref name="ch14sec2"></ref></blockquote>

'''The Autistic Economy''': In order to study the effects of interpersonal exchanges, we study an imaginary construction in which they are absent. When it comes to a completely self-sufficient economy we have two imaginary systems we can hypothesize: the isolated individual and the socialist society. It does not matter whether these can calculate or whether they have historically existed, only that they can be thought of in theory.<ref name="ch14sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec4.asp XIV. The Scope and Method of Catallactics], 4. The Autistic Economy ''[[Human Action]]'', online version, referenced 2011-5-31.</ref>

'''The Evenly Rotating Economy''': In creating imaginary constructions we must conceive that all actions ultimately aim at bring about a state in which there is no longer any action, "whether because all uneasiness has been removed or because any further removal of felt uneasiness is out of the question." That is, we create an imaginary construction in which no one wants or needs to act and use this to determine the importance of various aspects of our society.<ref name="ch14sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec5.asp XIV. The Scope and Method of Catallactics], 5. The State of Rest and the Evenly Rotating Economy ''[[Human Action]]'', online version, referenced 2011-5-31.</ref>

:''See [[Evenly Rotating Economy]]''

=== XV. The Market ===

<blockquote>"The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of actions of various individuals cooperating under the division of labor."<ref name="ch15sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec1.asp XV. The Market], 1. Characteristics of the Market Economy, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref></blockquote>

In the market place everyone is an end in himself and an end for other people. Each individual acts on his own behalf, but everyones actions of the market also serve another. In acting everyone is serving everyone else's ends while serving their own. They each aim at the satisfaction of other peoples needs as much as at his own.<ref name="ch15sec1"></ref>

The state of the market is characterized by the totality of [[prices]] within the market which are determined by individuals eager to buy and sell. Additionally, there is no such thing as a "mixed" economy: "it is directed either by the market of by the decrees of a [[production]] tsar or a committee of production tsars."<ref name="ch15sec1"></ref> Publicly owned entities which operating in a market economy must obey the rules of profit and loss as others do. The characteristic feature of the [[market economy]] is its ability to [[calculate]]. Monetary calculation along with the determination of market prices allows the market to calculate. The rational ordering of the [[division of labor]] and of production are resultants of this.<ref name="ch15sec1"></ref>

<blockquote>"The market economy is real because it can calculate."<ref name="ch15sec1"></ref></blockquote>

The central principles in the market economy's calculation are [[income]] and [[capital]]. Income is the amount of resources which can be consumed without lowering the capital of the individual or business. If income is greater than the amount consumed, ''[[savings]]'' results. Conversely, if a man consumes more than his income is it referred to as ''capital consumption''. Capital, here, is the quantity of money representing ownership in the assets of a enterprise (using the term broadly) or the total [[assets]] less the total [[liabilities]].<ref name="ch15sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec2.asp XV. The Market], 2. Capital, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref>

"All civilizations" says [[Mises]], "have up to now been based on private ownership of the means of production." Our system of private ownership of the means of production has poured the horn of plenty on growing population figures. Capitalism has served to allow each man a higher material wealth than even the kings of past ages. Many who argue against capitalism do so because they look upon capitalism as an accidental phenomenon. They do not understand [[private property]] and the concept of free-associations causal relationship with the material wealth of the era. It is the critics of [[capitalism]], [[Mises]] contends, which lack historical understanding, not the economists. To capitalism's enemies, it is the policy advocated by big business, regardless of the fact that big business often advocates for "[[protectionism]], [[cartels]], and the abolition of [[competition]]." And today, it is considered a "legitimate task of government to prevent an efficient man from competing with the less efficient." Advocates of protection, and state imposed limitations on the free-market want to make us believe that the consequences of [[government intervention]] are produced by capitalism.<ref name="ch15sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec3.asp XV. The Market], 3. Capitalism, ''[[Human Action]]'', online version, referenced 2011-04-10.</ref>

In a market economy the [[The Sovereignty of the Consumers|consumers are sovereign]]. Only sellers of the [[first order]] goods are in contact with the consumers, but the consumers buying and abstention from buying is transmitted from the [[consumer goods]] to the [[higher order]] goods (the [[producers goods]]). Consumers, in their capricious buying, determine the income of every member of society and direct production into the hands of individuals best able to serve the consumers.<ref name="ch15sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec4.asp XV. The Market], 4. The Sovereignty of the Consumers, ''[[Human Action]]'', online version, referenced 2011-04-30.</ref>

The consumers designate everyones place in society. The classical economists favored the abolition of the all trade barriers because they protected the less efficient from the more efficient. Trade barriers curtail production and lower the standard of living of all those effected. It is the actions of consumers which determine the prices on the market, and it is these prices which push investors into new lines of business. The bigness of one business will not stop others from trying to compete with it. [[Mises]] writes:

<blockquote>"What a newcomer who wants to defy the vested interests of the old established firms needs most is brains and ideas. If his project is fit to fill the most urgent of the unsatisfied needs of the consumers or to purvey them at a cheaper price than their old purveyors, he will succeed in spite of the much talked of bigness and power of the old firms."<ref name="ch15sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec5.asp XV. The Market], 5. Competition, ''[[Human Action]]'', online version, referenced 2011-05-17.</ref></blockquote>

Competition in the [[catallactic]] sense (i.e., competition in the market place) has a different function than that of games and beauty contests. Its function is to select the individuals most able to control the resources of society to the greatest benefit of the consumers. Humans are not born equal and the consumers do not care: "Their only interest is to secure the best possible satisfaction of their needs."<ref name="ch15sec5"></ref>

In human society, the terms "[[freedom]]" and "[[liberty]]" reference to interhuman relations. For instance [[Mises]] writes, "man was not created free; what freedom he may possess has been given to him by society...Liberty and freedom are the conditions of man within a contractual society."<ref name="ch15sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec6.asp XV. The Market], 6. Freedom, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref> Man in this condition is free to exchange goods and services, but he is by no means independent. He depends on other members of society. We say that a man is free in a contractual society because he serves others to serve himself. The restrains of freedom a man may experience in this environment is due to natural phenomenon only--the laws of nature to which we all unconditionally submit.<ref name="ch15sec6"></ref>

The market system will invariably bestow unequal rewards. This is primarily due to the different levels of service people provide to each other on the [[market]]. That is, it rewards every effort according to its [[value]] as determined by the subjective valuations of the consumers. With respect to inequality, [[Mises]] says:

<blockquote>"No system of social division of labor can do without a method that makes individuals responsible for their contribution to the joint productive effort. If this responsibility is not brought about by the price structure of the market and the inequality of wealth and income it begets, it must be enforced by the methods of direct compulsion as practiced by the police."<ref name="ch15sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec7.asp XV. The Market], 7. Inequality of Wealth and Income, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref></blockquote>

The economic phenomenon of [[profit]] and [[loss]] can be analyzed from an psychic point of view. [[Profit]], in a boarder sense, is the gain derived from [[action]]; it is the increase in satisfaction brought about by the action. In this sense, then, profit is the end of every action. Profit in this psychic sense is not measurable. However in the market economy, [[goods]] and [[services]] are bought and sold with money prices. This allows for the computation of profit and loss using the market prices of the goods and services. [[Profit]], in monetary calculus, is the surplus of [[money]] received over the money expended. It is everyone acting to attain the highest psychic which actuates the market-price mechanism and allows for monetary calculus.

The [[entrepreneur]] encounters the ever changing price structure of the market and makes his profit from correctly anticipating the changes in money prices. In this sense, he is always a speculator.<ref name="ch15sec8">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec8.asp XV. The Market], 8. Entrepreneurial Profit and Loss, ''[[Human Action]]'', online version, referenced 2011-05-19.</ref>

In an expanding or progressing economy the amount of capital invested is increasing per capita. Income is increased either by an increase in technological methods brought about by the increase in capital or simply by an increase in production. Of the increase in wealth (the result of the progressing economy) the majority of it goes to non-entrepreneurial groups. To note again, the market has a tendency to eliminate entrepreneurial profit and it is therefore temporary. In the long run, i.e., when profits have been eliminated by competition, the increase in productivity benefits exclusively the workers and consumers. On progress [[Mises]] writes:

<blockquote>"The vehicle of economic progress is the accumulation of technological methods of production the execution of which is almost always conditioned by the availability of such new capital."<ref name="ch15sec9">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec9.asp XV. The Market], 9. Entrepreneurial Profits and Losses in a Progressing Economy, ''[[Human Action]]'', online version, referenced 2011-05-21.</ref></blockquote>

The greater profits are, the greater is the increment in general prosperity that the enterprise brings. The entrepreneurial function, the driving after profits, is the driving of capital into the most profitable line of business. Which is another way of saying, the driving of capital into which the greatest increase in general prosperity results. Profits and losses are the devices through which consumers exercise their superiority over the owners of capital.<ref name="ch15sec9"></ref>

The entrepreneur hires workers and acts as the mandatary of the consumers. In addressing the many problems and issues that a project encounters the entrepreneur and the technician approach the problem inherently differently. The technician may suggest a method of production which has the greatest physical output. But the entrepreneur must judge differently, namely, economically. Economic calculation saves the entrepreneur from having to look too deeply into problems. Profit and loss are not about prefect production, but about the production which reaps the highest profit--i.e., the production where the most is produced at the lowest cost to society. Managers in an enterprise are essentially an extension of the entrepreneur. They assist in the solving of problems, make use of economic calculation and discover the most economical solution to their problems.<ref name="ch15sec10">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec10.asp XV. The Market], 10. Promoters, Managers, Technicians, and Bureaucrats, ''[[Human Action]]'', online version, referenced 2011-05-30.</ref>

[[Mises]] distinguishes between ''bureaucratic management'' and ''profit management''. In profit management all activities of business are given their worth from the actions of consumers. They dictate the salaries of management and the profits of the entrepreneur and capitalist. Where ever the operation of a system can not be run by profit management, it must be directed by bureaucratic management--i.e., one not concerned with profit and loss.<ref name="ch15sec10"></ref>

<blockquote>"Bureaucratic conduct of affairs, as such, is not an evil. It is only appropriate methods of handling governmental affairs, i.e., the social apparatus of compulsion and coercion. As government is necessary, bureaucratism is--in this field--no less necessary. Where economic calculation is unfeasible, bureaucratic methods are indispensable."<ref name="ch15sec10"></ref></blockquote>

The interplay of market forces, the actions of individuals, their incessant choosing and renunciation, places each individual in their nook of society. It determines the number of copper mines and symphony orchestras. This selection process goes on adjusting peoples station to supply and demand. The owners of factories and capital are compelled to serve the interest of the consumers lest they go out of business. Their ownership in the factories and capital is a liability if they do not concede to the desires of the consumers.<ref name="ch15sec11">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec11.asp XV. The Market], 11. The Selective Process, ''[[Human Action]]'', online version, referenced 2011-06-03.</ref>

<blockquote>"The point of view from which the consumers choose the captains of industry and business is exclusively their qualification to adjust production to the needs of the consumers."<ref name="ch15sec11"></ref></blockquote>

It is common to speak of the automatic reactions of the [[market]]. But the market is not automatic: it is a social body made up of individuals acting, it "is the foremost social body."<ref name="ch15sec12">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec12.asp XV. The Market], 12. The Individual and the Market, ''[[Human Action]]'', online version, referenced 2011-06-04.</ref> Individuals on the market are both consumer and producer. They play both sides, which leads to contradictions: they want to be protected as a [[consumer]] and be protected as a [[producer]]. This is fundamental flaw in many social reforms. Politicians pander to this dichotomous interpretation, advocating interventions of various kinds. But the rhetoric is always the same: "my program will make you affluent as conditions may permit, while my adversaries' program will bring you want and misery."<ref name="ch15sec12"></ref>

=== XVI. Prices ===

All that [[catallactics]] can assert with regards to the pricing process, is that exchanges only take place if each party values what he receives more highly than what he gives away. The continuous exchanges makes up the structure of market prices--and therefore assigns each person their place in the market society. In direct exchange or barter, prices are not perfected. With indirect exchange, i.e., exchange with money, the market is split into two. The sale and the purchase. With money standing as the common denominator in all exchanges, and with the actuation of the market process of individuals exchanging when the value what the receive more than what they give away, prices are discovered in time which allows for the whole rational economic calculation to occur. In logical explication of prices as a process actuated by marginal utility, [[Mises]] writes:

<blockquote>"[Money prices] are determined between extremely narrow margins: the valuations on the one hand of the marginal buyer and those of the marginal offerer who abstains from selling, and the valuations on the other hand of the marginal seller and those of the marginal potential buyer who abstains from buying."<ref name="ch16sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap16sec1.asp XV. The Market], 1. The Pricing Process, ''[[Human Action]]'', online version, referenced 2011-06-04.</ref></blockquote>

<ol style="list-style-type:upper-roman;" start="15">
<li> Indirect Exchange</li>
<li> '''Action in the Passing of Time'''</li>
For humans considering [[action]], time matters: there is a ''too late'' and a ''too early''. [[Time preferences]] affect all action (see [[Value]]).<ref name="mises_action_in_passage_of_time_2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec2.asp XVIII. Action in the Passing of Time], 2. Time Preference as an Essential Requisite of Action, ''[[Human Action]]'', online version, referenced 2011-02-04.</ref>

Postponements of consumption, or [[saving]], is always embodied in concrete goods. "The act of saving," [[Mises]] tells us, "always has its counterpart in a supply of goods produced and not consumed...Man's savings are always embodied in concrete capital goods."<ref name="mises_action_in_passage_of_time_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec9.asp XVIII. Action in the Passing of Time], 9. Money and Capital; Saving and Investment, ''[[Human Action]]'', online version, referenced 2011-02-08.</ref>

The discussion of [[time preference]], and the postponment of consumption, is a lead in to [[interest]].

<li> '''Interest'''</li>

<blockquote>''Main Article: [[Interest]]''</blockquote>

Time preference manifests itself in the phenomenon of [[originary interest]], i.e., the discount of future goods as against present goods.<ref name="mises__human_action_chap19sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec1.asp XIX. The Rate of Interest], The Phenomenon of Interest, [[Human Action]], online version, referenced 2011-02-13.</ref> Originary interest is a ratio, like profit and loss, and not a price.<ref name="mises__human_action_chap19sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec2.asp XIX. The Rate of Interest], Originary Interest, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref> It is the ratio between the value assigned to presents goods against the value assigned to future goods. This discounting explains, for example, the reason why there is finite prices on usable land:

<blockquote>"If the future services which a piece of land can render were to be valued in the same way in which its present services are valued, no finite price would be high enough to impel its owner to sell it."<ref name="mises__human_action_chap19sec2"></ref></blockquote>

We [[discount]] future services and [[goods]] because of [[time preference]]. The fact that we can purchase land which is usable into the foreseeable future is proof of this. Furthermore, [[originary interest]] is not determined by supply and demand of [[loanable funds]]. Time preference, manifesting in the discount of future goods against present goods (i.e., originary interest) determines both the demand and supply of capital and capital goods.<ref name="mises__human_action_chap19sec2"></ref>

Interest rates in loans, in a changing economy, always have an element of entrepreneurial profit. The lender, taking a risk and and making a prediciton about the future state of the market, is engaging in an entrepreneurial venture. Therefore, interest rates on loans are never pure [[originary interest]] but also entrepreneurial profit.<ref name="mises__human_action_chap19sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec4.asp XIX. The Rate of Interest], Originary Interest in the Changing Economy, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref>

<li> Interest, Credit Expansion, and the Trade Cycle</li>
<li> Work and Wages</li>
<li> The Nonhuman Original Factors of Production</li>
<li> The Data of the Market</li>
<li> Harmony and Conflict of Interests</li>
</ol>

== Part Five: Social Cooperation Without a Market ==

<ol style="list-style-type:upper-roman;" start="25">
<li> The Imaginary Construction of a Socialist Society</li>
<li> The Impossibility of Economic Calculation Under Socialism</li>
</ol>

== Part Six: The Hampered Market Economy ==

<ol style="list-style-type:upper-roman;" start="27">
<li> The Government and the Market</li>
<li> Interference by Taxation</li>
<li> Restriction of Production</li>
<li> Interference with the Structure of Prices</li>
<li> Currency and Credit Manipulation</li>
<li> Confiscation and Redistribution</li>
<li> Syndicalism and Corporativism</li>
<li> The Economics of War</li>
<li> The Welfare Principle Versus the Market Principle</li>
<li> The Crisis of Interventionism</li>
</ol>

== Part Seven: The Place of Economics in Society ==
<ol style="list-style-type:upper-roman;" start="38">
<li> The Nondescript Character of Economics</li>
<li> The Place of Economics in Learning</li>
<li> Economics and the Essential Problems of Human Existence</li>
</ol>

==References==
{{Reflist|2}}

==Links==
''{{Store|http://www.mises.org/store/Human-Action-The-Scholars-Edition-P119.aspx|Human Action (Scholar's Edition)}}''

* Mises Made Easier: [http://mises.org/Easier/Easier.asp Glossary for Human Action]
* [http://mises.org/humanaction/theindex.asp Human Action interactive index]
* [http://mises.org/resources.aspx?Id=3250&html=1#Publication_History ''Human Action'' publication history]
* [http://mises.org/daily/137 "Human Action: What the Archives Tell Us"] by [[Jeffrey M. Herbener]], January 1999

===Editions===
* ''Human Action: A Treatise on Economics'', 1998 Scholar's Edition:
** {{mr|3250|Resources page}}
** {{mr|3810|Study Guide}}
*** [http://mises.org/daily/3262 "Study Guide to Human Action"] by [[Robert Murphy]], December 2008
*** [http://blog.mises.org/6708/weekend-study-guide/ "Weekend Study Guide"] (individual chapter downloads)
*** [http://blog.mises.org/15181/the-human-action-study-guide-as-our-armor/ "The Human Action Study Guide is our armor"] by Jim Fedako, December 2010
** [http://mises.org/media/category/139 Audiobook] read by [[Jeff Riggenbach]]
** Mises Daily excerpts
*** [http://mises.org/daily/3328 Introduction]
*** [http://mises.org/daily/2506 Chapter 1] "Acting Man"
*** [http://mises.org/daily/2565 Chapter 2] "The Sciences of Human Action" ([http://mises.org/daily/2606 study guide])
*** [http://mises.org/daily/2535 Chapter 3] "Economics and the Revolt Against Reason" ([http://mises.org/daily/2574 study guide])
*** [http://mises.org/daily/2711 Chapter 4] "A First Analysis of the Category of Action" ([http://mises.org/daily/2712 study guide])
*** [http://mises.org/daily/2730 Chapter 5] "Time and Praxeology" ([http://mises.org/daily/2731 study guide])
*** [http://mises.org/daily/2608 Chapter 6] "Uncertainty" ([http://mises.org/daily/2615 study guide])
*** [http://mises.org/daily/2774 Chapter 7] "Action Within the World" ([http://mises.org/daily/2778 study guide])
*** [http://mises.org/daily/2813 Chapter 8] "Human Society" ([http://mises.org/daily/2814 study guide])
*** [http://mises.org/daily/2841 Chapter 9] "The Role of Ideas" ([http://mises.org/daily/2843 study guide])
*** [http://mises.org/daily/2849 Chapter 10] "Exchange Within Society" ([http://mises.org/daily/2850 study guide])
*** [http://mises.org/daily/2880 Chapter 11] "Valuation Without Calculation" ([http://mises.org/daily/2881 study guide])
*** [http://mises.org/daily/2933 Chapter 12] "The Sphere of Economic Calculation" ([http://mises.org/daily/2939 study guide])
*** [http://mises.org/daily/2979 Chapter 14] "The Scope and Method of Catallactics" ([http://mises.org/daily/2980 study guide])
*** Chapter 15 ([http://mises.org/daily/3029 Part I], [http://mises.org/daily/3030 Part II]) "The Market" ([http://mises.org/daily/3005 study guide])
*** Chapter 16 ([http://mises.org/daily/3067 Part I], [http://mises.org/daily/3099 Part II], [http://mises.org/daily/3552 Part III]) "Prices" ([http://mises.org/daily/3068 study guide])

* ''Human Action: A Treatise on Economics'', 1996 4th Revised Edition:
** Foreword to the 4th edition by Bettina B. Greaves (p. v) ([http://mises.org/humanaction/forward.asp HTML], [http://mises.org/humanaction/pdf/ha_002.pdf PDF])
** Full text ([http://mises.org/books/humanaction.pdf PDF])

* ''Human Action: A Treatise on Economics'', 1966 3rd Revised Edition:
** Foreword to the 3rd edition by Ludwig von Mises ([http://mises.org/humanaction/foreword3.asp HTML], [http://mises.org/humanaction/pdf/ha_003.pdf PDF])
** Additions to Human Action in the 3rd edition ([http://mises.org/humanaction/ha3rd-addition.pdf PDF])

* ''Human Action: A Treatise on Economics'', Abridged Edition:
** Text ([http://blog.mises.org/9147/human-action-abridged/ HTML])

===Other resources===
*Articles, essays & reviews
** [http://mises.org/daily/2975 "Epistemological Relativism in the Sciences of Human Action"] Ludwig von Mises, 1960
** "The Place of Mises's Human Action in the Development of Modern Economic Thought" ([http://mises.org/journals/qjae/pdf/Qjae213.pdf PDF]) {{Nowrap|by [[Joseph T. Salerno]], Spring 1999}}
** [http://mises.org/resources/804 "Reflections on Human Action after 50 Years"] by [[Vernon L. Smith]], Fall 1999
** [http://mises.org/resources/805 "The Methodology of Human Action"] by [[Lawrence H. White]], Fall 1999
** [http://mises.org/daily/3363 "Human Action at Sixty"] by Richard M. Ebeling, March 2009
** [http://mises.org/daily/5237/Misess-Gift-of-Human-Action "Mises's Gift of Human Action"] by Jonathan M. Finegold Catalan, May 2011
** [http://mises.org/efandi/ch10.asp "The Why of Human Action"] by Ludwig von Mises, September 1949
** Mises Review: [http://mises.org/misesreview_detail.aspx?control=127 "Human Action, The Scholar's Edition"] by [[David Gordon]], Winter 1999 (republished as Mises Daily [http://mises.org/daily/3655 here])
** [http://blog.mises.org/14807/the-power-of-the-pocket-edition/ "The Power of the Pocket Edition"] by [[Jeffrey Tucker]], November 2010

* Other media
** In Studio: "Human Action: Pocket Edition" interview with [[Douglas French]], ([http://www.youtube.com/watch?v=Mou5ID13HqI YouTube])
** [http://www.apriorist.de/modx/hauyf/ ''Acting Man'' online lesson]
** [http://mises.org/quotes.aspx?action=source&Source=Human%20Action ''Human Action'' quotes]

* {{wplink}}

{{See also|Human Action Comics}}
{{Mises books}}

[[Category:Writings of Ludwig von Mises]]
[[Category:Writings on economics]]

Human Action

2011-06-04T20:54:22Z

Huckelberry: /* XV. The Market */

{{Infobox book
| name = Human Action: A Treatise on Economics
| title_orig =
| translator =
| image = 
| image_caption =
| author = [[Ludwig von Mises]]
| illustrator =
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| country = [[United States]]
| language =
| series =
| subject = [[Economics]], [[Political economy]]
| genre = [[Non-fiction]]
| publisher = [[Yale University Press]]
| pub_date = [[1949]]
| english_pub_date =
| media_type = Print
| pages = 889 pp.
| isbn =
| oclc = 2595286
| dewey =
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}}

'''''Human Action: A Treatise on Economics''''' is the [[magnum opus]] of [[Ludwig von Mises]], first published in 1949. It defined a large part of present [[Austrian Economics]].

<blockquote>"It is true that economics is a theoretical science and as such abstains from any judgment of value...Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends."<ref name="humanaction_intro_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/introsec3.asp Introduction], 3. Introduction, [[Human Action]], online version, referenced 2011-02-05.</ref></blockquote>

== Part One: Human Action ==

===I. Acting Man===

<blockquote>''Main Article: [[Action]].''</blockquote>

The science of human action is called [[praxeology]]. Human action always involves [[opportunity cost]] and it is always ''purposeful''. <ref name="humanaction_ch1sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap1sec1.asp I. Acting Man], 1. Purposeful Action and Animal Reaction, [[Human Action]], online version, referenced 2011-02-06.</ref>

===II. The Epistemological Problems of the Sciences of Human Action===

[[Ludwig von Mises]] takes the [[logical deductive]] approach to economics, as opposed to the [[empirical]] (or the [[logical positivist]] approach). Economic problems cannot be solved [[empirically]] because renunciation and long-term planning can not be seen. Humans act to attain definite ends--and economic phenomena can be understood as such.

<blockquote>"[[Praxeology]] is a theoretical and systematic, not a historical, science...It aims at knowledge valid for all instances in which the conditions exactly correspond to those implied in its assumptions and inferences. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, ''[[a priori]]''."<ref name="humanaction_ch2sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec1.asp II. Epistemological Problems of Human Action], 1. Praxeology and History, [[Human Action]], online version, referenced 2011-02-06.</ref></blockquote>

Like geometry, [[praxeology]] is not subject to disproof. This method may be called ''methodological apriorism''.<ref name="humanaction_ch2sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec2.asp II. Epistemological Problems of Human Action], 2. The Formal and Aprioristic Character of Praxeology, [[Human Action]], online version, referenced 2011-02-06.</ref>

===III. Economics and the Revolt Against Reason===

[[Mises]] dismisses the [[Historical School]], [[Hegel]] and [[Marx]] with it. In discussing the "bourgeois logic" and "bourgeois mentality" of [[Marx]], [[Mises]] is able to attack [[polylogism]] in general. There does not exist multiple logics, only differing interests and their logical conclusions--whether they are spurious or well-founded. [[Mises]] states with regard to the [[Historical School]], "History, in due time, will arrange everything for the best. It does not need the advice of mortal men."<ref name="humanaction_ch3sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap3sec1.asp III. Economics and the Revolt Against Reason], 1. The Revolt Against Reason, [[Human Action]], online version, referenced 2011-02-06.</ref>

<blockquote>''See [[German Idealism]].''</blockquote>

===IV. A First Analysis of the Category of Action===

<blockquote>''Main Article: [[Value]]''</blockquote>

All actions are directed toward goals, aims or ends. The end, speaking generally, is always to remove a ''felt uneasiness''. Means are the ways by which we reach an end. Things in the world, when applied to our ends, become means and are commonly referred to as [[goods]].<ref name="humanaction_ch4sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec1.asp IV. A First Analysis of The Category of Action], 1. Ends and Means, [[Human Action]], online version, referenced 2011-02-06.</ref> Means are [[Scarcity|scarce]].

Actions are reflective of our ''scale of [[value|values]]''. All things equal, we satisfy wants of higher [[value]] to us, and leave unsatisfied wants of lower [[value]] to us. Things in the world have no intrinsic [[value]], our actions give things [[value]].<ref name="humanaction_ch4sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec2.asp IV. A First Analysis of The Category of Action], 2. The Scale of Value, [[Human Action]], online version, referenced 2011-02-06.</ref>

Given that every action is an attempt to establish a more satisfactory state of affairs, viz., to remove a ''felt uneasiness'', all actions are in a sense an [[exchange]]. We [[exchange]] one state for another, hopefully better, state. Lastly, value judgments arrange wants, but do not measure them. They are expressive of sequence and order rather than of measurement and weight.<ref name="humanaction_ch4sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp IV. A First Analysis of The Category of Action], 4. Action as Exchange, [[Human Action]], online version, referenced 2011-02-06.</ref>

===V. Time===

Time is a [[Praxeology|praxeological]] category: all action is in time and is subject to time.<ref name="humanaction_ch5sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp V. Time], 2. Past, Present and Future, [[Human Action]], online version, referenced 2011-02-07.</ref> As humans, our time is [[Scarcity|scarce]] and we must economize it accordingly. Our scales of [[value]] and therefore our actions are always with reference to time. As we will see later, time is important in the determination of [[interest]] and consumption.<ref name="humanaction_ch5sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap5sec3.asp V. Time], 3. The Economization of Time, [[Human Action]], online version, referenced 2011-02-07.</ref>

===VI. Uncertainty===

All action is speculative. We never know exactly what will occur. The natural sciences make it possible to foretell results from specific actions. They do not make the future predictable.<ref name="humanaction_ch6sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec1.asp VI. Uncertainty], 1. Uncertainty and Acting, [[Human Action]], online version, referenced 2011-02-08.</ref> But, [[Mises]] tells us, probability is a primary concern of [[praxeology]].

He distinguished between two types of propability: [[class probability]] and [[case probability]].

<blockquote>"''[[Class probability]] means'': We know or assume to know, with regard to the problem concerned, everything about the behavior of a whole class of events or phenomena; but about the actual singular events or phenomena we know nothing but that they are elements of this class."<ref name="humanaction_ch6sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec3.asp VI. Uncertainty], 3. Class Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, car insurance works on the premise that with a large pool of policies, they can use class probability to decide upon an approriate premium given the ''class probability'' of accidents. But, they know nothing about the probability of the individual policy holder getting into an accident.

<blockquote>"''[[Case probability]]'' means: We know, with regard to a particular event, some of the factors which determine its outcome; but there are other determining factors about which we know nothing."<ref name="humanaction_ch6sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec4.asp VI. Uncertainty], 4. Case Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, foreign policy experts may make predictions about the settlement of foreign disputes. They are well informed but it is impossible for them to predict the outcome perfectly because they can not grasp all the data and all the opinions of individuals shaping decisions. Therefore, they may know some of the factors that will shape the future, but never perfectly.

For [[Mises]], we make decisions with incomplete knowledge. To say it again, all action is speculative in character. To this difficulty in decisions, specifically in social cooperation where selection occurs, competition serves as a function to select the most able person for specific positions. It assigns every member of society to the position where they best serve society.<ref name="humanaction_ch6sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec6.asp VI. Uncertainty], 6. Betting, Gambling, and Playing Games, [[Human Action]], online version, referenced 2011-02-08.</ref>

===VII. Action Within the World===

Each person possesses one scale of valuations, which is visible through action.<ref name="humanaction_ch7sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec1.asp VII. Action Within The World], 1. The Law of Marginal Utility, [[Human Action]], online version, referenced 2011-02-13.</ref> Goods and modes of action are chosen based on their utility, or their causal relevance for the removal of felt ''uneasiness''.<ref name="humanaction_ch7sec1"></ref> Here [[Mises]] discusses the [[paradox of value]]: why is ''gold'' more valuable than ''iron''? Despite the many uses of iron, gold is valued more on the market because of its value in exchange. Iron may have more technological prospects or ''objective use-value'' but it lacks ''subjective use-value'', that is, gold is valuable in exchange due to scarcity, appearance and its tradition as a form of money. [[Mises]], however, dismisses the question as one which never occurs in reality.<ref name="humanaction_ch7sec1"></ref>

The [[Law of Marginal Utility]] is implied by the category of action: If a supply increases from quantity ''n'' to ''n + 1'' the extra unit provides less [[utility]] than unit ''n''. This is because ''n'' is satisfying a more urgent want than unit ''n + 1''. We satisfy more urgent wants first by their definition. Unit ''n'' is satisfying the more urgent want, ''n + 1'' is satisfying a less urgent want. Therefore, increasing units of a homogeneous supply are each applied to decreasingly important wants (seeing as the more urgent wants are always satisfied first). The [[law of marginal utility]], "does not deal primarily with the [[value]] of things, but with the [[value]] of the services a man expects to get from them."<ref name="humanaction_ch7sec1"></ref>

"[[Labor]]," says [[Mises]], "is preferred to leisure only insofar as the yield of [[labor]] is more urgently desired than the enjoyment of leisure."<ref name="humanaction_ch7sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec3.asp VII. Action Within The World], 3. Labor as Means, [[Human Action]], online version, referenced 2011-02-13.</ref> Work involves disutility. To this note, [[labor]] is more scarce than other material factors of production:

<blockquote>"In our world there is no abundance, but a shortage of manpower, and there are unused material factors of production, i.e. land, mineral deposits, and even plants and equipment."<ref name="humanaction_ch7sec3"></ref></blockquote>

Labor saving devices reduce want, they do not bring about "technological unemployment." Man economizes both labor and material factors.<ref name="humanaction_ch7sec3"></ref>

Action is successful it it produces the intended result: it produces the product. The human mind directs [[action]] with a purpose and production is creative. It is not something physical, natural, and external; it is a spiritual and intellectual phenomenon. All material actions within the world are a product of the mind. "In this sense," [[Mises]] tells us, "[[praxeology]] can be called a moral science."<ref name="humanaction_ch7sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec4.asp VII. Action Within The World], 4. Production, [[Human Action]], online version, referenced 2011-02-13.</ref>

== Part Two: Actions Within the Framework of Society ==

===VIII. Human Society===

We are born into society and only in this sense does society exist before the individual. [[Society]] is the supreme example of the benefits of the [[division of labor]].<ref name="ch8sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec1.asp VIII. Human Society], 1. Human Cooperation, [[Human Action]], online version, referenced 2011-02-17.</ref> It is an institution for the preservation of peaceful human relations. It is the social apparatus of compulsion and coercion.<ref name="ch8sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec2.asp VIII. Human Society], 2. A Critique of the Holistic and Metaphysical View of Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

[[Democratic government]] provides a method for the peaceful adjustment of government to the will of the majority. Wisdom and science thrive in a peaceful and affluent society. <ref name="ch8sec2"></ref>

<blockquote>"[[Liberalism]] aims at a political constitution which safeguards the smooth working of social cooperation and the progressive intensification of mutual social relations. Its main objective is the avoidance of violent conflicts, of wars and revolutions that must disintegrate the social collaboration of men and throw people back into the primitive conditions of barbarism where all tribes and political bodies endlessly fought one another. Because the division of labor requires undisturbed peace, liberalism aims at the establishment of a system of government that is likely to preserve peace, viz., [[democracy]]."<ref name="ch8sec2"></ref></blockquote>

[[Mises]] expounds the Ricardian Law of Association or [[comparative advantage]] as the fundamental characteristic of society.<ref name="ch8sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association, [[Human Action]], online version, referenced 2011-02-17.</ref> The division of labor assigns to each man the best job for him in society.<ref name="humanaction_ch6sec6"></ref> However, the end result of division of labor in society--a diversity which attests to the innate inequalities between individuals--does not illistrate ideas of [[Social Darwinism]]. Biology and evolutionary views cannot pass value judgments on the benefits of civilization.<ref name="ch8sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec7.asp VIII. Human Society], 7. The Great Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

===IX. The Role of Ideas===

All [[action]] is preceded by thinking. Thinking is to deliberate before [[action]] and to reflect upon past [[action]]. Thinking is a tool of action and language is a tool of thinking. All action is based on a definite idea about causal relations. Thinking and ideas are, like material wealth, passed down the generations.<ref name="ch9sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec1.asp IX. Human Society], 1. Human Reason, [[Human Action]], online version, referenced 2011-02-18.</ref> Action is always directed by ideas.<ref name="ch9sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec3.asp IX. Human Society], 3. Might, [[Human Action]], online version, referenced 2011-02-18.</ref>

[[Ideologies|Ideology]] and world views are explanations of social phenomena and technologies for prescriptive politics. All political doctrines imply that: "the political system we support will render you more prosperous and more content."<ref name="ch9sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec2.asp IX. Human Society], 2. World View and Ideology, [[Human Action]], online version, referenced 2011-02-18.</ref> [[Ideologies]], to [[Mises]], are the most powerful form of control. The might of a politician is due to his [[ideology]], his interpretation of the world and his prescriptive measures to ensure his followers are more prosperous and more content. Thinking, the ideological interpretation, succeeds through the cooperation of other minds. No thinker is isolated in his thoughts, they have been influenced by others. A politician's power dwindles if his [[ideology]] loses support. To [[Mises]]:

<blockquote>"The power of an ideology consists precisely in the fact that people submit to it without any wavering and scruples."<ref name="ch9sec3"></ref></blockquote>

Traditionalism and the idea of progress are ideologies also. Progress toward a more prosperous life and evolutionary progress must not be confused with evolution toward higher forms of life. Progress may not continue, majorities may error.<ref name="ch9sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec4.asp IX. Human Society], 4. Meliorism and the Idea of Progress, [[Human Action]], online version, referenced 2011-02-18.</ref> Ideologies may protect the material interest of the race or they may destroy it.

===X. Exchange Within Society===

[[Action]] always is essentially the exchange of one state of affairs for another state of affairs.<ref name="ch10sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec1.asp X. Exchange Within Society], 1. Autistic Exchange and Interpersonal Exchange, [[Human Action]], online version, referenced 2011-02-25.</ref> The interpersonal exchange of goods weaves the bonds which unites men into societies.<ref name="ch10sec1"></ref> [[Mises]] defines two different kinds of social cooperation: cooperation by virtue of contract and coordination, and contract by virtue of command and subordination or hegemony.<ref name="ch10sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec2.asp X. Exchange Within Society], 2. Contractual Bonds and Hegemonic Bonds, [[Human Action]], online version, referenced 2011-02-25.</ref> In the former state there are men who cooperate to achieve goals--their plans are symmetrical and share a common goal. In the latter state their is always two classes of men, those who command and those who obey. Again [[Mises]] emphasizes the important of ideology to animate the social body. The individuals must share an [[ideology]] if they are to cooperate. Hegemonic control needs an ideology that the controlling system is the best or the traditional norm. [[Ideologies]] imply obedience to the [[ideology]]. Contractual relation order society by free association held together by the order of right and law.<ref name="ch10sec2"></ref>

The [[Praxeology|praxeological]] categories, [[Mises]] tells us, are eternal and unchangable. They are the categories within which all action takes place. No [[action]] is free from the facts of existence--of which the praxeological categories belong.<ref name="ch10sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec3.asp X. Exchange Within Society], 3. Calculative Action, [[Human Action]], online version, referenced 2011-02-25.</ref> Man can never comprehend anything that is neither [[action]] or none action.

Modern civilization is characterized by the fact that it has elaborated a method which makes use of the arithmetic possible in a broad field of activities. [[Economic calculation]], for example in modern capital [[accounting]], is a fundamental issue in all comprehension of economic phenomena.<ref name="ch10sec3"></ref>

Despite the extended use of capital [[accounting]] and arithmetic, [[action]] can only make use of ordinal numbers. That is, actions order desires but do not measure them. But in our rational and contractual society we are able to make use of cardinal numbers in capital accounting. By this feature of capital accounting and contractual relations civilization opened the door to computation and calculation regarding the planning of the future and measuring the effects of past actions. Still, the applicability of cardinal numbers to economic thinking require these circumstances and economic law and theory cannot be deduced from [[economic history]], namely, the history of prices.<ref name="ch10sec3"></ref>

== Part Three: Economic Calculation ==

===XI. Valuation Without Calculation===

We apply the [[value|values]] we attribute to the ends of [[action]], to the means necessary to achieve those ends: "Other things being equal, [acting man] assigns to the total amount of the various means the same value he attaches to the end which they are fit to bring about."<ref name="ch11sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec1.asp XI. Valuation Without Calculation], 1. Gradation of Means, [[Human Action]], online version, referenced 2011-02-26.</ref>

The preferences used in [[action]], the laying aside of some things for other things, allows--as said above--the use of ordinal numbers but not cardinal numbers. Again, [[value|values]] attributable to actions cannot be measured arithmetically. Yet, in the activity of using means to attain certain ends, the acquisition of countable and measurable supplies of things becomes an immediate goal of action.<ref name="ch11sec1"></ref> [[Economic calculation]] can occur, despite that the values we attribute to different means and ends cannot be measured, by the results of actions of interpersonal exchange:

<blockquote>"The modern theory of value and prices show how the choices of individuals, their preferring some things and setting aside of other things, results, in the sphere of interpersonal exchange, in the emergence of market prices."<ref name="ch11sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec2.asp XI. Valuation Without Calculation], 2. The Barter-Fiction of the Elementary Theory of Value and Prices, [[Human Action]], online version, referenced 2011-02-26.</ref></blockquote>

[[Mises]] reminds us that is it a fallacy to think things exchanged are of the same value. Rather, people buy and sell only because they appraise the things given up less than those received.<ref name="ch11sec2"></ref> "Market prices," [[Mises]] says in a later chapter, "are not expressive of equivalence, but of a divergence in the valuation of the exchanging parties."<ref name="ch26sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap26sec3.asp XXVI. Economic Calculation under Socialism], 3. Recent Suggestions for Socialist Economic Calculation, [[Human Action]], online version, referenced 2011-04-25.</ref>

In using technology, we are resorting to knowledge of causal relations. We are not, however, addressing the technologies applicability to human wants and desires.<ref name="ch11sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec3.asp XI. Valuation Without Calculation], 3. The Problem of Economic Calculation, [[Human Action]], online version, referenced 2011-02-26.</ref>

<blockquote>"Technology tells how a given end could be attained by the employment of various means which can be used together in various combinations, or how various available means could be employed for certain purposes. But it is at a loss to tell man which procedures he should choose out of the infinite variety of imaginable and possible modes of production."<ref name="ch11sec3"></ref></blockquote>

Engineering can tell us how to build a bridge but not whether its construction would draw resources from other areas where they would be used to satisfy more urgently felt needs. [[Action]], as opposed to the casual relations of engineering, must discover the relations between dissimilar projects. [[Money]], holding the status of "universally used medium of exchange," becomes the measure of the worthiness of differing possiblities in the realm of action. Because [[goods]] and services have money prices we can use these in planning and decisions.<ref name="ch11sec3"></ref>

With all action directed toward the future, all economic planning and calculation must be made in regards to the future state of prices. In entrepreneurial ventures the acting man wants the prices of goods produced and sold to be greater than the price of the goods used in production. The practical meaning of [[economic calculation]] is to show how much one is free to consume without impairing the future capacity to produce. The concepts of [[economic calculation]]--[[Profit]] and [[loss]], [[capital]] and [[income]], spending and [[saving]], cost and yield--are developed to ensure efficient use of the resources of society.<ref name="ch11sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec4.asp XI. Valuation Without Calculation], 4. Economic Calculation and The Market, [[Human Action]], online version, referenced 2011-02-26.</ref>

===XII. The Sphere of Economic Calculation===

The acting individual is always concerned with the future. In action he is either, (1) anticipating the future and acting accordingly, or (2) trying to change the outcomes of the future even if there are no other changes to the data. Economic calculation cannot predict the outcomes of the future, it can only assist man in adjusting his actions to his opinion of the future. The numerical exactitude of balance sheets and income statements must not prevent us from realizing their inherent uncertainty and estimation.<ref name="ch12sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec1.asp XII. The Sphere of Economic Calculation], 1. The Character of Monetary Entries, [[Human Action]], online version, referenced 2011-02-27.</ref>

[[Money]] is not a measuring stick. Money prices do not transmit the intrinsic value of a good. [[Prices]] are not measured in money, they consist in money. They are either prices of the past or prices of the future. Furthermore, although it is possible to aggregate prices paid in goods, it makes no sense to talk about a national income or any other aggregate of spending which "characterizes" a society.<ref name="ch12sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec2.asp XII. The Sphere of Economic Calculation], 2. The Limits of Economic Calculation [[Human Action]], online version, referenced 2011-02-27.</ref>

Economic calculation makes sense only in a society with private ownership of the means of production. Economic calculation is not to blame of the masses preferring detective stories to books of philosophy--that is an outcome of the desires and preferences of individuals acting in society. Economic calculation cannot be blamed for the less than ideal characters and habits of other members of society.<ref name="ch12sec2"></ref>

Prices, or exchange ratios, are in constant fluctuation with the changing data of the market and the changing whims of consumers.<ref name="ch12sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec3.asp XII. The Sphere of Economic Calculation], 3. The Changeability of Prices[[Human Action]], online version, referenced 2011-02-27.</ref>

[[Mises]] dismisses the idea of measurement in [[purchasing power]] as unfeasible:

<blockquote>"A measurement of purchasing power would have to rely upon the prices of the goods and services of the first order and, what is more, of ''all'' of them."<ref name="ch12sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec4.asp XII. The Sphere of Economic Calculation], 4. Stabilization [[Human Action]], online version, referenced 2011-02-27.</ref></blockquote>

Further, changes in the [[purchasing power]] of [[money]] must necessarily effect different goods and services at different times and therefore efforts to stabilize the purchasing power of money by attempting to change the money relation is an impossible feat.<ref name="ch12sec4"></ref>

===XIII. Monetary Calculation as a Tool of Action===

Monetary calculation is the decisive factor of action in the social system of [[division of labor]]. Every action of the [[entrepreneur]] is analyzed by monetary calculation. Only in the institutional settings of [[private property]] and [[division of labor]] where goods and services are exchanged by a money can the system of monetary calculation be used. The use of aggregates derived from the use of monetary calculation is useless. That is, monetary calculation is useful for individual acting but cannot be useful to determining "social" values or welfare. By the use of monetary calculation, for example in capital [[accounting]], arithmetic has become a tool in the struggle for a better life. Capital [[accounting]] allows us to analyze the success or failure of men in satisfying the needs of [[consumers]].<ref name="ch13sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap13sec1.asp XIII. Monetary Calculation as a Tool of Action], 1. Monetary Calculation as Method of Thinking [[Human Action]], online version, referenced 2011-03-14.</ref>

<blockquote>"Our civilization is inseparably linked with our methods of economic calculation. It would parish if we were to abandon this most precious intellectual tool of acting. Goethe was right in calling bookkeeping by double entry "one of the finest inventions of the human mind.'"<ref name="ch13sec1"></ref></blockquote>

== Part Four: Catallactics or Economics of the Market Society ==

=== XIV. The Scope and Method of Catallactics ===

<blockquote>"The subject matter of catallactics is all market phenomena with all their roots, ramifications, and consequences."<ref name="ch14sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec1.asp XIV. The Scope and Method of Catallactics], 1. The Delimitation of Catallactic Problems''[[Human Action]]'', online version, referenced 2011-5-30.</ref></blockquote>

The study of actions which are conducted on the basis of monetary calculation, or catallactics, does not care whether actions have good or bad motives. People purchase goods for material reasons and ideal reasons. They make purchases based on metaphysical beliefs and aesthetic value judgments. For economics it is inconsequential the reasons and motives for specific actions--it only cares if the beliefs are acted upon because they help determine the structure of market prices.<ref name="ch14sec1"></ref>

The method of economics, [[Mises]] tells us, is the method of imaginary constructions. This is also the method of praxeology. Imaginary constructions are products of deduction "ultimately derived from the fundamental category of action, the act of preferring and setting aside."<ref name="ch14sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec2.asp XIV. The Scope and Method of Catallactics], 2. The Method of Imaginary Constructions ''[[Human Action]]'', online version, referenced 2011-5-31.</ref> In reference to the imaginary construction [[Mises]] writes:

<blockquote>"The method of imaginary constructions in indispensable for praxeology; it is the only method of praxeological and economic inquiry. It is, to be sure, a method very difficult to handle because it can easily result in fallacious syllogisms. It leads along a sharp edge; on both sides yawns the chasm of absurdity and nonsense. Only merciless self-criticism can present a man from falling headlong into these abysmal depths."<ref name="ch14sec2"></ref></blockquote>

'''The Autistic Economy''': In order to study the effects of interpersonal exchanges, we study an imaginary construction in which they are absent. When it comes to a completely self-sufficient economy we have two imaginary systems we can hypothesize: the isolated individual and the socialist society. It does not matter whether these can calculate or whether they have historically existed, only that they can be thought of in theory.<ref name="ch14sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec4.asp XIV. The Scope and Method of Catallactics], 4. The Autistic Economy ''[[Human Action]]'', online version, referenced 2011-5-31.</ref>

'''The Evenly Rotating Economy''': In creating imaginary constructions we must conceive that all actions ultimately aim at bring about a state in which there is no longer any action, "whether because all uneasiness has been removed or because any further removal of felt uneasiness is out of the question." That is, we create an imaginary construction in which no one wants or needs to act and use this to determine the importance of various aspects of our society.<ref name="ch14sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec5.asp XIV. The Scope and Method of Catallactics], 5. The State of Rest and the Evenly Rotating Economy ''[[Human Action]]'', online version, referenced 2011-5-31.</ref>

:''See [[Evenly Rotating Economy]]''

=== XV. The Market ===

<blockquote>"The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of actions of various individuals cooperating under the division of labor."<ref name="ch15sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec1.asp XV. The Market], 1. Characteristics of the Market Economy, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref></blockquote>

In the market place everyone is an end in himself and an end for other people. Each individual acts on his own behalf, but everyones actions of the market also serve another. In acting everyone is serving everyone else's ends while serving their own. They each aim at the satisfaction of other peoples needs as much as at his own.<ref name="ch15sec1"></ref>

The state of the market is characterized by the totality of [[prices]] within the market which are determined by individuals eager to buy and sell. Additionally, there is no such thing as a "mixed" economy: "it is directed either by the market of by the decrees of a [[production]] tsar or a committee of production tsars."<ref name="ch15sec1"></ref> Publicly owned entities which operating in a market economy must obey the rules of profit and loss as others do. The characteristic feature of the [[market economy]] is its ability to [[calculate]]. Monetary calculation along with the determination of market prices allows the market to calculate. The rational ordering of the [[division of labor]] and of production are resultants of this.<ref name="ch15sec1"></ref>

<blockquote>"The market economy is real because it can calculate."<ref name="ch15sec1"></ref></blockquote>

The central principles in the market economy's calculation are [[income]] and [[capital]]. Income is the amount of resources which can be consumed without lowering the capital of the individual or business. If income is greater than the amount consumed, ''[[savings]]'' results. Conversely, if a man consumes more than his income is it referred to as ''capital consumption''. Capital, here, is the quantity of money representing ownership in the assets of a enterprise (using the term broadly) or the total [[assets]] less the total [[liabilities]].<ref name="ch15sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec2.asp XV. The Market], 2. Capital, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref>

"All civilizations" says [[Mises]], "have up to now been based on private ownership of the means of production." Our system of private ownership of the means of production has poured the horn of plenty on growing population figures. Capitalism has served to allow each man a higher material wealth than even the kings of past ages. Many who argue against capitalism do so because they look upon capitalism as an accidental phenomenon. They do not understand [[private property]] and the concept of free-associations causal relationship with the material wealth of the era. It is the critics of [[capitalism]], [[Mises]] contends, which lack historical understanding, not the economists. To capitalism's enemies, it is the policy advocated by big business, regardless of the fact that big business often advocates for "[[protectionism]], [[cartels]], and the abolition of [[competition]]." And today, it is considered a "legitimate task of government to prevent an efficient man from competing with the less efficient." Advocates of protection, and state imposed limitations on the free-market want to make us believe that the consequences of [[government intervention]] are produced by capitalism.<ref name="ch15sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec3.asp XV. The Market], 3. Capitalism, ''[[Human Action]]'', online version, referenced 2011-04-10.</ref>

In a market economy the [[The Sovereignty of the Consumers|consumers are sovereign]]. Only sellers of the [[first order]] goods are in contact with the consumers, but the consumers buying and abstention from buying is transmitted from the [[consumer goods]] to the [[higher order]] goods (the [[producers goods]]). Consumers, in their capricious buying, determine the income of every member of society and direct production into the hands of individuals best able to serve the consumers.<ref name="ch15sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec4.asp XV. The Market], 4. The Sovereignty of the Consumers, ''[[Human Action]]'', online version, referenced 2011-04-30.</ref>

The consumers designate everyones place in society. The classical economists favored the abolition of the all trade barriers because they protected the less efficient from the more efficient. Trade barriers curtail production and lower the standard of living of all those effected. It is the actions of consumers which determine the prices on the market, and it is these prices which push investors into new lines of business. The bigness of one business will not stop others from trying to compete with it. [[Mises]] writes:

<blockquote>"What a newcomer who wants to defy the vested interests of the old established firms needs most is brains and ideas. If his project is fit to fill the most urgent of the unsatisfied needs of the consumers or to purvey them at a cheaper price than their old purveyors, he will succeed in spite of the much talked of bigness and power of the old firms."<ref name="ch15sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec5.asp XV. The Market], 5. Competition, ''[[Human Action]]'', online version, referenced 2011-05-17.</ref></blockquote>

Competition in the [[catallactic]] sense (i.e., competition in the market place) has a different function than that of games and beauty contests. Its function is to select the individuals most able to control the resources of society to the greatest benefit of the consumers. Humans are not born equal and the consumers do not care: "Their only interest is to secure the best possible satisfaction of their needs."<ref name="ch15sec5"></ref>

In human society, the terms "[[freedom]]" and "[[liberty]]" reference to interhuman relations. For instance [[Mises]] writes, "man was not created free; what freedom he may possess has been given to him by society...Liberty and freedom are the conditions of man within a contractual society."<ref name="ch15sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec6.asp XV. The Market], 6. Freedom, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref> Man in this condition is free to exchange goods and services, but he is by no means independent. He depends on other members of society. We say that a man is free in a contractual society because he serves others to serve himself. The restrains of freedom a man may experience in this environment is due to natural phenomenon only--the laws of nature to which we all unconditionally submit.<ref name="ch15sec6"></ref>

The market system will invariably bestow unequal rewards. This is primarily due to the different levels of service people provide to each other on the [[market]]. That is, it rewards every effort according to its [[value]] as determined by the subjective valuations of the consumers. With respect to inequality, [[Mises]] says:

<blockquote>"No system of social division of labor can do without a method that makes individuals responsible for their contribution to the joint productive effort. If this responsibility is not brought about by the price structure of the market and the inequality of wealth and income it begets, it must be enforced by the methods of direct compulsion as practiced by the police."<ref name="ch15sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec7.asp XV. The Market], 7. Inequality of Wealth and Income, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref></blockquote>

The economic phenomenon of [[profit]] and [[loss]] can be analyzed from an psychic point of view. [[Profit]], in a boarder sense, is the gain derived from [[action]]; it is the increase in satisfaction brought about by the action. In this sense, then, profit is the end of every action. Profit in this psychic sense is not measurable. However in the market economy, [[goods]] and [[services]] are bought and sold with money prices. This allows for the computation of profit and loss using the market prices of the goods and services. [[Profit]], in monetary calculus, is the surplus of [[money]] received over the money expended. It is everyone acting to attain the highest psychic which actuates the market-price mechanism and allows for monetary calculus.

The [[entrepreneur]] encounters the ever changing price structure of the market and makes his profit from correctly anticipating the changes in money prices. In this sense, he is always a speculator.<ref name="ch15sec8">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec8.asp XV. The Market], 8. Entrepreneurial Profit and Loss, ''[[Human Action]]'', online version, referenced 2011-05-19.</ref>

In an expanding or progressing economy the amount of capital invested is increasing per capita. Income is increased either by an increase in technological methods brought about by the increase in capital or simply by an increase in production. Of the increase in wealth (the result of the progressing economy) the majority of it goes to non-entrepreneurial groups. To note again, the market has a tendency to eliminate entrepreneurial profit and it is therefore temporary. In the long run, i.e., when profits have been eliminated by competition, the increase in productivity benefits exclusively the workers and consumers. On progress [[Mises]] writes:

<blockquote>"The vehicle of economic progress is the accumulation of technological methods of production the execution of which is almost always conditioned by the availability of such new capital."<ref name="ch15sec9">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec9.asp XV. The Market], 9. Entrepreneurial Profits and Losses in a Progressing Economy, ''[[Human Action]]'', online version, referenced 2011-05-21.</ref></blockquote>

The greater profits are, the greater is the increment in general prosperity that the enterprise brings. The entrepreneurial function, the driving after profits, is the driving of capital into the most profitable line of business. Which is another way of saying, the driving of capital into which the greatest increase in general prosperity results. Profits and losses are the devices through which consumers exercise their superiority over the owners of capital.<ref name="ch15sec9"></ref>

The entrepreneur hires workers and acts as the mandatary of the consumers. In addressing the many problems and issues that a project encounters the entrepreneur and the technician approach the problem inherently differently. The technician may suggest a method of production which has the greatest physical output. But the entrepreneur must judge differently, namely, economically. Economic calculation saves the entrepreneur from having to look too deeply into problems. Profit and loss are not about prefect production, but about the production which reaps the highest profit--i.e., the production where the most is produced at the lowest cost to society. Managers in an enterprise are essentially an extension of the entrepreneur. They assist in the solving of problems, make use of economic calculation and discover the most economical solution to their problems.<ref name="ch15sec10">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec10.asp XV. The Market], 10. Promoters, Managers, Technicians, and Bureaucrats, ''[[Human Action]]'', online version, referenced 2011-05-30.</ref>

[[Mises]] distinguishes between ''bureaucratic management'' and ''profit management''. In profit management all activities of business are given their worth from the actions of consumers. They dictate the salaries of management and the profits of the entrepreneur and capitalist. Where ever the operation of a system can not be run by profit management, it must be directed by bureaucratic management--i.e., one not concerned with profit and loss.<ref name="ch15sec10"></ref>

<blockquote>"Bureaucratic conduct of affairs, as such, is not an evil. It is only appropriate methods of handling governmental affairs, i.e., the social apparatus of compulsion and coercion. As government is necessary, bureaucratism is--in this field--no less necessary. Where economic calculation is unfeasible, bureaucratic methods are indispensable."<ref name="ch15sec10"></ref></blockquote>

The interplay of market forces, the actions of individuals, their incessant choosing and renunciation, places each individual in their nook of society. It determines the number of copper mines and symphony orchestras. This selection process goes on adjusting peoples station to supply and demand. The owners of factories and capital are compelled to serve the interest of the consumers lest they go out of business. Their ownership in the factories and capital is a liability if they do not concede to the desires of the consumers.<ref name="ch15sec11">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec11.asp XV. The Market], 11. The Selective Process, ''[[Human Action]]'', online version, referenced 2011-06-03.</ref>

<blockquote>"The point of view from which the consumers choose the captains of industry and business is exclusively their qualification to adjust production to the needs of the consumers."<ref name="ch15sec11"></ref></blockquote>

It is common to speak of the automatic reactions of the [[market]]. But the market is not automatic: it is a social body made up of individuals acting, it "is the foremost social body."<ref name="ch15sec12">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec11.asp XV. The Market], 12. The Individual and the Market, ''[[Human Action]]'', online version, referenced 2011-06-04.</ref> Individuals on the market are both consumer and producer. They play both sides, which leads to contradictions: they want to be protected as a [[consumer]] and be protected as a [[producer]]. This is fundamental flaw in many social reforms. Politicians pander to this dichotomous interpretation, advocating interventions of various kinds. But the rhetoric is always the same: "my program will make you affluent as conditions may permit, while my adversaries' program will bring you want and misery."<ref name="ch15sec12"></ref>

<ol style="list-style-type:upper-roman;" start="15">
<li> Prices</li>
<li> Indirect Exchange</li>
<li> '''Action in the Passing of Time'''</li>
For humans considering [[action]], time matters: there is a ''too late'' and a ''too early''. [[Time preferences]] affect all action (see [[Value]]).<ref name="mises_action_in_passage_of_time_2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec2.asp XVIII. Action in the Passing of Time], 2. Time Preference as an Essential Requisite of Action, ''[[Human Action]]'', online version, referenced 2011-02-04.</ref>

Postponements of consumption, or [[saving]], is always embodied in concrete goods. "The act of saving," [[Mises]] tells us, "always has its counterpart in a supply of goods produced and not consumed...Man's savings are always embodied in concrete capital goods."<ref name="mises_action_in_passage_of_time_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec9.asp XVIII. Action in the Passing of Time], 9. Money and Capital; Saving and Investment, ''[[Human Action]]'', online version, referenced 2011-02-08.</ref>

The discussion of [[time preference]], and the postponment of consumption, is a lead in to [[interest]].

<li> '''Interest'''</li>

<blockquote>''Main Article: [[Interest]]''</blockquote>

Time preference manifests itself in the phenomenon of [[originary interest]], i.e., the discount of future goods as against present goods.<ref name="mises__human_action_chap19sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec1.asp XIX. The Rate of Interest], The Phenomenon of Interest, [[Human Action]], online version, referenced 2011-02-13.</ref> Originary interest is a ratio, like profit and loss, and not a price.<ref name="mises__human_action_chap19sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec2.asp XIX. The Rate of Interest], Originary Interest, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref> It is the ratio between the value assigned to presents goods against the value assigned to future goods. This discounting explains, for example, the reason why there is finite prices on usable land:

<blockquote>"If the future services which a piece of land can render were to be valued in the same way in which its present services are valued, no finite price would be high enough to impel its owner to sell it."<ref name="mises__human_action_chap19sec2"></ref></blockquote>

We [[discount]] future services and [[goods]] because of [[time preference]]. The fact that we can purchase land which is usable into the foreseeable future is proof of this. Furthermore, [[originary interest]] is not determined by supply and demand of [[loanable funds]]. Time preference, manifesting in the discount of future goods against present goods (i.e., originary interest) determines both the demand and supply of capital and capital goods.<ref name="mises__human_action_chap19sec2"></ref>

Interest rates in loans, in a changing economy, always have an element of entrepreneurial profit. The lender, taking a risk and and making a prediciton about the future state of the market, is engaging in an entrepreneurial venture. Therefore, interest rates on loans are never pure [[originary interest]] but also entrepreneurial profit.<ref name="mises__human_action_chap19sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec4.asp XIX. The Rate of Interest], Originary Interest in the Changing Economy, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref>

<li> Interest, Credit Expansion, and the Trade Cycle</li>
<li> Work and Wages</li>
<li> The Nonhuman Original Factors of Production</li>
<li> The Data of the Market</li>
<li> Harmony and Conflict of Interests</li>
</ol>

== Part Five: Social Cooperation Without a Market ==

<ol style="list-style-type:upper-roman;" start="25">
<li> The Imaginary Construction of a Socialist Society</li>
<li> The Impossibility of Economic Calculation Under Socialism</li>
</ol>

== Part Six: The Hampered Market Economy ==

<ol style="list-style-type:upper-roman;" start="27">
<li> The Government and the Market</li>
<li> Interference by Taxation</li>
<li> Restriction of Production</li>
<li> Interference with the Structure of Prices</li>
<li> Currency and Credit Manipulation</li>
<li> Confiscation and Redistribution</li>
<li> Syndicalism and Corporativism</li>
<li> The Economics of War</li>
<li> The Welfare Principle Versus the Market Principle</li>
<li> The Crisis of Interventionism</li>
</ol>

== Part Seven: The Place of Economics in Society ==
<ol style="list-style-type:upper-roman;" start="38">
<li> The Nondescript Character of Economics</li>
<li> The Place of Economics in Learning</li>
<li> Economics and the Essential Problems of Human Existence</li>
</ol>

==References==
{{Reflist|2}}

==Links==
''{{Store|http://www.mises.org/store/Human-Action-The-Scholars-Edition-P119.aspx|Human Action (Scholar's Edition)}}''

* Mises Made Easier: [http://mises.org/Easier/Easier.asp Glossary for Human Action]
* [http://mises.org/humanaction/theindex.asp Human Action interactive index]
* [http://mises.org/resources.aspx?Id=3250&html=1#Publication_History ''Human Action'' publication history]
* [http://mises.org/daily/137 "Human Action: What the Archives Tell Us"] by [[Jeffrey M. Herbener]], January 1999

===Editions===
* ''Human Action: A Treatise on Economics'', 1998 Scholar's Edition:
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*** [http://mises.org/daily/2711 Chapter 4] "A First Analysis of the Category of Action" ([http://mises.org/daily/2712 study guide])
*** [http://mises.org/daily/2730 Chapter 5] "Time and Praxeology" ([http://mises.org/daily/2731 study guide])
*** [http://mises.org/daily/2608 Chapter 6] "Uncertainty" ([http://mises.org/daily/2615 study guide])
*** [http://mises.org/daily/2774 Chapter 7] "Action Within the World" ([http://mises.org/daily/2778 study guide])
*** [http://mises.org/daily/2813 Chapter 8] "Human Society" ([http://mises.org/daily/2814 study guide])
*** [http://mises.org/daily/2841 Chapter 9] "The Role of Ideas" ([http://mises.org/daily/2843 study guide])
*** [http://mises.org/daily/2849 Chapter 10] "Exchange Within Society" ([http://mises.org/daily/2850 study guide])
*** [http://mises.org/daily/2880 Chapter 11] "Valuation Without Calculation" ([http://mises.org/daily/2881 study guide])
*** [http://mises.org/daily/2933 Chapter 12] "The Sphere of Economic Calculation" ([http://mises.org/daily/2939 study guide])
*** [http://mises.org/daily/2979 Chapter 14] "The Scope and Method of Catallactics" ([http://mises.org/daily/2980 study guide])
*** Chapter 15 ([http://mises.org/daily/3029 Part I], [http://mises.org/daily/3030 Part II]) "The Market" ([http://mises.org/daily/3005 study guide])
*** Chapter 16 ([http://mises.org/daily/3067 Part I], [http://mises.org/daily/3099 Part II], [http://mises.org/daily/3552 Part III]) "Prices" ([http://mises.org/daily/3068 study guide])

* ''Human Action: A Treatise on Economics'', 1996 4th Revised Edition:
** Foreword to the 4th edition by Bettina B. Greaves (p. v) ([http://mises.org/humanaction/forward.asp HTML], [http://mises.org/humanaction/pdf/ha_002.pdf PDF])
** Full text ([http://mises.org/books/humanaction.pdf PDF])

* ''Human Action: A Treatise on Economics'', 1966 3rd Revised Edition:
** Foreword to the 3rd edition by Ludwig von Mises ([http://mises.org/humanaction/foreword3.asp HTML], [http://mises.org/humanaction/pdf/ha_003.pdf PDF])
** Additions to Human Action in the 3rd edition ([http://mises.org/humanaction/ha3rd-addition.pdf PDF])

* ''Human Action: A Treatise on Economics'', Abridged Edition:
** Text ([http://blog.mises.org/9147/human-action-abridged/ HTML])

===Other resources===
*Articles, essays & reviews
** [http://mises.org/daily/2975 "Epistemological Relativism in the Sciences of Human Action"] Ludwig von Mises, 1960
** "The Place of Mises's Human Action in the Development of Modern Economic Thought" ([http://mises.org/journals/qjae/pdf/Qjae213.pdf PDF]) {{Nowrap|by [[Joseph T. Salerno]], Spring 1999}}
** [http://mises.org/resources/804 "Reflections on Human Action after 50 Years"] by [[Vernon L. Smith]], Fall 1999
** [http://mises.org/resources/805 "The Methodology of Human Action"] by [[Lawrence H. White]], Fall 1999
** [http://mises.org/daily/3363 "Human Action at Sixty"] by Richard M. Ebeling, March 2009
** [http://mises.org/daily/5237/Misess-Gift-of-Human-Action "Mises's Gift of Human Action"] by Jonathan M. Finegold Catalan, May 2011
** [http://mises.org/efandi/ch10.asp "The Why of Human Action"] by Ludwig von Mises, September 1949
** Mises Review: [http://mises.org/misesreview_detail.aspx?control=127 "Human Action, The Scholar's Edition"] by [[David Gordon]], Winter 1999 (republished as Mises Daily [http://mises.org/daily/3655 here])
** [http://blog.mises.org/14807/the-power-of-the-pocket-edition/ "The Power of the Pocket Edition"] by [[Jeffrey Tucker]], November 2010

* Other media
** In Studio: "Human Action: Pocket Edition" interview with [[Douglas French]], ([http://www.youtube.com/watch?v=Mou5ID13HqI YouTube])
** [http://www.apriorist.de/modx/hauyf/ ''Acting Man'' online lesson]
** [http://mises.org/quotes.aspx?action=source&Source=Human%20Action ''Human Action'' quotes]

* {{wplink}}

{{See also|Human Action Comics}}
{{Mises books}}

[[Category:Writings of Ludwig von Mises]]
[[Category:Writings on economics]]

Human Action

2011-06-03T19:02:10Z

Huckelberry: /* XV. The Market */ 11/13

{{Infobox book
| name = Human Action: A Treatise on Economics
| title_orig =
| translator =
| image = 
| image_caption =
| author = [[Ludwig von Mises]]
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| country = [[United States]]
| language =
| series =
| subject = [[Economics]], [[Political economy]]
| genre = [[Non-fiction]]
| publisher = [[Yale University Press]]
| pub_date = [[1949]]
| english_pub_date =
| media_type = Print
| pages = 889 pp.
| isbn =
| oclc = 2595286
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}}

'''''Human Action: A Treatise on Economics''''' is the [[magnum opus]] of [[Ludwig von Mises]], first published in 1949. It defined a large part of present [[Austrian Economics]].

<blockquote>"It is true that economics is a theoretical science and as such abstains from any judgment of value...Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends."<ref name="humanaction_intro_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/introsec3.asp Introduction], 3. Introduction, [[Human Action]], online version, referenced 2011-02-05.</ref></blockquote>

== Part One: Human Action ==

===I. Acting Man===

<blockquote>''Main Article: [[Action]].''</blockquote>

The science of human action is called [[praxeology]]. Human action always involves [[opportunity cost]] and it is always ''purposeful''. <ref name="humanaction_ch1sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap1sec1.asp I. Acting Man], 1. Purposeful Action and Animal Reaction, [[Human Action]], online version, referenced 2011-02-06.</ref>

===II. The Epistemological Problems of the Sciences of Human Action===

[[Ludwig von Mises]] takes the [[logical deductive]] approach to economics, as opposed to the [[empirical]] (or the [[logical positivist]] approach). Economic problems cannot be solved [[empirically]] because renunciation and long-term planning can not be seen. Humans act to attain definite ends--and economic phenomena can be understood as such.

<blockquote>"[[Praxeology]] is a theoretical and systematic, not a historical, science...It aims at knowledge valid for all instances in which the conditions exactly correspond to those implied in its assumptions and inferences. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, ''[[a priori]]''."<ref name="humanaction_ch2sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec1.asp II. Epistemological Problems of Human Action], 1. Praxeology and History, [[Human Action]], online version, referenced 2011-02-06.</ref></blockquote>

Like geometry, [[praxeology]] is not subject to disproof. This method may be called ''methodological apriorism''.<ref name="humanaction_ch2sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec2.asp II. Epistemological Problems of Human Action], 2. The Formal and Aprioristic Character of Praxeology, [[Human Action]], online version, referenced 2011-02-06.</ref>

===III. Economics and the Revolt Against Reason===

[[Mises]] dismisses the [[Historical School]], [[Hegel]] and [[Marx]] with it. In discussing the "bourgeois logic" and "bourgeois mentality" of [[Marx]], [[Mises]] is able to attack [[polylogism]] in general. There does not exist multiple logics, only differing interests and their logical conclusions--whether they are spurious or well-founded. [[Mises]] states with regard to the [[Historical School]], "History, in due time, will arrange everything for the best. It does not need the advice of mortal men."<ref name="humanaction_ch3sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap3sec1.asp III. Economics and the Revolt Against Reason], 1. The Revolt Against Reason, [[Human Action]], online version, referenced 2011-02-06.</ref>

<blockquote>''See [[German Idealism]].''</blockquote>

===IV. A First Analysis of the Category of Action===

<blockquote>''Main Article: [[Value]]''</blockquote>

All actions are directed toward goals, aims or ends. The end, speaking generally, is always to remove a ''felt uneasiness''. Means are the ways by which we reach an end. Things in the world, when applied to our ends, become means and are commonly referred to as [[goods]].<ref name="humanaction_ch4sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec1.asp IV. A First Analysis of The Category of Action], 1. Ends and Means, [[Human Action]], online version, referenced 2011-02-06.</ref> Means are [[Scarcity|scarce]].

Actions are reflective of our ''scale of [[value|values]]''. All things equal, we satisfy wants of higher [[value]] to us, and leave unsatisfied wants of lower [[value]] to us. Things in the world have no intrinsic [[value]], our actions give things [[value]].<ref name="humanaction_ch4sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec2.asp IV. A First Analysis of The Category of Action], 2. The Scale of Value, [[Human Action]], online version, referenced 2011-02-06.</ref>

Given that every action is an attempt to establish a more satisfactory state of affairs, viz., to remove a ''felt uneasiness'', all actions are in a sense an [[exchange]]. We [[exchange]] one state for another, hopefully better, state. Lastly, value judgments arrange wants, but do not measure them. They are expressive of sequence and order rather than of measurement and weight.<ref name="humanaction_ch4sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp IV. A First Analysis of The Category of Action], 4. Action as Exchange, [[Human Action]], online version, referenced 2011-02-06.</ref>

===V. Time===

Time is a [[Praxeology|praxeological]] category: all action is in time and is subject to time.<ref name="humanaction_ch5sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp V. Time], 2. Past, Present and Future, [[Human Action]], online version, referenced 2011-02-07.</ref> As humans, our time is [[Scarcity|scarce]] and we must economize it accordingly. Our scales of [[value]] and therefore our actions are always with reference to time. As we will see later, time is important in the determination of [[interest]] and consumption.<ref name="humanaction_ch5sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap5sec3.asp V. Time], 3. The Economization of Time, [[Human Action]], online version, referenced 2011-02-07.</ref>

===VI. Uncertainty===

All action is speculative. We never know exactly what will occur. The natural sciences make it possible to foretell results from specific actions. They do not make the future predictable.<ref name="humanaction_ch6sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec1.asp VI. Uncertainty], 1. Uncertainty and Acting, [[Human Action]], online version, referenced 2011-02-08.</ref> But, [[Mises]] tells us, probability is a primary concern of [[praxeology]].

He distinguished between two types of propability: [[class probability]] and [[case probability]].

<blockquote>"''[[Class probability]] means'': We know or assume to know, with regard to the problem concerned, everything about the behavior of a whole class of events or phenomena; but about the actual singular events or phenomena we know nothing but that they are elements of this class."<ref name="humanaction_ch6sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec3.asp VI. Uncertainty], 3. Class Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, car insurance works on the premise that with a large pool of policies, they can use class probability to decide upon an approriate premium given the ''class probability'' of accidents. But, they know nothing about the probability of the individual policy holder getting into an accident.

<blockquote>"''[[Case probability]]'' means: We know, with regard to a particular event, some of the factors which determine its outcome; but there are other determining factors about which we know nothing."<ref name="humanaction_ch6sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec4.asp VI. Uncertainty], 4. Case Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, foreign policy experts may make predictions about the settlement of foreign disputes. They are well informed but it is impossible for them to predict the outcome perfectly because they can not grasp all the data and all the opinions of individuals shaping decisions. Therefore, they may know some of the factors that will shape the future, but never perfectly.

For [[Mises]], we make decisions with incomplete knowledge. To say it again, all action is speculative in character. To this difficulty in decisions, specifically in social cooperation where selection occurs, competition serves as a function to select the most able person for specific positions. It assigns every member of society to the position where they best serve society.<ref name="humanaction_ch6sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec6.asp VI. Uncertainty], 6. Betting, Gambling, and Playing Games, [[Human Action]], online version, referenced 2011-02-08.</ref>

===VII. Action Within the World===

Each person possesses one scale of valuations, which is visible through action.<ref name="humanaction_ch7sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec1.asp VII. Action Within The World], 1. The Law of Marginal Utility, [[Human Action]], online version, referenced 2011-02-13.</ref> Goods and modes of action are chosen based on their utility, or their causal relevance for the removal of felt ''uneasiness''.<ref name="humanaction_ch7sec1"></ref> Here [[Mises]] discusses the [[paradox of value]]: why is ''gold'' more valuable than ''iron''? Despite the many uses of iron, gold is valued more on the market because of its value in exchange. Iron may have more technological prospects or ''objective use-value'' but it lacks ''subjective use-value'', that is, gold is valuable in exchange due to scarcity, appearance and its tradition as a form of money. [[Mises]], however, dismisses the question as one which never occurs in reality.<ref name="humanaction_ch7sec1"></ref>

The [[Law of Marginal Utility]] is implied by the category of action: If a supply increases from quantity ''n'' to ''n + 1'' the extra unit provides less [[utility]] than unit ''n''. This is because ''n'' is satisfying a more urgent want than unit ''n + 1''. We satisfy more urgent wants first by their definition. Unit ''n'' is satisfying the more urgent want, ''n + 1'' is satisfying a less urgent want. Therefore, increasing units of a homogeneous supply are each applied to decreasingly important wants (seeing as the more urgent wants are always satisfied first). The [[law of marginal utility]], "does not deal primarily with the [[value]] of things, but with the [[value]] of the services a man expects to get from them."<ref name="humanaction_ch7sec1"></ref>

"[[Labor]]," says [[Mises]], "is preferred to leisure only insofar as the yield of [[labor]] is more urgently desired than the enjoyment of leisure."<ref name="humanaction_ch7sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec3.asp VII. Action Within The World], 3. Labor as Means, [[Human Action]], online version, referenced 2011-02-13.</ref> Work involves disutility. To this note, [[labor]] is more scarce than other material factors of production:

<blockquote>"In our world there is no abundance, but a shortage of manpower, and there are unused material factors of production, i.e. land, mineral deposits, and even plants and equipment."<ref name="humanaction_ch7sec3"></ref></blockquote>

Labor saving devices reduce want, they do not bring about "technological unemployment." Man economizes both labor and material factors.<ref name="humanaction_ch7sec3"></ref>

Action is successful it it produces the intended result: it produces the product. The human mind directs [[action]] with a purpose and production is creative. It is not something physical, natural, and external; it is a spiritual and intellectual phenomenon. All material actions within the world are a product of the mind. "In this sense," [[Mises]] tells us, "[[praxeology]] can be called a moral science."<ref name="humanaction_ch7sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec4.asp VII. Action Within The World], 4. Production, [[Human Action]], online version, referenced 2011-02-13.</ref>

== Part Two: Actions Within the Framework of Society ==

===VIII. Human Society===

We are born into society and only in this sense does society exist before the individual. [[Society]] is the supreme example of the benefits of the [[division of labor]].<ref name="ch8sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec1.asp VIII. Human Society], 1. Human Cooperation, [[Human Action]], online version, referenced 2011-02-17.</ref> It is an institution for the preservation of peaceful human relations. It is the social apparatus of compulsion and coercion.<ref name="ch8sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec2.asp VIII. Human Society], 2. A Critique of the Holistic and Metaphysical View of Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

[[Democratic government]] provides a method for the peaceful adjustment of government to the will of the majority. Wisdom and science thrive in a peaceful and affluent society. <ref name="ch8sec2"></ref>

<blockquote>"[[Liberalism]] aims at a political constitution which safeguards the smooth working of social cooperation and the progressive intensification of mutual social relations. Its main objective is the avoidance of violent conflicts, of wars and revolutions that must disintegrate the social collaboration of men and throw people back into the primitive conditions of barbarism where all tribes and political bodies endlessly fought one another. Because the division of labor requires undisturbed peace, liberalism aims at the establishment of a system of government that is likely to preserve peace, viz., [[democracy]]."<ref name="ch8sec2"></ref></blockquote>

[[Mises]] expounds the Ricardian Law of Association or [[comparative advantage]] as the fundamental characteristic of society.<ref name="ch8sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association, [[Human Action]], online version, referenced 2011-02-17.</ref> The division of labor assigns to each man the best job for him in society.<ref name="humanaction_ch6sec6"></ref> However, the end result of division of labor in society--a diversity which attests to the innate inequalities between individuals--does not illistrate ideas of [[Social Darwinism]]. Biology and evolutionary views cannot pass value judgments on the benefits of civilization.<ref name="ch8sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec7.asp VIII. Human Society], 7. The Great Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

===IX. The Role of Ideas===

All [[action]] is preceded by thinking. Thinking is to deliberate before [[action]] and to reflect upon past [[action]]. Thinking is a tool of action and language is a tool of thinking. All action is based on a definite idea about causal relations. Thinking and ideas are, like material wealth, passed down the generations.<ref name="ch9sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec1.asp IX. Human Society], 1. Human Reason, [[Human Action]], online version, referenced 2011-02-18.</ref> Action is always directed by ideas.<ref name="ch9sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec3.asp IX. Human Society], 3. Might, [[Human Action]], online version, referenced 2011-02-18.</ref>

[[Ideologies|Ideology]] and world views are explanations of social phenomena and technologies for prescriptive politics. All political doctrines imply that: "the political system we support will render you more prosperous and more content."<ref name="ch9sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec2.asp IX. Human Society], 2. World View and Ideology, [[Human Action]], online version, referenced 2011-02-18.</ref> [[Ideologies]], to [[Mises]], are the most powerful form of control. The might of a politician is due to his [[ideology]], his interpretation of the world and his prescriptive measures to ensure his followers are more prosperous and more content. Thinking, the ideological interpretation, succeeds through the cooperation of other minds. No thinker is isolated in his thoughts, they have been influenced by others. A politician's power dwindles if his [[ideology]] loses support. To [[Mises]]:

<blockquote>"The power of an ideology consists precisely in the fact that people submit to it without any wavering and scruples."<ref name="ch9sec3"></ref></blockquote>

Traditionalism and the idea of progress are ideologies also. Progress toward a more prosperous life and evolutionary progress must not be confused with evolution toward higher forms of life. Progress may not continue, majorities may error.<ref name="ch9sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec4.asp IX. Human Society], 4. Meliorism and the Idea of Progress, [[Human Action]], online version, referenced 2011-02-18.</ref> Ideologies may protect the material interest of the race or they may destroy it.

===X. Exchange Within Society===

[[Action]] always is essentially the exchange of one state of affairs for another state of affairs.<ref name="ch10sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec1.asp X. Exchange Within Society], 1. Autistic Exchange and Interpersonal Exchange, [[Human Action]], online version, referenced 2011-02-25.</ref> The interpersonal exchange of goods weaves the bonds which unites men into societies.<ref name="ch10sec1"></ref> [[Mises]] defines two different kinds of social cooperation: cooperation by virtue of contract and coordination, and contract by virtue of command and subordination or hegemony.<ref name="ch10sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec2.asp X. Exchange Within Society], 2. Contractual Bonds and Hegemonic Bonds, [[Human Action]], online version, referenced 2011-02-25.</ref> In the former state there are men who cooperate to achieve goals--their plans are symmetrical and share a common goal. In the latter state their is always two classes of men, those who command and those who obey. Again [[Mises]] emphasizes the important of ideology to animate the social body. The individuals must share an [[ideology]] if they are to cooperate. Hegemonic control needs an ideology that the controlling system is the best or the traditional norm. [[Ideologies]] imply obedience to the [[ideology]]. Contractual relation order society by free association held together by the order of right and law.<ref name="ch10sec2"></ref>

The [[Praxeology|praxeological]] categories, [[Mises]] tells us, are eternal and unchangable. They are the categories within which all action takes place. No [[action]] is free from the facts of existence--of which the praxeological categories belong.<ref name="ch10sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec3.asp X. Exchange Within Society], 3. Calculative Action, [[Human Action]], online version, referenced 2011-02-25.</ref> Man can never comprehend anything that is neither [[action]] or none action.

Modern civilization is characterized by the fact that it has elaborated a method which makes use of the arithmetic possible in a broad field of activities. [[Economic calculation]], for example in modern capital [[accounting]], is a fundamental issue in all comprehension of economic phenomena.<ref name="ch10sec3"></ref>

Despite the extended use of capital [[accounting]] and arithmetic, [[action]] can only make use of ordinal numbers. That is, actions order desires but do not measure them. But in our rational and contractual society we are able to make use of cardinal numbers in capital accounting. By this feature of capital accounting and contractual relations civilization opened the door to computation and calculation regarding the planning of the future and measuring the effects of past actions. Still, the applicability of cardinal numbers to economic thinking require these circumstances and economic law and theory cannot be deduced from [[economic history]], namely, the history of prices.<ref name="ch10sec3"></ref>

== Part Three: Economic Calculation ==

===XI. Valuation Without Calculation===

We apply the [[value|values]] we attribute to the ends of [[action]], to the means necessary to achieve those ends: "Other things being equal, [acting man] assigns to the total amount of the various means the same value he attaches to the end which they are fit to bring about."<ref name="ch11sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec1.asp XI. Valuation Without Calculation], 1. Gradation of Means, [[Human Action]], online version, referenced 2011-02-26.</ref>

The preferences used in [[action]], the laying aside of some things for other things, allows--as said above--the use of ordinal numbers but not cardinal numbers. Again, [[value|values]] attributable to actions cannot be measured arithmetically. Yet, in the activity of using means to attain certain ends, the acquisition of countable and measurable supplies of things becomes an immediate goal of action.<ref name="ch11sec1"></ref> [[Economic calculation]] can occur, despite that the values we attribute to different means and ends cannot be measured, by the results of actions of interpersonal exchange:

<blockquote>"The modern theory of value and prices show how the choices of individuals, their preferring some things and setting aside of other things, results, in the sphere of interpersonal exchange, in the emergence of market prices."<ref name="ch11sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec2.asp XI. Valuation Without Calculation], 2. The Barter-Fiction of the Elementary Theory of Value and Prices, [[Human Action]], online version, referenced 2011-02-26.</ref></blockquote>

[[Mises]] reminds us that is it a fallacy to think things exchanged are of the same value. Rather, people buy and sell only because they appraise the things given up less than those received.<ref name="ch11sec2"></ref> "Market prices," [[Mises]] says in a later chapter, "are not expressive of equivalence, but of a divergence in the valuation of the exchanging parties."<ref name="ch26sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap26sec3.asp XXVI. Economic Calculation under Socialism], 3. Recent Suggestions for Socialist Economic Calculation, [[Human Action]], online version, referenced 2011-04-25.</ref>

In using technology, we are resorting to knowledge of causal relations. We are not, however, addressing the technologies applicability to human wants and desires.<ref name="ch11sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec3.asp XI. Valuation Without Calculation], 3. The Problem of Economic Calculation, [[Human Action]], online version, referenced 2011-02-26.</ref>

<blockquote>"Technology tells how a given end could be attained by the employment of various means which can be used together in various combinations, or how various available means could be employed for certain purposes. But it is at a loss to tell man which procedures he should choose out of the infinite variety of imaginable and possible modes of production."<ref name="ch11sec3"></ref></blockquote>

Engineering can tell us how to build a bridge but not whether its construction would draw resources from other areas where they would be used to satisfy more urgently felt needs. [[Action]], as opposed to the casual relations of engineering, must discover the relations between dissimilar projects. [[Money]], holding the status of "universally used medium of exchange," becomes the measure of the worthiness of differing possiblities in the realm of action. Because [[goods]] and services have money prices we can use these in planning and decisions.<ref name="ch11sec3"></ref>

With all action directed toward the future, all economic planning and calculation must be made in regards to the future state of prices. In entrepreneurial ventures the acting man wants the prices of goods produced and sold to be greater than the price of the goods used in production. The practical meaning of [[economic calculation]] is to show how much one is free to consume without impairing the future capacity to produce. The concepts of [[economic calculation]]--[[Profit]] and [[loss]], [[capital]] and [[income]], spending and [[saving]], cost and yield--are developed to ensure efficient use of the resources of society.<ref name="ch11sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec4.asp XI. Valuation Without Calculation], 4. Economic Calculation and The Market, [[Human Action]], online version, referenced 2011-02-26.</ref>

===XII. The Sphere of Economic Calculation===

The acting individual is always concerned with the future. In action he is either, (1) anticipating the future and acting accordingly, or (2) trying to change the outcomes of the future even if there are no other changes to the data. Economic calculation cannot predict the outcomes of the future, it can only assist man in adjusting his actions to his opinion of the future. The numerical exactitude of balance sheets and income statements must not prevent us from realizing their inherent uncertainty and estimation.<ref name="ch12sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec1.asp XII. The Sphere of Economic Calculation], 1. The Character of Monetary Entries, [[Human Action]], online version, referenced 2011-02-27.</ref>

[[Money]] is not a measuring stick. Money prices do not transmit the intrinsic value of a good. [[Prices]] are not measured in money, they consist in money. They are either prices of the past or prices of the future. Furthermore, although it is possible to aggregate prices paid in goods, it makes no sense to talk about a national income or any other aggregate of spending which "characterizes" a society.<ref name="ch12sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec2.asp XII. The Sphere of Economic Calculation], 2. The Limits of Economic Calculation [[Human Action]], online version, referenced 2011-02-27.</ref>

Economic calculation makes sense only in a society with private ownership of the means of production. Economic calculation is not to blame of the masses preferring detective stories to books of philosophy--that is an outcome of the desires and preferences of individuals acting in society. Economic calculation cannot be blamed for the less than ideal characters and habits of other members of society.<ref name="ch12sec2"></ref>

Prices, or exchange ratios, are in constant fluctuation with the changing data of the market and the changing whims of consumers.<ref name="ch12sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec3.asp XII. The Sphere of Economic Calculation], 3. The Changeability of Prices[[Human Action]], online version, referenced 2011-02-27.</ref>

[[Mises]] dismisses the idea of measurement in [[purchasing power]] as unfeasible:

<blockquote>"A measurement of purchasing power would have to rely upon the prices of the goods and services of the first order and, what is more, of ''all'' of them."<ref name="ch12sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec4.asp XII. The Sphere of Economic Calculation], 4. Stabilization [[Human Action]], online version, referenced 2011-02-27.</ref></blockquote>

Further, changes in the [[purchasing power]] of [[money]] must necessarily effect different goods and services at different times and therefore efforts to stabilize the purchasing power of money by attempting to change the money relation is an impossible feat.<ref name="ch12sec4"></ref>

===XIII. Monetary Calculation as a Tool of Action===

Monetary calculation is the decisive factor of action in the social system of [[division of labor]]. Every action of the [[entrepreneur]] is analyzed by monetary calculation. Only in the institutional settings of [[private property]] and [[division of labor]] where goods and services are exchanged by a money can the system of monetary calculation be used. The use of aggregates derived from the use of monetary calculation is useless. That is, monetary calculation is useful for individual acting but cannot be useful to determining "social" values or welfare. By the use of monetary calculation, for example in capital [[accounting]], arithmetic has become a tool in the struggle for a better life. Capital [[accounting]] allows us to analyze the success or failure of men in satisfying the needs of [[consumers]].<ref name="ch13sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap13sec1.asp XIII. Monetary Calculation as a Tool of Action], 1. Monetary Calculation as Method of Thinking [[Human Action]], online version, referenced 2011-03-14.</ref>

<blockquote>"Our civilization is inseparably linked with our methods of economic calculation. It would parish if we were to abandon this most precious intellectual tool of acting. Goethe was right in calling bookkeeping by double entry "one of the finest inventions of the human mind.'"<ref name="ch13sec1"></ref></blockquote>

== Part Four: Catallactics or Economics of the Market Society ==

=== XIV. The Scope and Method of Catallactics ===

<blockquote>"The subject matter of catallactics is all market phenomena with all their roots, ramifications, and consequences."<ref name="ch14sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec1.asp XIV. The Scope and Method of Catallactics], 1. The Delimitation of Catallactic Problems''[[Human Action]]'', online version, referenced 2011-5-30.</ref></blockquote>

The study of actions which are conducted on the basis of monetary calculation, or catallactics, does not care whether actions have good or bad motives. People purchase goods for material reasons and ideal reasons. They make purchases based on metaphysical beliefs and aesthetic value judgments. For economics it is inconsequential the reasons and motives for specific actions--it only cares if the beliefs are acted upon because they help determine the structure of market prices.<ref name="ch14sec1"></ref>

The method of economics, [[Mises]] tells us, is the method of imaginary constructions. This is also the method of praxeology. Imaginary constructions are products of deduction "ultimately derived from the fundamental category of action, the act of preferring and setting aside."<ref name="ch14sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec2.asp XIV. The Scope and Method of Catallactics], 2. The Method of Imaginary Constructions ''[[Human Action]]'', online version, referenced 2011-5-31.</ref> In reference to the imaginary construction [[Mises]] writes:

<blockquote>"The method of imaginary constructions in indispensable for praxeology; it is the only method of praxeological and economic inquiry. It is, to be sure, a method very difficult to handle because it can easily result in fallacious syllogisms. It leads along a sharp edge; on both sides yawns the chasm of absurdity and nonsense. Only merciless self-criticism can present a man from falling headlong into these abysmal depths."<ref name="ch14sec2"></ref></blockquote>

'''The Autistic Economy''': In order to study the effects of interpersonal exchanges, we study an imaginary construction in which they are absent. When it comes to a completely self-sufficient economy we have two imaginary systems we can hypothesize: the isolated individual and the socialist society. It does not matter whether these can calculate or whether they have historically existed, only that they can be thought of in theory.<ref name="ch14sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec4.asp XIV. The Scope and Method of Catallactics], 4. The Autistic Economy ''[[Human Action]]'', online version, referenced 2011-5-31.</ref>

'''The Evenly Rotating Economy''': In creating imaginary constructions we must conceive that all actions ultimately aim at bring about a state in which there is no longer any action, "whether because all uneasiness has been removed or because any further removal of felt uneasiness is out of the question." That is, we create an imaginary construction in which no one wants or needs to act and use this to determine the importance of various aspects of our society.<ref name="ch14sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec5.asp XIV. The Scope and Method of Catallactics], 5. The State of Rest and the Evenly Rotating Economy ''[[Human Action]]'', online version, referenced 2011-5-31.</ref>

:''See [[Evenly Rotating Economy]]''

=== XV. The Market ===

<blockquote>"The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of actions of various individuals cooperating under the division of labor."<ref name="ch15sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec1.asp XV. The Market], 1. Characteristics of the Market Economy, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref></blockquote>

In the market place everyone is an end in himself and an end for other people. Each individual acts on his own behalf, but everyones actions of the market also serve another. In acting everyone is serving everyone else's ends while serving their own. They each aim at the satisfaction of other peoples needs as much as at his own.<ref name="ch15sec1"></ref>

The state of the market is characterized by the totality of [[prices]] within the market which are determined by individuals eager to buy and sell. Additionally, there is no such thing as a "mixed" economy: "it is directed either by the market of by the decrees of a [[production]] tsar or a committee of production tsars."<ref name="ch15sec1"></ref> Publicly owned entities which operating in a market economy must obey the rules of profit and loss as others do. The characteristic feature of the [[market economy]] is its ability to [[calculate]]. Monetary calculation along with the determination of market prices allows the market to calculate. The rational ordering of the [[division of labor]] and of production are resultants of this.<ref name="ch15sec1"></ref>

<blockquote>"The market economy is real because it can calculate."<ref name="ch15sec1"></ref></blockquote>

The central principles in the market economy's calculation are [[income]] and [[capital]]. Income is the amount of resources which can be consumed without lowering the capital of the individual or business. If income is greater than the amount consumed, ''[[savings]]'' results. Conversely, if a man consumes more than his income is it referred to as ''capital consumption''. Capital, here, is the quantity of money representing ownership in the assets of a enterprise (using the term broadly) or the total [[assets]] less the total [[liabilities]].<ref name="ch15sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec2.asp XV. The Market], 2. Capital, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref>

"All civilizations" says [[Mises]], "have up to now been based on private ownership of the means of production." Our system of private ownership of the means of production has poured the horn of plenty on growing population figures. Capitalism has served to allow each man a higher material wealth than even the kings of past ages. Many who argue against capitalism do so because they look upon capitalism as an accidental phenomenon. They do not understand [[private property]] and the concept of free-associations causal relationship with the material wealth of the era. It is the critics of [[capitalism]], [[Mises]] contends, which lack historical understanding, not the economists. To capitalism's enemies, it is the policy advocated by big business, regardless of the fact that big business often advocates for "[[protectionism]], [[cartels]], and the abolition of [[competition]]." And today, it is considered a "legitimate task of government to prevent an efficient man from competing with the less efficient." Advocates of protection, and state imposed limitations on the free-market want to make us believe that the consequences of [[government intervention]] are produced by capitalism.<ref name="ch15sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec3.asp XV. The Market], 3. Capitalism, ''[[Human Action]]'', online version, referenced 2011-04-10.</ref>

In a market economy the [[The Sovereignty of the Consumers|consumers are sovereign]]. Only sellers of the [[first order]] goods are in contact with the consumers, but the consumers buying and abstention from buying is transmitted from the [[consumer goods]] to the [[higher order]] goods (the [[producers goods]]). Consumers, in their capricious buying, determine the income of every member of society and direct production into the hands of individuals best able to serve the consumers.<ref name="ch15sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec4.asp XV. The Market], 4. The Sovereignty of the Consumers, ''[[Human Action]]'', online version, referenced 2011-04-30.</ref>

The consumers designate everyones place in society. The classical economists favored the abolition of the all trade barriers because they protected the less efficient from the more efficient. Trade barriers curtail production and lower the standard of living of all those effected. It is the actions of consumers which determine the prices on the market, and it is these prices which push investors into new lines of business. The bigness of one business will not stop others from trying to compete with it. [[Mises]] writes:

<blockquote>"What a newcomer who wants to defy the vested interests of the old established firms needs most is brains and ideas. If his project is fit to fill the most urgent of the unsatisfied needs of the consumers or to purvey them at a cheaper price than their old purveyors, he will succeed in spite of the much talked of bigness and power of the old firms."<ref name="ch15sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec5.asp XV. The Market], 5. Competition, ''[[Human Action]]'', online version, referenced 2011-05-17.</ref></blockquote>

Competition in the [[catallactic]] sense (i.e., competition in the market place) has a different function than that of games and beauty contests. Its function is to select the individuals most able to control the resources of society to the greatest benefit of the consumers. Humans are not born equal and the consumers do not care: "Their only interest is to secure the best possible satisfaction of their needs."<ref name="ch15sec5"></ref>

In human society, the terms "[[freedom]]" and "[[liberty]]" reference to interhuman relations. For instance [[Mises]] writes, "man was not created free; what freedom he may possess has been given to him by society...Liberty and freedom are the conditions of man within a contractual society."<ref name="ch15sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec6.asp XV. The Market], 6. Freedom, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref> Man in this condition is free to exchange goods and services, but he is by no means independent. He depends on other members of society. We say that a man is free in a contractual society because he serves others to serve himself. The restrains of freedom a man may experience in this environment is due to natural phenomenon only--the laws of nature to which we all unconditionally submit.<ref name="ch15sec6"></ref>

The market system will invariably bestow unequal rewards. This is primarily due to the different levels of service people provide to each other on the [[market]]. That is, it rewards every effort according to its [[value]] as determined by the subjective valuations of the consumers. With respect to inequality, [[Mises]] says:

<blockquote>"No system of social division of labor can do without a method that makes individuals responsible for their contribution to the joint productive effort. If this responsibility is not brought about by the price structure of the market and the inequality of wealth and income it begets, it must be enforced by the methods of direct compulsion as practiced by the police."<ref name="ch15sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec7.asp XV. The Market], 7. Inequality of Wealth and Income, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref></blockquote>

The economic phenomenon of [[profit]] and [[loss]] can be analyzed from an psychic point of view. [[Profit]], in a boarder sense, is the gain derived from [[action]]; it is the increase in satisfaction brought about by the action. In this sense, then, profit is the end of every action. Profit in this psychic sense is not measurable. However in the market economy, [[goods]] and [[services]] are bought and sold with money prices. This allows for the computation of profit and loss using the market prices of the goods and services. [[Profit]], in monetary calculus, is the surplus of [[money]] received over the money expended. It is everyone acting to attain the highest psychic which actuates the market-price mechanism and allows for monetary calculus.

The [[entrepreneur]] encounters the ever changing price structure of the market and makes his profit from correctly anticipating the changes in money prices. In this sense, he is always a speculator.<ref name="ch15sec8">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec8.asp XV. The Market], 8. Entrepreneurial Profit and Loss, ''[[Human Action]]'', online version, referenced 2011-05-19.</ref>

In an expanding or progressing economy the amount of capital invested is increasing per capita. Income is increased either by an increase in technological methods brought about by the increase in capital or simply by an increase in production. Of the increase in wealth (the result of the progressing economy) the majority of it goes to non-entrepreneurial groups. To note again, the market has a tendency to eliminate entrepreneurial profit and it is therefore temporary. In the long run, i.e., when profits have been eliminated by competition, the increase in productivity benefits exclusively the workers and consumers. On progress [[Mises]] writes:

<blockquote>"The vehicle of economic progress is the accumulation of technological methods of production the execution of which is almost always conditioned by the availability of such new capital."<ref name="ch15sec9">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec9.asp XV. The Market], 9. Entrepreneurial Profits and Losses in a Progressing Economy, ''[[Human Action]]'', online version, referenced 2011-05-21.</ref></blockquote>

The greater profits are, the greater is the increment in general prosperity that the enterprise brings. The entrepreneurial function, the driving after profits, is the driving of capital into the most profitable line of business. Which is another way of saying, the driving of capital into which the greatest increase in general prosperity results. Profits and losses are the devices through which consumers exercise their superiority over the owners of capital.<ref name="ch15sec9"></ref>

The entrepreneur hires workers and acts as the mandatary of the consumers. In addressing the many problems and issues that a project encounters the entrepreneur and the technician approach the problem inherently differently. The technician may suggest a method of production which has the greatest physical output. But the entrepreneur must judge differently, namely, economically. Economic calculation saves the entrepreneur from having to look too deeply into problems. Profit and loss are not about prefect production, but about the production which reaps the highest profit--i.e., the production where the most is produced at the lowest cost to society. Managers in an enterprise are essentially an extension of the entrepreneur. They assist in the solving of problems, make use of economic calculation and discover the most economical solution to their problems.<ref name="ch15sec10">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec10.asp XV. The Market], 10. Promoters, Managers, Technicians, and Bureaucrats, ''[[Human Action]]'', online version, referenced 2011-05-30.</ref>

[[Mises]] distinguishes between ''bureaucratic management'' and ''profit management''. In profit management all activities of business are given their worth from the actions of consumers. They dictate the salaries of management and the profits of the entrepreneur and capitalist. Where ever the operation of a system can not be run by profit management, it must be directed by bureaucratic management--i.e., one not concerned with profit and loss.<ref name="ch15sec10"></ref>

<blockquote>"Bureaucratic conduct of affairs, as such, is not an evil. It is only appropriate methods of handling governmental affairs, i.e., the social apparatus of compulsion and coercion. As government is necessary, bureaucratism is--in this field--no less necessary. Where economic calculation is unfeasible, bureaucratic methods are indispensable."<ref name="ch15sec10"></ref></blockquote>

The interplay of market forces, the actions of individuals, their incessant choosing and renunciation, places each individual in their nook of society. It determines the number of copper mines and symphony orchestras. This selection process goes on adjusting peoples station to supply and demand. The owners of factories and capital are compelled to serve the interest of the consumers lest they go out of business. Their ownership in the factories and capital is a liability if they do not concede to the desires of the consumers.<ref name="ch15sec11">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec11.asp XV. The Market], 11. The Selective Process, ''[[Human Action]]'', online version, referenced 2011-06-03.</ref>

<blockquote>"The point of view from which the consumers choose the captains of industry and business is exclusively their qualification to adjust production to the needs of the consumers."<ref name="ch15sec11"></ref></blockquote>

<ol style="list-style-type:upper-roman;" start="15">
<li> Prices</li>
<li> Indirect Exchange</li>
<li> '''Action in the Passing of Time'''</li>
For humans considering [[action]], time matters: there is a ''too late'' and a ''too early''. [[Time preferences]] affect all action (see [[Value]]).<ref name="mises_action_in_passage_of_time_2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec2.asp XVIII. Action in the Passing of Time], 2. Time Preference as an Essential Requisite of Action, ''[[Human Action]]'', online version, referenced 2011-02-04.</ref>

Postponements of consumption, or [[saving]], is always embodied in concrete goods. "The act of saving," [[Mises]] tells us, "always has its counterpart in a supply of goods produced and not consumed...Man's savings are always embodied in concrete capital goods."<ref name="mises_action_in_passage_of_time_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec9.asp XVIII. Action in the Passing of Time], 9. Money and Capital; Saving and Investment, ''[[Human Action]]'', online version, referenced 2011-02-08.</ref>

The discussion of [[time preference]], and the postponment of consumption, is a lead in to [[interest]].

<li> '''Interest'''</li>

<blockquote>''Main Article: [[Interest]]''</blockquote>

Time preference manifests itself in the phenomenon of [[originary interest]], i.e., the discount of future goods as against present goods.<ref name="mises__human_action_chap19sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec1.asp XIX. The Rate of Interest], The Phenomenon of Interest, [[Human Action]], online version, referenced 2011-02-13.</ref> Originary interest is a ratio, like profit and loss, and not a price.<ref name="mises__human_action_chap19sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec2.asp XIX. The Rate of Interest], Originary Interest, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref> It is the ratio between the value assigned to presents goods against the value assigned to future goods. This discounting explains, for example, the reason why there is finite prices on usable land:

<blockquote>"If the future services which a piece of land can render were to be valued in the same way in which its present services are valued, no finite price would be high enough to impel its owner to sell it."<ref name="mises__human_action_chap19sec2"></ref></blockquote>

We [[discount]] future services and [[goods]] because of [[time preference]]. The fact that we can purchase land which is usable into the foreseeable future is proof of this. Furthermore, [[originary interest]] is not determined by supply and demand of [[loanable funds]]. Time preference, manifesting in the discount of future goods against present goods (i.e., originary interest) determines both the demand and supply of capital and capital goods.<ref name="mises__human_action_chap19sec2"></ref>

Interest rates in loans, in a changing economy, always have an element of entrepreneurial profit. The lender, taking a risk and and making a prediciton about the future state of the market, is engaging in an entrepreneurial venture. Therefore, interest rates on loans are never pure [[originary interest]] but also entrepreneurial profit.<ref name="mises__human_action_chap19sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec4.asp XIX. The Rate of Interest], Originary Interest in the Changing Economy, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref>

<li> Interest, Credit Expansion, and the Trade Cycle</li>
<li> Work and Wages</li>
<li> The Nonhuman Original Factors of Production</li>
<li> The Data of the Market</li>
<li> Harmony and Conflict of Interests</li>
</ol>

== Part Five: Social Cooperation Without a Market ==

<ol style="list-style-type:upper-roman;" start="25">
<li> The Imaginary Construction of a Socialist Society</li>
<li> The Impossibility of Economic Calculation Under Socialism</li>
</ol>

== Part Six: The Hampered Market Economy ==

<ol style="list-style-type:upper-roman;" start="27">
<li> The Government and the Market</li>
<li> Interference by Taxation</li>
<li> Restriction of Production</li>
<li> Interference with the Structure of Prices</li>
<li> Currency and Credit Manipulation</li>
<li> Confiscation and Redistribution</li>
<li> Syndicalism and Corporativism</li>
<li> The Economics of War</li>
<li> The Welfare Principle Versus the Market Principle</li>
<li> The Crisis of Interventionism</li>
</ol>

== Part Seven: The Place of Economics in Society ==
<ol style="list-style-type:upper-roman;" start="38">
<li> The Nondescript Character of Economics</li>
<li> The Place of Economics in Learning</li>
<li> Economics and the Essential Problems of Human Existence</li>
</ol>

==References==
{{Reflist|2}}

==Links==
''{{Store|http://www.mises.org/store/Human-Action-The-Scholars-Edition-P119.aspx|Human Action (Scholar's Edition)}}''

* Mises Made Easier: [http://mises.org/Easier/Easier.asp Glossary for Human Action]
* [http://mises.org/humanaction/theindex.asp Human Action interactive index]
* [http://mises.org/resources.aspx?Id=3250&html=1#Publication_History ''Human Action'' publication history]
* [http://mises.org/daily/137 "Human Action: What the Archives Tell Us"] by [[Jeffrey M. Herbener]], January 1999

===Editions===
* ''Human Action: A Treatise on Economics'', 1998 Scholar's Edition:
** {{mr|3250|Resources page}}
** {{mr|3810|Study Guide}}
*** [http://mises.org/daily/3262 "Study Guide to Human Action"] by [[Robert Murphy]], December 2008
*** [http://blog.mises.org/6708/weekend-study-guide/ "Weekend Study Guide"] (individual chapter downloads)
*** [http://blog.mises.org/15181/the-human-action-study-guide-as-our-armor/ "The Human Action Study Guide is our armor"] by Jim Fedako, December 2010
** [http://mises.org/media/category/139 Audiobook] read by [[Jeff Riggenbach]]
** Mises Daily excerpts
*** [http://mises.org/daily/3328 Introduction]
*** [http://mises.org/daily/2506 Chapter 1] "Acting Man"
*** [http://mises.org/daily/2565 Chapter 2] "The Sciences of Human Action" ([http://mises.org/daily/2606 study guide])
*** [http://mises.org/daily/2535 Chapter 3] "Economics and the Revolt Against Reason" ([http://mises.org/daily/2574 study guide])
*** [http://mises.org/daily/2711 Chapter 4] "A First Analysis of the Category of Action" ([http://mises.org/daily/2712 study guide])
*** [http://mises.org/daily/2730 Chapter 5] "Time and Praxeology" ([http://mises.org/daily/2731 study guide])
*** [http://mises.org/daily/2608 Chapter 6] "Uncertainty" ([http://mises.org/daily/2615 study guide])
*** [http://mises.org/daily/2774 Chapter 7] "Action Within the World" ([http://mises.org/daily/2778 study guide])
*** [http://mises.org/daily/2813 Chapter 8] "Human Society" ([http://mises.org/daily/2814 study guide])
*** [http://mises.org/daily/2841 Chapter 9] "The Role of Ideas" ([http://mises.org/daily/2843 study guide])
*** [http://mises.org/daily/2849 Chapter 10] "Exchange Within Society" ([http://mises.org/daily/2850 study guide])
*** [http://mises.org/daily/2880 Chapter 11] "Valuation Without Calculation" ([http://mises.org/daily/2881 study guide])
*** [http://mises.org/daily/2933 Chapter 12] "The Sphere of Economic Calculation" ([http://mises.org/daily/2939 study guide])
*** [http://mises.org/daily/2979 Chapter 14] "The Scope and Method of Catallactics" ([http://mises.org/daily/2980 study guide])
*** Chapter 15 ([http://mises.org/daily/3029 Part I], [http://mises.org/daily/3030 Part II]) "The Market" ([http://mises.org/daily/3005 study guide])
*** Chapter 16 ([http://mises.org/daily/3067 Part I], [http://mises.org/daily/3099 Part II], [http://mises.org/daily/3552 Part III]) "Prices" ([http://mises.org/daily/3068 study guide])

* ''Human Action: A Treatise on Economics'', 1996 4th Revised Edition:
** Foreword to the 4th edition by Bettina B. Greaves (p. v) ([http://mises.org/humanaction/forward.asp HTML], [http://mises.org/humanaction/pdf/ha_002.pdf PDF])
** Full text ([http://mises.org/books/humanaction.pdf PDF])

* ''Human Action: A Treatise on Economics'', 1966 3rd Revised Edition:
** Foreword to the 3rd edition by Ludwig von Mises ([http://mises.org/humanaction/foreword3.asp HTML], [http://mises.org/humanaction/pdf/ha_003.pdf PDF])
** Additions to Human Action in the 3rd edition ([http://mises.org/humanaction/ha3rd-addition.pdf PDF])

* ''Human Action: A Treatise on Economics'', Abridged Edition:
** Text ([http://blog.mises.org/9147/human-action-abridged/ HTML])

===Other resources===
*Articles, essays & reviews
** [http://mises.org/daily/2975 "Epistemological Relativism in the Sciences of Human Action"] Ludwig von Mises, 1960
** "The Place of Mises's Human Action in the Development of Modern Economic Thought" ([http://mises.org/journals/qjae/pdf/Qjae213.pdf PDF]) {{Nowrap|by [[Joseph T. Salerno]], Spring 1999}}
** [http://mises.org/resources/804 "Reflections on Human Action after 50 Years"] by [[Vernon L. Smith]], Fall 1999
** [http://mises.org/resources/805 "The Methodology of Human Action"] by [[Lawrence H. White]], Fall 1999
** [http://mises.org/daily/3363 "Human Action at Sixty"] by Richard M. Ebeling, March 2009
** [http://mises.org/daily/5237/Misess-Gift-of-Human-Action "Mises's Gift of Human Action"] by Jonathan M. Finegold Catalan, May 2011
** [http://mises.org/efandi/ch10.asp "The Why of Human Action"] by Ludwig von Mises, September 1949
** Mises Review: [http://mises.org/misesreview_detail.aspx?control=127 "Human Action, The Scholar's Edition"] by [[David Gordon]], Winter 1999 (republished as Mises Daily [http://mises.org/daily/3655 here])
** [http://blog.mises.org/14807/the-power-of-the-pocket-edition/ "The Power of the Pocket Edition"] by [[Jeffrey Tucker]], November 2010

* Other media
** In Studio: "Human Action: Pocket Edition" interview with [[Douglas French]], ([http://www.youtube.com/watch?v=Mou5ID13HqI YouTube])
** [http://www.apriorist.de/modx/hauyf/ ''Acting Man'' online lesson]
** [http://mises.org/quotes.aspx?action=source&Source=Human%20Action ''Human Action'' quotes]

* {{wplink}}

{{See also|Human Action Comics}}
{{Mises books}}

[[Category:Writings of Ludwig von Mises]]
[[Category:Writings on economics]]

Human Action

2011-05-31T22:26:11Z

Huckelberry: /* VIII. Human Society */ wikify

{{Infobox book
| name = Human Action: A Treatise on Economics
| title_orig =
| translator =
| image = 
| image_caption =
| author = [[Ludwig von Mises]]
| illustrator =
| cover_artist =
| country = [[United States]]
| language =
| series =
| subject = [[Economics]], [[Political economy]]
| genre = [[Non-fiction]]
| publisher = [[Yale University Press]]
| pub_date = [[1949]]
| english_pub_date =
| media_type = Print
| pages = 889 pp.
| isbn =
| oclc = 2595286
| dewey =
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| preceded_by =
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}}

'''''Human Action: A Treatise on Economics''''' is the [[magnum opus]] of [[Ludwig von Mises]], first published in 1949. It defined a large part of present [[Austrian Economics]].

<blockquote>"It is true that economics is a theoretical science and as such abstains from any judgment of value...Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends."<ref name="humanaction_intro_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/introsec3.asp Introduction], 3. Introduction, [[Human Action]], online version, referenced 2011-02-05.</ref></blockquote>

== Part One: Human Action ==

===I. Acting Man===

<blockquote>''Main Article: [[Action]].''</blockquote>

The science of human action is called [[praxeology]]. Human action always involves [[opportunity cost]] and it is always ''purposeful''. <ref name="humanaction_ch1sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap1sec1.asp I. Acting Man], 1. Purposeful Action and Animal Reaction, [[Human Action]], online version, referenced 2011-02-06.</ref>

===II. The Epistemological Problems of the Sciences of Human Action===

[[Ludwig von Mises]] takes the [[logical deductive]] approach to economics, as opposed to the [[empirical]] (or the [[logical positivist]] approach). Economic problems cannot be solved [[empirically]] because renunciation and long-term planning can not be seen. Humans act to attain definite ends--and economic phenomena can be understood as such.

<blockquote>"[[Praxeology]] is a theoretical and systematic, not a historical, science...It aims at knowledge valid for all instances in which the conditions exactly correspond to those implied in its assumptions and inferences. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, ''[[a priori]]''."<ref name="humanaction_ch2sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec1.asp II. Epistemological Problems of Human Action], 1. Praxeology and History, [[Human Action]], online version, referenced 2011-02-06.</ref></blockquote>

Like geometry, [[praxeology]] is not subject to disproof. This method may be called ''methodological apriorism''.<ref name="humanaction_ch2sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec2.asp II. Epistemological Problems of Human Action], 2. The Formal and Aprioristic Character of Praxeology, [[Human Action]], online version, referenced 2011-02-06.</ref>

===III. Economics and the Revolt Against Reason===

[[Mises]] dismisses the [[Historical School]], [[Hegel]] and [[Marx]] with it. In discussing the "bourgeois logic" and "bourgeois mentality" of [[Marx]], [[Mises]] is able to attack [[polylogism]] in general. There does not exist multiple logics, only differing interests and their logical conclusions--whether they are spurious or well-founded. [[Mises]] states with regard to the [[Historical School]], "History, in due time, will arrange everything for the best. It does not need the advice of mortal men."<ref name="humanaction_ch3sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap3sec1.asp III. Economics and the Revolt Against Reason], 1. The Revolt Against Reason, [[Human Action]], online version, referenced 2011-02-06.</ref>

<blockquote>''See [[German Idealism]].''</blockquote>

===IV. A First Analysis of the Category of Action===

<blockquote>''Main Article: [[Value]]''</blockquote>

All actions are directed toward goals, aims or ends. The end, speaking generally, is always to remove a ''felt uneasiness''. Means are the ways by which we reach an end. Things in the world, when applied to our ends, become means and are commonly referred to as [[goods]].<ref name="humanaction_ch4sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec1.asp IV. A First Analysis of The Category of Action], 1. Ends and Means, [[Human Action]], online version, referenced 2011-02-06.</ref> Means are [[Scarcity|scarce]].

Actions are reflective of our ''scale of [[value|values]]''. All things equal, we satisfy wants of higher [[value]] to us, and leave unsatisfied wants of lower [[value]] to us. Things in the world have no intrinsic [[value]], our actions give things [[value]].<ref name="humanaction_ch4sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec2.asp IV. A First Analysis of The Category of Action], 2. The Scale of Value, [[Human Action]], online version, referenced 2011-02-06.</ref>

Given that every action is an attempt to establish a more satisfactory state of affairs, viz., to remove a ''felt uneasiness'', all actions are in a sense an [[exchange]]. We [[exchange]] one state for another, hopefully better, state. Lastly, value judgments arrange wants, but do not measure them. They are expressive of sequence and order rather than of measurement and weight.<ref name="humanaction_ch4sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp IV. A First Analysis of The Category of Action], 4. Action as Exchange, [[Human Action]], online version, referenced 2011-02-06.</ref>

===V. Time===

Time is a [[Praxeology|praxeological]] category: all action is in time and is subject to time.<ref name="humanaction_ch5sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp V. Time], 2. Past, Present and Future, [[Human Action]], online version, referenced 2011-02-07.</ref> As humans, our time is [[Scarcity|scarce]] and we must economize it accordingly. Our scales of [[value]] and therefore our actions are always with reference to time. As we will see later, time is important in the determination of [[interest]] and consumption.<ref name="humanaction_ch5sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap5sec3.asp V. Time], 3. The Economization of Time, [[Human Action]], online version, referenced 2011-02-07.</ref>

===VI. Uncertainty===

All action is speculative. We never know exactly what will occur. The natural sciences make it possible to foretell results from specific actions. They do not make the future predictable.<ref name="humanaction_ch6sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec1.asp VI. Uncertainty], 1. Uncertainty and Acting, [[Human Action]], online version, referenced 2011-02-08.</ref> But, [[Mises]] tells us, probability is a primary concern of [[praxeology]].

He distinguished between two types of propability: [[class probability]] and [[case probability]].

<blockquote>"''[[Class probability]] means'': We know or assume to know, with regard to the problem concerned, everything about the behavior of a whole class of events or phenomena; but about the actual singular events or phenomena we know nothing but that they are elements of this class."<ref name="humanaction_ch6sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec3.asp VI. Uncertainty], 3. Class Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, car insurance works on the premise that with a large pool of policies, they can use class probability to decide upon an approriate premium given the ''class probability'' of accidents. But, they know nothing about the probability of the individual policy holder getting into an accident.

<blockquote>"''[[Case probability]]'' means: We know, with regard to a particular event, some of the factors which determine its outcome; but there are other determining factors about which we know nothing."<ref name="humanaction_ch6sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec4.asp VI. Uncertainty], 4. Case Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, foreign policy experts may make predictions about the settlement of foreign disputes. They are well informed but it is impossible for them to predict the outcome perfectly because they can not grasp all the data and all the opinions of individuals shaping decisions. Therefore, they may know some of the factors that will shape the future, but never perfectly.

For [[Mises]], we make decisions with incomplete knowledge. To say it again, all action is speculative in character. To this difficulty in decisions, specifically in social cooperation where selection occurs, competition serves as a function to select the most able person for specific positions. It assigns every member of society to the position where they best serve society.<ref name="humanaction_ch6sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec6.asp VI. Uncertainty], 6. Betting, Gambling, and Playing Games, [[Human Action]], online version, referenced 2011-02-08.</ref>

===VII. Action Within the World===

Each person possesses one scale of valuations, which is visible through action.<ref name="humanaction_ch7sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec1.asp VII. Action Within The World], 1. The Law of Marginal Utility, [[Human Action]], online version, referenced 2011-02-13.</ref> Goods and modes of action are chosen based on their utility, or their causal relevance for the removal of felt ''uneasiness''.<ref name="humanaction_ch7sec1"></ref> Here [[Mises]] discusses the [[paradox of value]]: why is ''gold'' more valuable than ''iron''? Despite the many uses of iron, gold is valued more on the market because of its value in exchange. Iron may have more technological prospects or ''objective use-value'' but it lacks ''subjective use-value'', that is, gold is valuable in exchange due to scarcity, appearance and its tradition as a form of money. [[Mises]], however, dismisses the question as one which never occurs in reality.<ref name="humanaction_ch7sec1"></ref>

The [[Law of Marginal Utility]] is implied by the category of action: If a supply increases from quantity ''n'' to ''n + 1'' the extra unit provides less [[utility]] than unit ''n''. This is because ''n'' is satisfying a more urgent want than unit ''n + 1''. We satisfy more urgent wants first by their definition. Unit ''n'' is satisfying the more urgent want, ''n + 1'' is satisfying a less urgent want. Therefore, increasing units of a homogeneous supply are each applied to decreasingly important wants (seeing as the more urgent wants are always satisfied first). The [[law of marginal utility]], "does not deal primarily with the [[value]] of things, but with the [[value]] of the services a man expects to get from them."<ref name="humanaction_ch7sec1"></ref>

"[[Labor]]," says [[Mises]], "is preferred to leisure only insofar as the yield of [[labor]] is more urgently desired than the enjoyment of leisure."<ref name="humanaction_ch7sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec3.asp VII. Action Within The World], 3. Labor as Means, [[Human Action]], online version, referenced 2011-02-13.</ref> Work involves disutility. To this note, [[labor]] is more scarce than other material factors of production:

<blockquote>"In our world there is no abundance, but a shortage of manpower, and there are unused material factors of production, i.e. land, mineral deposits, and even plants and equipment."<ref name="humanaction_ch7sec3"></ref></blockquote>

Labor saving devices reduce want, they do not bring about "technological unemployment." Man economizes both labor and material factors.<ref name="humanaction_ch7sec3"></ref>

Action is successful it it produces the intended result: it produces the product. The human mind directs [[action]] with a purpose and production is creative. It is not something physical, natural, and external; it is a spiritual and intellectual phenomenon. All material actions within the world are a product of the mind. "In this sense," [[Mises]] tells us, "[[praxeology]] can be called a moral science."<ref name="humanaction_ch7sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec4.asp VII. Action Within The World], 4. Production, [[Human Action]], online version, referenced 2011-02-13.</ref>

== Part Two: Actions Within the Framework of Society ==

===VIII. Human Society===

We are born into society and only in this sense does society exist before the individual. [[Society]] is the supreme example of the benefits of the [[division of labor]].<ref name="ch8sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec1.asp VIII. Human Society], 1. Human Cooperation, [[Human Action]], online version, referenced 2011-02-17.</ref> It is an institution for the preservation of peaceful human relations. It is the social apparatus of compulsion and coercion.<ref name="ch8sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec2.asp VIII. Human Society], 2. A Critique of the Holistic and Metaphysical View of Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

[[Democratic government]] provides a method for the peaceful adjustment of government to the will of the majority. Wisdom and science thrive in a peaceful and affluent society. <ref name="ch8sec2"></ref>

<blockquote>"[[Liberalism]] aims at a political constitution which safeguards the smooth working of social cooperation and the progressive intensification of mutual social relations. Its main objective is the avoidance of violent conflicts, of wars and revolutions that must disintegrate the social collaboration of men and throw people back into the primitive conditions of barbarism where all tribes and political bodies endlessly fought one another. Because the division of labor requires undisturbed peace, liberalism aims at the establishment of a system of government that is likely to preserve peace, viz., [[democracy]]."<ref name="ch8sec2"></ref></blockquote>

[[Mises]] expounds the Ricardian Law of Association or [[comparative advantage]] as the fundamental characteristic of society.<ref name="ch8sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association, [[Human Action]], online version, referenced 2011-02-17.</ref> The division of labor assigns to each man the best job for him in society.<ref name="humanaction_ch6sec6"></ref> However, the end result of division of labor in society--a diversity which attests to the innate inequalities between individuals--does not illistrate ideas of [[Social Darwinism]]. Biology and evolutionary views cannot pass value judgments on the benefits of civilization.<ref name="ch8sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec7.asp VIII. Human Society], 7. The Great Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

===IX. The Role of Ideas===

All [[action]] is preceded by thinking. Thinking is to deliberate before [[action]] and to reflect upon past [[action]]. Thinking is a tool of action and language is a tool of thinking. All action is based on a definite idea about causal relations. Thinking and ideas are, like material wealth, passed down the generations.<ref name="ch9sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec1.asp IX. Human Society], 1. Human Reason, [[Human Action]], online version, referenced 2011-02-18.</ref> Action is always directed by ideas.<ref name="ch9sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec3.asp IX. Human Society], 3. Might, [[Human Action]], online version, referenced 2011-02-18.</ref>

[[Ideologies|Ideology]] and world views are explanations of social phenomena and technologies for prescriptive politics. All political doctrines imply that: "the political system we support will render you more prosperous and more content."<ref name="ch9sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec2.asp IX. Human Society], 2. World View and Ideology, [[Human Action]], online version, referenced 2011-02-18.</ref> [[Ideologies]], to [[Mises]], are the most powerful form of control. The might of a politician is due to his [[ideology]], his interpretation of the world and his prescriptive measures to ensure his followers are more prosperous and more content. Thinking, the ideological interpretation, succeeds through the cooperation of other minds. No thinker is isolated in his thoughts, they have been influenced by others. A politician's power dwindles if his [[ideology]] loses support. To [[Mises]]:

<blockquote>"The power of an ideology consists precisely in the fact that people submit to it without any wavering and scruples."<ref name="ch9sec3"></ref></blockquote>

Traditionalism and the idea of progress are ideologies also. Progress toward a more prosperous life and evolutionary progress must not be confused with evolution toward higher forms of life. Progress may not continue, majorities may error.<ref name="ch9sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec4.asp IX. Human Society], 4. Meliorism and the Idea of Progress, [[Human Action]], online version, referenced 2011-02-18.</ref> Ideologies may protect the material interest of the race or they may destroy it.

===X. Exchange Within Society===

[[Action]] always is essentially the exchange of one state of affairs for another state of affairs.<ref name="ch10sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec1.asp X. Exchange Within Society], 1. Autistic Exchange and Interpersonal Exchange, [[Human Action]], online version, referenced 2011-02-25.</ref> The interpersonal exchange of goods weaves the bonds which unites men into societies.<ref name="ch10sec1"></ref> [[Mises]] defines two different kinds of social cooperation: cooperation by virtue of contract and coordination, and contract by virtue of command and subordination or hegemony.<ref name="ch10sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec2.asp X. Exchange Within Society], 2. Contractual Bonds and Hegemonic Bonds, [[Human Action]], online version, referenced 2011-02-25.</ref> In the former state there are men who cooperate to achieve goals--their plans are symmetrical and share a common goal. In the latter state their is always two classes of men, those who command and those who obey. Again [[Mises]] emphasizes the important of ideology to animate the social body. The individuals must share an [[ideology]] if they are to cooperate. Hegemonic control needs an ideology that the controlling system is the best or the traditional norm. [[Ideologies]] imply obedience to the [[ideology]]. Contractual relation order society by free association held together by the order of right and law.<ref name="ch10sec2"></ref>

The [[Praxeology|praxeological]] categories, [[Mises]] tells us, are eternal and unchangable. They are the categories within which all action takes place. No [[action]] is free from the facts of existence--of which the praxeological categories belong.<ref name="ch10sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec3.asp X. Exchange Within Society], 3. Calculative Action, [[Human Action]], online version, referenced 2011-02-25.</ref> Man can never comprehend anything that is neither [[action]] or none action.

Modern civilization is characterized by the fact that it has elaborated a method which makes use of the arithmetic possible in a broad field of activities. [[Economic calculation]], for example in modern capital [[accounting]], is a fundamental issue in all comprehension of economic phenomena.<ref name="ch10sec3"></ref>

Despite the extended use of capital [[accounting]] and arithmetic, [[action]] can only make use of ordinal numbers. That is, actions order desires but do not measure them. But in our rational and contractual society we are able to make use of cardinal numbers in capital accounting. By this feature of capital accounting and contractual relations civilization opened the door to computation and calculation regarding the planning of the future and measuring the effects of past actions. Still, the applicability of cardinal numbers to economic thinking require these circumstances and economic law and theory cannot be deduced from [[economic history]], namely, the history of prices.<ref name="ch10sec3"></ref>

== Part Three: Economic Calculation ==

===XI. Valuation Without Calculation===

We apply the [[value|values]] we attribute to the ends of [[action]], to the means necessary to achieve those ends: "Other things being equal, [acting man] assigns to the total amount of the various means the same value he attaches to the end which they are fit to bring about."<ref name="ch11sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec1.asp XI. Valuation Without Calculation], 1. Gradation of Means, [[Human Action]], online version, referenced 2011-02-26.</ref>

The preferences used in [[action]], the laying aside of some things for other things, allows--as said above--the use of ordinal numbers but not cardinal numbers. Again, [[value|values]] attributable to actions cannot be measured arithmetically. Yet, in the activity of using means to attain certain ends, the acquisition of countable and measurable supplies of things becomes an immediate goal of action.<ref name="ch11sec1"></ref> [[Economic calculation]] can occur, despite that the values we attribute to different means and ends cannot be measured, by the results of actions of interpersonal exchange:

<blockquote>"The modern theory of value and prices show how the choices of individuals, their preferring some things and setting aside of other things, results, in the sphere of interpersonal exchange, in the emergence of market prices."<ref name="ch11sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec2.asp XI. Valuation Without Calculation], 2. The Barter-Fiction of the Elementary Theory of Value and Prices, [[Human Action]], online version, referenced 2011-02-26.</ref></blockquote>

[[Mises]] reminds us that is it a fallacy to think things exchanged are of the same value. Rather, people buy and sell only because they appraise the things given up less than those received.<ref name="ch11sec2"></ref> "Market prices," [[Mises]] says in a later chapter, "are not expressive of equivalence, but of a divergence in the valuation of the exchanging parties."<ref name="ch26sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap26sec3.asp XXVI. Economic Calculation under Socialism], 3. Recent Suggestions for Socialist Economic Calculation, [[Human Action]], online version, referenced 2011-04-25.</ref>

In using technology, we are resorting to knowledge of causal relations. We are not, however, addressing the technologies applicability to human wants and desires.<ref name="ch11sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec3.asp XI. Valuation Without Calculation], 3. The Problem of Economic Calculation, [[Human Action]], online version, referenced 2011-02-26.</ref>

<blockquote>"Technology tells how a given end could be attained by the employment of various means which can be used together in various combinations, or how various available means could be employed for certain purposes. But it is at a loss to tell man which procedures he should choose out of the infinite variety of imaginable and possible modes of production."<ref name="ch11sec3"></ref></blockquote>

Engineering can tell us how to build a bridge but not whether its construction would draw resources from other areas where they would be used to satisfy more urgently felt needs. [[Action]], as opposed to the casual relations of engineering, must discover the relations between dissimilar projects. [[Money]], holding the status of "universally used medium of exchange," becomes the measure of the worthiness of differing possiblities in the realm of action. Because [[goods]] and services have money prices we can use these in planning and decisions.<ref name="ch11sec3"></ref>

With all action directed toward the future, all economic planning and calculation must be made in regards to the future state of prices. In entrepreneurial ventures the acting man wants the prices of goods produced and sold to be greater than the price of the goods used in production. The practical meaning of [[economic calculation]] is to show how much one is free to consume without impairing the future capacity to produce. The concepts of [[economic calculation]]--[[Profit]] and [[loss]], [[capital]] and [[income]], spending and [[saving]], cost and yield--are developed to ensure efficient use of the resources of society.<ref name="ch11sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec4.asp XI. Valuation Without Calculation], 4. Economic Calculation and The Market, [[Human Action]], online version, referenced 2011-02-26.</ref>

===XII. The Sphere of Economic Calculation===

The acting individual is always concerned with the future. In action he is either, (1) anticipating the future and acting accordingly, or (2) trying to change the outcomes of the future even if there are no other changes to the data. Economic calculation cannot predict the outcomes of the future, it can only assist man in adjusting his actions to his opinion of the future. The numerical exactitude of balance sheets and income statements must not prevent us from realizing their inherent uncertainty and estimation.<ref name="ch12sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec1.asp XII. The Sphere of Economic Calculation], 1. The Character of Monetary Entries, [[Human Action]], online version, referenced 2011-02-27.</ref>

[[Money]] is not a measuring stick. Money prices do not transmit the intrinsic value of a good. [[Prices]] are not measured in money, they consist in money. They are either prices of the past or prices of the future. Furthermore, although it is possible to aggregate prices paid in goods, it makes no sense to talk about a national income or any other aggregate of spending which "characterizes" a society.<ref name="ch12sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec2.asp XII. The Sphere of Economic Calculation], 2. The Limits of Economic Calculation [[Human Action]], online version, referenced 2011-02-27.</ref>

Economic calculation makes sense only in a society with private ownership of the means of production. Economic calculation is not to blame of the masses preferring detective stories to books of philosophy--that is an outcome of the desires and preferences of individuals acting in society. Economic calculation cannot be blamed for the less than ideal characters and habits of other members of society.<ref name="ch12sec2"></ref>

Prices, or exchange ratios, are in constant fluctuation with the changing data of the market and the changing whims of consumers.<ref name="ch12sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec3.asp XII. The Sphere of Economic Calculation], 3. The Changeability of Prices[[Human Action]], online version, referenced 2011-02-27.</ref>

[[Mises]] dismisses the idea of measurement in [[purchasing power]] as unfeasible:

<blockquote>"A measurement of purchasing power would have to rely upon the prices of the goods and services of the first order and, what is more, of ''all'' of them."<ref name="ch12sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec4.asp XII. The Sphere of Economic Calculation], 4. Stabilization [[Human Action]], online version, referenced 2011-02-27.</ref></blockquote>

Further, changes in the [[purchasing power]] of [[money]] must necessarily effect different goods and services at different times and therefore efforts to stabilize the purchasing power of money by attempting to change the money relation is an impossible feat.<ref name="ch12sec4"></ref>

===XIII. Monetary Calculation as a Tool of Action===

Monetary calculation is the decisive factor of action in the social system of [[division of labor]]. Every action of the [[entrepreneur]] is analyzed by monetary calculation. Only in the institutional settings of [[private property]] and [[division of labor]] where goods and services are exchanged by a money can the system of monetary calculation be used. The use of aggregates derived from the use of monetary calculation is useless. That is, monetary calculation is useful for individual acting but cannot be useful to determining "social" values or welfare. By the use of monetary calculation, for example in capital [[accounting]], arithmetic has become a tool in the struggle for a better life. Capital [[accounting]] allows us to analyze the success or failure of men in satisfying the needs of [[consumers]].<ref name="ch13sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap13sec1.asp XIII. Monetary Calculation as a Tool of Action], 1. Monetary Calculation as Method of Thinking [[Human Action]], online version, referenced 2011-03-14.</ref>

<blockquote>"Our civilization is inseparably linked with our methods of economic calculation. It would parish if we were to abandon this most precious intellectual tool of acting. Goethe was right in calling bookkeeping by double entry "one of the finest inventions of the human mind.'"<ref name="ch13sec1"></ref></blockquote>

== Part Four: Catallactics or Economics of the Market Society ==

=== XIV. The Scope and Method of Catallactics ===

<blockquote>"The subject matter of catallactics is all market phenomena with all their roots, ramifications, and consequences."<ref name="ch14sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec1.asp XIV. The Scope and Method of Catallactics], 1. The Delimitation of Catallactic Problems''[[Human Action]]'', online version, referenced 2011-5-30.</ref></blockquote>

The study of actions which are conducted on the basis of monetary calculation, or catallactics, does not care whether actions have good or bad motives. People purchase goods for material reasons and ideal reasons. They make purchases based on metaphysical beliefs and aesthetic value judgments. For economics it is inconsequential the reasons and motives for specific actions--it only cares if the beliefs are acted upon because they help determine the structure of market prices.<ref name="ch14sec1"></ref>

The method of economics, [[Mises]] tells us, is the method of imaginary constructions. This is also the method of praxeology. Imaginary constructions are products of deduction "ultimately derived from the fundamental category of action, the act of preferring and setting aside."<ref name="ch14sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec2.asp XIV. The Scope and Method of Catallactics], 2. The Method of Imaginary Constructions ''[[Human Action]]'', online version, referenced 2011-5-31.</ref> In reference to the imaginary construction [[Mises]] writes:

<blockquote>"The method of imaginary constructions in indispensable for praxeology; it is the only method of praxeological and economic inquiry. It is, to be sure, a method very difficult to handle because it can easily result in fallacious syllogisms. It leads along a sharp edge; on both sides yawns the chasm of absurdity and nonsense. Only merciless self-criticism can present a man from falling headlong into these abysmal depths."<ref name="ch14sec2"></ref></blockquote>

'''The Autistic Economy''': In order to study the effects of interpersonal exchanges, we study an imaginary construction in which they are absent. When it comes to a completely self-sufficient economy we have two imaginary systems we can hypothesize: the isolated individual and the socialist society. It does not matter whether these can calculate or whether they have historically existed, only that they can be thought of in theory.<ref name="ch14sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec4.asp XIV. The Scope and Method of Catallactics], 4. The Autistic Economy ''[[Human Action]]'', online version, referenced 2011-5-31.</ref>

'''The Evenly Rotating Economy''': In creating imaginary constructions we must conceive that all actions ultimately aim at bring about a state in which there is no longer any action, "whether because all uneasiness has been removed or because any further removal of felt uneasiness is out of the question." That is, we create an imaginary construction in which no one wants or needs to act and use this to determine the importance of various aspects of our society.<ref name="ch14sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec5.asp XIV. The Scope and Method of Catallactics], 5. The State of Rest and the Evenly Rotating Economy ''[[Human Action]]'', online version, referenced 2011-5-31.</ref>

:''See [[Evenly Rotating Economy]]''

=== XV. The Market ===

<blockquote>"The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of actions of various individuals cooperating under the division of labor."<ref name="ch15sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec1.asp XV. The Market], 1. Characteristics of the Market Economy, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref></blockquote>

In the market place everyone is an end in himself and an end for other people. Each individual acts on his own behalf, but everyones actions of the market also serve another. In acting everyone is serving everyone else's ends while serving their own. They each aim at the satisfaction of other peoples needs as much as at his own.<ref name="ch15sec1"></ref>

The state of the market is characterized by the totality of [[prices]] within the market which are determined by individuals eager to buy and sell. Additionally, there is no such thing as a "mixed" economy: "it is directed either by the market of by the decrees of a [[production]] tsar or a committee of production tsars."<ref name="ch15sec1"></ref> Publicly owned entities which operating in a market economy must obey the rules of profit and loss as others do. The characteristic feature of the [[market economy]] is its ability to [[calculate]]. Monetary calculation along with the determination of market prices allows the market to calculate. The rational ordering of the [[division of labor]] and of production are resultants of this.<ref name="ch15sec1"></ref>

<blockquote>"The market economy is real because it can calculate."<ref name="ch15sec1"></ref></blockquote>

The central principles in the market economy's calculation are [[income]] and [[capital]]. Income is the amount of resources which can be consumed without lowering the capital of the individual or business. If income is greater than the amount consumed, ''[[savings]]'' results. Conversely, if a man consumes more than his income is it referred to as ''capital consumption''. Capital, here, is the quantity of money representing ownership in the assets of a enterprise (using the term broadly) or the total [[assets]] less the total [[liabilities]].<ref name="ch15sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec2.asp XV. The Market], 2. Capital, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref>

"All civilizations" says [[Mises]], "have up to now been based on private ownership of the means of production." Our system of private ownership of the means of production has poured the horn of plenty on growing population figures. Capitalism has served to allow each man a higher material wealth than even the kings of past ages. Many who argue against capitalism do so because they look upon capitalism as an accidental phenomenon. They do not understand [[private property]] and the concept of free-associations causal relationship with the material wealth of the era. It is the critics of [[capitalism]], [[Mises]] contends, which lack historical understanding, not the economists. To capitalism's enemies, it is the policy advocated by big business, regardless of the fact that big business often advocates for "[[protectionism]], [[cartels]], and the abolition of [[competition]]." And today, it is considered a "legitimate task of government to prevent an efficient man from competing with the less efficient." Advocates of protection, and state imposed limitations on the free-market want to make us believe that the consequences of [[government intervention]] are produced by capitalism.<ref name="ch15sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec3.asp XV. The Market], 3. Capitalism, ''[[Human Action]]'', online version, referenced 2011-04-10.</ref>

In a market economy the [[The Sovereignty of the Consumers|consumers are sovereign]]. Only sellers of the [[first order]] goods are in contact with the consumers, but the consumers buying and abstention from buying is transmitted from the [[consumer goods]] to the [[higher order]] goods (the [[producers goods]]). Consumers, in their capricious buying, determine the income of every member of society and direct production into the hands of individuals best able to serve the consumers.<ref name="ch15sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec4.asp XV. The Market], 4. The Sovereignty of the Consumers, ''[[Human Action]]'', online version, referenced 2011-04-30.</ref>

The consumers designate everyones place in society. The classical economists favored the abolition of the all trade barriers because they protected the less efficient from the more efficient. Trade barriers curtail production and lower the standard of living of all those effected. It is the actions of consumers which determine the prices on the market, and it is these prices which push investors into new lines of business. The bigness of one business will not stop others from trying to compete with it. [[Mises]] writes:

<blockquote>"What a newcomer who wants to defy the vested interests of the old established firms needs most is brains and ideas. If his project is fit to fill the most urgent of the unsatisfied needs of the consumers or to purvey them at a cheaper price than their old purveyors, he will succeed in spite of the much talked of bigness and power of the old firms."<ref name="ch15sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec5.asp XV. The Market], 5. Competition, ''[[Human Action]]'', online version, referenced 2011-05-17.</ref></blockquote>

Competition in the [[catallactic]] sense (i.e., competition in the market place) has a different function than that of games and beauty contests. Its function is to select the individuals most able to control the resources of society to the greatest benefit of the consumers. Humans are not born equal and the consumers do not care: "Their only interest is to secure the best possible satisfaction of their needs."<ref name="ch15sec5"></ref>

In human society, the terms "[[freedom]]" and "[[liberty]]" reference to interhuman relations. For instance [[Mises]] writes, "man was not created free; what freedom he may possess has been given to him by society...Liberty and freedom are the conditions of man within a contractual society."<ref name="ch15sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec6.asp XV. The Market], 6. Freedom, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref> Man in this condition is free to exchange goods and services, but he is by no means independent. He depends on other members of society. We say that a man is free in a contractual society because he serves others to serve himself. The restrains of freedom a man may experience in this environment is due to natural phenomenon only--the laws of nature to which we all unconditionally submit.<ref name="ch15sec6"></ref>

The market system will invariably bestow unequal rewards. This is primarily due to the different levels of service people provide to each other on the [[market]]. That is, it rewards every effort according to its [[value]] as determined by the subjective valuations of the consumers. With respect to inequality, [[Mises]] says:

<blockquote>"No system of social division of labor can do without a method that makes individuals responsible for their contribution to the joint productive effort. If this responsibility is not brought about by the price structure of the market and the inequality of wealth and income it begets, it must be enforced by the methods of direct compulsion as practiced by the police."<ref name="ch15sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec7.asp XV. The Market], 7. Inequality of Wealth and Income, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref></blockquote>

The economic phenomenon of [[profit]] and [[loss]] can be analyzed from an psychic point of view. [[Profit]], in a boarder sense, is the gain derived from [[action]]; it is the increase in satisfaction brought about by the action. In this sense, then, profit is the end of every action. Profit in this psychic sense is not measurable. However in the market economy, [[goods]] and [[services]] are bought and sold with money prices. This allows for the computation of profit and loss using the market prices of the goods and services. [[Profit]], in monetary calculus, is the surplus of [[money]] received over the money expended. It is everyone acting to attain the highest psychic which actuates the market-price mechanism and allows for monetary calculus.

The [[entrepreneur]] encounters the ever changing price structure of the market and makes his profit from correctly anticipating the changes in money prices. In this sense, he is always a speculator.<ref name="ch15sec8">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec8.asp XV. The Market], 8. Entrepreneurial Profit and Loss, ''[[Human Action]]'', online version, referenced 2011-05-19.</ref>

In an expanding or progressing economy the amount of capital invested is increasing per capita. Income is increased either by an increase in technological methods brought about by the increase in capital or simply by an increase in production. Of the increase in wealth (the result of the progressing economy) the majority of it goes to non-entrepreneurial groups. To note again, the market has a tendency to eliminate entrepreneurial profit and it is therefore temporary. In the long run, i.e., when profits have been eliminated by competition, the increase in productivity benefits exclusively the workers and consumers. On progress [[Mises]] writes:

<blockquote>"The vehicle of economic progress is the accumulation of technological methods of production the execution of which is almost always conditioned by the availability of such new capital."<ref name="ch15sec9">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec9.asp XV. The Market], 9. Entrepreneurial Profits and Losses in a Progressing Economy, ''[[Human Action]]'', online version, referenced 2011-05-21.</ref></blockquote>

The greater profits are, the greater is the increment in general prosperity that the enterprise brings. The entrepreneurial function, the driving after profits, is the driving of capital into the most profitable line of business. Which is another way of saying, the driving of capital into which the greatest increase in general prosperity results. Profits and losses are the devices through which consumers exercise their superiority over the owners of capital.<ref name="ch15sec9"></ref>

The entrepreneur hires workers and acts as the mandatary of the consumers. In addressing the many problems and issues that a project encounters the entrepreneur and the technician approach the problem inherently differently. The technician may suggest a method of production which has the greatest physical output. But the entrepreneur must judge differently, namely, economically. Economic calculation saves the entrepreneur from having to look too deeply into problems. Profit and loss are not about prefect production, but about the production which reaps the highest profit--i.e., the production where the most is produced at the lowest cost to society. Managers in an enterprise are essentially an extension of the entrepreneur. They assist in the solving of problems, make use of economic calculation and discover the most economical solution to their problems.<ref name="ch15sec10">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec10.asp XV. The Market], 10. Promoters, Managers, Technicians, and Bureaucrats, ''[[Human Action]]'', online version, referenced 2011-05-30.</ref>

[[Mises]] distinguishes between ''bureaucratic management'' and ''profit management''. In profit management all activities of business are given their worth from the actions of consumers. They dictate the salaries of management and the profits of the entrepreneur and capitalist. Where ever the operation of a system can not be run by profit management, it must be directed by bureaucratic management--i.e., one not concerned with profit and loss.<ref name="ch15sec10"></ref>

<blockquote>"Bureaucratic conduct of affairs, as such, is not an evil. It is only appropriate methods of handling governmental affairs, i.e., the social apparatus of compulsion and coercion. As government is necessary, bureaucratism is--in this field--no less necessary. Where economic calculation is unfeasible, bureaucratic methods are indispensable."<ref name="ch15sec10"></ref></blockquote>

<ol style="list-style-type:upper-roman;" start="15">
<li> Prices</li>
<li> Indirect Exchange</li>
<li> '''Action in the Passing of Time'''</li>
For humans considering [[action]], time matters: there is a ''too late'' and a ''too early''. [[Time preferences]] affect all action (see [[Value]]).<ref name="mises_action_in_passage_of_time_2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec2.asp XVIII. Action in the Passing of Time], 2. Time Preference as an Essential Requisite of Action, ''[[Human Action]]'', online version, referenced 2011-02-04.</ref>

Postponements of consumption, or [[saving]], is always embodied in concrete goods. "The act of saving," [[Mises]] tells us, "always has its counterpart in a supply of goods produced and not consumed...Man's savings are always embodied in concrete capital goods."<ref name="mises_action_in_passage_of_time_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec9.asp XVIII. Action in the Passing of Time], 9. Money and Capital; Saving and Investment, ''[[Human Action]]'', online version, referenced 2011-02-08.</ref>

The discussion of [[time preference]], and the postponment of consumption, is a lead in to [[interest]].

<li> '''Interest'''</li>

<blockquote>''Main Article: [[Interest]]''</blockquote>

Time preference manifests itself in the phenomenon of [[originary interest]], i.e., the discount of future goods as against present goods.<ref name="mises__human_action_chap19sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec1.asp XIX. The Rate of Interest], The Phenomenon of Interest, [[Human Action]], online version, referenced 2011-02-13.</ref> Originary interest is a ratio, like profit and loss, and not a price.<ref name="mises__human_action_chap19sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec2.asp XIX. The Rate of Interest], Originary Interest, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref> It is the ratio between the value assigned to presents goods against the value assigned to future goods. This discounting explains, for example, the reason why there is finite prices on usable land:

<blockquote>"If the future services which a piece of land can render were to be valued in the same way in which its present services are valued, no finite price would be high enough to impel its owner to sell it."<ref name="mises__human_action_chap19sec2"></ref></blockquote>

We [[discount]] future services and [[goods]] because of [[time preference]]. The fact that we can purchase land which is usable into the foreseeable future is proof of this. Furthermore, [[originary interest]] is not determined by supply and demand of [[loanable funds]]. Time preference, manifesting in the discount of future goods against present goods (i.e., originary interest) determines both the demand and supply of capital and capital goods.<ref name="mises__human_action_chap19sec2"></ref>

Interest rates in loans, in a changing economy, always have an element of entrepreneurial profit. The lender, taking a risk and and making a prediciton about the future state of the market, is engaging in an entrepreneurial venture. Therefore, interest rates on loans are never pure [[originary interest]] but also entrepreneurial profit.<ref name="mises__human_action_chap19sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec4.asp XIX. The Rate of Interest], Originary Interest in the Changing Economy, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref>

<li> Interest, Credit Expansion, and the Trade Cycle</li>
<li> Work and Wages</li>
<li> The Nonhuman Original Factors of Production</li>
<li> The Data of the Market</li>
<li> Harmony and Conflict of Interests</li>
</ol>

== Part Five: Social Cooperation Without a Market ==

<ol style="list-style-type:upper-roman;" start="25">
<li> The Imaginary Construction of a Socialist Society</li>
<li> The Impossibility of Economic Calculation Under Socialism</li>
</ol>

== Part Six: The Hampered Market Economy ==

<ol style="list-style-type:upper-roman;" start="27">
<li> The Government and the Market</li>
<li> Interference by Taxation</li>
<li> Restriction of Production</li>
<li> Interference with the Structure of Prices</li>
<li> Currency and Credit Manipulation</li>
<li> Confiscation and Redistribution</li>
<li> Syndicalism and Corporativism</li>
<li> The Economics of War</li>
<li> The Welfare Principle Versus the Market Principle</li>
<li> The Crisis of Interventionism</li>
</ol>

== Part Seven: The Place of Economics in Society ==
<ol style="list-style-type:upper-roman;" start="38">
<li> The Nondescript Character of Economics</li>
<li> The Place of Economics in Learning</li>
<li> Economics and the Essential Problems of Human Existence</li>
</ol>

==References==
{{Reflist|2}}

==Links==
''{{Store|http://www.mises.org/store/Human-Action-The-Scholars-Edition-P119.aspx|Human Action (Scholar's Edition)}}''

* [http://mises.org/resources.aspx?Id=3250&html=1#Publication_History ''Human Action'' publication history]
* Mises Made Easier: [http://mises.org/Easier/Easier.asp Glossary for Human Action]
* [http://mises.org/humanaction/theindex.asp Human Action interactive index]

===Editions===
* ''Human Action: A Treatise on Economics'', 1998 Scholar's Edition:
** {{mr|3250|Resources page}}
** {{mr|3810|Study Guide}}
*** [http://mises.org/daily/3262 "Study Guide to Human Action"] by [[Robert Murphy]], December 2008
*** [http://blog.mises.org/6708/weekend-study-guide/ "Weekend Study Guide"] (individual chapter downloads)
*** [http://blog.mises.org/15181/the-human-action-study-guide-as-our-armor/ "The Human Action Study Guide is our armor"] by Jim Fedako, December 2010
** [http://mises.org/media/category/139 Audiobook] read by [[Jeff Riggenbach]]
** Mises Daily excerpts
*** [http://mises.org/daily/3328 Introduction]
*** [http://mises.org/daily/2506 Chapter 1] "Acting Man"
*** [http://mises.org/daily/2565 Chapter 2] "The Sciences of Human Action" ([http://mises.org/daily/2606 study guide])
*** [http://mises.org/daily/2535 Chapter 3] "Economics and the Revolt Against Reason" ([http://mises.org/daily/2574 study guide])
*** [http://mises.org/daily/2711 Chapter 4] "A First Analysis of the Category of Action" ([http://mises.org/daily/2712 study guide])
*** [http://mises.org/daily/2730 Chapter 5] "Time and Praxeology" ([http://mises.org/daily/2731 study guide])
*** [http://mises.org/daily/2608 Chapter 6] "Uncertainty" ([http://mises.org/daily/2615 study guide])
*** [http://mises.org/daily/2774 Chapter 7] "Action Within the World" ([http://mises.org/daily/2778 study guide])
*** [http://mises.org/daily/2813 Chapter 8] "Human Society" ([http://mises.org/daily/2814 study guide])
*** [http://mises.org/daily/2841 Chapter 9] "The Role of Ideas" ([http://mises.org/daily/2843 study guide])
*** [http://mises.org/daily/2849 Chapter 10] "Exchange Within Society" ([http://mises.org/daily/2850 study guide])
*** [http://mises.org/daily/2880 Chapter 11] "Valuation Without Calculation" ([http://mises.org/daily/2881 study guide])
*** [http://mises.org/daily/2933 Chapter 12] "The Sphere of Economic Calculation" ([http://mises.org/daily/2939 study guide])
*** [http://mises.org/daily/2979 Chapter 14] "The Scope and Method of Catallactics" ([http://mises.org/daily/2980 study guide])
*** Chapter 15 ([http://mises.org/daily/3029 Part I], [http://mises.org/daily/3030 Part II]) "The Market" ([http://mises.org/daily/3005 study guide])
*** Chapter 16 ([http://mises.org/daily/3067 Part I], [http://mises.org/daily/3099 Part II], [http://mises.org/daily/3552 Part III]) "Prices" ([http://mises.org/daily/3068 study guide])

* ''Human Action: A Treatise on Economics'', 1996 4th Revised Edition:
** Foreword to the 4th edition by Bettina B. Greaves (p. v) ([http://mises.org/humanaction/forward.asp HTML], [http://mises.org/humanaction/pdf/ha_002.pdf PDF])
** Full text ([http://mises.org/books/humanaction.pdf PDF])

* ''Human Action: A Treatise on Economics'', 1966 3rd Revised Edition:
** Foreword to the 3rd edition by Ludwig von Mises ([http://mises.org/humanaction/foreword3.asp HTML], [http://mises.org/humanaction/pdf/ha_003.pdf PDF])
** Additions to Human Action in the 3rd edition ([http://mises.org/humanaction/ha3rd-addition.pdf PDF])

* ''Human Action: A Treatise on Economics'', Abridged Edition:
** Text ([http://blog.mises.org/9147/human-action-abridged/ HTML])

===Other resources===
*Articles, essays & reviews
** [http://mises.org/daily/2975 "Epistemological Relativism in the Sciences of Human Action"] Ludwig von Mises, 1960
** "The Place of Mises's Human Action in the Development of Modern Economic Thought" ([http://mises.org/journals/qjae/pdf/Qjae213.pdf PDF]) {{Nowrap|by [[Joseph T. Salerno]], Spring 1999}}
** [http://mises.org/resources/804 "Reflections on Human Action after 50 Years"] by [[Vernon L. Smith]], Fall 1999
** [http://mises.org/resources/805 "The Methodology of Human Action"] by [[Lawrence H. White]], Fall 1999
** [http://mises.org/daily/3363 "Human Action at Sixty"] by Richard M. Ebeling, March 2009
** [http://mises.org/daily/5237/Misess-Gift-of-Human-Action "Mises's Gift of Human Action"] by Jonathan M. Finegold Catalan, May 2011
** [http://mises.org/efandi/ch10.asp "The Why of Human Action"] by Ludwig von Mises, September 1949
** Mises Review: [http://mises.org/misesreview_detail.aspx?control=127 "Human Action, The Scholar's Edition"] by [[David Gordon]], Winter 1999 (republished as Mises Daily [http://mises.org/daily/3655 here])
** [http://blog.mises.org/14807/the-power-of-the-pocket-edition/ "The Power of the Pocket Edition"] by [[Jeffrey Tucker]], November 2010

* Other media
** In Studio: "Human Action: Pocket Edition" interview with [[Douglas French]], ([http://www.youtube.com/watch?v=Mou5ID13HqI YouTube])
** [http://www.apriorist.de/modx/hauyf/ ''Acting Man'' online lesson]
** [http://mises.org/quotes.aspx?action=source&Source=Human%20Action ''Human Action'' quotes]

* {{wplink}}

{{See also|Human Action Comics}}
{{Mises books}}

[[Category:Writings of Ludwig von Mises]]
[[Category:Writings on economics]]

Human Action

2011-05-31T22:20:30Z

Huckelberry: /* XIV. The Scope and Method of Catallactics */

{{Infobox book
| name = Human Action: A Treatise on Economics
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| author = [[Ludwig von Mises]]
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| country = [[United States]]
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| subject = [[Economics]], [[Political economy]]
| genre = [[Non-fiction]]
| publisher = [[Yale University Press]]
| pub_date = [[1949]]
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| media_type = Print
| pages = 889 pp.
| isbn =
| oclc = 2595286
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'''''Human Action: A Treatise on Economics''''' is the [[magnum opus]] of [[Ludwig von Mises]], first published in 1949. It defined a large part of present [[Austrian Economics]].

<blockquote>"It is true that economics is a theoretical science and as such abstains from any judgment of value...Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends."<ref name="humanaction_intro_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/introsec3.asp Introduction], 3. Introduction, [[Human Action]], online version, referenced 2011-02-05.</ref></blockquote>

== Part One: Human Action ==

===I. Acting Man===

<blockquote>''Main Article: [[Action]].''</blockquote>

The science of human action is called [[praxeology]]. Human action always involves [[opportunity cost]] and it is always ''purposeful''. <ref name="humanaction_ch1sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap1sec1.asp I. Acting Man], 1. Purposeful Action and Animal Reaction, [[Human Action]], online version, referenced 2011-02-06.</ref>

===II. The Epistemological Problems of the Sciences of Human Action===

[[Ludwig von Mises]] takes the [[logical deductive]] approach to economics, as opposed to the [[empirical]] (or the [[logical positivist]] approach). Economic problems cannot be solved [[empirically]] because renunciation and long-term planning can not be seen. Humans act to attain definite ends--and economic phenomena can be understood as such.

<blockquote>"[[Praxeology]] is a theoretical and systematic, not a historical, science...It aims at knowledge valid for all instances in which the conditions exactly correspond to those implied in its assumptions and inferences. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, ''[[a priori]]''."<ref name="humanaction_ch2sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec1.asp II. Epistemological Problems of Human Action], 1. Praxeology and History, [[Human Action]], online version, referenced 2011-02-06.</ref></blockquote>

Like geometry, [[praxeology]] is not subject to disproof. This method may be called ''methodological apriorism''.<ref name="humanaction_ch2sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec2.asp II. Epistemological Problems of Human Action], 2. The Formal and Aprioristic Character of Praxeology, [[Human Action]], online version, referenced 2011-02-06.</ref>

===III. Economics and the Revolt Against Reason===

[[Mises]] dismisses the [[Historical School]], [[Hegel]] and [[Marx]] with it. In discussing the "bourgeois logic" and "bourgeois mentality" of [[Marx]], [[Mises]] is able to attack [[polylogism]] in general. There does not exist multiple logics, only differing interests and their logical conclusions--whether they are spurious or well-founded. [[Mises]] states with regard to the [[Historical School]], "History, in due time, will arrange everything for the best. It does not need the advice of mortal men."<ref name="humanaction_ch3sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap3sec1.asp III. Economics and the Revolt Against Reason], 1. The Revolt Against Reason, [[Human Action]], online version, referenced 2011-02-06.</ref>

<blockquote>''See [[German Idealism]].''</blockquote>

===IV. A First Analysis of the Category of Action===

<blockquote>''Main Article: [[Value]]''</blockquote>

All actions are directed toward goals, aims or ends. The end, speaking generally, is always to remove a ''felt uneasiness''. Means are the ways by which we reach an end. Things in the world, when applied to our ends, become means and are commonly referred to as [[goods]].<ref name="humanaction_ch4sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec1.asp IV. A First Analysis of The Category of Action], 1. Ends and Means, [[Human Action]], online version, referenced 2011-02-06.</ref> Means are [[Scarcity|scarce]].

Actions are reflective of our ''scale of [[value|values]]''. All things equal, we satisfy wants of higher [[value]] to us, and leave unsatisfied wants of lower [[value]] to us. Things in the world have no intrinsic [[value]], our actions give things [[value]].<ref name="humanaction_ch4sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec2.asp IV. A First Analysis of The Category of Action], 2. The Scale of Value, [[Human Action]], online version, referenced 2011-02-06.</ref>

Given that every action is an attempt to establish a more satisfactory state of affairs, viz., to remove a ''felt uneasiness'', all actions are in a sense an [[exchange]]. We [[exchange]] one state for another, hopefully better, state. Lastly, value judgments arrange wants, but do not measure them. They are expressive of sequence and order rather than of measurement and weight.<ref name="humanaction_ch4sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp IV. A First Analysis of The Category of Action], 4. Action as Exchange, [[Human Action]], online version, referenced 2011-02-06.</ref>

===V. Time===

Time is a [[Praxeology|praxeological]] category: all action is in time and is subject to time.<ref name="humanaction_ch5sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp V. Time], 2. Past, Present and Future, [[Human Action]], online version, referenced 2011-02-07.</ref> As humans, our time is [[Scarcity|scarce]] and we must economize it accordingly. Our scales of [[value]] and therefore our actions are always with reference to time. As we will see later, time is important in the determination of [[interest]] and consumption.<ref name="humanaction_ch5sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap5sec3.asp V. Time], 3. The Economization of Time, [[Human Action]], online version, referenced 2011-02-07.</ref>

===VI. Uncertainty===

All action is speculative. We never know exactly what will occur. The natural sciences make it possible to foretell results from specific actions. They do not make the future predictable.<ref name="humanaction_ch6sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec1.asp VI. Uncertainty], 1. Uncertainty and Acting, [[Human Action]], online version, referenced 2011-02-08.</ref> But, [[Mises]] tells us, probability is a primary concern of [[praxeology]].

He distinguished between two types of propability: [[class probability]] and [[case probability]].

<blockquote>"''[[Class probability]] means'': We know or assume to know, with regard to the problem concerned, everything about the behavior of a whole class of events or phenomena; but about the actual singular events or phenomena we know nothing but that they are elements of this class."<ref name="humanaction_ch6sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec3.asp VI. Uncertainty], 3. Class Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, car insurance works on the premise that with a large pool of policies, they can use class probability to decide upon an approriate premium given the ''class probability'' of accidents. But, they know nothing about the probability of the individual policy holder getting into an accident.

<blockquote>"''[[Case probability]]'' means: We know, with regard to a particular event, some of the factors which determine its outcome; but there are other determining factors about which we know nothing."<ref name="humanaction_ch6sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec4.asp VI. Uncertainty], 4. Case Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, foreign policy experts may make predictions about the settlement of foreign disputes. They are well informed but it is impossible for them to predict the outcome perfectly because they can not grasp all the data and all the opinions of individuals shaping decisions. Therefore, they may know some of the factors that will shape the future, but never perfectly.

For [[Mises]], we make decisions with incomplete knowledge. To say it again, all action is speculative in character. To this difficulty in decisions, specifically in social cooperation where selection occurs, competition serves as a function to select the most able person for specific positions. It assigns every member of society to the position where they best serve society.<ref name="humanaction_ch6sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec6.asp VI. Uncertainty], 6. Betting, Gambling, and Playing Games, [[Human Action]], online version, referenced 2011-02-08.</ref>

===VII. Action Within the World===

Each person possesses one scale of valuations, which is visible through action.<ref name="humanaction_ch7sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec1.asp VII. Action Within The World], 1. The Law of Marginal Utility, [[Human Action]], online version, referenced 2011-02-13.</ref> Goods and modes of action are chosen based on their utility, or their causal relevance for the removal of felt ''uneasiness''.<ref name="humanaction_ch7sec1"></ref> Here [[Mises]] discusses the [[paradox of value]]: why is ''gold'' more valuable than ''iron''? Despite the many uses of iron, gold is valued more on the market because of its value in exchange. Iron may have more technological prospects or ''objective use-value'' but it lacks ''subjective use-value'', that is, gold is valuable in exchange due to scarcity, appearance and its tradition as a form of money. [[Mises]], however, dismisses the question as one which never occurs in reality.<ref name="humanaction_ch7sec1"></ref>

The [[Law of Marginal Utility]] is implied by the category of action: If a supply increases from quantity ''n'' to ''n + 1'' the extra unit provides less [[utility]] than unit ''n''. This is because ''n'' is satisfying a more urgent want than unit ''n + 1''. We satisfy more urgent wants first by their definition. Unit ''n'' is satisfying the more urgent want, ''n + 1'' is satisfying a less urgent want. Therefore, increasing units of a homogeneous supply are each applied to decreasingly important wants (seeing as the more urgent wants are always satisfied first). The [[law of marginal utility]], "does not deal primarily with the [[value]] of things, but with the [[value]] of the services a man expects to get from them."<ref name="humanaction_ch7sec1"></ref>

"[[Labor]]," says [[Mises]], "is preferred to leisure only insofar as the yield of [[labor]] is more urgently desired than the enjoyment of leisure."<ref name="humanaction_ch7sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec3.asp VII. Action Within The World], 3. Labor as Means, [[Human Action]], online version, referenced 2011-02-13.</ref> Work involves disutility. To this note, [[labor]] is more scarce than other material factors of production:

<blockquote>"In our world there is no abundance, but a shortage of manpower, and there are unused material factors of production, i.e. land, mineral deposits, and even plants and equipment."<ref name="humanaction_ch7sec3"></ref></blockquote>

Labor saving devices reduce want, they do not bring about "technological unemployment." Man economizes both labor and material factors.<ref name="humanaction_ch7sec3"></ref>

Action is successful it it produces the intended result: it produces the product. The human mind directs [[action]] with a purpose and production is creative. It is not something physical, natural, and external; it is a spiritual and intellectual phenomenon. All material actions within the world are a product of the mind. "In this sense," [[Mises]] tells us, "[[praxeology]] can be called a moral science."<ref name="humanaction_ch7sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec4.asp VII. Action Within The World], 4. Production, [[Human Action]], online version, referenced 2011-02-13.</ref>

== Part Two: Actions Within the Framework of Society ==

===VIII. Human Society===

We are born into society and only in this sense does society exist before the individual. [[Society]] is the supreme example of the benefits of the [[division of labor]].<ref name="ch8sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec1.asp VIII. Human Society], 1. Human Cooperation, [[Human Action]], online version, referenced 2011-02-17.</ref> It is an institution for the preservation of peaceful human relations. It is the social apparatus of compulsion and coercion.<ref name="ch8sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec2.asp VIII. Human Society], 2. A Critique of the Holistic and Metaphysical View of Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

[[Democratic government]] provides a method for the peaceful adjustment of government to the will of the majority. Wisdom and science thrive in a peaceful and affluent society. <ref name="ch8sec2"></ref>

<blockquote>"[[Liberalism]] aims at a political constitution which safeguards the smooth working of social cooperation and the progressive intensification of mutual social relations. Its main objective is the avoidance of violent conflicts, of wars and revolutions that must disintegrate the social collaboration of men and throw people back into the primitive conditions of barbarism where all tribes and political bodies endlessly fought one another. Because the division of labor requires undisturbed peace, liberalism aims at the establishment of a system of government that is likely to preserve peace, viz., democracy."<ref name="ch8sec2"></ref></blockquote>

[[Mises]] expounds the Ricardian Law of Association or [[comparative advantage]] as the fundamental characteristic of society.<ref name="ch8sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association, [[Human Action]], online version, referenced 2011-02-17.</ref> The division of labor assigns to each man the best job for him in society.<ref name="humanaction_ch6sec6"></ref> However, the end result of division of labor in society--a diversity which attests to the innate inequalities between individuals--does not illistrate ideas of [[Social Darwinism]]. Biology and evolutionary views cannot pass value judgments on the benefits of civilization.<ref name="ch8sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec7.asp VIII. Human Society], 7. The Great Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

===IX. The Role of Ideas===

All [[action]] is preceded by thinking. Thinking is to deliberate before [[action]] and to reflect upon past [[action]]. Thinking is a tool of action and language is a tool of thinking. All action is based on a definite idea about causal relations. Thinking and ideas are, like material wealth, passed down the generations.<ref name="ch9sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec1.asp IX. Human Society], 1. Human Reason, [[Human Action]], online version, referenced 2011-02-18.</ref> Action is always directed by ideas.<ref name="ch9sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec3.asp IX. Human Society], 3. Might, [[Human Action]], online version, referenced 2011-02-18.</ref>

[[Ideologies|Ideology]] and world views are explanations of social phenomena and technologies for prescriptive politics. All political doctrines imply that: "the political system we support will render you more prosperous and more content."<ref name="ch9sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec2.asp IX. Human Society], 2. World View and Ideology, [[Human Action]], online version, referenced 2011-02-18.</ref> [[Ideologies]], to [[Mises]], are the most powerful form of control. The might of a politician is due to his [[ideology]], his interpretation of the world and his prescriptive measures to ensure his followers are more prosperous and more content. Thinking, the ideological interpretation, succeeds through the cooperation of other minds. No thinker is isolated in his thoughts, they have been influenced by others. A politician's power dwindles if his [[ideology]] loses support. To [[Mises]]:

<blockquote>"The power of an ideology consists precisely in the fact that people submit to it without any wavering and scruples."<ref name="ch9sec3"></ref></blockquote>

Traditionalism and the idea of progress are ideologies also. Progress toward a more prosperous life and evolutionary progress must not be confused with evolution toward higher forms of life. Progress may not continue, majorities may error.<ref name="ch9sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec4.asp IX. Human Society], 4. Meliorism and the Idea of Progress, [[Human Action]], online version, referenced 2011-02-18.</ref> Ideologies may protect the material interest of the race or they may destroy it.

===X. Exchange Within Society===

[[Action]] always is essentially the exchange of one state of affairs for another state of affairs.<ref name="ch10sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec1.asp X. Exchange Within Society], 1. Autistic Exchange and Interpersonal Exchange, [[Human Action]], online version, referenced 2011-02-25.</ref> The interpersonal exchange of goods weaves the bonds which unites men into societies.<ref name="ch10sec1"></ref> [[Mises]] defines two different kinds of social cooperation: cooperation by virtue of contract and coordination, and contract by virtue of command and subordination or hegemony.<ref name="ch10sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec2.asp X. Exchange Within Society], 2. Contractual Bonds and Hegemonic Bonds, [[Human Action]], online version, referenced 2011-02-25.</ref> In the former state there are men who cooperate to achieve goals--their plans are symmetrical and share a common goal. In the latter state their is always two classes of men, those who command and those who obey. Again [[Mises]] emphasizes the important of ideology to animate the social body. The individuals must share an [[ideology]] if they are to cooperate. Hegemonic control needs an ideology that the controlling system is the best or the traditional norm. [[Ideologies]] imply obedience to the [[ideology]]. Contractual relation order society by free association held together by the order of right and law.<ref name="ch10sec2"></ref>

The [[Praxeology|praxeological]] categories, [[Mises]] tells us, are eternal and unchangable. They are the categories within which all action takes place. No [[action]] is free from the facts of existence--of which the praxeological categories belong.<ref name="ch10sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec3.asp X. Exchange Within Society], 3. Calculative Action, [[Human Action]], online version, referenced 2011-02-25.</ref> Man can never comprehend anything that is neither [[action]] or none action.

Modern civilization is characterized by the fact that it has elaborated a method which makes use of the arithmetic possible in a broad field of activities. [[Economic calculation]], for example in modern capital [[accounting]], is a fundamental issue in all comprehension of economic phenomena.<ref name="ch10sec3"></ref>

Despite the extended use of capital [[accounting]] and arithmetic, [[action]] can only make use of ordinal numbers. That is, actions order desires but do not measure them. But in our rational and contractual society we are able to make use of cardinal numbers in capital accounting. By this feature of capital accounting and contractual relations civilization opened the door to computation and calculation regarding the planning of the future and measuring the effects of past actions. Still, the applicability of cardinal numbers to economic thinking require these circumstances and economic law and theory cannot be deduced from [[economic history]], namely, the history of prices.<ref name="ch10sec3"></ref>

== Part Three: Economic Calculation ==

===XI. Valuation Without Calculation===

We apply the [[value|values]] we attribute to the ends of [[action]], to the means necessary to achieve those ends: "Other things being equal, [acting man] assigns to the total amount of the various means the same value he attaches to the end which they are fit to bring about."<ref name="ch11sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec1.asp XI. Valuation Without Calculation], 1. Gradation of Means, [[Human Action]], online version, referenced 2011-02-26.</ref>

The preferences used in [[action]], the laying aside of some things for other things, allows--as said above--the use of ordinal numbers but not cardinal numbers. Again, [[value|values]] attributable to actions cannot be measured arithmetically. Yet, in the activity of using means to attain certain ends, the acquisition of countable and measurable supplies of things becomes an immediate goal of action.<ref name="ch11sec1"></ref> [[Economic calculation]] can occur, despite that the values we attribute to different means and ends cannot be measured, by the results of actions of interpersonal exchange:

<blockquote>"The modern theory of value and prices show how the choices of individuals, their preferring some things and setting aside of other things, results, in the sphere of interpersonal exchange, in the emergence of market prices."<ref name="ch11sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec2.asp XI. Valuation Without Calculation], 2. The Barter-Fiction of the Elementary Theory of Value and Prices, [[Human Action]], online version, referenced 2011-02-26.</ref></blockquote>

[[Mises]] reminds us that is it a fallacy to think things exchanged are of the same value. Rather, people buy and sell only because they appraise the things given up less than those received.<ref name="ch11sec2"></ref> "Market prices," [[Mises]] says in a later chapter, "are not expressive of equivalence, but of a divergence in the valuation of the exchanging parties."<ref name="ch26sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap26sec3.asp XXVI. Economic Calculation under Socialism], 3. Recent Suggestions for Socialist Economic Calculation, [[Human Action]], online version, referenced 2011-04-25.</ref>

In using technology, we are resorting to knowledge of causal relations. We are not, however, addressing the technologies applicability to human wants and desires.<ref name="ch11sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec3.asp XI. Valuation Without Calculation], 3. The Problem of Economic Calculation, [[Human Action]], online version, referenced 2011-02-26.</ref>

<blockquote>"Technology tells how a given end could be attained by the employment of various means which can be used together in various combinations, or how various available means could be employed for certain purposes. But it is at a loss to tell man which procedures he should choose out of the infinite variety of imaginable and possible modes of production."<ref name="ch11sec3"></ref></blockquote>

Engineering can tell us how to build a bridge but not whether its construction would draw resources from other areas where they would be used to satisfy more urgently felt needs. [[Action]], as opposed to the casual relations of engineering, must discover the relations between dissimilar projects. [[Money]], holding the status of "universally used medium of exchange," becomes the measure of the worthiness of differing possiblities in the realm of action. Because [[goods]] and services have money prices we can use these in planning and decisions.<ref name="ch11sec3"></ref>

With all action directed toward the future, all economic planning and calculation must be made in regards to the future state of prices. In entrepreneurial ventures the acting man wants the prices of goods produced and sold to be greater than the price of the goods used in production. The practical meaning of [[economic calculation]] is to show how much one is free to consume without impairing the future capacity to produce. The concepts of [[economic calculation]]--[[Profit]] and [[loss]], [[capital]] and [[income]], spending and [[saving]], cost and yield--are developed to ensure efficient use of the resources of society.<ref name="ch11sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec4.asp XI. Valuation Without Calculation], 4. Economic Calculation and The Market, [[Human Action]], online version, referenced 2011-02-26.</ref>

===XII. The Sphere of Economic Calculation===

The acting individual is always concerned with the future. In action he is either, (1) anticipating the future and acting accordingly, or (2) trying to change the outcomes of the future even if there are no other changes to the data. Economic calculation cannot predict the outcomes of the future, it can only assist man in adjusting his actions to his opinion of the future. The numerical exactitude of balance sheets and income statements must not prevent us from realizing their inherent uncertainty and estimation.<ref name="ch12sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec1.asp XII. The Sphere of Economic Calculation], 1. The Character of Monetary Entries, [[Human Action]], online version, referenced 2011-02-27.</ref>

[[Money]] is not a measuring stick. Money prices do not transmit the intrinsic value of a good. [[Prices]] are not measured in money, they consist in money. They are either prices of the past or prices of the future. Furthermore, although it is possible to aggregate prices paid in goods, it makes no sense to talk about a national income or any other aggregate of spending which "characterizes" a society.<ref name="ch12sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec2.asp XII. The Sphere of Economic Calculation], 2. The Limits of Economic Calculation [[Human Action]], online version, referenced 2011-02-27.</ref>

Economic calculation makes sense only in a society with private ownership of the means of production. Economic calculation is not to blame of the masses preferring detective stories to books of philosophy--that is an outcome of the desires and preferences of individuals acting in society. Economic calculation cannot be blamed for the less than ideal characters and habits of other members of society.<ref name="ch12sec2"></ref>

Prices, or exchange ratios, are in constant fluctuation with the changing data of the market and the changing whims of consumers.<ref name="ch12sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec3.asp XII. The Sphere of Economic Calculation], 3. The Changeability of Prices[[Human Action]], online version, referenced 2011-02-27.</ref>

[[Mises]] dismisses the idea of measurement in [[purchasing power]] as unfeasible:

<blockquote>"A measurement of purchasing power would have to rely upon the prices of the goods and services of the first order and, what is more, of ''all'' of them."<ref name="ch12sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec4.asp XII. The Sphere of Economic Calculation], 4. Stabilization [[Human Action]], online version, referenced 2011-02-27.</ref></blockquote>

Further, changes in the [[purchasing power]] of [[money]] must necessarily effect different goods and services at different times and therefore efforts to stabilize the purchasing power of money by attempting to change the money relation is an impossible feat.<ref name="ch12sec4"></ref>

===XIII. Monetary Calculation as a Tool of Action===

Monetary calculation is the decisive factor of action in the social system of [[division of labor]]. Every action of the [[entrepreneur]] is analyzed by monetary calculation. Only in the institutional settings of [[private property]] and [[division of labor]] where goods and services are exchanged by a money can the system of monetary calculation be used. The use of aggregates derived from the use of monetary calculation is useless. That is, monetary calculation is useful for individual acting but cannot be useful to determining "social" values or welfare. By the use of monetary calculation, for example in capital [[accounting]], arithmetic has become a tool in the struggle for a better life. Capital [[accounting]] allows us to analyze the success or failure of men in satisfying the needs of [[consumers]].<ref name="ch13sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap13sec1.asp XIII. Monetary Calculation as a Tool of Action], 1. Monetary Calculation as Method of Thinking [[Human Action]], online version, referenced 2011-03-14.</ref>

<blockquote>"Our civilization is inseparably linked with our methods of economic calculation. It would parish if we were to abandon this most precious intellectual tool of acting. Goethe was right in calling bookkeeping by double entry "one of the finest inventions of the human mind.'"<ref name="ch13sec1"></ref></blockquote>

== Part Four: Catallactics or Economics of the Market Society ==

=== XIV. The Scope and Method of Catallactics ===

<blockquote>"The subject matter of catallactics is all market phenomena with all their roots, ramifications, and consequences."<ref name="ch14sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec1.asp XIV. The Scope and Method of Catallactics], 1. The Delimitation of Catallactic Problems''[[Human Action]]'', online version, referenced 2011-5-30.</ref></blockquote>

The study of actions which are conducted on the basis of monetary calculation, or catallactics, does not care whether actions have good or bad motives. People purchase goods for material reasons and ideal reasons. They make purchases based on metaphysical beliefs and aesthetic value judgments. For economics it is inconsequential the reasons and motives for specific actions--it only cares if the beliefs are acted upon because they help determine the structure of market prices.<ref name="ch14sec1"></ref>

The method of economics, [[Mises]] tells us, is the method of imaginary constructions. This is also the method of praxeology. Imaginary constructions are products of deduction "ultimately derived from the fundamental category of action, the act of preferring and setting aside."<ref name="ch14sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec2.asp XIV. The Scope and Method of Catallactics], 2. The Method of Imaginary Constructions ''[[Human Action]]'', online version, referenced 2011-5-31.</ref> In reference to the imaginary construction [[Mises]] writes:

<blockquote>"The method of imaginary constructions in indispensable for praxeology; it is the only method of praxeological and economic inquiry. It is, to be sure, a method very difficult to handle because it can easily result in fallacious syllogisms. It leads along a sharp edge; on both sides yawns the chasm of absurdity and nonsense. Only merciless self-criticism can present a man from falling headlong into these abysmal depths."<ref name="ch14sec2"></ref></blockquote>

'''The Autistic Economy''': In order to study the effects of interpersonal exchanges, we study an imaginary construction in which they are absent. When it comes to a completely self-sufficient economy we have two imaginary systems we can hypothesize: the isolated individual and the socialist society. It does not matter whether these can calculate or whether they have historically existed, only that they can be thought of in theory.<ref name="ch14sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec4.asp XIV. The Scope and Method of Catallactics], 4. The Autistic Economy ''[[Human Action]]'', online version, referenced 2011-5-31.</ref>

'''The Evenly Rotating Economy''': In creating imaginary constructions we must conceive that all actions ultimately aim at bring about a state in which there is no longer any action, "whether because all uneasiness has been removed or because any further removal of felt uneasiness is out of the question." That is, we create an imaginary construction in which no one wants or needs to act and use this to determine the importance of various aspects of our society.<ref name="ch14sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec5.asp XIV. The Scope and Method of Catallactics], 5. The State of Rest and the Evenly Rotating Economy ''[[Human Action]]'', online version, referenced 2011-5-31.</ref>

:''See [[Evenly Rotating Economy]]''

=== XV. The Market ===

<blockquote>"The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of actions of various individuals cooperating under the division of labor."<ref name="ch15sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec1.asp XV. The Market], 1. Characteristics of the Market Economy, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref></blockquote>

In the market place everyone is an end in himself and an end for other people. Each individual acts on his own behalf, but everyones actions of the market also serve another. In acting everyone is serving everyone else's ends while serving their own. They each aim at the satisfaction of other peoples needs as much as at his own.<ref name="ch15sec1"></ref>

The state of the market is characterized by the totality of [[prices]] within the market which are determined by individuals eager to buy and sell. Additionally, there is no such thing as a "mixed" economy: "it is directed either by the market of by the decrees of a [[production]] tsar or a committee of production tsars."<ref name="ch15sec1"></ref> Publicly owned entities which operating in a market economy must obey the rules of profit and loss as others do. The characteristic feature of the [[market economy]] is its ability to [[calculate]]. Monetary calculation along with the determination of market prices allows the market to calculate. The rational ordering of the [[division of labor]] and of production are resultants of this.<ref name="ch15sec1"></ref>

<blockquote>"The market economy is real because it can calculate."<ref name="ch15sec1"></ref></blockquote>

The central principles in the market economy's calculation are [[income]] and [[capital]]. Income is the amount of resources which can be consumed without lowering the capital of the individual or business. If income is greater than the amount consumed, ''[[savings]]'' results. Conversely, if a man consumes more than his income is it referred to as ''capital consumption''. Capital, here, is the quantity of money representing ownership in the assets of a enterprise (using the term broadly) or the total [[assets]] less the total [[liabilities]].<ref name="ch15sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec2.asp XV. The Market], 2. Capital, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref>

"All civilizations" says [[Mises]], "have up to now been based on private ownership of the means of production." Our system of private ownership of the means of production has poured the horn of plenty on growing population figures. Capitalism has served to allow each man a higher material wealth than even the kings of past ages. Many who argue against capitalism do so because they look upon capitalism as an accidental phenomenon. They do not understand [[private property]] and the concept of free-associations causal relationship with the material wealth of the era. It is the critics of [[capitalism]], [[Mises]] contends, which lack historical understanding, not the economists. To capitalism's enemies, it is the policy advocated by big business, regardless of the fact that big business often advocates for "[[protectionism]], [[cartels]], and the abolition of [[competition]]." And today, it is considered a "legitimate task of government to prevent an efficient man from competing with the less efficient." Advocates of protection, and state imposed limitations on the free-market want to make us believe that the consequences of [[government intervention]] are produced by capitalism.<ref name="ch15sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec3.asp XV. The Market], 3. Capitalism, ''[[Human Action]]'', online version, referenced 2011-04-10.</ref>

In a market economy the [[The Sovereignty of the Consumers|consumers are sovereign]]. Only sellers of the [[first order]] goods are in contact with the consumers, but the consumers buying and abstention from buying is transmitted from the [[consumer goods]] to the [[higher order]] goods (the [[producers goods]]). Consumers, in their capricious buying, determine the income of every member of society and direct production into the hands of individuals best able to serve the consumers.<ref name="ch15sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec4.asp XV. The Market], 4. The Sovereignty of the Consumers, ''[[Human Action]]'', online version, referenced 2011-04-30.</ref>

The consumers designate everyones place in society. The classical economists favored the abolition of the all trade barriers because they protected the less efficient from the more efficient. Trade barriers curtail production and lower the standard of living of all those effected. It is the actions of consumers which determine the prices on the market, and it is these prices which push investors into new lines of business. The bigness of one business will not stop others from trying to compete with it. [[Mises]] writes:

<blockquote>"What a newcomer who wants to defy the vested interests of the old established firms needs most is brains and ideas. If his project is fit to fill the most urgent of the unsatisfied needs of the consumers or to purvey them at a cheaper price than their old purveyors, he will succeed in spite of the much talked of bigness and power of the old firms."<ref name="ch15sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec5.asp XV. The Market], 5. Competition, ''[[Human Action]]'', online version, referenced 2011-05-17.</ref></blockquote>

Competition in the [[catallactic]] sense (i.e., competition in the market place) has a different function than that of games and beauty contests. Its function is to select the individuals most able to control the resources of society to the greatest benefit of the consumers. Humans are not born equal and the consumers do not care: "Their only interest is to secure the best possible satisfaction of their needs."<ref name="ch15sec5"></ref>

In human society, the terms "[[freedom]]" and "[[liberty]]" reference to interhuman relations. For instance [[Mises]] writes, "man was not created free; what freedom he may possess has been given to him by society...Liberty and freedom are the conditions of man within a contractual society."<ref name="ch15sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec6.asp XV. The Market], 6. Freedom, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref> Man in this condition is free to exchange goods and services, but he is by no means independent. He depends on other members of society. We say that a man is free in a contractual society because he serves others to serve himself. The restrains of freedom a man may experience in this environment is due to natural phenomenon only--the laws of nature to which we all unconditionally submit.<ref name="ch15sec6"></ref>

The market system will invariably bestow unequal rewards. This is primarily due to the different levels of service people provide to each other on the [[market]]. That is, it rewards every effort according to its [[value]] as determined by the subjective valuations of the consumers. With respect to inequality, [[Mises]] says:

<blockquote>"No system of social division of labor can do without a method that makes individuals responsible for their contribution to the joint productive effort. If this responsibility is not brought about by the price structure of the market and the inequality of wealth and income it begets, it must be enforced by the methods of direct compulsion as practiced by the police."<ref name="ch15sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec7.asp XV. The Market], 7. Inequality of Wealth and Income, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref></blockquote>

The economic phenomenon of [[profit]] and [[loss]] can be analyzed from an psychic point of view. [[Profit]], in a boarder sense, is the gain derived from [[action]]; it is the increase in satisfaction brought about by the action. In this sense, then, profit is the end of every action. Profit in this psychic sense is not measurable. However in the market economy, [[goods]] and [[services]] are bought and sold with money prices. This allows for the computation of profit and loss using the market prices of the goods and services. [[Profit]], in monetary calculus, is the surplus of [[money]] received over the money expended. It is everyone acting to attain the highest psychic which actuates the market-price mechanism and allows for monetary calculus.

The [[entrepreneur]] encounters the ever changing price structure of the market and makes his profit from correctly anticipating the changes in money prices. In this sense, he is always a speculator.<ref name="ch15sec8">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec8.asp XV. The Market], 8. Entrepreneurial Profit and Loss, ''[[Human Action]]'', online version, referenced 2011-05-19.</ref>

In an expanding or progressing economy the amount of capital invested is increasing per capita. Income is increased either by an increase in technological methods brought about by the increase in capital or simply by an increase in production. Of the increase in wealth (the result of the progressing economy) the majority of it goes to non-entrepreneurial groups. To note again, the market has a tendency to eliminate entrepreneurial profit and it is therefore temporary. In the long run, i.e., when profits have been eliminated by competition, the increase in productivity benefits exclusively the workers and consumers. On progress [[Mises]] writes:

<blockquote>"The vehicle of economic progress is the accumulation of technological methods of production the execution of which is almost always conditioned by the availability of such new capital."<ref name="ch15sec9">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec9.asp XV. The Market], 9. Entrepreneurial Profits and Losses in a Progressing Economy, ''[[Human Action]]'', online version, referenced 2011-05-21.</ref></blockquote>

The greater profits are, the greater is the increment in general prosperity that the enterprise brings. The entrepreneurial function, the driving after profits, is the driving of capital into the most profitable line of business. Which is another way of saying, the driving of capital into which the greatest increase in general prosperity results. Profits and losses are the devices through which consumers exercise their superiority over the owners of capital.<ref name="ch15sec9"></ref>

The entrepreneur hires workers and acts as the mandatary of the consumers. In addressing the many problems and issues that a project encounters the entrepreneur and the technician approach the problem inherently differently. The technician may suggest a method of production which has the greatest physical output. But the entrepreneur must judge differently, namely, economically. Economic calculation saves the entrepreneur from having to look too deeply into problems. Profit and loss are not about prefect production, but about the production which reaps the highest profit--i.e., the production where the most is produced at the lowest cost to society. Managers in an enterprise are essentially an extension of the entrepreneur. They assist in the solving of problems, make use of economic calculation and discover the most economical solution to their problems.<ref name="ch15sec10">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec10.asp XV. The Market], 10. Promoters, Managers, Technicians, and Bureaucrats, ''[[Human Action]]'', online version, referenced 2011-05-30.</ref>

[[Mises]] distinguishes between ''bureaucratic management'' and ''profit management''. In profit management all activities of business are given their worth from the actions of consumers. They dictate the salaries of management and the profits of the entrepreneur and capitalist. Where ever the operation of a system can not be run by profit management, it must be directed by bureaucratic management--i.e., one not concerned with profit and loss.<ref name="ch15sec10"></ref>

<blockquote>"Bureaucratic conduct of affairs, as such, is not an evil. It is only appropriate methods of handling governmental affairs, i.e., the social apparatus of compulsion and coercion. As government is necessary, bureaucratism is--in this field--no less necessary. Where economic calculation is unfeasible, bureaucratic methods are indispensable."<ref name="ch15sec10"></ref></blockquote>

<ol style="list-style-type:upper-roman;" start="15">
<li> Prices</li>
<li> Indirect Exchange</li>
<li> '''Action in the Passing of Time'''</li>
For humans considering [[action]], time matters: there is a ''too late'' and a ''too early''. [[Time preferences]] affect all action (see [[Value]]).<ref name="mises_action_in_passage_of_time_2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec2.asp XVIII. Action in the Passing of Time], 2. Time Preference as an Essential Requisite of Action, ''[[Human Action]]'', online version, referenced 2011-02-04.</ref>

Postponements of consumption, or [[saving]], is always embodied in concrete goods. "The act of saving," [[Mises]] tells us, "always has its counterpart in a supply of goods produced and not consumed...Man's savings are always embodied in concrete capital goods."<ref name="mises_action_in_passage_of_time_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec9.asp XVIII. Action in the Passing of Time], 9. Money and Capital; Saving and Investment, ''[[Human Action]]'', online version, referenced 2011-02-08.</ref>

The discussion of [[time preference]], and the postponment of consumption, is a lead in to [[interest]].

<li> '''Interest'''</li>

<blockquote>''Main Article: [[Interest]]''</blockquote>

Time preference manifests itself in the phenomenon of [[originary interest]], i.e., the discount of future goods as against present goods.<ref name="mises__human_action_chap19sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec1.asp XIX. The Rate of Interest], The Phenomenon of Interest, [[Human Action]], online version, referenced 2011-02-13.</ref> Originary interest is a ratio, like profit and loss, and not a price.<ref name="mises__human_action_chap19sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec2.asp XIX. The Rate of Interest], Originary Interest, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref> It is the ratio between the value assigned to presents goods against the value assigned to future goods. This discounting explains, for example, the reason why there is finite prices on usable land:

<blockquote>"If the future services which a piece of land can render were to be valued in the same way in which its present services are valued, no finite price would be high enough to impel its owner to sell it."<ref name="mises__human_action_chap19sec2"></ref></blockquote>

We [[discount]] future services and [[goods]] because of [[time preference]]. The fact that we can purchase land which is usable into the foreseeable future is proof of this. Furthermore, [[originary interest]] is not determined by supply and demand of [[loanable funds]]. Time preference, manifesting in the discount of future goods against present goods (i.e., originary interest) determines both the demand and supply of capital and capital goods.<ref name="mises__human_action_chap19sec2"></ref>

Interest rates in loans, in a changing economy, always have an element of entrepreneurial profit. The lender, taking a risk and and making a prediciton about the future state of the market, is engaging in an entrepreneurial venture. Therefore, interest rates on loans are never pure [[originary interest]] but also entrepreneurial profit.<ref name="mises__human_action_chap19sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec4.asp XIX. The Rate of Interest], Originary Interest in the Changing Economy, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref>

<li> Interest, Credit Expansion, and the Trade Cycle</li>
<li> Work and Wages</li>
<li> The Nonhuman Original Factors of Production</li>
<li> The Data of the Market</li>
<li> Harmony and Conflict of Interests</li>
</ol>

== Part Five: Social Cooperation Without a Market ==

<ol style="list-style-type:upper-roman;" start="25">
<li> The Imaginary Construction of a Socialist Society</li>
<li> The Impossibility of Economic Calculation Under Socialism</li>
</ol>

== Part Six: The Hampered Market Economy ==

<ol style="list-style-type:upper-roman;" start="27">
<li> The Government and the Market</li>
<li> Interference by Taxation</li>
<li> Restriction of Production</li>
<li> Interference with the Structure of Prices</li>
<li> Currency and Credit Manipulation</li>
<li> Confiscation and Redistribution</li>
<li> Syndicalism and Corporativism</li>
<li> The Economics of War</li>
<li> The Welfare Principle Versus the Market Principle</li>
<li> The Crisis of Interventionism</li>
</ol>

== Part Seven: The Place of Economics in Society ==
<ol style="list-style-type:upper-roman;" start="38">
<li> The Nondescript Character of Economics</li>
<li> The Place of Economics in Learning</li>
<li> Economics and the Essential Problems of Human Existence</li>
</ol>

==References==
{{Reflist|2}}

==Links==
''{{Store|http://www.mises.org/store/Human-Action-The-Scholars-Edition-P119.aspx|Human Action (Scholar's Edition)}}''

* [http://mises.org/resources.aspx?Id=3250&html=1#Publication_History ''Human Action'' publication history]
* Mises Made Easier: [http://mises.org/Easier/Easier.asp Glossary for Human Action]
* [http://mises.org/humanaction/theindex.asp Human Action interactive index]

===Editions===
* ''Human Action: A Treatise on Economics'', 1998 Scholar's Edition:
** {{mr|3250|Resources page}}
** {{mr|3810|Study Guide}}
*** [http://mises.org/daily/3262 "Study Guide to Human Action"] by [[Robert Murphy]], December 2008
*** [http://blog.mises.org/6708/weekend-study-guide/ "Weekend Study Guide"] (individual chapter downloads)
*** [http://blog.mises.org/15181/the-human-action-study-guide-as-our-armor/ "The Human Action Study Guide is our armor"] by Jim Fedako, December 2010
** [http://mises.org/media/category/139 Audiobook] read by [[Jeff Riggenbach]]
** Mises Daily excerpts
*** [http://mises.org/daily/3328 Introduction]
*** [http://mises.org/daily/2506 Chapter 1] "Acting Man"
*** [http://mises.org/daily/2565 Chapter 2] "The Sciences of Human Action" ([http://mises.org/daily/2606 study guide])
*** [http://mises.org/daily/2535 Chapter 3] "Economics and the Revolt Against Reason" ([http://mises.org/daily/2574 study guide])
*** [http://mises.org/daily/2711 Chapter 4] "A First Analysis of the Category of Action" ([http://mises.org/daily/2712 study guide])
*** [http://mises.org/daily/2730 Chapter 5] "Time and Praxeology" ([http://mises.org/daily/2731 study guide])
*** [http://mises.org/daily/2608 Chapter 6] "Uncertainty" ([http://mises.org/daily/2615 study guide])
*** [http://mises.org/daily/2774 Chapter 7] "Action Within the World" ([http://mises.org/daily/2778 study guide])
*** [http://mises.org/daily/2813 Chapter 8] "Human Society" ([http://mises.org/daily/2814 study guide])
*** [http://mises.org/daily/2841 Chapter 9] "The Role of Ideas" ([http://mises.org/daily/2843 study guide])
*** [http://mises.org/daily/2849 Chapter 10] "Exchange Within Society" ([http://mises.org/daily/2850 study guide])
*** [http://mises.org/daily/2880 Chapter 11] "Valuation Without Calculation" ([http://mises.org/daily/2881 study guide])
*** [http://mises.org/daily/2933 Chapter 12] "The Sphere of Economic Calculation" ([http://mises.org/daily/2939 study guide])
*** [http://mises.org/daily/2979 Chapter 14] "The Scope and Method of Catallactics" ([http://mises.org/daily/2980 study guide])
*** Chapter 15 ([http://mises.org/daily/3029 Part I], [http://mises.org/daily/3030 Part II]) "The Market" ([http://mises.org/daily/3005 study guide])
*** Chapter 16 ([http://mises.org/daily/3067 Part I], [http://mises.org/daily/3099 Part II], [http://mises.org/daily/3552 Part III]) "Prices" ([http://mises.org/daily/3068 study guide])

* ''Human Action: A Treatise on Economics'', 1996 4th Revised Edition:
** Foreword to the 4th edition by Bettina B. Greaves (p. v) ([http://mises.org/humanaction/forward.asp HTML], [http://mises.org/humanaction/pdf/ha_002.pdf PDF])
** Full text ([http://mises.org/books/humanaction.pdf PDF])

* ''Human Action: A Treatise on Economics'', 1966 3rd Revised Edition:
** Foreword to the 3rd edition by Ludwig von Mises ([http://mises.org/humanaction/foreword3.asp HTML], [http://mises.org/humanaction/pdf/ha_003.pdf PDF])
** Additions to Human Action in the 3rd edition ([http://mises.org/humanaction/ha3rd-addition.pdf PDF])

* ''Human Action: A Treatise on Economics'', Abridged Edition:
** Text ([http://blog.mises.org/9147/human-action-abridged/ HTML])

===Other resources===
*Articles, essays & reviews
** [http://mises.org/daily/2975 "Epistemological Relativism in the Sciences of Human Action"] Ludwig von Mises, 1960
** "The Place of Mises's Human Action in the Development of Modern Economic Thought" ([http://mises.org/journals/qjae/pdf/Qjae213.pdf PDF]) {{Nowrap|by [[Joseph T. Salerno]], Spring 1999}}
** [http://mises.org/resources/804 "Reflections on Human Action after 50 Years"] by [[Vernon L. Smith]], Fall 1999
** [http://mises.org/resources/805 "The Methodology of Human Action"] by [[Lawrence H. White]], Fall 1999
** [http://mises.org/daily/3363 "Human Action at Sixty"] by Richard M. Ebeling, March 2009
** [http://mises.org/daily/5237/Misess-Gift-of-Human-Action "Mises's Gift of Human Action"] by Jonathan M. Finegold Catalan, May 2011
** [http://mises.org/efandi/ch10.asp "The Why of Human Action"] by Ludwig von Mises, September 1949
** Mises Review: [http://mises.org/misesreview_detail.aspx?control=127 "Human Action, The Scholar's Edition"] by [[David Gordon]], Winter 1999 (republished as Mises Daily [http://mises.org/daily/3655 here])
** [http://blog.mises.org/14807/the-power-of-the-pocket-edition/ "The Power of the Pocket Edition"] by [[Jeffrey Tucker]], November 2010

* Other media
** In Studio: "Human Action: Pocket Edition" interview with [[Douglas French]], ([http://www.youtube.com/watch?v=Mou5ID13HqI YouTube])
** [http://www.apriorist.de/modx/hauyf/ ''Acting Man'' online lesson]
** [http://mises.org/quotes.aspx?action=source&Source=Human%20Action ''Human Action'' quotes]

* {{wplink}}

{{See also|Human Action Comics}}
{{Mises books}}

[[Category:Writings of Ludwig von Mises]]
[[Category:Writings on economics]]

Human Action

2011-05-30T21:53:42Z

Huckelberry: /* Part Four: Catallactics or Economics of the Market Society */

{{Infobox book
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| author = [[Ludwig von Mises]]
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| country = [[United States]]
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| subject = [[Economics]], [[Political economy]]
| genre = [[Non-fiction]]
| publisher = [[Yale University Press]]
| pub_date = [[1949]]
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| media_type = Print
| pages = 889 pp.
| isbn =
| oclc = 2595286
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'''''Human Action: A Treatise on Economics''''' is the [[magnum opus]] of [[Ludwig von Mises]], first published in 1949. It defined a large part of present [[Austrian Economics]].

<blockquote>"It is true that economics is a theoretical science and as such abstains from any judgment of value...Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends."<ref name="humanaction_intro_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/introsec3.asp Introduction], 3. Introduction, [[Human Action]], online version, referenced 2011-02-05.</ref></blockquote>

== Part One: Human Action ==

===I. Acting Man===

<blockquote>''Main Article: [[Action]].''</blockquote>

The science of human action is called [[praxeology]]. Human action always involves [[opportunity cost]] and it is always ''purposeful''. <ref name="humanaction_ch1sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap1sec1.asp I. Acting Man], 1. Purposeful Action and Animal Reaction, [[Human Action]], online version, referenced 2011-02-06.</ref>

===II. The Epistemological Problems of the Sciences of Human Action===

[[Ludwig von Mises]] takes the [[logical deductive]] approach to economics, as opposed to the [[empirical]] (or the [[logical positivist]] approach). Economic problems cannot be solved [[empirically]] because renunciation and long-term planning can not be seen. Humans act to attain definite ends--and economic phenomena can be understood as such.

<blockquote>"[[Praxeology]] is a theoretical and systematic, not a historical, science...It aims at knowledge valid for all instances in which the conditions exactly correspond to those implied in its assumptions and inferences. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, ''[[a priori]]''."<ref name="humanaction_ch2sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec1.asp II. Epistemological Problems of Human Action], 1. Praxeology and History, [[Human Action]], online version, referenced 2011-02-06.</ref></blockquote>

Like geometry, [[praxeology]] is not subject to disproof. This method may be called ''methodological apriorism''.<ref name="humanaction_ch2sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec2.asp II. Epistemological Problems of Human Action], 2. The Formal and Aprioristic Character of Praxeology, [[Human Action]], online version, referenced 2011-02-06.</ref>

===III. Economics and the Revolt Against Reason===

[[Mises]] dismisses the [[Historical School]], [[Hegel]] and [[Marx]] with it. In discussing the "bourgeois logic" and "bourgeois mentality" of [[Marx]], [[Mises]] is able to attack [[polylogism]] in general. There does not exist multiple logics, only differing interests and their logical conclusions--whether they are spurious or well-founded. [[Mises]] states with regard to the [[Historical School]], "History, in due time, will arrange everything for the best. It does not need the advice of mortal men."<ref name="humanaction_ch3sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap3sec1.asp III. Economics and the Revolt Against Reason], 1. The Revolt Against Reason, [[Human Action]], online version, referenced 2011-02-06.</ref>

<blockquote>''See [[German Idealism]].''</blockquote>

===IV. A First Analysis of the Category of Action===

<blockquote>''Main Article: [[Value]]''</blockquote>

All actions are directed toward goals, aims or ends. The end, speaking generally, is always to remove a ''felt uneasiness''. Means are the ways by which we reach an end. Things in the world, when applied to our ends, become means and are commonly referred to as [[goods]].<ref name="humanaction_ch4sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec1.asp IV. A First Analysis of The Category of Action], 1. Ends and Means, [[Human Action]], online version, referenced 2011-02-06.</ref> Means are [[Scarcity|scarce]].

Actions are reflective of our ''scale of [[value|values]]''. All things equal, we satisfy wants of higher [[value]] to us, and leave unsatisfied wants of lower [[value]] to us. Things in the world have no intrinsic [[value]], our actions give things [[value]].<ref name="humanaction_ch4sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec2.asp IV. A First Analysis of The Category of Action], 2. The Scale of Value, [[Human Action]], online version, referenced 2011-02-06.</ref>

Given that every action is an attempt to establish a more satisfactory state of affairs, viz., to remove a ''felt uneasiness'', all actions are in a sense an [[exchange]]. We [[exchange]] one state for another, hopefully better, state. Lastly, value judgments arrange wants, but do not measure them. They are expressive of sequence and order rather than of measurement and weight.<ref name="humanaction_ch4sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp IV. A First Analysis of The Category of Action], 4. Action as Exchange, [[Human Action]], online version, referenced 2011-02-06.</ref>

===V. Time===

Time is a [[Praxeology|praxeological]] category: all action is in time and is subject to time.<ref name="humanaction_ch5sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp V. Time], 2. Past, Present and Future, [[Human Action]], online version, referenced 2011-02-07.</ref> As humans, our time is [[Scarcity|scarce]] and we must economize it accordingly. Our scales of [[value]] and therefore our actions are always with reference to time. As we will see later, time is important in the determination of [[interest]] and consumption.<ref name="humanaction_ch5sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap5sec3.asp V. Time], 3. The Economization of Time, [[Human Action]], online version, referenced 2011-02-07.</ref>

===VI. Uncertainty===

All action is speculative. We never know exactly what will occur. The natural sciences make it possible to foretell results from specific actions. They do not make the future predictable.<ref name="humanaction_ch6sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec1.asp VI. Uncertainty], 1. Uncertainty and Acting, [[Human Action]], online version, referenced 2011-02-08.</ref> But, [[Mises]] tells us, probability is a primary concern of [[praxeology]].

He distinguished between two types of propability: [[class probability]] and [[case probability]].

<blockquote>"''[[Class probability]] means'': We know or assume to know, with regard to the problem concerned, everything about the behavior of a whole class of events or phenomena; but about the actual singular events or phenomena we know nothing but that they are elements of this class."<ref name="humanaction_ch6sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec3.asp VI. Uncertainty], 3. Class Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, car insurance works on the premise that with a large pool of policies, they can use class probability to decide upon an approriate premium given the ''class probability'' of accidents. But, they know nothing about the probability of the individual policy holder getting into an accident.

<blockquote>"''[[Case probability]]'' means: We know, with regard to a particular event, some of the factors which determine its outcome; but there are other determining factors about which we know nothing."<ref name="humanaction_ch6sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec4.asp VI. Uncertainty], 4. Case Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, foreign policy experts may make predictions about the settlement of foreign disputes. They are well informed but it is impossible for them to predict the outcome perfectly because they can not grasp all the data and all the opinions of individuals shaping decisions. Therefore, they may know some of the factors that will shape the future, but never perfectly.

For [[Mises]], we make decisions with incomplete knowledge. To say it again, all action is speculative in character. To this difficulty in decisions, specifically in social cooperation where selection occurs, competition serves as a function to select the most able person for specific positions. It assigns every member of society to the position where they best serve society.<ref name="humanaction_ch6sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec6.asp VI. Uncertainty], 6. Betting, Gambling, and Playing Games, [[Human Action]], online version, referenced 2011-02-08.</ref>

===VII. Action Within the World===

Each person possesses one scale of valuations, which is visible through action.<ref name="humanaction_ch7sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec1.asp VII. Action Within The World], 1. The Law of Marginal Utility, [[Human Action]], online version, referenced 2011-02-13.</ref> Goods and modes of action are chosen based on their utility, or their causal relevance for the removal of felt ''uneasiness''.<ref name="humanaction_ch7sec1"></ref> Here [[Mises]] discusses the [[paradox of value]]: why is ''gold'' more valuable than ''iron''? Despite the many uses of iron, gold is valued more on the market because of its value in exchange. Iron may have more technological prospects or ''objective use-value'' but it lacks ''subjective use-value'', that is, gold is valuable in exchange due to scarcity, appearance and its tradition as a form of money. [[Mises]], however, dismisses the question as one which never occurs in reality.<ref name="humanaction_ch7sec1"></ref>

The [[Law of Marginal Utility]] is implied by the category of action: If a supply increases from quantity ''n'' to ''n + 1'' the extra unit provides less [[utility]] than unit ''n''. This is because ''n'' is satisfying a more urgent want than unit ''n + 1''. We satisfy more urgent wants first by their definition. Unit ''n'' is satisfying the more urgent want, ''n + 1'' is satisfying a less urgent want. Therefore, increasing units of a homogeneous supply are each applied to decreasingly important wants (seeing as the more urgent wants are always satisfied first). The [[law of marginal utility]], "does not deal primarily with the [[value]] of things, but with the [[value]] of the services a man expects to get from them."<ref name="humanaction_ch7sec1"></ref>

"[[Labor]]," says [[Mises]], "is preferred to leisure only insofar as the yield of [[labor]] is more urgently desired than the enjoyment of leisure."<ref name="humanaction_ch7sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec3.asp VII. Action Within The World], 3. Labor as Means, [[Human Action]], online version, referenced 2011-02-13.</ref> Work involves disutility. To this note, [[labor]] is more scarce than other material factors of production:

<blockquote>"In our world there is no abundance, but a shortage of manpower, and there are unused material factors of production, i.e. land, mineral deposits, and even plants and equipment."<ref name="humanaction_ch7sec3"></ref></blockquote>

Labor saving devices reduce want, they do not bring about "technological unemployment." Man economizes both labor and material factors.<ref name="humanaction_ch7sec3"></ref>

Action is successful it it produces the intended result: it produces the product. The human mind directs [[action]] with a purpose and production is creative. It is not something physical, natural, and external; it is a spiritual and intellectual phenomenon. All material actions within the world are a product of the mind. "In this sense," [[Mises]] tells us, "[[praxeology]] can be called a moral science."<ref name="humanaction_ch7sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec4.asp VII. Action Within The World], 4. Production, [[Human Action]], online version, referenced 2011-02-13.</ref>

== Part Two: Actions Within the Framework of Society ==

===VIII. Human Society===

We are born into society and only in this sense does society exist before the individual. [[Society]] is the supreme example of the benefits of the [[division of labor]].<ref name="ch8sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec1.asp VIII. Human Society], 1. Human Cooperation, [[Human Action]], online version, referenced 2011-02-17.</ref> It is an institution for the preservation of peaceful human relations. It is the social apparatus of compulsion and coercion.<ref name="ch8sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec2.asp VIII. Human Society], 2. A Critique of the Holistic and Metaphysical View of Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

[[Democratic government]] provides a method for the peaceful adjustment of government to the will of the majority. Wisdom and science thrive in a peaceful and affluent society. <ref name="ch8sec2"></ref>

<blockquote>"[[Liberalism]] aims at a political constitution which safeguards the smooth working of social cooperation and the progressive intensification of mutual social relations. Its main objective is the avoidance of violent conflicts, of wars and revolutions that must disintegrate the social collaboration of men and throw people back into the primitive conditions of barbarism where all tribes and political bodies endlessly fought one another. Because the division of labor requires undisturbed peace, liberalism aims at the establishment of a system of government that is likely to preserve peace, viz., democracy."<ref name="ch8sec2"></ref></blockquote>

[[Mises]] expounds the Ricardian Law of Association or [[comparative advantage]] as the fundamental characteristic of society.<ref name="ch8sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association, [[Human Action]], online version, referenced 2011-02-17.</ref> The division of labor assigns to each man the best job for him in society.<ref name="humanaction_ch6sec6"></ref> However, the end result of division of labor in society--a diversity which attests to the innate inequalities between individuals--does not illistrate ideas of [[Social Darwinism]]. Biology and evolutionary views cannot pass value judgments on the benefits of civilization.<ref name="ch8sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec7.asp VIII. Human Society], 7. The Great Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

===IX. The Role of Ideas===

All [[action]] is preceded by thinking. Thinking is to deliberate before [[action]] and to reflect upon past [[action]]. Thinking is a tool of action and language is a tool of thinking. All action is based on a definite idea about causal relations. Thinking and ideas are, like material wealth, passed down the generations.<ref name="ch9sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec1.asp IX. Human Society], 1. Human Reason, [[Human Action]], online version, referenced 2011-02-18.</ref> Action is always directed by ideas.<ref name="ch9sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec3.asp IX. Human Society], 3. Might, [[Human Action]], online version, referenced 2011-02-18.</ref>

[[Ideologies|Ideology]] and world views are explanations of social phenomena and technologies for prescriptive politics. All political doctrines imply that: "the political system we support will render you more prosperous and more content."<ref name="ch9sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec2.asp IX. Human Society], 2. World View and Ideology, [[Human Action]], online version, referenced 2011-02-18.</ref> [[Ideologies]], to [[Mises]], are the most powerful form of control. The might of a politician is due to his [[ideology]], his interpretation of the world and his prescriptive measures to ensure his followers are more prosperous and more content. Thinking, the ideological interpretation, succeeds through the cooperation of other minds. No thinker is isolated in his thoughts, they have been influenced by others. A politician's power dwindles if his [[ideology]] loses support. To [[Mises]]:

<blockquote>"The power of an ideology consists precisely in the fact that people submit to it without any wavering and scruples."<ref name="ch9sec3"></ref></blockquote>

Traditionalism and the idea of progress are ideologies also. Progress toward a more prosperous life and evolutionary progress must not be confused with evolution toward higher forms of life. Progress may not continue, majorities may error.<ref name="ch9sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec4.asp IX. Human Society], 4. Meliorism and the Idea of Progress, [[Human Action]], online version, referenced 2011-02-18.</ref> Ideologies may protect the material interest of the race or they may destroy it.

===X. Exchange Within Society===

[[Action]] always is essentially the exchange of one state of affairs for another state of affairs.<ref name="ch10sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec1.asp X. Exchange Within Society], 1. Autistic Exchange and Interpersonal Exchange, [[Human Action]], online version, referenced 2011-02-25.</ref> The interpersonal exchange of goods weaves the bonds which unites men into societies.<ref name="ch10sec1"></ref> [[Mises]] defines two different kinds of social cooperation: cooperation by virtue of contract and coordination, and contract by virtue of command and subordination or hegemony.<ref name="ch10sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec2.asp X. Exchange Within Society], 2. Contractual Bonds and Hegemonic Bonds, [[Human Action]], online version, referenced 2011-02-25.</ref> In the former state there are men who cooperate to achieve goals--their plans are symmetrical and share a common goal. In the latter state their is always two classes of men, those who command and those who obey. Again [[Mises]] emphasizes the important of ideology to animate the social body. The individuals must share an [[ideology]] if they are to cooperate. Hegemonic control needs an ideology that the controlling system is the best or the traditional norm. [[Ideologies]] imply obedience to the [[ideology]]. Contractual relation order society by free association held together by the order of right and law.<ref name="ch10sec2"></ref>

The [[Praxeology|praxeological]] categories, [[Mises]] tells us, are eternal and unchangable. They are the categories within which all action takes place. No [[action]] is free from the facts of existence--of which the praxeological categories belong.<ref name="ch10sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec3.asp X. Exchange Within Society], 3. Calculative Action, [[Human Action]], online version, referenced 2011-02-25.</ref> Man can never comprehend anything that is neither [[action]] or none action.

Modern civilization is characterized by the fact that it has elaborated a method which makes use of the arithmetic possible in a broad field of activities. [[Economic calculation]], for example in modern capital [[accounting]], is a fundamental issue in all comprehension of economic phenomena.<ref name="ch10sec3"></ref>

Despite the extended use of capital [[accounting]] and arithmetic, [[action]] can only make use of ordinal numbers. That is, actions order desires but do not measure them. But in our rational and contractual society we are able to make use of cardinal numbers in capital accounting. By this feature of capital accounting and contractual relations civilization opened the door to computation and calculation regarding the planning of the future and measuring the effects of past actions. Still, the applicability of cardinal numbers to economic thinking require these circumstances and economic law and theory cannot be deduced from [[economic history]], namely, the history of prices.<ref name="ch10sec3"></ref>

== Part Three: Economic Calculation ==

===XI. Valuation Without Calculation===

We apply the [[value|values]] we attribute to the ends of [[action]], to the means necessary to achieve those ends: "Other things being equal, [acting man] assigns to the total amount of the various means the same value he attaches to the end which they are fit to bring about."<ref name="ch11sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec1.asp XI. Valuation Without Calculation], 1. Gradation of Means, [[Human Action]], online version, referenced 2011-02-26.</ref>

The preferences used in [[action]], the laying aside of some things for other things, allows--as said above--the use of ordinal numbers but not cardinal numbers. Again, [[value|values]] attributable to actions cannot be measured arithmetically. Yet, in the activity of using means to attain certain ends, the acquisition of countable and measurable supplies of things becomes an immediate goal of action.<ref name="ch11sec1"></ref> [[Economic calculation]] can occur, despite that the values we attribute to different means and ends cannot be measured, by the results of actions of interpersonal exchange:

<blockquote>"The modern theory of value and prices show how the choices of individuals, their preferring some things and setting aside of other things, results, in the sphere of interpersonal exchange, in the emergence of market prices."<ref name="ch11sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec2.asp XI. Valuation Without Calculation], 2. The Barter-Fiction of the Elementary Theory of Value and Prices, [[Human Action]], online version, referenced 2011-02-26.</ref></blockquote>

[[Mises]] reminds us that is it a fallacy to think things exchanged are of the same value. Rather, people buy and sell only because they appraise the things given up less than those received.<ref name="ch11sec2"></ref> "Market prices," [[Mises]] says in a later chapter, "are not expressive of equivalence, but of a divergence in the valuation of the exchanging parties."<ref name="ch26sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap26sec3.asp XXVI. Economic Calculation under Socialism], 3. Recent Suggestions for Socialist Economic Calculation, [[Human Action]], online version, referenced 2011-04-25.</ref>

In using technology, we are resorting to knowledge of causal relations. We are not, however, addressing the technologies applicability to human wants and desires.<ref name="ch11sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec3.asp XI. Valuation Without Calculation], 3. The Problem of Economic Calculation, [[Human Action]], online version, referenced 2011-02-26.</ref>

<blockquote>"Technology tells how a given end could be attained by the employment of various means which can be used together in various combinations, or how various available means could be employed for certain purposes. But it is at a loss to tell man which procedures he should choose out of the infinite variety of imaginable and possible modes of production."<ref name="ch11sec3"></ref></blockquote>

Engineering can tell us how to build a bridge but not whether its construction would draw resources from other areas where they would be used to satisfy more urgently felt needs. [[Action]], as opposed to the casual relations of engineering, must discover the relations between dissimilar projects. [[Money]], holding the status of "universally used medium of exchange," becomes the measure of the worthiness of differing possiblities in the realm of action. Because [[goods]] and services have money prices we can use these in planning and decisions.<ref name="ch11sec3"></ref>

With all action directed toward the future, all economic planning and calculation must be made in regards to the future state of prices. In entrepreneurial ventures the acting man wants the prices of goods produced and sold to be greater than the price of the goods used in production. The practical meaning of [[economic calculation]] is to show how much one is free to consume without impairing the future capacity to produce. The concepts of [[economic calculation]]--[[Profit]] and [[loss]], [[capital]] and [[income]], spending and [[saving]], cost and yield--are developed to ensure efficient use of the resources of society.<ref name="ch11sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec4.asp XI. Valuation Without Calculation], 4. Economic Calculation and The Market, [[Human Action]], online version, referenced 2011-02-26.</ref>

===XII. The Sphere of Economic Calculation===

The acting individual is always concerned with the future. In action he is either, (1) anticipating the future and acting accordingly, or (2) trying to change the outcomes of the future even if there are no other changes to the data. Economic calculation cannot predict the outcomes of the future, it can only assist man in adjusting his actions to his opinion of the future. The numerical exactitude of balance sheets and income statements must not prevent us from realizing their inherent uncertainty and estimation.<ref name="ch12sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec1.asp XII. The Sphere of Economic Calculation], 1. The Character of Monetary Entries, [[Human Action]], online version, referenced 2011-02-27.</ref>

[[Money]] is not a measuring stick. Money prices do not transmit the intrinsic value of a good. [[Prices]] are not measured in money, they consist in money. They are either prices of the past or prices of the future. Furthermore, although it is possible to aggregate prices paid in goods, it makes no sense to talk about a national income or any other aggregate of spending which "characterizes" a society.<ref name="ch12sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec2.asp XII. The Sphere of Economic Calculation], 2. The Limits of Economic Calculation [[Human Action]], online version, referenced 2011-02-27.</ref>

Economic calculation makes sense only in a society with private ownership of the means of production. Economic calculation is not to blame of the masses preferring detective stories to books of philosophy--that is an outcome of the desires and preferences of individuals acting in society. Economic calculation cannot be blamed for the less than ideal characters and habits of other members of society.<ref name="ch12sec2"></ref>

Prices, or exchange ratios, are in constant fluctuation with the changing data of the market and the changing whims of consumers.<ref name="ch12sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec3.asp XII. The Sphere of Economic Calculation], 3. The Changeability of Prices[[Human Action]], online version, referenced 2011-02-27.</ref>

[[Mises]] dismisses the idea of measurement in [[purchasing power]] as unfeasible:

<blockquote>"A measurement of purchasing power would have to rely upon the prices of the goods and services of the first order and, what is more, of ''all'' of them."<ref name="ch12sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec4.asp XII. The Sphere of Economic Calculation], 4. Stabilization [[Human Action]], online version, referenced 2011-02-27.</ref></blockquote>

Further, changes in the [[purchasing power]] of [[money]] must necessarily effect different goods and services at different times and therefore efforts to stabilize the purchasing power of money by attempting to change the money relation is an impossible feat.<ref name="ch12sec4"></ref>

===XIII. Monetary Calculation as a Tool of Action===

Monetary calculation is the decisive factor of action in the social system of [[division of labor]]. Every action of the [[entrepreneur]] is analyzed by monetary calculation. Only in the institutional settings of [[private property]] and [[division of labor]] where goods and services are exchanged by a money can the system of monetary calculation be used. The use of aggregates derived from the use of monetary calculation is useless. That is, monetary calculation is useful for individual acting but cannot be useful to determining "social" values or welfare. By the use of monetary calculation, for example in capital [[accounting]], arithmetic has become a tool in the struggle for a better life. Capital [[accounting]] allows us to analyze the success or failure of men in satisfying the needs of [[consumers]].<ref name="ch13sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap13sec1.asp XIII. Monetary Calculation as a Tool of Action], 1. Monetary Calculation as Method of Thinking [[Human Action]], online version, referenced 2011-03-14.</ref>

<blockquote>"Our civilization is inseparably linked with our methods of economic calculation. It would parish if we were to abandon this most precious intellectual tool of acting. Goethe was right in calling bookkeeping by double entry "one of the finest inventions of the human mind.'"<ref name="ch13sec1"></ref></blockquote>

== Part Four: Catallactics or Economics of the Market Society ==

=== XIV. The Scope and Method of Catallactics ===

<blockquote>"The subject matter of catallactics is all market phenomena with all their roots, ramifications, and consequences."<ref name="ch15sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec1.asp XIV. The Scope and Method of Catallactics], 1. The Delimitation of Catallactic Problems''[[Human Action]]'', online version, referenced 2011-5-30.</ref></blockquote>

=== XV. The Market ===

<blockquote>"The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of actions of various individuals cooperating under the division of labor."<ref name="ch15sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec1.asp XV. The Market], 1. Characteristics of the Market Economy, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref></blockquote>

In the market place everyone is an end in himself and an end for other people. Each individual acts on his own behalf, but everyones actions of the market also serve another. In acting everyone is serving everyone else's ends while serving their own. They each aim at the satisfaction of other peoples needs as much as at his own.<ref name="ch15sec1"></ref>

The state of the market is characterized by the totality of [[prices]] within the market which are determined by individuals eager to buy and sell. Additionally, there is no such thing as a "mixed" economy: "it is directed either by the market of by the decrees of a [[production]] tsar or a committee of production tsars."<ref name="ch15sec1"></ref> Publicly owned entities which operating in a market economy must obey the rules of profit and loss as others do. The characteristic feature of the [[market economy]] is its ability to [[calculate]]. Monetary calculation along with the determination of market prices allows the market to calculate. The rational ordering of the [[division of labor]] and of production are resultants of this.<ref name="ch15sec1"></ref>

<blockquote>"The market economy is real because it can calculate."<ref name="ch15sec1"></ref></blockquote>

The central principles in the market economy's calculation are [[income]] and [[capital]]. Income is the amount of resources which can be consumed without lowering the capital of the individual or business. If income is greater than the amount consumed, ''[[savings]]'' results. Conversely, if a man consumes more than his income is it referred to as ''capital consumption''. Capital, here, is the quantity of money representing ownership in the assets of a enterprise (using the term broadly) or the total [[assets]] less the total [[liabilities]].<ref name="ch15sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec2.asp XV. The Market], 2. Capital, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref>

"All civilizations" says [[Mises]], "have up to now been based on private ownership of the means of production." Our system of private ownership of the means of production has poured the horn of plenty on growing population figures. Capitalism has served to allow each man a higher material wealth than even the kings of past ages. Many who argue against capitalism do so because they look upon capitalism as an accidental phenomenon. They do not understand [[private property]] and the concept of free-associations causal relationship with the material wealth of the era. It is the critics of [[capitalism]], [[Mises]] contends, which lack historical understanding, not the economists. To capitalism's enemies, it is the policy advocated by big business, regardless of the fact that big business often advocates for "[[protectionism]], [[cartels]], and the abolition of [[competition]]." And today, it is considered a "legitimate task of government to prevent an efficient man from competing with the less efficient." Advocates of protection, and state imposed limitations on the free-market want to make us believe that the consequences of [[government intervention]] are produced by capitalism.<ref name="ch15sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec3.asp XV. The Market], 3. Capitalism, ''[[Human Action]]'', online version, referenced 2011-04-10.</ref>

In a market economy the [[The Sovereignty of the Consumers|consumers are sovereign]]. Only sellers of the [[first order]] goods are in contact with the consumers, but the consumers buying and abstention from buying is transmitted from the [[consumer goods]] to the [[higher order]] goods (the [[producers goods]]). Consumers, in their capricious buying, determine the income of every member of society and direct production into the hands of individuals best able to serve the consumers.<ref name="ch15sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec4.asp XV. The Market], 4. The Sovereignty of the Consumers, ''[[Human Action]]'', online version, referenced 2011-04-30.</ref>

The consumers designate everyones place in society. The classical economists favored the abolition of the all trade barriers because they protected the less efficient from the more efficient. Trade barriers curtail production and lower the standard of living of all those effected. It is the actions of consumers which determine the prices on the market, and it is these prices which push investors into new lines of business. The bigness of one business will not stop others from trying to compete with it. [[Mises]] writes:

<blockquote>"What a newcomer who wants to defy the vested interests of the old established firms needs most is brains and ideas. If his project is fit to fill the most urgent of the unsatisfied needs of the consumers or to purvey them at a cheaper price than their old purveyors, he will succeed in spite of the much talked of bigness and power of the old firms."<ref name="ch15sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec5.asp XV. The Market], 5. Competition, ''[[Human Action]]'', online version, referenced 2011-05-17.</ref></blockquote>

Competition in the [[catallactic]] sense (i.e., competition in the market place) has a different function than that of games and beauty contests. Its function is to select the individuals most able to control the resources of society to the greatest benefit of the consumers. Humans are not born equal and the consumers do not care: "Their only interest is to secure the best possible satisfaction of their needs."<ref name="ch15sec5"></ref>

In human society, the terms "[[freedom]]" and "[[liberty]]" reference to interhuman relations. For instance [[Mises]] writes, "man was not created free; what freedom he may possess has been given to him by society...Liberty and freedom are the conditions of man within a contractual society."<ref name="ch15sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec6.asp XV. The Market], 6. Freedom, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref> Man in this condition is free to exchange goods and services, but he is by no means independent. He depends on other members of society. We say that a man is free in a contractual society because he serves others to serve himself. The restrains of freedom a man may experience in this environment is due to natural phenomenon only--the laws of nature to which we all unconditionally submit.<ref name="ch15sec6"></ref>

The market system will invariably bestow unequal rewards. This is primarily due to the different levels of service people provide to each other on the [[market]]. That is, it rewards every effort according to its [[value]] as determined by the subjective valuations of the consumers. With respect to inequality, [[Mises]] says:

<blockquote>"No system of social division of labor can do without a method that makes individuals responsible for their contribution to the joint productive effort. If this responsibility is not brought about by the price structure of the market and the inequality of wealth and income it begets, it must be enforced by the methods of direct compulsion as practiced by the police."<ref name="ch15sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec7.asp XV. The Market], 7. Inequality of Wealth and Income, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref></blockquote>

The economic phenomenon of [[profit]] and [[loss]] can be analyzed from an psychic point of view. [[Profit]], in a boarder sense, is the gain derived from [[action]]; it is the increase in satisfaction brought about by the action. In this sense, then, profit is the end of every action. Profit in this psychic sense is not measurable. However in the market economy, [[goods]] and [[services]] are bought and sold with money prices. This allows for the computation of profit and loss using the market prices of the goods and services. [[Profit]], in monetary calculus, is the surplus of [[money]] received over the money expended. It is everyone acting to attain the highest psychic which actuates the market-price mechanism and allows for monetary calculus.

The [[entrepreneur]] encounters the ever changing price structure of the market and makes his profit from correctly anticipating the changes in money prices. In this sense, he is always a speculator.<ref name="ch15sec8">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec8.asp XV. The Market], 8. Entrepreneurial Profit and Loss, ''[[Human Action]]'', online version, referenced 2011-05-19.</ref>

In an expanding or progressing economy the amount of capital invested is increasing per capita. Income is increased either by an increase in technological methods brought about by the increase in capital or simply by an increase in production. Of the increase in wealth (the result of the progressing economy) the majority of it goes to non-entrepreneurial groups. To note again, the market has a tendency to eliminate entrepreneurial profit and it is therefore temporary. In the long run, i.e., when profits have been eliminated by competition, the increase in productivity benefits exclusively the workers and consumers. On progress [[Mises]] writes:

<blockquote>"The vehicle of economic progress is the accumulation of technological methods of production the execution of which is almost always conditioned by the availability of such new capital."<ref name="ch15sec9">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec9.asp XV. The Market], 9. Entrepreneurial Profits and Losses in a Progressing Economy, ''[[Human Action]]'', online version, referenced 2011-05-21.</ref></blockquote>

The greater profits are, the greater is the increment in general prosperity that the enterprise brings. The entrepreneurial function, the driving after profits, is the driving of capital into the most profitable line of business. Which is another way of saying, the driving of capital into which the greatest increase in general prosperity results. Profits and losses are the devices through which consumers exercise their superiority over the owners of capital.<ref name="ch15sec9"></ref>

The entrepreneur hires workers and acts as the mandatary of the consumers. In addressing the many problems and issues that a project encounters the entrepreneur and the technician approach the problem inherently differently. The technician may suggest a method of production which has the greatest physical output. But the entrepreneur must judge differently, namely, economically. Economic calculation saves the entrepreneur from having to look too deeply into problems. Profit and loss are not about prefect production, but about the production which reaps the highest profit--i.e., the production where the most is produced at the lowest cost to society. Managers in an enterprise are essentially an extension of the entrepreneur. They assist in the solving of problems, make use of economic calculation and discover the most economical solution to their problems.<ref name="ch15sec10">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec10.asp XV. The Market], 10. Promoters, Managers, Technicians, and Bureaucrats, ''[[Human Action]]'', online version, referenced 2011-05-30.</ref>

[[Mises]] distinguishes between ''bureaucratic management'' and ''profit management''. In profit management all activities of business are given their worth from the actions of consumers. They dictate the salaries of management and the profits of the entrepreneur and capitalist. Where ever the operation of a system can not be run by profit management, it must be directed by bureaucratic management--i.e., one not concerned with profit and loss.<ref name="ch15sec10"></ref>

<blockquote>"Bureaucratic conduct of affairs, as such, is not an evil. It is only appropriate methods of handling governmental affairs, i.e., the social apparatus of compulsion and coercion. As government is necessary, bureaucratism is--in this field--no less necessary. Where economic calculation is unfeasible, bureaucratic methods are indispensable."<ref name="ch15sec10"></ref></blockquote>

<ol style="list-style-type:upper-roman;" start="15">
<li> Prices</li>
<li> Indirect Exchange</li>
<li> '''Action in the Passing of Time'''</li>
For humans considering [[action]], time matters: there is a ''too late'' and a ''too early''. [[Time preferences]] affect all action (see [[Value]]).<ref name="mises_action_in_passage_of_time_2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec2.asp XVIII. Action in the Passing of Time], 2. Time Preference as an Essential Requisite of Action, ''[[Human Action]]'', online version, referenced 2011-02-04.</ref>

Postponements of consumption, or [[saving]], is always embodied in concrete goods. "The act of saving," [[Mises]] tells us, "always has its counterpart in a supply of goods produced and not consumed...Man's savings are always embodied in concrete capital goods."<ref name="mises_action_in_passage_of_time_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec9.asp XVIII. Action in the Passing of Time], 9. Money and Capital; Saving and Investment, ''[[Human Action]]'', online version, referenced 2011-02-08.</ref>

The discussion of [[time preference]], and the postponment of consumption, is a lead in to [[interest]].

<li> '''Interest'''</li>

<blockquote>''Main Article: [[Interest]]''</blockquote>

Time preference manifests itself in the phenomenon of [[originary interest]], i.e., the discount of future goods as against present goods.<ref name="mises__human_action_chap19sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec1.asp XIX. The Rate of Interest], The Phenomenon of Interest, [[Human Action]], online version, referenced 2011-02-13.</ref> Originary interest is a ratio, like profit and loss, and not a price.<ref name="mises__human_action_chap19sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec2.asp XIX. The Rate of Interest], Originary Interest, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref> It is the ratio between the value assigned to presents goods against the value assigned to future goods. This discounting explains, for example, the reason why there is finite prices on usable land:

<blockquote>"If the future services which a piece of land can render were to be valued in the same way in which its present services are valued, no finite price would be high enough to impel its owner to sell it."<ref name="mises__human_action_chap19sec2"></ref></blockquote>

We [[discount]] future services and [[goods]] because of [[time preference]]. The fact that we can purchase land which is usable into the foreseeable future is proof of this. Furthermore, [[originary interest]] is not determined by supply and demand of [[loanable funds]]. Time preference, manifesting in the discount of future goods against present goods (i.e., originary interest) determines both the demand and supply of capital and capital goods.<ref name="mises__human_action_chap19sec2"></ref>

Interest rates in loans, in a changing economy, always have an element of entrepreneurial profit. The lender, taking a risk and and making a prediciton about the future state of the market, is engaging in an entrepreneurial venture. Therefore, interest rates on loans are never pure [[originary interest]] but also entrepreneurial profit.<ref name="mises__human_action_chap19sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec4.asp XIX. The Rate of Interest], Originary Interest in the Changing Economy, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref>

<li> Interest, Credit Expansion, and the Trade Cycle</li>
<li> Work and Wages</li>
<li> The Nonhuman Original Factors of Production</li>
<li> The Data of the Market</li>
<li> Harmony and Conflict of Interests</li>
</ol>

== Part Five: Social Cooperation Without a Market ==

<ol style="list-style-type:upper-roman;" start="25">
<li> The Imaginary Construction of a Socialist Society</li>
<li> The Impossibility of Economic Calculation Under Socialism</li>
</ol>

== Part Six: The Hampered Market Economy ==

<ol style="list-style-type:upper-roman;" start="27">
<li> The Government and the Market</li>
<li> Interference by Taxation</li>
<li> Restriction of Production</li>
<li> Interference with the Structure of Prices</li>
<li> Currency and Credit Manipulation</li>
<li> Confiscation and Redistribution</li>
<li> Syndicalism and Corporativism</li>
<li> The Economics of War</li>
<li> The Welfare Principle Versus the Market Principle</li>
<li> The Crisis of Interventionism</li>
</ol>

== Part Seven: The Place of Economics in Society ==
<ol style="list-style-type:upper-roman;" start="38">
<li> The Nondescript Character of Economics</li>
<li> The Place of Economics in Learning</li>
<li> Economics and the Essential Problems of Human Existence</li>
</ol>

==References==
{{Reflist|2}}

==Links==
''{{Store|http://www.mises.org/store/Human-Action-The-Scholars-Edition-P119.aspx|Human Action (Scholar's Edition)}}''

* [http://mises.org/resources.aspx?Id=3250&html=1#Publication_History ''Human Action'' publication history]
* Mises Made Easier: [http://mises.org/Easier/Easier.asp Glossary for Human Action]
* [http://mises.org/humanaction/theindex.asp Human Action interactive index]

===Editions===
* ''Human Action: A Treatise on Economics'', 1998 Scholar's Edition:
** {{mr|3250|Resources page}}
** {{mr|3810|Study Guide}}
*** [http://mises.org/daily/3262 "Study Guide to Human Action"] by [[Robert Murphy]], December 2008
*** [http://blog.mises.org/6708/weekend-study-guide/ "Weekend Study Guide"] (individual chapter downloads)
*** [http://blog.mises.org/15181/the-human-action-study-guide-as-our-armor/ "The Human Action Study Guide is our armor"] by Jim Fedako, December 2010
** [http://mises.org/media/category/139 Audiobook] read by [[Jeff Riggenbach]]
** Mises Daily excerpts
*** [http://mises.org/daily/3328 Introduction]
*** [http://mises.org/daily/2506 Chapter 1] "Acting Man"
*** [http://mises.org/daily/2565 Chapter 2] "The Sciences of Human Action" ([http://mises.org/daily/2606 study guide])
*** [http://mises.org/daily/2535 Chapter 3] "Economics and the Revolt Against Reason" ([http://mises.org/daily/2574 study guide])
*** [http://mises.org/daily/2711 Chapter 4] "A First Analysis of the Category of Action" ([http://mises.org/daily/2712 study guide])
*** [http://mises.org/daily/2730 Chapter 5] "Time and Praxeology" ([http://mises.org/daily/2731 study guide])
*** [http://mises.org/daily/2608 Chapter 6] "Uncertainty" ([http://mises.org/daily/2615 study guide])
*** [http://mises.org/daily/2774 Chapter 7] "Action Within the World" ([http://mises.org/daily/2778 study guide])
*** [http://mises.org/daily/2813 Chapter 8] "Human Society" ([http://mises.org/daily/2814 study guide])
*** [http://mises.org/daily/2841 Chapter 9] "The Role of Ideas" ([http://mises.org/daily/2843 study guide])
*** [http://mises.org/daily/2849 Chapter 10] "Exchange Within Society" ([http://mises.org/daily/2850 study guide])
*** [http://mises.org/daily/2880 Chapter 11] "Valuation Without Calculation" ([http://mises.org/daily/2881 study guide])
*** [http://mises.org/daily/2933 Chapter 12] "The Sphere of Economic Calculation" ([http://mises.org/daily/2939 study guide])
*** [http://mises.org/daily/2979 Chapter 14] "The Scope and Method of Catallactics" ([http://mises.org/daily/2980 study guide])
*** Chapter 15 ([http://mises.org/daily/3029 Part I], [http://mises.org/daily/3030 Part II]) "The Market" ([http://mises.org/daily/3005 study guide])
*** Chapter 16 ([http://mises.org/daily/3067 Part I], [http://mises.org/daily/3099 Part II], [http://mises.org/daily/3552 Part III]) "Prices" ([http://mises.org/daily/3068 study guide])

* ''Human Action: A Treatise on Economics'', 1996 4th Revised Edition:
** Foreword to the 4th edition by Bettina B. Greaves (p. v) ([http://mises.org/humanaction/forward.asp HTML], [http://mises.org/humanaction/pdf/ha_002.pdf PDF])
** Full text ([http://mises.org/books/humanaction.pdf PDF])

* ''Human Action: A Treatise on Economics'', 1966 3rd Revised Edition:
** Foreword to the 3rd edition by Ludwig von Mises ([http://mises.org/humanaction/foreword3.asp HTML], [http://mises.org/humanaction/pdf/ha_003.pdf PDF])
** Additions to Human Action in the 3rd edition ([http://mises.org/humanaction/ha3rd-addition.pdf PDF])

* ''Human Action: A Treatise on Economics'', Abridged Edition:
** Text ([http://blog.mises.org/9147/human-action-abridged/ HTML])

===Other resources===
*Articles, essays & reviews
** [http://mises.org/daily/2975 "Epistemological Relativism in the Sciences of Human Action"] Ludwig von Mises, 1960
** "The Place of Mises's Human Action in the Development of Modern Economic Thought" ([http://mises.org/journals/qjae/pdf/Qjae213.pdf PDF]) {{Nowrap|by [[Joseph T. Salerno]], Spring 1999}}
** [http://mises.org/resources/804 "Reflections on Human Action after 50 Years"] by [[Vernon L. Smith]], Fall 1999
** [http://mises.org/resources/805 "The Methodology of Human Action"] by [[Lawrence H. White]], Fall 1999
** [http://mises.org/daily/3363 "Human Action at Sixty"] by Richard M. Ebeling, March 2009
** [http://mises.org/daily/5237/Misess-Gift-of-Human-Action "Mises's Gift of Human Action"] by Jonathan M. Finegold Catalan, May 2011
** [http://mises.org/efandi/ch10.asp "The Why of Human Action"] by Ludwig von Mises, September 1949
** Mises Review: [http://mises.org/misesreview_detail.aspx?control=127 "Human Action, The Scholar's Edition"] by [[David Gordon]], Winter 1999 (republished as Mises Daily [http://mises.org/daily/3655 here])
** [http://blog.mises.org/14807/the-power-of-the-pocket-edition/ "The Power of the Pocket Edition"] by [[Jeffrey Tucker]], November 2010

* Other media
** In Studio: "Human Action: Pocket Edition" interview with [[Douglas French]], ([http://www.youtube.com/watch?v=Mou5ID13HqI YouTube])
** [http://www.apriorist.de/modx/hauyf/ ''Acting Man'' online lesson]
** [http://mises.org/quotes.aspx?action=source&Source=Human%20Action ''Human Action'' quotes]

* {{wplink}}

{{See also|Human Action Comics}}
{{Mises books}}

[[Category:Writings of Ludwig von Mises]]
[[Category:Writings on economics]]

Human Action

2011-05-30T21:53:15Z

Huckelberry: /* Part Four: Catallactics or Economics of the Market Society */

{{Infobox book
| name = Human Action: A Treatise on Economics
| title_orig =
| translator =
| image = 
| image_caption =
| author = [[Ludwig von Mises]]
| illustrator =
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| country = [[United States]]
| language =
| series =
| subject = [[Economics]], [[Political economy]]
| genre = [[Non-fiction]]
| publisher = [[Yale University Press]]
| pub_date = [[1949]]
| english_pub_date =
| media_type = Print
| pages = 889 pp.
| isbn =
| oclc = 2595286
| dewey =
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}}

'''''Human Action: A Treatise on Economics''''' is the [[magnum opus]] of [[Ludwig von Mises]], first published in 1949. It defined a large part of present [[Austrian Economics]].

<blockquote>"It is true that economics is a theoretical science and as such abstains from any judgment of value...Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends."<ref name="humanaction_intro_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/introsec3.asp Introduction], 3. Introduction, [[Human Action]], online version, referenced 2011-02-05.</ref></blockquote>

== Part One: Human Action ==

===I. Acting Man===

<blockquote>''Main Article: [[Action]].''</blockquote>

The science of human action is called [[praxeology]]. Human action always involves [[opportunity cost]] and it is always ''purposeful''. <ref name="humanaction_ch1sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap1sec1.asp I. Acting Man], 1. Purposeful Action and Animal Reaction, [[Human Action]], online version, referenced 2011-02-06.</ref>

===II. The Epistemological Problems of the Sciences of Human Action===

[[Ludwig von Mises]] takes the [[logical deductive]] approach to economics, as opposed to the [[empirical]] (or the [[logical positivist]] approach). Economic problems cannot be solved [[empirically]] because renunciation and long-term planning can not be seen. Humans act to attain definite ends--and economic phenomena can be understood as such.

<blockquote>"[[Praxeology]] is a theoretical and systematic, not a historical, science...It aims at knowledge valid for all instances in which the conditions exactly correspond to those implied in its assumptions and inferences. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, ''[[a priori]]''."<ref name="humanaction_ch2sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec1.asp II. Epistemological Problems of Human Action], 1. Praxeology and History, [[Human Action]], online version, referenced 2011-02-06.</ref></blockquote>

Like geometry, [[praxeology]] is not subject to disproof. This method may be called ''methodological apriorism''.<ref name="humanaction_ch2sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec2.asp II. Epistemological Problems of Human Action], 2. The Formal and Aprioristic Character of Praxeology, [[Human Action]], online version, referenced 2011-02-06.</ref>

===III. Economics and the Revolt Against Reason===

[[Mises]] dismisses the [[Historical School]], [[Hegel]] and [[Marx]] with it. In discussing the "bourgeois logic" and "bourgeois mentality" of [[Marx]], [[Mises]] is able to attack [[polylogism]] in general. There does not exist multiple logics, only differing interests and their logical conclusions--whether they are spurious or well-founded. [[Mises]] states with regard to the [[Historical School]], "History, in due time, will arrange everything for the best. It does not need the advice of mortal men."<ref name="humanaction_ch3sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap3sec1.asp III. Economics and the Revolt Against Reason], 1. The Revolt Against Reason, [[Human Action]], online version, referenced 2011-02-06.</ref>

<blockquote>''See [[German Idealism]].''</blockquote>

===IV. A First Analysis of the Category of Action===

<blockquote>''Main Article: [[Value]]''</blockquote>

All actions are directed toward goals, aims or ends. The end, speaking generally, is always to remove a ''felt uneasiness''. Means are the ways by which we reach an end. Things in the world, when applied to our ends, become means and are commonly referred to as [[goods]].<ref name="humanaction_ch4sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec1.asp IV. A First Analysis of The Category of Action], 1. Ends and Means, [[Human Action]], online version, referenced 2011-02-06.</ref> Means are [[Scarcity|scarce]].

Actions are reflective of our ''scale of [[value|values]]''. All things equal, we satisfy wants of higher [[value]] to us, and leave unsatisfied wants of lower [[value]] to us. Things in the world have no intrinsic [[value]], our actions give things [[value]].<ref name="humanaction_ch4sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec2.asp IV. A First Analysis of The Category of Action], 2. The Scale of Value, [[Human Action]], online version, referenced 2011-02-06.</ref>

Given that every action is an attempt to establish a more satisfactory state of affairs, viz., to remove a ''felt uneasiness'', all actions are in a sense an [[exchange]]. We [[exchange]] one state for another, hopefully better, state. Lastly, value judgments arrange wants, but do not measure them. They are expressive of sequence and order rather than of measurement and weight.<ref name="humanaction_ch4sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp IV. A First Analysis of The Category of Action], 4. Action as Exchange, [[Human Action]], online version, referenced 2011-02-06.</ref>

===V. Time===

Time is a [[Praxeology|praxeological]] category: all action is in time and is subject to time.<ref name="humanaction_ch5sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp V. Time], 2. Past, Present and Future, [[Human Action]], online version, referenced 2011-02-07.</ref> As humans, our time is [[Scarcity|scarce]] and we must economize it accordingly. Our scales of [[value]] and therefore our actions are always with reference to time. As we will see later, time is important in the determination of [[interest]] and consumption.<ref name="humanaction_ch5sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap5sec3.asp V. Time], 3. The Economization of Time, [[Human Action]], online version, referenced 2011-02-07.</ref>

===VI. Uncertainty===

All action is speculative. We never know exactly what will occur. The natural sciences make it possible to foretell results from specific actions. They do not make the future predictable.<ref name="humanaction_ch6sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec1.asp VI. Uncertainty], 1. Uncertainty and Acting, [[Human Action]], online version, referenced 2011-02-08.</ref> But, [[Mises]] tells us, probability is a primary concern of [[praxeology]].

He distinguished between two types of propability: [[class probability]] and [[case probability]].

<blockquote>"''[[Class probability]] means'': We know or assume to know, with regard to the problem concerned, everything about the behavior of a whole class of events or phenomena; but about the actual singular events or phenomena we know nothing but that they are elements of this class."<ref name="humanaction_ch6sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec3.asp VI. Uncertainty], 3. Class Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, car insurance works on the premise that with a large pool of policies, they can use class probability to decide upon an approriate premium given the ''class probability'' of accidents. But, they know nothing about the probability of the individual policy holder getting into an accident.

<blockquote>"''[[Case probability]]'' means: We know, with regard to a particular event, some of the factors which determine its outcome; but there are other determining factors about which we know nothing."<ref name="humanaction_ch6sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec4.asp VI. Uncertainty], 4. Case Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, foreign policy experts may make predictions about the settlement of foreign disputes. They are well informed but it is impossible for them to predict the outcome perfectly because they can not grasp all the data and all the opinions of individuals shaping decisions. Therefore, they may know some of the factors that will shape the future, but never perfectly.

For [[Mises]], we make decisions with incomplete knowledge. To say it again, all action is speculative in character. To this difficulty in decisions, specifically in social cooperation where selection occurs, competition serves as a function to select the most able person for specific positions. It assigns every member of society to the position where they best serve society.<ref name="humanaction_ch6sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec6.asp VI. Uncertainty], 6. Betting, Gambling, and Playing Games, [[Human Action]], online version, referenced 2011-02-08.</ref>

===VII. Action Within the World===

Each person possesses one scale of valuations, which is visible through action.<ref name="humanaction_ch7sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec1.asp VII. Action Within The World], 1. The Law of Marginal Utility, [[Human Action]], online version, referenced 2011-02-13.</ref> Goods and modes of action are chosen based on their utility, or their causal relevance for the removal of felt ''uneasiness''.<ref name="humanaction_ch7sec1"></ref> Here [[Mises]] discusses the [[paradox of value]]: why is ''gold'' more valuable than ''iron''? Despite the many uses of iron, gold is valued more on the market because of its value in exchange. Iron may have more technological prospects or ''objective use-value'' but it lacks ''subjective use-value'', that is, gold is valuable in exchange due to scarcity, appearance and its tradition as a form of money. [[Mises]], however, dismisses the question as one which never occurs in reality.<ref name="humanaction_ch7sec1"></ref>

The [[Law of Marginal Utility]] is implied by the category of action: If a supply increases from quantity ''n'' to ''n + 1'' the extra unit provides less [[utility]] than unit ''n''. This is because ''n'' is satisfying a more urgent want than unit ''n + 1''. We satisfy more urgent wants first by their definition. Unit ''n'' is satisfying the more urgent want, ''n + 1'' is satisfying a less urgent want. Therefore, increasing units of a homogeneous supply are each applied to decreasingly important wants (seeing as the more urgent wants are always satisfied first). The [[law of marginal utility]], "does not deal primarily with the [[value]] of things, but with the [[value]] of the services a man expects to get from them."<ref name="humanaction_ch7sec1"></ref>

"[[Labor]]," says [[Mises]], "is preferred to leisure only insofar as the yield of [[labor]] is more urgently desired than the enjoyment of leisure."<ref name="humanaction_ch7sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec3.asp VII. Action Within The World], 3. Labor as Means, [[Human Action]], online version, referenced 2011-02-13.</ref> Work involves disutility. To this note, [[labor]] is more scarce than other material factors of production:

<blockquote>"In our world there is no abundance, but a shortage of manpower, and there are unused material factors of production, i.e. land, mineral deposits, and even plants and equipment."<ref name="humanaction_ch7sec3"></ref></blockquote>

Labor saving devices reduce want, they do not bring about "technological unemployment." Man economizes both labor and material factors.<ref name="humanaction_ch7sec3"></ref>

Action is successful it it produces the intended result: it produces the product. The human mind directs [[action]] with a purpose and production is creative. It is not something physical, natural, and external; it is a spiritual and intellectual phenomenon. All material actions within the world are a product of the mind. "In this sense," [[Mises]] tells us, "[[praxeology]] can be called a moral science."<ref name="humanaction_ch7sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec4.asp VII. Action Within The World], 4. Production, [[Human Action]], online version, referenced 2011-02-13.</ref>

== Part Two: Actions Within the Framework of Society ==

===VIII. Human Society===

We are born into society and only in this sense does society exist before the individual. [[Society]] is the supreme example of the benefits of the [[division of labor]].<ref name="ch8sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec1.asp VIII. Human Society], 1. Human Cooperation, [[Human Action]], online version, referenced 2011-02-17.</ref> It is an institution for the preservation of peaceful human relations. It is the social apparatus of compulsion and coercion.<ref name="ch8sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec2.asp VIII. Human Society], 2. A Critique of the Holistic and Metaphysical View of Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

[[Democratic government]] provides a method for the peaceful adjustment of government to the will of the majority. Wisdom and science thrive in a peaceful and affluent society. <ref name="ch8sec2"></ref>

<blockquote>"[[Liberalism]] aims at a political constitution which safeguards the smooth working of social cooperation and the progressive intensification of mutual social relations. Its main objective is the avoidance of violent conflicts, of wars and revolutions that must disintegrate the social collaboration of men and throw people back into the primitive conditions of barbarism where all tribes and political bodies endlessly fought one another. Because the division of labor requires undisturbed peace, liberalism aims at the establishment of a system of government that is likely to preserve peace, viz., democracy."<ref name="ch8sec2"></ref></blockquote>

[[Mises]] expounds the Ricardian Law of Association or [[comparative advantage]] as the fundamental characteristic of society.<ref name="ch8sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association, [[Human Action]], online version, referenced 2011-02-17.</ref> The division of labor assigns to each man the best job for him in society.<ref name="humanaction_ch6sec6"></ref> However, the end result of division of labor in society--a diversity which attests to the innate inequalities between individuals--does not illistrate ideas of [[Social Darwinism]]. Biology and evolutionary views cannot pass value judgments on the benefits of civilization.<ref name="ch8sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec7.asp VIII. Human Society], 7. The Great Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

===IX. The Role of Ideas===

All [[action]] is preceded by thinking. Thinking is to deliberate before [[action]] and to reflect upon past [[action]]. Thinking is a tool of action and language is a tool of thinking. All action is based on a definite idea about causal relations. Thinking and ideas are, like material wealth, passed down the generations.<ref name="ch9sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec1.asp IX. Human Society], 1. Human Reason, [[Human Action]], online version, referenced 2011-02-18.</ref> Action is always directed by ideas.<ref name="ch9sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec3.asp IX. Human Society], 3. Might, [[Human Action]], online version, referenced 2011-02-18.</ref>

[[Ideologies|Ideology]] and world views are explanations of social phenomena and technologies for prescriptive politics. All political doctrines imply that: "the political system we support will render you more prosperous and more content."<ref name="ch9sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec2.asp IX. Human Society], 2. World View and Ideology, [[Human Action]], online version, referenced 2011-02-18.</ref> [[Ideologies]], to [[Mises]], are the most powerful form of control. The might of a politician is due to his [[ideology]], his interpretation of the world and his prescriptive measures to ensure his followers are more prosperous and more content. Thinking, the ideological interpretation, succeeds through the cooperation of other minds. No thinker is isolated in his thoughts, they have been influenced by others. A politician's power dwindles if his [[ideology]] loses support. To [[Mises]]:

<blockquote>"The power of an ideology consists precisely in the fact that people submit to it without any wavering and scruples."<ref name="ch9sec3"></ref></blockquote>

Traditionalism and the idea of progress are ideologies also. Progress toward a more prosperous life and evolutionary progress must not be confused with evolution toward higher forms of life. Progress may not continue, majorities may error.<ref name="ch9sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec4.asp IX. Human Society], 4. Meliorism and the Idea of Progress, [[Human Action]], online version, referenced 2011-02-18.</ref> Ideologies may protect the material interest of the race or they may destroy it.

===X. Exchange Within Society===

[[Action]] always is essentially the exchange of one state of affairs for another state of affairs.<ref name="ch10sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec1.asp X. Exchange Within Society], 1. Autistic Exchange and Interpersonal Exchange, [[Human Action]], online version, referenced 2011-02-25.</ref> The interpersonal exchange of goods weaves the bonds which unites men into societies.<ref name="ch10sec1"></ref> [[Mises]] defines two different kinds of social cooperation: cooperation by virtue of contract and coordination, and contract by virtue of command and subordination or hegemony.<ref name="ch10sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec2.asp X. Exchange Within Society], 2. Contractual Bonds and Hegemonic Bonds, [[Human Action]], online version, referenced 2011-02-25.</ref> In the former state there are men who cooperate to achieve goals--their plans are symmetrical and share a common goal. In the latter state their is always two classes of men, those who command and those who obey. Again [[Mises]] emphasizes the important of ideology to animate the social body. The individuals must share an [[ideology]] if they are to cooperate. Hegemonic control needs an ideology that the controlling system is the best or the traditional norm. [[Ideologies]] imply obedience to the [[ideology]]. Contractual relation order society by free association held together by the order of right and law.<ref name="ch10sec2"></ref>

The [[Praxeology|praxeological]] categories, [[Mises]] tells us, are eternal and unchangable. They are the categories within which all action takes place. No [[action]] is free from the facts of existence--of which the praxeological categories belong.<ref name="ch10sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec3.asp X. Exchange Within Society], 3. Calculative Action, [[Human Action]], online version, referenced 2011-02-25.</ref> Man can never comprehend anything that is neither [[action]] or none action.

Modern civilization is characterized by the fact that it has elaborated a method which makes use of the arithmetic possible in a broad field of activities. [[Economic calculation]], for example in modern capital [[accounting]], is a fundamental issue in all comprehension of economic phenomena.<ref name="ch10sec3"></ref>

Despite the extended use of capital [[accounting]] and arithmetic, [[action]] can only make use of ordinal numbers. That is, actions order desires but do not measure them. But in our rational and contractual society we are able to make use of cardinal numbers in capital accounting. By this feature of capital accounting and contractual relations civilization opened the door to computation and calculation regarding the planning of the future and measuring the effects of past actions. Still, the applicability of cardinal numbers to economic thinking require these circumstances and economic law and theory cannot be deduced from [[economic history]], namely, the history of prices.<ref name="ch10sec3"></ref>

== Part Three: Economic Calculation ==

===XI. Valuation Without Calculation===

We apply the [[value|values]] we attribute to the ends of [[action]], to the means necessary to achieve those ends: "Other things being equal, [acting man] assigns to the total amount of the various means the same value he attaches to the end which they are fit to bring about."<ref name="ch11sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec1.asp XI. Valuation Without Calculation], 1. Gradation of Means, [[Human Action]], online version, referenced 2011-02-26.</ref>

The preferences used in [[action]], the laying aside of some things for other things, allows--as said above--the use of ordinal numbers but not cardinal numbers. Again, [[value|values]] attributable to actions cannot be measured arithmetically. Yet, in the activity of using means to attain certain ends, the acquisition of countable and measurable supplies of things becomes an immediate goal of action.<ref name="ch11sec1"></ref> [[Economic calculation]] can occur, despite that the values we attribute to different means and ends cannot be measured, by the results of actions of interpersonal exchange:

<blockquote>"The modern theory of value and prices show how the choices of individuals, their preferring some things and setting aside of other things, results, in the sphere of interpersonal exchange, in the emergence of market prices."<ref name="ch11sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec2.asp XI. Valuation Without Calculation], 2. The Barter-Fiction of the Elementary Theory of Value and Prices, [[Human Action]], online version, referenced 2011-02-26.</ref></blockquote>

[[Mises]] reminds us that is it a fallacy to think things exchanged are of the same value. Rather, people buy and sell only because they appraise the things given up less than those received.<ref name="ch11sec2"></ref> "Market prices," [[Mises]] says in a later chapter, "are not expressive of equivalence, but of a divergence in the valuation of the exchanging parties."<ref name="ch26sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap26sec3.asp XXVI. Economic Calculation under Socialism], 3. Recent Suggestions for Socialist Economic Calculation, [[Human Action]], online version, referenced 2011-04-25.</ref>

In using technology, we are resorting to knowledge of causal relations. We are not, however, addressing the technologies applicability to human wants and desires.<ref name="ch11sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec3.asp XI. Valuation Without Calculation], 3. The Problem of Economic Calculation, [[Human Action]], online version, referenced 2011-02-26.</ref>

<blockquote>"Technology tells how a given end could be attained by the employment of various means which can be used together in various combinations, or how various available means could be employed for certain purposes. But it is at a loss to tell man which procedures he should choose out of the infinite variety of imaginable and possible modes of production."<ref name="ch11sec3"></ref></blockquote>

Engineering can tell us how to build a bridge but not whether its construction would draw resources from other areas where they would be used to satisfy more urgently felt needs. [[Action]], as opposed to the casual relations of engineering, must discover the relations between dissimilar projects. [[Money]], holding the status of "universally used medium of exchange," becomes the measure of the worthiness of differing possiblities in the realm of action. Because [[goods]] and services have money prices we can use these in planning and decisions.<ref name="ch11sec3"></ref>

With all action directed toward the future, all economic planning and calculation must be made in regards to the future state of prices. In entrepreneurial ventures the acting man wants the prices of goods produced and sold to be greater than the price of the goods used in production. The practical meaning of [[economic calculation]] is to show how much one is free to consume without impairing the future capacity to produce. The concepts of [[economic calculation]]--[[Profit]] and [[loss]], [[capital]] and [[income]], spending and [[saving]], cost and yield--are developed to ensure efficient use of the resources of society.<ref name="ch11sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec4.asp XI. Valuation Without Calculation], 4. Economic Calculation and The Market, [[Human Action]], online version, referenced 2011-02-26.</ref>

===XII. The Sphere of Economic Calculation===

The acting individual is always concerned with the future. In action he is either, (1) anticipating the future and acting accordingly, or (2) trying to change the outcomes of the future even if there are no other changes to the data. Economic calculation cannot predict the outcomes of the future, it can only assist man in adjusting his actions to his opinion of the future. The numerical exactitude of balance sheets and income statements must not prevent us from realizing their inherent uncertainty and estimation.<ref name="ch12sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec1.asp XII. The Sphere of Economic Calculation], 1. The Character of Monetary Entries, [[Human Action]], online version, referenced 2011-02-27.</ref>

[[Money]] is not a measuring stick. Money prices do not transmit the intrinsic value of a good. [[Prices]] are not measured in money, they consist in money. They are either prices of the past or prices of the future. Furthermore, although it is possible to aggregate prices paid in goods, it makes no sense to talk about a national income or any other aggregate of spending which "characterizes" a society.<ref name="ch12sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec2.asp XII. The Sphere of Economic Calculation], 2. The Limits of Economic Calculation [[Human Action]], online version, referenced 2011-02-27.</ref>

Economic calculation makes sense only in a society with private ownership of the means of production. Economic calculation is not to blame of the masses preferring detective stories to books of philosophy--that is an outcome of the desires and preferences of individuals acting in society. Economic calculation cannot be blamed for the less than ideal characters and habits of other members of society.<ref name="ch12sec2"></ref>

Prices, or exchange ratios, are in constant fluctuation with the changing data of the market and the changing whims of consumers.<ref name="ch12sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec3.asp XII. The Sphere of Economic Calculation], 3. The Changeability of Prices[[Human Action]], online version, referenced 2011-02-27.</ref>

[[Mises]] dismisses the idea of measurement in [[purchasing power]] as unfeasible:

<blockquote>"A measurement of purchasing power would have to rely upon the prices of the goods and services of the first order and, what is more, of ''all'' of them."<ref name="ch12sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec4.asp XII. The Sphere of Economic Calculation], 4. Stabilization [[Human Action]], online version, referenced 2011-02-27.</ref></blockquote>

Further, changes in the [[purchasing power]] of [[money]] must necessarily effect different goods and services at different times and therefore efforts to stabilize the purchasing power of money by attempting to change the money relation is an impossible feat.<ref name="ch12sec4"></ref>

===XIII. Monetary Calculation as a Tool of Action===

Monetary calculation is the decisive factor of action in the social system of [[division of labor]]. Every action of the [[entrepreneur]] is analyzed by monetary calculation. Only in the institutional settings of [[private property]] and [[division of labor]] where goods and services are exchanged by a money can the system of monetary calculation be used. The use of aggregates derived from the use of monetary calculation is useless. That is, monetary calculation is useful for individual acting but cannot be useful to determining "social" values or welfare. By the use of monetary calculation, for example in capital [[accounting]], arithmetic has become a tool in the struggle for a better life. Capital [[accounting]] allows us to analyze the success or failure of men in satisfying the needs of [[consumers]].<ref name="ch13sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap13sec1.asp XIII. Monetary Calculation as a Tool of Action], 1. Monetary Calculation as Method of Thinking [[Human Action]], online version, referenced 2011-03-14.</ref>

<blockquote>"Our civilization is inseparably linked with our methods of economic calculation. It would parish if we were to abandon this most precious intellectual tool of acting. Goethe was right in calling bookkeeping by double entry "one of the finest inventions of the human mind.'"<ref name="ch13sec1"></ref></blockquote>

== Part Four: Catallactics or Economics of the Market Society ==

=== XIV. The Scope and Method of Catallactics

<blockquote>"The subject matter of catallactics is all market phenomena with all their roots, ramifications, and consequences."<ref name="ch15sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec1.asp XIV. The Scope and Method of Catallactics], 1. The Delimitation of Catallactic Problems''[[Human Action]]'', online version, referenced 2011-5-30.</ref></blockquote>

=== XV. The Market ===

<blockquote>"The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of actions of various individuals cooperating under the division of labor."<ref name="ch15sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec1.asp XV. The Market], 1. Characteristics of the Market Economy, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref></blockquote>

In the market place everyone is an end in himself and an end for other people. Each individual acts on his own behalf, but everyones actions of the market also serve another. In acting everyone is serving everyone else's ends while serving their own. They each aim at the satisfaction of other peoples needs as much as at his own.<ref name="ch15sec1"></ref>

The state of the market is characterized by the totality of [[prices]] within the market which are determined by individuals eager to buy and sell. Additionally, there is no such thing as a "mixed" economy: "it is directed either by the market of by the decrees of a [[production]] tsar or a committee of production tsars."<ref name="ch15sec1"></ref> Publicly owned entities which operating in a market economy must obey the rules of profit and loss as others do. The characteristic feature of the [[market economy]] is its ability to [[calculate]]. Monetary calculation along with the determination of market prices allows the market to calculate. The rational ordering of the [[division of labor]] and of production are resultants of this.<ref name="ch15sec1"></ref>

<blockquote>"The market economy is real because it can calculate."<ref name="ch15sec1"></ref></blockquote>

The central principles in the market economy's calculation are [[income]] and [[capital]]. Income is the amount of resources which can be consumed without lowering the capital of the individual or business. If income is greater than the amount consumed, ''[[savings]]'' results. Conversely, if a man consumes more than his income is it referred to as ''capital consumption''. Capital, here, is the quantity of money representing ownership in the assets of a enterprise (using the term broadly) or the total [[assets]] less the total [[liabilities]].<ref name="ch15sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec2.asp XV. The Market], 2. Capital, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref>

"All civilizations" says [[Mises]], "have up to now been based on private ownership of the means of production." Our system of private ownership of the means of production has poured the horn of plenty on growing population figures. Capitalism has served to allow each man a higher material wealth than even the kings of past ages. Many who argue against capitalism do so because they look upon capitalism as an accidental phenomenon. They do not understand [[private property]] and the concept of free-associations causal relationship with the material wealth of the era. It is the critics of [[capitalism]], [[Mises]] contends, which lack historical understanding, not the economists. To capitalism's enemies, it is the policy advocated by big business, regardless of the fact that big business often advocates for "[[protectionism]], [[cartels]], and the abolition of [[competition]]." And today, it is considered a "legitimate task of government to prevent an efficient man from competing with the less efficient." Advocates of protection, and state imposed limitations on the free-market want to make us believe that the consequences of [[government intervention]] are produced by capitalism.<ref name="ch15sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec3.asp XV. The Market], 3. Capitalism, ''[[Human Action]]'', online version, referenced 2011-04-10.</ref>

In a market economy the [[The Sovereignty of the Consumers|consumers are sovereign]]. Only sellers of the [[first order]] goods are in contact with the consumers, but the consumers buying and abstention from buying is transmitted from the [[consumer goods]] to the [[higher order]] goods (the [[producers goods]]). Consumers, in their capricious buying, determine the income of every member of society and direct production into the hands of individuals best able to serve the consumers.<ref name="ch15sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec4.asp XV. The Market], 4. The Sovereignty of the Consumers, ''[[Human Action]]'', online version, referenced 2011-04-30.</ref>

The consumers designate everyones place in society. The classical economists favored the abolition of the all trade barriers because they protected the less efficient from the more efficient. Trade barriers curtail production and lower the standard of living of all those effected. It is the actions of consumers which determine the prices on the market, and it is these prices which push investors into new lines of business. The bigness of one business will not stop others from trying to compete with it. [[Mises]] writes:

<blockquote>"What a newcomer who wants to defy the vested interests of the old established firms needs most is brains and ideas. If his project is fit to fill the most urgent of the unsatisfied needs of the consumers or to purvey them at a cheaper price than their old purveyors, he will succeed in spite of the much talked of bigness and power of the old firms."<ref name="ch15sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec5.asp XV. The Market], 5. Competition, ''[[Human Action]]'', online version, referenced 2011-05-17.</ref></blockquote>

Competition in the [[catallactic]] sense (i.e., competition in the market place) has a different function than that of games and beauty contests. Its function is to select the individuals most able to control the resources of society to the greatest benefit of the consumers. Humans are not born equal and the consumers do not care: "Their only interest is to secure the best possible satisfaction of their needs."<ref name="ch15sec5"></ref>

In human society, the terms "[[freedom]]" and "[[liberty]]" reference to interhuman relations. For instance [[Mises]] writes, "man was not created free; what freedom he may possess has been given to him by society...Liberty and freedom are the conditions of man within a contractual society."<ref name="ch15sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec6.asp XV. The Market], 6. Freedom, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref> Man in this condition is free to exchange goods and services, but he is by no means independent. He depends on other members of society. We say that a man is free in a contractual society because he serves others to serve himself. The restrains of freedom a man may experience in this environment is due to natural phenomenon only--the laws of nature to which we all unconditionally submit.<ref name="ch15sec6"></ref>

The market system will invariably bestow unequal rewards. This is primarily due to the different levels of service people provide to each other on the [[market]]. That is, it rewards every effort according to its [[value]] as determined by the subjective valuations of the consumers. With respect to inequality, [[Mises]] says:

<blockquote>"No system of social division of labor can do without a method that makes individuals responsible for their contribution to the joint productive effort. If this responsibility is not brought about by the price structure of the market and the inequality of wealth and income it begets, it must be enforced by the methods of direct compulsion as practiced by the police."<ref name="ch15sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec7.asp XV. The Market], 7. Inequality of Wealth and Income, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref></blockquote>

The economic phenomenon of [[profit]] and [[loss]] can be analyzed from an psychic point of view. [[Profit]], in a boarder sense, is the gain derived from [[action]]; it is the increase in satisfaction brought about by the action. In this sense, then, profit is the end of every action. Profit in this psychic sense is not measurable. However in the market economy, [[goods]] and [[services]] are bought and sold with money prices. This allows for the computation of profit and loss using the market prices of the goods and services. [[Profit]], in monetary calculus, is the surplus of [[money]] received over the money expended. It is everyone acting to attain the highest psychic which actuates the market-price mechanism and allows for monetary calculus.

The [[entrepreneur]] encounters the ever changing price structure of the market and makes his profit from correctly anticipating the changes in money prices. In this sense, he is always a speculator.<ref name="ch15sec8">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec8.asp XV. The Market], 8. Entrepreneurial Profit and Loss, ''[[Human Action]]'', online version, referenced 2011-05-19.</ref>

In an expanding or progressing economy the amount of capital invested is increasing per capita. Income is increased either by an increase in technological methods brought about by the increase in capital or simply by an increase in production. Of the increase in wealth (the result of the progressing economy) the majority of it goes to non-entrepreneurial groups. To note again, the market has a tendency to eliminate entrepreneurial profit and it is therefore temporary. In the long run, i.e., when profits have been eliminated by competition, the increase in productivity benefits exclusively the workers and consumers. On progress [[Mises]] writes:

<blockquote>"The vehicle of economic progress is the accumulation of technological methods of production the execution of which is almost always conditioned by the availability of such new capital."<ref name="ch15sec9">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec9.asp XV. The Market], 9. Entrepreneurial Profits and Losses in a Progressing Economy, ''[[Human Action]]'', online version, referenced 2011-05-21.</ref></blockquote>

The greater profits are, the greater is the increment in general prosperity that the enterprise brings. The entrepreneurial function, the driving after profits, is the driving of capital into the most profitable line of business. Which is another way of saying, the driving of capital into which the greatest increase in general prosperity results. Profits and losses are the devices through which consumers exercise their superiority over the owners of capital.<ref name="ch15sec9"></ref>

The entrepreneur hires workers and acts as the mandatary of the consumers. In addressing the many problems and issues that a project encounters the entrepreneur and the technician approach the problem inherently differently. The technician may suggest a method of production which has the greatest physical output. But the entrepreneur must judge differently, namely, economically. Economic calculation saves the entrepreneur from having to look too deeply into problems. Profit and loss are not about prefect production, but about the production which reaps the highest profit--i.e., the production where the most is produced at the lowest cost to society. Managers in an enterprise are essentially an extension of the entrepreneur. They assist in the solving of problems, make use of economic calculation and discover the most economical solution to their problems.<ref name="ch15sec10">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec10.asp XV. The Market], 10. Promoters, Managers, Technicians, and Bureaucrats, ''[[Human Action]]'', online version, referenced 2011-05-30.</ref>

[[Mises]] distinguishes between ''bureaucratic management'' and ''profit management''. In profit management all activities of business are given their worth from the actions of consumers. They dictate the salaries of management and the profits of the entrepreneur and capitalist. Where ever the operation of a system can not be run by profit management, it must be directed by bureaucratic management--i.e., one not concerned with profit and loss.<ref name="ch15sec10"></ref>

<blockquote>"Bureaucratic conduct of affairs, as such, is not an evil. It is only appropriate methods of handling governmental affairs, i.e., the social apparatus of compulsion and coercion. As government is necessary, bureaucratism is--in this field--no less necessary. Where economic calculation is unfeasible, bureaucratic methods are indispensable."<ref name="ch15sec10"></ref></blockquote>

<ol style="list-style-type:upper-roman;" start="15">
<li> Prices</li>
<li> Indirect Exchange</li>
<li> '''Action in the Passing of Time'''</li>
For humans considering [[action]], time matters: there is a ''too late'' and a ''too early''. [[Time preferences]] affect all action (see [[Value]]).<ref name="mises_action_in_passage_of_time_2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec2.asp XVIII. Action in the Passing of Time], 2. Time Preference as an Essential Requisite of Action, ''[[Human Action]]'', online version, referenced 2011-02-04.</ref>

Postponements of consumption, or [[saving]], is always embodied in concrete goods. "The act of saving," [[Mises]] tells us, "always has its counterpart in a supply of goods produced and not consumed...Man's savings are always embodied in concrete capital goods."<ref name="mises_action_in_passage_of_time_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec9.asp XVIII. Action in the Passing of Time], 9. Money and Capital; Saving and Investment, ''[[Human Action]]'', online version, referenced 2011-02-08.</ref>

The discussion of [[time preference]], and the postponment of consumption, is a lead in to [[interest]].

<li> '''Interest'''</li>

<blockquote>''Main Article: [[Interest]]''</blockquote>

Time preference manifests itself in the phenomenon of [[originary interest]], i.e., the discount of future goods as against present goods.<ref name="mises__human_action_chap19sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec1.asp XIX. The Rate of Interest], The Phenomenon of Interest, [[Human Action]], online version, referenced 2011-02-13.</ref> Originary interest is a ratio, like profit and loss, and not a price.<ref name="mises__human_action_chap19sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec2.asp XIX. The Rate of Interest], Originary Interest, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref> It is the ratio between the value assigned to presents goods against the value assigned to future goods. This discounting explains, for example, the reason why there is finite prices on usable land:

<blockquote>"If the future services which a piece of land can render were to be valued in the same way in which its present services are valued, no finite price would be high enough to impel its owner to sell it."<ref name="mises__human_action_chap19sec2"></ref></blockquote>

We [[discount]] future services and [[goods]] because of [[time preference]]. The fact that we can purchase land which is usable into the foreseeable future is proof of this. Furthermore, [[originary interest]] is not determined by supply and demand of [[loanable funds]]. Time preference, manifesting in the discount of future goods against present goods (i.e., originary interest) determines both the demand and supply of capital and capital goods.<ref name="mises__human_action_chap19sec2"></ref>

Interest rates in loans, in a changing economy, always have an element of entrepreneurial profit. The lender, taking a risk and and making a prediciton about the future state of the market, is engaging in an entrepreneurial venture. Therefore, interest rates on loans are never pure [[originary interest]] but also entrepreneurial profit.<ref name="mises__human_action_chap19sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec4.asp XIX. The Rate of Interest], Originary Interest in the Changing Economy, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref>

<li> Interest, Credit Expansion, and the Trade Cycle</li>
<li> Work and Wages</li>
<li> The Nonhuman Original Factors of Production</li>
<li> The Data of the Market</li>
<li> Harmony and Conflict of Interests</li>
</ol>

== Part Five: Social Cooperation Without a Market ==

<ol style="list-style-type:upper-roman;" start="25">
<li> The Imaginary Construction of a Socialist Society</li>
<li> The Impossibility of Economic Calculation Under Socialism</li>
</ol>

== Part Six: The Hampered Market Economy ==

<ol style="list-style-type:upper-roman;" start="27">
<li> The Government and the Market</li>
<li> Interference by Taxation</li>
<li> Restriction of Production</li>
<li> Interference with the Structure of Prices</li>
<li> Currency and Credit Manipulation</li>
<li> Confiscation and Redistribution</li>
<li> Syndicalism and Corporativism</li>
<li> The Economics of War</li>
<li> The Welfare Principle Versus the Market Principle</li>
<li> The Crisis of Interventionism</li>
</ol>

== Part Seven: The Place of Economics in Society ==
<ol style="list-style-type:upper-roman;" start="38">
<li> The Nondescript Character of Economics</li>
<li> The Place of Economics in Learning</li>
<li> Economics and the Essential Problems of Human Existence</li>
</ol>

==References==
{{Reflist|2}}

==Links==
''{{Store|http://www.mises.org/store/Human-Action-The-Scholars-Edition-P119.aspx|Human Action (Scholar's Edition)}}''

* [http://mises.org/resources.aspx?Id=3250&html=1#Publication_History ''Human Action'' publication history]
* Mises Made Easier: [http://mises.org/Easier/Easier.asp Glossary for Human Action]
* [http://mises.org/humanaction/theindex.asp Human Action interactive index]

===Editions===
* ''Human Action: A Treatise on Economics'', 1998 Scholar's Edition:
** {{mr|3250|Resources page}}
** {{mr|3810|Study Guide}}
*** [http://mises.org/daily/3262 "Study Guide to Human Action"] by [[Robert Murphy]], December 2008
*** [http://blog.mises.org/6708/weekend-study-guide/ "Weekend Study Guide"] (individual chapter downloads)
*** [http://blog.mises.org/15181/the-human-action-study-guide-as-our-armor/ "The Human Action Study Guide is our armor"] by Jim Fedako, December 2010
** [http://mises.org/media/category/139 Audiobook] read by [[Jeff Riggenbach]]
** Mises Daily excerpts
*** [http://mises.org/daily/3328 Introduction]
*** [http://mises.org/daily/2506 Chapter 1] "Acting Man"
*** [http://mises.org/daily/2565 Chapter 2] "The Sciences of Human Action" ([http://mises.org/daily/2606 study guide])
*** [http://mises.org/daily/2535 Chapter 3] "Economics and the Revolt Against Reason" ([http://mises.org/daily/2574 study guide])
*** [http://mises.org/daily/2711 Chapter 4] "A First Analysis of the Category of Action" ([http://mises.org/daily/2712 study guide])
*** [http://mises.org/daily/2730 Chapter 5] "Time and Praxeology" ([http://mises.org/daily/2731 study guide])
*** [http://mises.org/daily/2608 Chapter 6] "Uncertainty" ([http://mises.org/daily/2615 study guide])
*** [http://mises.org/daily/2774 Chapter 7] "Action Within the World" ([http://mises.org/daily/2778 study guide])
*** [http://mises.org/daily/2813 Chapter 8] "Human Society" ([http://mises.org/daily/2814 study guide])
*** [http://mises.org/daily/2841 Chapter 9] "The Role of Ideas" ([http://mises.org/daily/2843 study guide])
*** [http://mises.org/daily/2849 Chapter 10] "Exchange Within Society" ([http://mises.org/daily/2850 study guide])
*** [http://mises.org/daily/2880 Chapter 11] "Valuation Without Calculation" ([http://mises.org/daily/2881 study guide])
*** [http://mises.org/daily/2933 Chapter 12] "The Sphere of Economic Calculation" ([http://mises.org/daily/2939 study guide])
*** [http://mises.org/daily/2979 Chapter 14] "The Scope and Method of Catallactics" ([http://mises.org/daily/2980 study guide])
*** Chapter 15 ([http://mises.org/daily/3029 Part I], [http://mises.org/daily/3030 Part II]) "The Market" ([http://mises.org/daily/3005 study guide])
*** Chapter 16 ([http://mises.org/daily/3067 Part I], [http://mises.org/daily/3099 Part II], [http://mises.org/daily/3552 Part III]) "Prices" ([http://mises.org/daily/3068 study guide])

* ''Human Action: A Treatise on Economics'', 1996 4th Revised Edition:
** Foreword to the 4th edition by Bettina B. Greaves (p. v) ([http://mises.org/humanaction/forward.asp HTML], [http://mises.org/humanaction/pdf/ha_002.pdf PDF])
** Full text ([http://mises.org/books/humanaction.pdf PDF])

* ''Human Action: A Treatise on Economics'', 1966 3rd Revised Edition:
** Foreword to the 3rd edition by Ludwig von Mises ([http://mises.org/humanaction/foreword3.asp HTML], [http://mises.org/humanaction/pdf/ha_003.pdf PDF])
** Additions to Human Action in the 3rd edition ([http://mises.org/humanaction/ha3rd-addition.pdf PDF])

* ''Human Action: A Treatise on Economics'', Abridged Edition:
** Text ([http://blog.mises.org/9147/human-action-abridged/ HTML])

===Other resources===
*Articles, essays & reviews
** [http://mises.org/daily/2975 "Epistemological Relativism in the Sciences of Human Action"] Ludwig von Mises, 1960
** "The Place of Mises's Human Action in the Development of Modern Economic Thought" ([http://mises.org/journals/qjae/pdf/Qjae213.pdf PDF]) {{Nowrap|by [[Joseph T. Salerno]], Spring 1999}}
** [http://mises.org/resources/804 "Reflections on Human Action after 50 Years"] by [[Vernon L. Smith]], Fall 1999
** [http://mises.org/resources/805 "The Methodology of Human Action"] by [[Lawrence H. White]], Fall 1999
** [http://mises.org/daily/3363 "Human Action at Sixty"] by Richard M. Ebeling, March 2009
** [http://mises.org/daily/5237/Misess-Gift-of-Human-Action "Mises's Gift of Human Action"] by Jonathan M. Finegold Catalan, May 2011
** [http://mises.org/efandi/ch10.asp "The Why of Human Action"] by Ludwig von Mises, September 1949
** Mises Review: [http://mises.org/misesreview_detail.aspx?control=127 "Human Action, The Scholar's Edition"] by [[David Gordon]], Winter 1999 (republished as Mises Daily [http://mises.org/daily/3655 here])
** [http://blog.mises.org/14807/the-power-of-the-pocket-edition/ "The Power of the Pocket Edition"] by [[Jeffrey Tucker]], November 2010

* Other media
** In Studio: "Human Action: Pocket Edition" interview with [[Douglas French]], ([http://www.youtube.com/watch?v=Mou5ID13HqI YouTube])
** [http://www.apriorist.de/modx/hauyf/ ''Acting Man'' online lesson]
** [http://mises.org/quotes.aspx?action=source&Source=Human%20Action ''Human Action'' quotes]

* {{wplink}}

{{See also|Human Action Comics}}
{{Mises books}}

[[Category:Writings of Ludwig von Mises]]
[[Category:Writings on economics]]

Human Action

2011-05-30T21:46:58Z

Huckelberry: /* Part Four: Catallactics or Economics of the Market Society */ (10/13)

{{Infobox book
| name = Human Action: A Treatise on Economics
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| image_caption =
| author = [[Ludwig von Mises]]
| illustrator =
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| country = [[United States]]
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| series =
| subject = [[Economics]], [[Political economy]]
| genre = [[Non-fiction]]
| publisher = [[Yale University Press]]
| pub_date = [[1949]]
| english_pub_date =
| media_type = Print
| pages = 889 pp.
| isbn =
| oclc = 2595286
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'''''Human Action: A Treatise on Economics''''' is the [[magnum opus]] of [[Ludwig von Mises]], first published in 1949. It defined a large part of present [[Austrian Economics]].

<blockquote>"It is true that economics is a theoretical science and as such abstains from any judgment of value...Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends."<ref name="humanaction_intro_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/introsec3.asp Introduction], 3. Introduction, [[Human Action]], online version, referenced 2011-02-05.</ref></blockquote>

== Part One: Human Action ==

===I. Acting Man===

<blockquote>''Main Article: [[Action]].''</blockquote>

The science of human action is called [[praxeology]]. Human action always involves [[opportunity cost]] and it is always ''purposeful''. <ref name="humanaction_ch1sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap1sec1.asp I. Acting Man], 1. Purposeful Action and Animal Reaction, [[Human Action]], online version, referenced 2011-02-06.</ref>

===II. The Epistemological Problems of the Sciences of Human Action===

[[Ludwig von Mises]] takes the [[logical deductive]] approach to economics, as opposed to the [[empirical]] (or the [[logical positivist]] approach). Economic problems cannot be solved [[empirically]] because renunciation and long-term planning can not be seen. Humans act to attain definite ends--and economic phenomena can be understood as such.

<blockquote>"[[Praxeology]] is a theoretical and systematic, not a historical, science...It aims at knowledge valid for all instances in which the conditions exactly correspond to those implied in its assumptions and inferences. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, ''[[a priori]]''."<ref name="humanaction_ch2sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec1.asp II. Epistemological Problems of Human Action], 1. Praxeology and History, [[Human Action]], online version, referenced 2011-02-06.</ref></blockquote>

Like geometry, [[praxeology]] is not subject to disproof. This method may be called ''methodological apriorism''.<ref name="humanaction_ch2sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec2.asp II. Epistemological Problems of Human Action], 2. The Formal and Aprioristic Character of Praxeology, [[Human Action]], online version, referenced 2011-02-06.</ref>

===III. Economics and the Revolt Against Reason===

[[Mises]] dismisses the [[Historical School]], [[Hegel]] and [[Marx]] with it. In discussing the "bourgeois logic" and "bourgeois mentality" of [[Marx]], [[Mises]] is able to attack [[polylogism]] in general. There does not exist multiple logics, only differing interests and their logical conclusions--whether they are spurious or well-founded. [[Mises]] states with regard to the [[Historical School]], "History, in due time, will arrange everything for the best. It does not need the advice of mortal men."<ref name="humanaction_ch3sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap3sec1.asp III. Economics and the Revolt Against Reason], 1. The Revolt Against Reason, [[Human Action]], online version, referenced 2011-02-06.</ref>

<blockquote>''See [[German Idealism]].''</blockquote>

===IV. A First Analysis of the Category of Action===

<blockquote>''Main Article: [[Value]]''</blockquote>

All actions are directed toward goals, aims or ends. The end, speaking generally, is always to remove a ''felt uneasiness''. Means are the ways by which we reach an end. Things in the world, when applied to our ends, become means and are commonly referred to as [[goods]].<ref name="humanaction_ch4sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec1.asp IV. A First Analysis of The Category of Action], 1. Ends and Means, [[Human Action]], online version, referenced 2011-02-06.</ref> Means are [[Scarcity|scarce]].

Actions are reflective of our ''scale of [[value|values]]''. All things equal, we satisfy wants of higher [[value]] to us, and leave unsatisfied wants of lower [[value]] to us. Things in the world have no intrinsic [[value]], our actions give things [[value]].<ref name="humanaction_ch4sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec2.asp IV. A First Analysis of The Category of Action], 2. The Scale of Value, [[Human Action]], online version, referenced 2011-02-06.</ref>

Given that every action is an attempt to establish a more satisfactory state of affairs, viz., to remove a ''felt uneasiness'', all actions are in a sense an [[exchange]]. We [[exchange]] one state for another, hopefully better, state. Lastly, value judgments arrange wants, but do not measure them. They are expressive of sequence and order rather than of measurement and weight.<ref name="humanaction_ch4sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp IV. A First Analysis of The Category of Action], 4. Action as Exchange, [[Human Action]], online version, referenced 2011-02-06.</ref>

===V. Time===

Time is a [[Praxeology|praxeological]] category: all action is in time and is subject to time.<ref name="humanaction_ch5sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp V. Time], 2. Past, Present and Future, [[Human Action]], online version, referenced 2011-02-07.</ref> As humans, our time is [[Scarcity|scarce]] and we must economize it accordingly. Our scales of [[value]] and therefore our actions are always with reference to time. As we will see later, time is important in the determination of [[interest]] and consumption.<ref name="humanaction_ch5sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap5sec3.asp V. Time], 3. The Economization of Time, [[Human Action]], online version, referenced 2011-02-07.</ref>

===VI. Uncertainty===

All action is speculative. We never know exactly what will occur. The natural sciences make it possible to foretell results from specific actions. They do not make the future predictable.<ref name="humanaction_ch6sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec1.asp VI. Uncertainty], 1. Uncertainty and Acting, [[Human Action]], online version, referenced 2011-02-08.</ref> But, [[Mises]] tells us, probability is a primary concern of [[praxeology]].

He distinguished between two types of propability: [[class probability]] and [[case probability]].

<blockquote>"''[[Class probability]] means'': We know or assume to know, with regard to the problem concerned, everything about the behavior of a whole class of events or phenomena; but about the actual singular events or phenomena we know nothing but that they are elements of this class."<ref name="humanaction_ch6sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec3.asp VI. Uncertainty], 3. Class Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, car insurance works on the premise that with a large pool of policies, they can use class probability to decide upon an approriate premium given the ''class probability'' of accidents. But, they know nothing about the probability of the individual policy holder getting into an accident.

<blockquote>"''[[Case probability]]'' means: We know, with regard to a particular event, some of the factors which determine its outcome; but there are other determining factors about which we know nothing."<ref name="humanaction_ch6sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec4.asp VI. Uncertainty], 4. Case Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, foreign policy experts may make predictions about the settlement of foreign disputes. They are well informed but it is impossible for them to predict the outcome perfectly because they can not grasp all the data and all the opinions of individuals shaping decisions. Therefore, they may know some of the factors that will shape the future, but never perfectly.

For [[Mises]], we make decisions with incomplete knowledge. To say it again, all action is speculative in character. To this difficulty in decisions, specifically in social cooperation where selection occurs, competition serves as a function to select the most able person for specific positions. It assigns every member of society to the position where they best serve society.<ref name="humanaction_ch6sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec6.asp VI. Uncertainty], 6. Betting, Gambling, and Playing Games, [[Human Action]], online version, referenced 2011-02-08.</ref>

===VII. Action Within the World===

Each person possesses one scale of valuations, which is visible through action.<ref name="humanaction_ch7sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec1.asp VII. Action Within The World], 1. The Law of Marginal Utility, [[Human Action]], online version, referenced 2011-02-13.</ref> Goods and modes of action are chosen based on their utility, or their causal relevance for the removal of felt ''uneasiness''.<ref name="humanaction_ch7sec1"></ref> Here [[Mises]] discusses the [[paradox of value]]: why is ''gold'' more valuable than ''iron''? Despite the many uses of iron, gold is valued more on the market because of its value in exchange. Iron may have more technological prospects or ''objective use-value'' but it lacks ''subjective use-value'', that is, gold is valuable in exchange due to scarcity, appearance and its tradition as a form of money. [[Mises]], however, dismisses the question as one which never occurs in reality.<ref name="humanaction_ch7sec1"></ref>

The [[Law of Marginal Utility]] is implied by the category of action: If a supply increases from quantity ''n'' to ''n + 1'' the extra unit provides less [[utility]] than unit ''n''. This is because ''n'' is satisfying a more urgent want than unit ''n + 1''. We satisfy more urgent wants first by their definition. Unit ''n'' is satisfying the more urgent want, ''n + 1'' is satisfying a less urgent want. Therefore, increasing units of a homogeneous supply are each applied to decreasingly important wants (seeing as the more urgent wants are always satisfied first). The [[law of marginal utility]], "does not deal primarily with the [[value]] of things, but with the [[value]] of the services a man expects to get from them."<ref name="humanaction_ch7sec1"></ref>

"[[Labor]]," says [[Mises]], "is preferred to leisure only insofar as the yield of [[labor]] is more urgently desired than the enjoyment of leisure."<ref name="humanaction_ch7sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec3.asp VII. Action Within The World], 3. Labor as Means, [[Human Action]], online version, referenced 2011-02-13.</ref> Work involves disutility. To this note, [[labor]] is more scarce than other material factors of production:

<blockquote>"In our world there is no abundance, but a shortage of manpower, and there are unused material factors of production, i.e. land, mineral deposits, and even plants and equipment."<ref name="humanaction_ch7sec3"></ref></blockquote>

Labor saving devices reduce want, they do not bring about "technological unemployment." Man economizes both labor and material factors.<ref name="humanaction_ch7sec3"></ref>

Action is successful it it produces the intended result: it produces the product. The human mind directs [[action]] with a purpose and production is creative. It is not something physical, natural, and external; it is a spiritual and intellectual phenomenon. All material actions within the world are a product of the mind. "In this sense," [[Mises]] tells us, "[[praxeology]] can be called a moral science."<ref name="humanaction_ch7sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec4.asp VII. Action Within The World], 4. Production, [[Human Action]], online version, referenced 2011-02-13.</ref>

== Part Two: Actions Within the Framework of Society ==

===VIII. Human Society===

We are born into society and only in this sense does society exist before the individual. [[Society]] is the supreme example of the benefits of the [[division of labor]].<ref name="ch8sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec1.asp VIII. Human Society], 1. Human Cooperation, [[Human Action]], online version, referenced 2011-02-17.</ref> It is an institution for the preservation of peaceful human relations. It is the social apparatus of compulsion and coercion.<ref name="ch8sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec2.asp VIII. Human Society], 2. A Critique of the Holistic and Metaphysical View of Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

[[Democratic government]] provides a method for the peaceful adjustment of government to the will of the majority. Wisdom and science thrive in a peaceful and affluent society. <ref name="ch8sec2"></ref>

<blockquote>"[[Liberalism]] aims at a political constitution which safeguards the smooth working of social cooperation and the progressive intensification of mutual social relations. Its main objective is the avoidance of violent conflicts, of wars and revolutions that must disintegrate the social collaboration of men and throw people back into the primitive conditions of barbarism where all tribes and political bodies endlessly fought one another. Because the division of labor requires undisturbed peace, liberalism aims at the establishment of a system of government that is likely to preserve peace, viz., democracy."<ref name="ch8sec2"></ref></blockquote>

[[Mises]] expounds the Ricardian Law of Association or [[comparative advantage]] as the fundamental characteristic of society.<ref name="ch8sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association, [[Human Action]], online version, referenced 2011-02-17.</ref> The division of labor assigns to each man the best job for him in society.<ref name="humanaction_ch6sec6"></ref> However, the end result of division of labor in society--a diversity which attests to the innate inequalities between individuals--does not illistrate ideas of [[Social Darwinism]]. Biology and evolutionary views cannot pass value judgments on the benefits of civilization.<ref name="ch8sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec7.asp VIII. Human Society], 7. The Great Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

===IX. The Role of Ideas===

All [[action]] is preceded by thinking. Thinking is to deliberate before [[action]] and to reflect upon past [[action]]. Thinking is a tool of action and language is a tool of thinking. All action is based on a definite idea about causal relations. Thinking and ideas are, like material wealth, passed down the generations.<ref name="ch9sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec1.asp IX. Human Society], 1. Human Reason, [[Human Action]], online version, referenced 2011-02-18.</ref> Action is always directed by ideas.<ref name="ch9sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec3.asp IX. Human Society], 3. Might, [[Human Action]], online version, referenced 2011-02-18.</ref>

[[Ideologies|Ideology]] and world views are explanations of social phenomena and technologies for prescriptive politics. All political doctrines imply that: "the political system we support will render you more prosperous and more content."<ref name="ch9sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec2.asp IX. Human Society], 2. World View and Ideology, [[Human Action]], online version, referenced 2011-02-18.</ref> [[Ideologies]], to [[Mises]], are the most powerful form of control. The might of a politician is due to his [[ideology]], his interpretation of the world and his prescriptive measures to ensure his followers are more prosperous and more content. Thinking, the ideological interpretation, succeeds through the cooperation of other minds. No thinker is isolated in his thoughts, they have been influenced by others. A politician's power dwindles if his [[ideology]] loses support. To [[Mises]]:

<blockquote>"The power of an ideology consists precisely in the fact that people submit to it without any wavering and scruples."<ref name="ch9sec3"></ref></blockquote>

Traditionalism and the idea of progress are ideologies also. Progress toward a more prosperous life and evolutionary progress must not be confused with evolution toward higher forms of life. Progress may not continue, majorities may error.<ref name="ch9sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec4.asp IX. Human Society], 4. Meliorism and the Idea of Progress, [[Human Action]], online version, referenced 2011-02-18.</ref> Ideologies may protect the material interest of the race or they may destroy it.

===X. Exchange Within Society===

[[Action]] always is essentially the exchange of one state of affairs for another state of affairs.<ref name="ch10sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec1.asp X. Exchange Within Society], 1. Autistic Exchange and Interpersonal Exchange, [[Human Action]], online version, referenced 2011-02-25.</ref> The interpersonal exchange of goods weaves the bonds which unites men into societies.<ref name="ch10sec1"></ref> [[Mises]] defines two different kinds of social cooperation: cooperation by virtue of contract and coordination, and contract by virtue of command and subordination or hegemony.<ref name="ch10sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec2.asp X. Exchange Within Society], 2. Contractual Bonds and Hegemonic Bonds, [[Human Action]], online version, referenced 2011-02-25.</ref> In the former state there are men who cooperate to achieve goals--their plans are symmetrical and share a common goal. In the latter state their is always two classes of men, those who command and those who obey. Again [[Mises]] emphasizes the important of ideology to animate the social body. The individuals must share an [[ideology]] if they are to cooperate. Hegemonic control needs an ideology that the controlling system is the best or the traditional norm. [[Ideologies]] imply obedience to the [[ideology]]. Contractual relation order society by free association held together by the order of right and law.<ref name="ch10sec2"></ref>

The [[Praxeology|praxeological]] categories, [[Mises]] tells us, are eternal and unchangable. They are the categories within which all action takes place. No [[action]] is free from the facts of existence--of which the praxeological categories belong.<ref name="ch10sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec3.asp X. Exchange Within Society], 3. Calculative Action, [[Human Action]], online version, referenced 2011-02-25.</ref> Man can never comprehend anything that is neither [[action]] or none action.

Modern civilization is characterized by the fact that it has elaborated a method which makes use of the arithmetic possible in a broad field of activities. [[Economic calculation]], for example in modern capital [[accounting]], is a fundamental issue in all comprehension of economic phenomena.<ref name="ch10sec3"></ref>

Despite the extended use of capital [[accounting]] and arithmetic, [[action]] can only make use of ordinal numbers. That is, actions order desires but do not measure them. But in our rational and contractual society we are able to make use of cardinal numbers in capital accounting. By this feature of capital accounting and contractual relations civilization opened the door to computation and calculation regarding the planning of the future and measuring the effects of past actions. Still, the applicability of cardinal numbers to economic thinking require these circumstances and economic law and theory cannot be deduced from [[economic history]], namely, the history of prices.<ref name="ch10sec3"></ref>

== Part Three: Economic Calculation ==

===XI. Valuation Without Calculation===

We apply the [[value|values]] we attribute to the ends of [[action]], to the means necessary to achieve those ends: "Other things being equal, [acting man] assigns to the total amount of the various means the same value he attaches to the end which they are fit to bring about."<ref name="ch11sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec1.asp XI. Valuation Without Calculation], 1. Gradation of Means, [[Human Action]], online version, referenced 2011-02-26.</ref>

The preferences used in [[action]], the laying aside of some things for other things, allows--as said above--the use of ordinal numbers but not cardinal numbers. Again, [[value|values]] attributable to actions cannot be measured arithmetically. Yet, in the activity of using means to attain certain ends, the acquisition of countable and measurable supplies of things becomes an immediate goal of action.<ref name="ch11sec1"></ref> [[Economic calculation]] can occur, despite that the values we attribute to different means and ends cannot be measured, by the results of actions of interpersonal exchange:

<blockquote>"The modern theory of value and prices show how the choices of individuals, their preferring some things and setting aside of other things, results, in the sphere of interpersonal exchange, in the emergence of market prices."<ref name="ch11sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec2.asp XI. Valuation Without Calculation], 2. The Barter-Fiction of the Elementary Theory of Value and Prices, [[Human Action]], online version, referenced 2011-02-26.</ref></blockquote>

[[Mises]] reminds us that is it a fallacy to think things exchanged are of the same value. Rather, people buy and sell only because they appraise the things given up less than those received.<ref name="ch11sec2"></ref> "Market prices," [[Mises]] says in a later chapter, "are not expressive of equivalence, but of a divergence in the valuation of the exchanging parties."<ref name="ch26sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap26sec3.asp XXVI. Economic Calculation under Socialism], 3. Recent Suggestions for Socialist Economic Calculation, [[Human Action]], online version, referenced 2011-04-25.</ref>

In using technology, we are resorting to knowledge of causal relations. We are not, however, addressing the technologies applicability to human wants and desires.<ref name="ch11sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec3.asp XI. Valuation Without Calculation], 3. The Problem of Economic Calculation, [[Human Action]], online version, referenced 2011-02-26.</ref>

<blockquote>"Technology tells how a given end could be attained by the employment of various means which can be used together in various combinations, or how various available means could be employed for certain purposes. But it is at a loss to tell man which procedures he should choose out of the infinite variety of imaginable and possible modes of production."<ref name="ch11sec3"></ref></blockquote>

Engineering can tell us how to build a bridge but not whether its construction would draw resources from other areas where they would be used to satisfy more urgently felt needs. [[Action]], as opposed to the casual relations of engineering, must discover the relations between dissimilar projects. [[Money]], holding the status of "universally used medium of exchange," becomes the measure of the worthiness of differing possiblities in the realm of action. Because [[goods]] and services have money prices we can use these in planning and decisions.<ref name="ch11sec3"></ref>

With all action directed toward the future, all economic planning and calculation must be made in regards to the future state of prices. In entrepreneurial ventures the acting man wants the prices of goods produced and sold to be greater than the price of the goods used in production. The practical meaning of [[economic calculation]] is to show how much one is free to consume without impairing the future capacity to produce. The concepts of [[economic calculation]]--[[Profit]] and [[loss]], [[capital]] and [[income]], spending and [[saving]], cost and yield--are developed to ensure efficient use of the resources of society.<ref name="ch11sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec4.asp XI. Valuation Without Calculation], 4. Economic Calculation and The Market, [[Human Action]], online version, referenced 2011-02-26.</ref>

===XII. The Sphere of Economic Calculation===

The acting individual is always concerned with the future. In action he is either, (1) anticipating the future and acting accordingly, or (2) trying to change the outcomes of the future even if there are no other changes to the data. Economic calculation cannot predict the outcomes of the future, it can only assist man in adjusting his actions to his opinion of the future. The numerical exactitude of balance sheets and income statements must not prevent us from realizing their inherent uncertainty and estimation.<ref name="ch12sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec1.asp XII. The Sphere of Economic Calculation], 1. The Character of Monetary Entries, [[Human Action]], online version, referenced 2011-02-27.</ref>

[[Money]] is not a measuring stick. Money prices do not transmit the intrinsic value of a good. [[Prices]] are not measured in money, they consist in money. They are either prices of the past or prices of the future. Furthermore, although it is possible to aggregate prices paid in goods, it makes no sense to talk about a national income or any other aggregate of spending which "characterizes" a society.<ref name="ch12sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec2.asp XII. The Sphere of Economic Calculation], 2. The Limits of Economic Calculation [[Human Action]], online version, referenced 2011-02-27.</ref>

Economic calculation makes sense only in a society with private ownership of the means of production. Economic calculation is not to blame of the masses preferring detective stories to books of philosophy--that is an outcome of the desires and preferences of individuals acting in society. Economic calculation cannot be blamed for the less than ideal characters and habits of other members of society.<ref name="ch12sec2"></ref>

Prices, or exchange ratios, are in constant fluctuation with the changing data of the market and the changing whims of consumers.<ref name="ch12sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec3.asp XII. The Sphere of Economic Calculation], 3. The Changeability of Prices[[Human Action]], online version, referenced 2011-02-27.</ref>

[[Mises]] dismisses the idea of measurement in [[purchasing power]] as unfeasible:

<blockquote>"A measurement of purchasing power would have to rely upon the prices of the goods and services of the first order and, what is more, of ''all'' of them."<ref name="ch12sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec4.asp XII. The Sphere of Economic Calculation], 4. Stabilization [[Human Action]], online version, referenced 2011-02-27.</ref></blockquote>

Further, changes in the [[purchasing power]] of [[money]] must necessarily effect different goods and services at different times and therefore efforts to stabilize the purchasing power of money by attempting to change the money relation is an impossible feat.<ref name="ch12sec4"></ref>

===XIII. Monetary Calculation as a Tool of Action===

Monetary calculation is the decisive factor of action in the social system of [[division of labor]]. Every action of the [[entrepreneur]] is analyzed by monetary calculation. Only in the institutional settings of [[private property]] and [[division of labor]] where goods and services are exchanged by a money can the system of monetary calculation be used. The use of aggregates derived from the use of monetary calculation is useless. That is, monetary calculation is useful for individual acting but cannot be useful to determining "social" values or welfare. By the use of monetary calculation, for example in capital [[accounting]], arithmetic has become a tool in the struggle for a better life. Capital [[accounting]] allows us to analyze the success or failure of men in satisfying the needs of [[consumers]].<ref name="ch13sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap13sec1.asp XIII. Monetary Calculation as a Tool of Action], 1. Monetary Calculation as Method of Thinking [[Human Action]], online version, referenced 2011-03-14.</ref>

<blockquote>"Our civilization is inseparably linked with our methods of economic calculation. It would parish if we were to abandon this most precious intellectual tool of acting. Goethe was right in calling bookkeeping by double entry "one of the finest inventions of the human mind.'"<ref name="ch13sec1"></ref></blockquote>

== Part Four: Catallactics or Economics of the Market Society ==

=== The Market ===

<blockquote>"The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of actions of various individuals cooperating under the division of labor."<ref name="ch15sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec1.asp XV. The Market], 1. Characteristics of the Market Economy, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref></blockquote>

In the market place everyone is an end in himself and an end for other people. Each individual acts on his own behalf, but everyones actions of the market also serve another. In acting everyone is serving everyone else's ends while serving their own. They each aim at the satisfaction of other peoples needs as much as at his own.<ref name="ch15sec1"></ref>

The state of the market is characterized by the totality of [[prices]] within the market which are determined by individuals eager to buy and sell. Additionally, there is no such thing as a "mixed" economy: "it is directed either by the market of by the decrees of a [[production]] tsar or a committee of production tsars."<ref name="ch15sec1"></ref> Publicly owned entities which operating in a market economy must obey the rules of profit and loss as others do. The characteristic feature of the [[market economy]] is its ability to [[calculate]]. Monetary calculation along with the determination of market prices allows the market to calculate. The rational ordering of the [[division of labor]] and of production are resultants of this.<ref name="ch15sec1"></ref>

<blockquote>"The market economy is real because it can calculate."<ref name="ch15sec1"></ref></blockquote>

The central principles in the market economy's calculation are [[income]] and [[capital]]. Income is the amount of resources which can be consumed without lowering the capital of the individual or business. If income is greater than the amount consumed, ''[[savings]]'' results. Conversely, if a man consumes more than his income is it referred to as ''capital consumption''. Capital, here, is the quantity of money representing ownership in the assets of a enterprise (using the term broadly) or the total [[assets]] less the total [[liabilities]].<ref name="ch15sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec2.asp XV. The Market], 2. Capital, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref>

"All civilizations" says [[Mises]], "have up to now been based on private ownership of the means of production." Our system of private ownership of the means of production has poured the horn of plenty on growing population figures. Capitalism has served to allow each man a higher material wealth than even the kings of past ages. Many who argue against capitalism do so because they look upon capitalism as an accidental phenomenon. They do not understand [[private property]] and the concept of free-associations causal relationship with the material wealth of the era. It is the critics of [[capitalism]], [[Mises]] contends, which lack historical understanding, not the economists. To capitalism's enemies, it is the policy advocated by big business, regardless of the fact that big business often advocates for "[[protectionism]], [[cartels]], and the abolition of [[competition]]." And today, it is considered a "legitimate task of government to prevent an efficient man from competing with the less efficient." Advocates of protection, and state imposed limitations on the free-market want to make us believe that the consequences of [[government intervention]] are produced by capitalism.<ref name="ch15sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec3.asp XV. The Market], 3. Capitalism, ''[[Human Action]]'', online version, referenced 2011-04-10.</ref>

In a market economy the [[The Sovereignty of the Consumers|consumers are sovereign]]. Only sellers of the [[first order]] goods are in contact with the consumers, but the consumers buying and abstention from buying is transmitted from the [[consumer goods]] to the [[higher order]] goods (the [[producers goods]]). Consumers, in their capricious buying, determine the income of every member of society and direct production into the hands of individuals best able to serve the consumers.<ref name="ch15sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec4.asp XV. The Market], 4. The Sovereignty of the Consumers, ''[[Human Action]]'', online version, referenced 2011-04-30.</ref>

The consumers designate everyones place in society. The classical economists favored the abolition of the all trade barriers because they protected the less efficient from the more efficient. Trade barriers curtail production and lower the standard of living of all those effected. It is the actions of consumers which determine the prices on the market, and it is these prices which push investors into new lines of business. The bigness of one business will not stop others from trying to compete with it. [[Mises]] writes:

<blockquote>"What a newcomer who wants to defy the vested interests of the old established firms needs most is brains and ideas. If his project is fit to fill the most urgent of the unsatisfied needs of the consumers or to purvey them at a cheaper price than their old purveyors, he will succeed in spite of the much talked of bigness and power of the old firms."<ref name="ch15sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec5.asp XV. The Market], 5. Competition, ''[[Human Action]]'', online version, referenced 2011-05-17.</ref></blockquote>

Competition in the [[catallactic]] sense (i.e., competition in the market place) has a different function than that of games and beauty contests. Its function is to select the individuals most able to control the resources of society to the greatest benefit of the consumers. Humans are not born equal and the consumers do not care: "Their only interest is to secure the best possible satisfaction of their needs."<ref name="ch15sec5"></ref>

In human society, the terms "[[freedom]]" and "[[liberty]]" reference to interhuman relations. For instance [[Mises]] writes, "man was not created free; what freedom he may possess has been given to him by society...Liberty and freedom are the conditions of man within a contractual society."<ref name="ch15sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec6.asp XV. The Market], 6. Freedom, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref> Man in this condition is free to exchange goods and services, but he is by no means independent. He depends on other members of society. We say that a man is free in a contractual society because he serves others to serve himself. The restrains of freedom a man may experience in this environment is due to natural phenomenon only--the laws of nature to which we all unconditionally submit.<ref name="ch15sec6"></ref>

The market system will invariably bestow unequal rewards. This is primarily due to the different levels of service people provide to each other on the [[market]]. That is, it rewards every effort according to its [[value]] as determined by the subjective valuations of the consumers. With respect to inequality, [[Mises]] says:

<blockquote>"No system of social division of labor can do without a method that makes individuals responsible for their contribution to the joint productive effort. If this responsibility is not brought about by the price structure of the market and the inequality of wealth and income it begets, it must be enforced by the methods of direct compulsion as practiced by the police."<ref name="ch15sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec7.asp XV. The Market], 7. Inequality of Wealth and Income, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref></blockquote>

The economic phenomenon of [[profit]] and [[loss]] can be analyzed from an psychic point of view. [[Profit]], in a boarder sense, is the gain derived from [[action]]; it is the increase in satisfaction brought about by the action. In this sense, then, profit is the end of every action. Profit in this psychic sense is not measurable. However in the market economy, [[goods]] and [[services]] are bought and sold with money prices. This allows for the computation of profit and loss using the market prices of the goods and services. [[Profit]], in monetary calculus, is the surplus of [[money]] received over the money expended. It is everyone acting to attain the highest psychic which actuates the market-price mechanism and allows for monetary calculus.

The [[entrepreneur]] encounters the ever changing price structure of the market and makes his profit from correctly anticipating the changes in money prices. In this sense, he is always a speculator.<ref name="ch15sec8">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec8.asp XV. The Market], 8. Entrepreneurial Profit and Loss, ''[[Human Action]]'', online version, referenced 2011-05-19.</ref>

In an expanding or progressing economy the amount of capital invested is increasing per capita. Income is increased either by an increase in technological methods brought about by the increase in capital or simply by an increase in production. Of the increase in wealth (the result of the progressing economy) the majority of it goes to non-entrepreneurial groups. To note again, the market has a tendency to eliminate entrepreneurial profit and it is therefore temporary. In the long run, i.e., when profits have been eliminated by competition, the increase in productivity benefits exclusively the workers and consumers. On progress [[Mises]] writes:

<blockquote>"The vehicle of economic progress is the accumulation of technological methods of production the execution of which is almost always conditioned by the availability of such new capital."<ref name="ch15sec9">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec9.asp XV. The Market], 9. Entrepreneurial Profits and Losses in a Progressing Economy, ''[[Human Action]]'', online version, referenced 2011-05-21.</ref></blockquote>

The greater profits are, the greater is the increment in general prosperity that the enterprise brings. The entrepreneurial function, the driving after profits, is the driving of capital into the most profitable line of business. Which is another way of saying, the driving of capital into which the greatest increase in general prosperity results. Profits and losses are the devices through which consumers exercise their superiority over the owners of capital.<ref name="ch15sec9"></ref>

The entrepreneur hires workers and acts as the mandatary of the consumers. In addressing the many problems and issues that a project encounters the entrepreneur and the technician approach the problem inherently differently. The technician may suggest a method of production which has the greatest physical output. But the entrepreneur must judge differently, namely, economically. Economic calculation saves the entrepreneur from having to look too deeply into problems. Profit and loss are not about prefect production, but about the production which reaps the highest profit--i.e., the production where the most is produced at the lowest cost to society. Managers in an enterprise are essentially an extension of the entrepreneur. They assist in the solving of problems, make use of economic calculation and discover the most economical solution to their problems.<ref name="ch15sec10">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec10.asp XV. The Market], 10. Promoters, Managers, Technicians, and Bureaucrats, ''[[Human Action]]'', online version, referenced 2011-05-30.</ref>

[[Mises]] distinguishes between ''bureaucratic management'' and ''profit management''. In profit management all activities of business are given their worth from the actions of consumers. They dictate the salaries of management and the profits of the entrepreneur and capitalist. Where ever the operation of a system can not be run by profit management, it must be directed by bureaucratic management--i.e., one not concerned with profit and loss.<ref name="ch15sec10"></ref>

<blockquote>"Bureaucratic conduct of affairs, as such, is not an evil. It is only appropriate methods of handling governmental affairs, i.e., the social apparatus of compulsion and coercion. As government is necessary, bureaucratism is--in this field--no less necessary. Where economic calculation is unfeasible, bureaucratic methods are indispensable."<ref name="ch15sec10"></ref></blockquote>

<ol style="list-style-type:upper-roman;" start="15">
<li> Prices</li>
<li> Indirect Exchange</li>
<li> '''Action in the Passing of Time'''</li>
For humans considering [[action]], time matters: there is a ''too late'' and a ''too early''. [[Time preferences]] affect all action (see [[Value]]).<ref name="mises_action_in_passage_of_time_2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec2.asp XVIII. Action in the Passing of Time], 2. Time Preference as an Essential Requisite of Action, ''[[Human Action]]'', online version, referenced 2011-02-04.</ref>

Postponements of consumption, or [[saving]], is always embodied in concrete goods. "The act of saving," [[Mises]] tells us, "always has its counterpart in a supply of goods produced and not consumed...Man's savings are always embodied in concrete capital goods."<ref name="mises_action_in_passage_of_time_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec9.asp XVIII. Action in the Passing of Time], 9. Money and Capital; Saving and Investment, ''[[Human Action]]'', online version, referenced 2011-02-08.</ref>

The discussion of [[time preference]], and the postponment of consumption, is a lead in to [[interest]].

<li> '''Interest'''</li>

<blockquote>''Main Article: [[Interest]]''</blockquote>

Time preference manifests itself in the phenomenon of [[originary interest]], i.e., the discount of future goods as against present goods.<ref name="mises__human_action_chap19sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec1.asp XIX. The Rate of Interest], The Phenomenon of Interest, [[Human Action]], online version, referenced 2011-02-13.</ref> Originary interest is a ratio, like profit and loss, and not a price.<ref name="mises__human_action_chap19sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec2.asp XIX. The Rate of Interest], Originary Interest, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref> It is the ratio between the value assigned to presents goods against the value assigned to future goods. This discounting explains, for example, the reason why there is finite prices on usable land:

<blockquote>"If the future services which a piece of land can render were to be valued in the same way in which its present services are valued, no finite price would be high enough to impel its owner to sell it."<ref name="mises__human_action_chap19sec2"></ref></blockquote>

We [[discount]] future services and [[goods]] because of [[time preference]]. The fact that we can purchase land which is usable into the foreseeable future is proof of this. Furthermore, [[originary interest]] is not determined by supply and demand of [[loanable funds]]. Time preference, manifesting in the discount of future goods against present goods (i.e., originary interest) determines both the demand and supply of capital and capital goods.<ref name="mises__human_action_chap19sec2"></ref>

Interest rates in loans, in a changing economy, always have an element of entrepreneurial profit. The lender, taking a risk and and making a prediciton about the future state of the market, is engaging in an entrepreneurial venture. Therefore, interest rates on loans are never pure [[originary interest]] but also entrepreneurial profit.<ref name="mises__human_action_chap19sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec4.asp XIX. The Rate of Interest], Originary Interest in the Changing Economy, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref>

<li> Interest, Credit Expansion, and the Trade Cycle</li>
<li> Work and Wages</li>
<li> The Nonhuman Original Factors of Production</li>
<li> The Data of the Market</li>
<li> Harmony and Conflict of Interests</li>
</ol>

== Part Five: Social Cooperation Without a Market ==

<ol style="list-style-type:upper-roman;" start="25">
<li> The Imaginary Construction of a Socialist Society</li>
<li> The Impossibility of Economic Calculation Under Socialism</li>
</ol>

== Part Six: The Hampered Market Economy ==

<ol style="list-style-type:upper-roman;" start="27">
<li> The Government and the Market</li>
<li> Interference by Taxation</li>
<li> Restriction of Production</li>
<li> Interference with the Structure of Prices</li>
<li> Currency and Credit Manipulation</li>
<li> Confiscation and Redistribution</li>
<li> Syndicalism and Corporativism</li>
<li> The Economics of War</li>
<li> The Welfare Principle Versus the Market Principle</li>
<li> The Crisis of Interventionism</li>
</ol>

== Part Seven: The Place of Economics in Society ==
<ol style="list-style-type:upper-roman;" start="38">
<li> The Nondescript Character of Economics</li>
<li> The Place of Economics in Learning</li>
<li> Economics and the Essential Problems of Human Existence</li>
</ol>

==References==
{{Reflist|2}}

==Links==
''{{Store|http://www.mises.org/store/Human-Action-The-Scholars-Edition-P119.aspx|Human Action (Scholar's Edition)}}''

* [http://mises.org/resources.aspx?Id=3250&html=1#Publication_History ''Human Action'' publication history]
* Mises Made Easier: [http://mises.org/Easier/Easier.asp Glossary for Human Action]
* [http://mises.org/humanaction/theindex.asp Human Action interactive index]

===Editions===
* ''Human Action: A Treatise on Economics'', 1998 Scholar's Edition:
** {{mr|3250|Resources page}}
** {{mr|3810|Study Guide}}
*** [http://mises.org/daily/3262 "Study Guide to Human Action"] by [[Robert Murphy]], December 2008
*** [http://blog.mises.org/6708/weekend-study-guide/ "Weekend Study Guide"] (individual chapter downloads)
*** [http://blog.mises.org/15181/the-human-action-study-guide-as-our-armor/ "The Human Action Study Guide is our armor"] by Jim Fedako, December 2010
** [http://mises.org/media/category/139 Audiobook] read by [[Jeff Riggenbach]]
** Mises Daily excerpts
*** [http://mises.org/daily/3328 Introduction]
*** [http://mises.org/daily/2506 Chapter 1] "Acting Man"
*** [http://mises.org/daily/2565 Chapter 2] "The Sciences of Human Action" ([http://mises.org/daily/2606 study guide])
*** [http://mises.org/daily/2535 Chapter 3] "Economics and the Revolt Against Reason" ([http://mises.org/daily/2574 study guide])
*** [http://mises.org/daily/2711 Chapter 4] "A First Analysis of the Category of Action" ([http://mises.org/daily/2712 study guide])
*** [http://mises.org/daily/2730 Chapter 5] "Time and Praxeology" ([http://mises.org/daily/2731 study guide])
*** [http://mises.org/daily/2608 Chapter 6] "Uncertainty" ([http://mises.org/daily/2615 study guide])
*** [http://mises.org/daily/2774 Chapter 7] "Action Within the World" ([http://mises.org/daily/2778 study guide])
*** [http://mises.org/daily/2813 Chapter 8] "Human Society" ([http://mises.org/daily/2814 study guide])
*** [http://mises.org/daily/2841 Chapter 9] "The Role of Ideas" ([http://mises.org/daily/2843 study guide])
*** [http://mises.org/daily/2849 Chapter 10] "Exchange Within Society" ([http://mises.org/daily/2850 study guide])
*** [http://mises.org/daily/2880 Chapter 11] "Valuation Without Calculation" ([http://mises.org/daily/2881 study guide])
*** [http://mises.org/daily/2933 Chapter 12] "The Sphere of Economic Calculation" ([http://mises.org/daily/2939 study guide])
*** [http://mises.org/daily/2979 Chapter 14] "The Scope and Method of Catallactics" ([http://mises.org/daily/2980 study guide])
*** Chapter 15 ([http://mises.org/daily/3029 Part I], [http://mises.org/daily/3030 Part II]) "The Market" ([http://mises.org/daily/3005 study guide])
*** Chapter 16 ([http://mises.org/daily/3067 Part I], [http://mises.org/daily/3099 Part II], [http://mises.org/daily/3552 Part III]) "Prices" ([http://mises.org/daily/3068 study guide])

* ''Human Action: A Treatise on Economics'', 1996 4th Revised Edition:
** Foreword to the 4th edition by Bettina B. Greaves (p. v) ([http://mises.org/humanaction/forward.asp HTML], [http://mises.org/humanaction/pdf/ha_002.pdf PDF])
** Full text ([http://mises.org/books/humanaction.pdf PDF])

* ''Human Action: A Treatise on Economics'', 1966 3rd Revised Edition:
** Foreword to the 3rd edition by Ludwig von Mises ([http://mises.org/humanaction/foreword3.asp HTML], [http://mises.org/humanaction/pdf/ha_003.pdf PDF])
** Additions to Human Action in the 3rd edition ([http://mises.org/humanaction/ha3rd-addition.pdf PDF])

* ''Human Action: A Treatise on Economics'', Abridged Edition:
** Text ([http://blog.mises.org/9147/human-action-abridged/ HTML])

===Other resources===
*Articles, essays & reviews
** [http://mises.org/daily/2975 "Epistemological Relativism in the Sciences of Human Action"] Ludwig von Mises, 1960
** "The Place of Mises's Human Action in the Development of Modern Economic Thought" ([http://mises.org/journals/qjae/pdf/Qjae213.pdf PDF]) {{Nowrap|by [[Joseph T. Salerno]], Spring 1999}}
** [http://mises.org/resources/804 "Reflections on Human Action after 50 Years"] by [[Vernon L. Smith]], Fall 1999
** [http://mises.org/resources/805 "The Methodology of Human Action"] by [[Lawrence H. White]], Fall 1999
** [http://mises.org/daily/3363 "Human Action at Sixty"] by Richard M. Ebeling, March 2009
** [http://mises.org/daily/5237/Misess-Gift-of-Human-Action "Mises's Gift of Human Action"] by Jonathan M. Finegold Catalan, May 2011
** [http://mises.org/efandi/ch10.asp "The Why of Human Action"] by Ludwig von Mises, September 1949
** Mises Review: [http://mises.org/misesreview_detail.aspx?control=127 "Human Action, The Scholar's Edition"] by [[David Gordon]], Winter 1999 (republished as Mises Daily [http://mises.org/daily/3655 here])
** [http://blog.mises.org/14807/the-power-of-the-pocket-edition/ "The Power of the Pocket Edition"] by [[Jeffrey Tucker]], November 2010

* Other media
** In Studio: "Human Action: Pocket Edition" interview with [[Douglas French]], ([http://www.youtube.com/watch?v=Mou5ID13HqI YouTube])
** [http://www.apriorist.de/modx/hauyf/ ''Acting Man'' online lesson]
** [http://mises.org/quotes.aspx?action=source&Source=Human%20Action ''Human Action'' quotes]

* {{wplink}}

{{See also|Human Action Comics}}
{{Mises books}}

[[Category:Writings of Ludwig von Mises]]
[[Category:Writings on economics]]

Human Action

2011-05-27T05:46:00Z

Huckelberry: /* IV. A First Analysis of the Category of Action */

{{Infobox book
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| author = [[Ludwig von Mises]]
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| country = [[United States]]
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| subject = [[Economics]], [[Political economy]]
| genre = [[Non-fiction]]
| publisher = [[Yale University Press]]
| pub_date = [[1949]]
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| media_type = Print
| pages = 889 pp.
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'''''Human Action: A Treatise on Economics''''' is the [[magnum opus]] of [[Ludwig von Mises]], first published in 1949. It defined a large part of present [[Austrian Economics]].

<blockquote>"It is true that economics is a theoretical science and as such abstains from any judgment of value...Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends."<ref name="humanaction_intro_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/introsec3.asp Introduction], 3. Introduction, [[Human Action]], online version, referenced 2011-02-05.</ref></blockquote>

== Part One: Human Action ==

===I. Acting Man===

<blockquote>''Main Article: [[Action]].''</blockquote>

The science of human action is called [[praxeology]]. Human action always involves [[opportunity cost]] and it is always ''purposeful''. <ref name="humanaction_ch1sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap1sec1.asp I. Acting Man], 1. Purposeful Action and Animal Reaction, [[Human Action]], online version, referenced 2011-02-06.</ref>

===II. The Epistemological Problems of the Sciences of Human Action===

[[Ludwig von Mises]] takes the [[logical deductive]] approach to economics, as opposed to the [[empirical]] (or the [[logical positivist]] approach). Economic problems cannot be solved [[empirically]] because renunciation and long-term planning can not be seen. Humans act to attain definite ends--and economic phenomena can be understood as such.

<blockquote>"[[Praxeology]] is a theoretical and systematic, not a historical, science...It aims at knowledge valid for all instances in which the conditions exactly correspond to those implied in its assumptions and inferences. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, ''[[a priori]]''."<ref name="humanaction_ch2sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec1.asp II. Epistemological Problems of Human Action], 1. Praxeology and History, [[Human Action]], online version, referenced 2011-02-06.</ref></blockquote>

Like geometry, [[praxeology]] is not subject to disproof. This method may be called ''methodological apriorism''.<ref name="humanaction_ch2sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec2.asp II. Epistemological Problems of Human Action], 2. The Formal and Aprioristic Character of Praxeology, [[Human Action]], online version, referenced 2011-02-06.</ref>

===III. Economics and the Revolt Against Reason===

[[Mises]] dismisses the [[Historical School]], [[Hegel]] and [[Marx]] with it. In discussing the "bourgeois logic" and "bourgeois mentality" of [[Marx]], [[Mises]] is able to attack [[polylogism]] in general. There does not exist multiple logics, only differing interests and their logical conclusions--whether they are spurious or well-founded. [[Mises]] states with regard to the [[Historical School]], "History, in due time, will arrange everything for the best. It does not need the advice of mortal men."<ref name="humanaction_ch3sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap3sec1.asp III. Economics and the Revolt Against Reason], 1. The Revolt Against Reason, [[Human Action]], online version, referenced 2011-02-06.</ref>

<blockquote>''See [[German Idealism]].''</blockquote>

===IV. A First Analysis of the Category of Action===

<blockquote>''Main Article: [[Value]]''</blockquote>

All actions are directed toward goals, aims or ends. The end, speaking generally, is always to remove a ''felt uneasiness''. Means are the ways by which we reach an end. Things in the world, when applied to our ends, become means and are commonly referred to as [[goods]].<ref name="humanaction_ch4sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec1.asp IV. A First Analysis of The Category of Action], 1. Ends and Means, [[Human Action]], online version, referenced 2011-02-06.</ref> Means are [[Scarcity|scarce]].

Actions are reflective of our ''scale of [[value|values]]''. All things equal, we satisfy wants of higher [[value]] to us, and leave unsatisfied wants of lower [[value]] to us. Things in the world have no intrinsic [[value]], our actions give things [[value]].<ref name="humanaction_ch4sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec2.asp IV. A First Analysis of The Category of Action], 2. The Scale of Value, [[Human Action]], online version, referenced 2011-02-06.</ref>

Given that every action is an attempt to establish a more satisfactory state of affairs, viz., to remove a ''felt uneasiness'', all actions are in a sense an [[exchange]]. We [[exchange]] one state for another, hopefully better, state. Lastly, value judgments arrange wants, but do not measure them. They are expressive of sequence and order rather than of measurement and weight.<ref name="humanaction_ch4sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp IV. A First Analysis of The Category of Action], 4. Action as Exchange, [[Human Action]], online version, referenced 2011-02-06.</ref>

===V. Time===

Time is a [[Praxeology|praxeological]] category: all action is in time and is subject to time.<ref name="humanaction_ch5sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp V. Time], 2. Past, Present and Future, [[Human Action]], online version, referenced 2011-02-07.</ref> As humans, our time is [[Scarcity|scarce]] and we must economize it accordingly. Our scales of [[value]] and therefore our actions are always with reference to time. As we will see later, time is important in the determination of [[interest]] and consumption.<ref name="humanaction_ch5sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap5sec3.asp V. Time], 3. The Economization of Time, [[Human Action]], online version, referenced 2011-02-07.</ref>

===VI. Uncertainty===

All action is speculative. We never know exactly what will occur. The natural sciences make it possible to foretell results from specific actions. They do not make the future predictable.<ref name="humanaction_ch6sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec1.asp VI. Uncertainty], 1. Uncertainty and Acting, [[Human Action]], online version, referenced 2011-02-08.</ref> But, [[Mises]] tells us, probability is a primary concern of [[praxeology]].

He distinguished between two types of propability: [[class probability]] and [[case probability]].

<blockquote>"''[[Class probability]] means'': We know or assume to know, with regard to the problem concerned, everything about the behavior of a whole class of events or phenomena; but about the actual singular events or phenomena we know nothing but that they are elements of this class."<ref name="humanaction_ch6sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec3.asp VI. Uncertainty], 3. Class Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, car insurance works on the premise that with a large pool of policies, they can use class probability to decide upon an approriate premium given the ''class probability'' of accidents. But, they know nothing about the probability of the individual policy holder getting into an accident.

<blockquote>"''[[Case probability]]'' means: We know, with regard to a particular event, some of the factors which determine its outcome; but there are other determining factors about which we know nothing."<ref name="humanaction_ch6sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec4.asp VI. Uncertainty], 4. Case Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, foreign policy experts may make predictions about the settlement of foreign disputes. They are well informed but it is impossible for them to predict the outcome perfectly because they can not grasp all the data and all the opinions of individuals shaping decisions. Therefore, they may know some of the factors that will shape the future, but never perfectly.

For [[Mises]], we make decisions with incomplete knowledge. To say it again, all action is speculative in character. To this difficulty in decisions, specifically in social cooperation where selection occurs, competition serves as a function to select the most able person for specific positions. It assigns every member of society to the position where they best serve society.<ref name="humanaction_ch6sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec6.asp VI. Uncertainty], 6. Betting, Gambling, and Playing Games, [[Human Action]], online version, referenced 2011-02-08.</ref>

===VII. Action Within the World===

Each person possesses one scale of valuations, which is visible through action.<ref name="humanaction_ch7sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec1.asp VII. Action Within The World], 1. The Law of Marginal Utility, [[Human Action]], online version, referenced 2011-02-13.</ref> Goods and modes of action are chosen based on their utility, or their causal relevance for the removal of felt ''uneasiness''.<ref name="humanaction_ch7sec1"></ref> Here [[Mises]] discusses the [[paradox of value]]: why is ''gold'' more valuable than ''iron''? Despite the many uses of iron, gold is valued more on the market because of its value in exchange. Iron may have more technological prospects or ''objective use-value'' but it lacks ''subjective use-value'', that is, gold is valuable in exchange due to scarcity, appearance and its tradition as a form of money. [[Mises]], however, dismisses the question as one which never occurs in reality.<ref name="humanaction_ch7sec1"></ref>

The [[Law of Marginal Utility]] is implied by the category of action: If a supply increases from quantity ''n'' to ''n + 1'' the extra unit provides less [[utility]] than unit ''n''. This is because ''n'' is satisfying a more urgent want than unit ''n + 1''. We satisfy more urgent wants first by their definition. Unit ''n'' is satisfying the more urgent want, ''n + 1'' is satisfying a less urgent want. Therefore, increasing units of a homogeneous supply are each applied to decreasingly important wants (seeing as the more urgent wants are always satisfied first). The [[law of marginal utility]], "does not deal primarily with the [[value]] of things, but with the [[value]] of the services a man expects to get from them."<ref name="humanaction_ch7sec1"></ref>

"[[Labor]]," says [[Mises]], "is preferred to leisure only insofar as the yield of [[labor]] is more urgently desired than the enjoyment of leisure."<ref name="humanaction_ch7sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec3.asp VII. Action Within The World], 3. Labor as Means, [[Human Action]], online version, referenced 2011-02-13.</ref> Work involves disutility. To this note, [[labor]] is more scarce than other material factors of production:

<blockquote>"In our world there is no abundance, but a shortage of manpower, and there are unused material factors of production, i.e. land, mineral deposits, and even plants and equipment."<ref name="humanaction_ch7sec3"></ref></blockquote>

Labor saving devices reduce want, they do not bring about "technological unemployment." Man economizes both labor and material factors.<ref name="humanaction_ch7sec3"></ref>

Action is successful it it produces the intended result: it produces the product. The human mind directs [[action]] with a purpose and production is creative. It is not something physical, natural, and external; it is a spiritual and intellectual phenomenon. All material actions within the world are a product of the mind. "In this sense," [[Mises]] tells us, "[[praxeology]] can be called a moral science."<ref name="humanaction_ch7sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec4.asp VII. Action Within The World], 4. Production, [[Human Action]], online version, referenced 2011-02-13.</ref>

== Part Two: Actions Within the Framework of Society ==

===VIII. Human Society===

We are born into society and only in this sense does society exist before the individual. [[Society]] is the supreme example of the benefits of the [[division of labor]].<ref name="ch8sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec1.asp VIII. Human Society], 1. Human Cooperation, [[Human Action]], online version, referenced 2011-02-17.</ref> It is an institution for the preservation of peaceful human relations. It is the social apparatus of compulsion and coercion.<ref name="ch8sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec2.asp VIII. Human Society], 2. A Critique of the Holistic and Metaphysical View of Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

[[Democratic government]] provides a method for the peaceful adjustment of government to the will of the majority. Wisdom and science thrive in a peaceful and affluent society. <ref name="ch8sec2"></ref>

<blockquote>"[[Liberalism]] aims at a political constitution which safeguards the smooth working of social cooperation and the progressive intensification of mutual social relations. Its main objective is the avoidance of violent conflicts, of wars and revolutions that must disintegrate the social collaboration of men and throw people back into the primitive conditions of barbarism where all tribes and political bodies endlessly fought one another. Because the division of labor requires undisturbed peace, liberalism aims at the establishment of a system of government that is likely to preserve peace, viz., democracy."<ref name="ch8sec2"></ref></blockquote>

[[Mises]] expounds the Ricardian Law of Association or [[comparative advantage]] as the fundamental characteristic of society.<ref name="ch8sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association, [[Human Action]], online version, referenced 2011-02-17.</ref> The division of labor assigns to each man the best job for him in society.<ref name="humanaction_ch6sec6"></ref> However, the end result of division of labor in society--a diversity which attests to the innate inequalities between individuals--does not illistrate ideas of [[Social Darwinism]]. Biology and evolutionary views cannot pass value judgments on the benefits of civilization.<ref name="ch8sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec7.asp VIII. Human Society], 7. The Great Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

===IX. The Role of Ideas===

All [[action]] is preceded by thinking. Thinking is to deliberate before [[action]] and to reflect upon past [[action]]. Thinking is a tool of action and language is a tool of thinking. All action is based on a definite idea about causal relations. Thinking and ideas are, like material wealth, passed down the generations.<ref name="ch9sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec1.asp IX. Human Society], 1. Human Reason, [[Human Action]], online version, referenced 2011-02-18.</ref> Action is always directed by ideas.<ref name="ch9sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec3.asp IX. Human Society], 3. Might, [[Human Action]], online version, referenced 2011-02-18.</ref>

[[Ideologies|Ideology]] and world views are explanations of social phenomena and technologies for prescriptive politics. All political doctrines imply that: "the political system we support will render you more prosperous and more content."<ref name="ch9sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec2.asp IX. Human Society], 2. World View and Ideology, [[Human Action]], online version, referenced 2011-02-18.</ref> [[Ideologies]], to [[Mises]], are the most powerful form of control. The might of a politician is due to his [[ideology]], his interpretation of the world and his prescriptive measures to ensure his followers are more prosperous and more content. Thinking, the ideological interpretation, succeeds through the cooperation of other minds. No thinker is isolated in his thoughts, they have been influenced by others. A politician's power dwindles if his [[ideology]] loses support. To [[Mises]]:

<blockquote>"The power of an ideology consists precisely in the fact that people submit to it without any wavering and scruples."<ref name="ch9sec3"></ref></blockquote>

Traditionalism and the idea of progress are ideologies also. Progress toward a more prosperous life and evolutionary progress must not be confused with evolution toward higher forms of life. Progress may not continue, majorities may error.<ref name="ch9sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec4.asp IX. Human Society], 4. Meliorism and the Idea of Progress, [[Human Action]], online version, referenced 2011-02-18.</ref> Ideologies may protect the material interest of the race or they may destroy it.

===X. Exchange Within Society===

[[Action]] always is essentially the exchange of one state of affairs for another state of affairs.<ref name="ch10sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec1.asp X. Exchange Within Society], 1. Autistic Exchange and Interpersonal Exchange, [[Human Action]], online version, referenced 2011-02-25.</ref> The interpersonal exchange of goods weaves the bonds which unites men into societies.<ref name="ch10sec1"></ref> [[Mises]] defines two different kinds of social cooperation: cooperation by virtue of contract and coordination, and contract by virtue of command and subordination or hegemony.<ref name="ch10sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec2.asp X. Exchange Within Society], 2. Contractual Bonds and Hegemonic Bonds, [[Human Action]], online version, referenced 2011-02-25.</ref> In the former state there are men who cooperate to achieve goals--their plans are symmetrical and share a common goal. In the latter state their is always two classes of men, those who command and those who obey. Again [[Mises]] emphasizes the important of ideology to animate the social body. The individuals must share an [[ideology]] if they are to cooperate. Hegemonic control needs an ideology that the controlling system is the best or the traditional norm. [[Ideologies]] imply obedience to the [[ideology]]. Contractual relation order society by free association held together by the order of right and law.<ref name="ch10sec2"></ref>

The [[Praxeology|praxeological]] categories, [[Mises]] tells us, are eternal and unchangable. They are the categories within which all action takes place. No [[action]] is free from the facts of existence--of which the praxeological categories belong.<ref name="ch10sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec3.asp X. Exchange Within Society], 3. Calculative Action, [[Human Action]], online version, referenced 2011-02-25.</ref> Man can never comprehend anything that is neither [[action]] or none action.

Modern civilization is characterized by the fact that it has elaborated a method which makes use of the arithmetic possible in a broad field of activities. [[Economic calculation]], for example in modern capital [[accounting]], is a fundamental issue in all comprehension of economic phenomena.<ref name="ch10sec3"></ref>

Despite the extended use of capital [[accounting]] and arithmetic, [[action]] can only make use of ordinal numbers. That is, actions order desires but do not measure them. But in our rational and contractual society we are able to make use of cardinal numbers in capital accounting. By this feature of capital accounting and contractual relations civilization opened the door to computation and calculation regarding the planning of the future and measuring the effects of past actions. Still, the applicability of cardinal numbers to economic thinking require these circumstances and economic law and theory cannot be deduced from [[economic history]], namely, the history of prices.<ref name="ch10sec3"></ref>

== Part Three: Economic Calculation ==

===XI. Valuation Without Calculation===

We apply the [[value|values]] we attribute to the ends of [[action]], to the means necessary to achieve those ends: "Other things being equal, [acting man] assigns to the total amount of the various means the same value he attaches to the end which they are fit to bring about."<ref name="ch11sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec1.asp XI. Valuation Without Calculation], 1. Gradation of Means, [[Human Action]], online version, referenced 2011-02-26.</ref>

The preferences used in [[action]], the laying aside of some things for other things, allows--as said above--the use of ordinal numbers but not cardinal numbers. Again, [[value|values]] attributable to actions cannot be measured arithmetically. Yet, in the activity of using means to attain certain ends, the acquisition of countable and measurable supplies of things becomes an immediate goal of action.<ref name="ch11sec1"></ref> [[Economic calculation]] can occur, despite that the values we attribute to different means and ends cannot be measured, by the results of actions of interpersonal exchange:

<blockquote>"The modern theory of value and prices show how the choices of individuals, their preferring some things and setting aside of other things, results, in the sphere of interpersonal exchange, in the emergence of market prices."<ref name="ch11sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec2.asp XI. Valuation Without Calculation], 2. The Barter-Fiction of the Elementary Theory of Value and Prices, [[Human Action]], online version, referenced 2011-02-26.</ref></blockquote>

[[Mises]] reminds us that is it a fallacy to think things exchanged are of the same value. Rather, people buy and sell only because they appraise the things given up less than those received.<ref name="ch11sec2"></ref> "Market prices," [[Mises]] says in a later chapter, "are not expressive of equivalence, but of a divergence in the valuation of the exchanging parties."<ref name="ch26sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap26sec3.asp XXVI. Economic Calculation under Socialism], 3. Recent Suggestions for Socialist Economic Calculation, [[Human Action]], online version, referenced 2011-04-25.</ref>

In using technology, we are resorting to knowledge of causal relations. We are not, however, addressing the technologies applicability to human wants and desires.<ref name="ch11sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec3.asp XI. Valuation Without Calculation], 3. The Problem of Economic Calculation, [[Human Action]], online version, referenced 2011-02-26.</ref>

<blockquote>"Technology tells how a given end could be attained by the employment of various means which can be used together in various combinations, or how various available means could be employed for certain purposes. But it is at a loss to tell man which procedures he should choose out of the infinite variety of imaginable and possible modes of production."<ref name="ch11sec3"></ref></blockquote>

Engineering can tell us how to build a bridge but not whether its construction would draw resources from other areas where they would be used to satisfy more urgently felt needs. [[Action]], as opposed to the casual relations of engineering, must discover the relations between dissimilar projects. [[Money]], holding the status of "universally used medium of exchange," becomes the measure of the worthiness of differing possiblities in the realm of action. Because [[goods]] and services have money prices we can use these in planning and decisions.<ref name="ch11sec3"></ref>

With all action directed toward the future, all economic planning and calculation must be made in regards to the future state of prices. In entrepreneurial ventures the acting man wants the prices of goods produced and sold to be greater than the price of the goods used in production. The practical meaning of [[economic calculation]] is to show how much one is free to consume without impairing the future capacity to produce. The concepts of [[economic calculation]]--[[Profit]] and [[loss]], [[capital]] and [[income]], spending and [[saving]], cost and yield--are developed to ensure efficient use of the resources of society.<ref name="ch11sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec4.asp XI. Valuation Without Calculation], 4. Economic Calculation and The Market, [[Human Action]], online version, referenced 2011-02-26.</ref>

===XII. The Sphere of Economic Calculation===

The acting individual is always concerned with the future. In action he is either, (1) anticipating the future and acting accordingly, or (2) trying to change the outcomes of the future even if there are no other changes to the data. Economic calculation cannot predict the outcomes of the future, it can only assist man in adjusting his actions to his opinion of the future. The numerical exactitude of balance sheets and income statements must not prevent us from realizing their inherent uncertainty and estimation.<ref name="ch12sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec1.asp XII. The Sphere of Economic Calculation], 1. The Character of Monetary Entries, [[Human Action]], online version, referenced 2011-02-27.</ref>

[[Money]] is not a measuring stick. Money prices do not transmit the intrinsic value of a good. [[Prices]] are not measured in money, they consist in money. They are either prices of the past or prices of the future. Furthermore, although it is possible to aggregate prices paid in goods, it makes no sense to talk about a national income or any other aggregate of spending which "characterizes" a society.<ref name="ch12sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec2.asp XII. The Sphere of Economic Calculation], 2. The Limits of Economic Calculation [[Human Action]], online version, referenced 2011-02-27.</ref>

Economic calculation makes sense only in a society with private ownership of the means of production. Economic calculation is not to blame of the masses preferring detective stories to books of philosophy--that is an outcome of the desires and preferences of individuals acting in society. Economic calculation cannot be blamed for the less than ideal characters and habits of other members of society.<ref name="ch12sec2"></ref>

Prices, or exchange ratios, are in constant fluctuation with the changing data of the market and the changing whims of consumers.<ref name="ch12sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec3.asp XII. The Sphere of Economic Calculation], 3. The Changeability of Prices[[Human Action]], online version, referenced 2011-02-27.</ref>

[[Mises]] dismisses the idea of measurement in [[purchasing power]] as unfeasible:

<blockquote>"A measurement of purchasing power would have to rely upon the prices of the goods and services of the first order and, what is more, of ''all'' of them."<ref name="ch12sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec4.asp XII. The Sphere of Economic Calculation], 4. Stabilization [[Human Action]], online version, referenced 2011-02-27.</ref></blockquote>

Further, changes in the [[purchasing power]] of [[money]] must necessarily effect different goods and services at different times and therefore efforts to stabilize the purchasing power of money by attempting to change the money relation is an impossible feat.<ref name="ch12sec4"></ref>

===XIII. Monetary Calculation as a Tool of Action===

Monetary calculation is the decisive factor of action in the social system of [[division of labor]]. Every action of the [[entrepreneur]] is analyzed by monetary calculation. Only in the institutional settings of [[private property]] and [[division of labor]] where goods and services are exchanged by a money can the system of monetary calculation be used. The use of aggregates derived from the use of monetary calculation is useless. That is, monetary calculation is useful for individual acting but cannot be useful to determining "social" values or welfare. By the use of monetary calculation, for example in capital [[accounting]], arithmetic has become a tool in the struggle for a better life. Capital [[accounting]] allows us to analyze the success or failure of men in satisfying the needs of [[consumers]].<ref name="ch13sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap13sec1.asp XIII. Monetary Calculation as a Tool of Action], 1. Monetary Calculation as Method of Thinking [[Human Action]], online version, referenced 2011-03-14.</ref>

<blockquote>"Our civilization is inseparably linked with our methods of economic calculation. It would parish if we were to abandon this most precious intellectual tool of acting. Goethe was right in calling bookkeeping by double entry "one of the finest inventions of the human mind.'"<ref name="ch13sec1"></ref></blockquote>

== Part Four: Catallactics or Economics of the Market Society ==

=== The Market ===

<blockquote>"The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of actions of various individuals cooperating under the division of labor."<ref name="ch15sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec1.asp XV. The Market], 1. Characteristics of the Market Economy, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref></blockquote>

In the market place everyone is an end in himself and an end for other people. Each individual acts on his own behalf, but everyones actions of the market also serve another. In acting everyone is serving everyone else's ends while serving their own. They each aim at the satisfaction of other peoples needs as much as at his own.<ref name="ch15sec1"></ref>

The state of the market is characterized by the totality of [[prices]] within the market which are determined by individuals eager to buy and sell. Additionally, there is no such thing as a "mixed" economy: "it is directed either by the market of by the decrees of a [[production]] tsar or a committee of production tsars."<ref name="ch15sec1"></ref> Publicly owned entities which operating in a market economy must obey the rules of profit and loss as others do. The characteristic feature of the [[market economy]] is its ability to [[calculate]]. Monetary calculation along with the determination of market prices allows the market to calculate. The rational ordering of the [[division of labor]] and of production are resultants of this.<ref name="ch15sec1"></ref>

<blockquote>"The market economy is real because it can calculate."<ref name="ch15sec1"></ref></blockquote>

The central principles in the market economy's calculation are [[income]] and [[capital]]. Income is the amount of resources which can be consumed without lowering the capital of the individual or business. If income is greater than the amount consumed, ''[[savings]]'' results. Conversely, if a man consumes more than his income is it referred to as ''capital consumption''. Capital, here, is the quantity of money representing ownership in the assets of a enterprise (using the term broadly) or the total [[assets]] less the total [[liabilities]].<ref name="ch15sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec2.asp XV. The Market], 2. Capital, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref>

"All civilizations" says [[Mises]], "have up to now been based on private ownership of the means of production." Our system of private ownership of the means of production has poured the horn of plenty on growing population figures. Capitalism has served to allow each man a higher material wealth than even the kings of past ages. Many who argue against capitalism do so because they look upon capitalism as an accidental phenomenon. They do not understand [[private property]] and the concept of free-associations causal relationship with the material wealth of the era. It is the critics of [[capitalism]], [[Mises]] contends, which lack historical understanding, not the economists. To capitalism's enemies, it is the policy advocated by big business, regardless of the fact that big business often advocates for "[[protectionism]], [[cartels]], and the abolition of [[competition]]." And today, it is considered a "legitimate task of government to prevent an efficient man from competing with the less efficient." Advocates of protection, and state imposed limitations on the free-market want to make us believe that the consequences of [[government intervention]] are produced by capitalism.<ref name="ch15sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec3.asp XV. The Market], 3. Capitalism, ''[[Human Action]]'', online version, referenced 2011-04-10.</ref>

In a market economy the [[The Sovereignty of the Consumers|consumers are sovereign]]. Only sellers of the [[first order]] goods are in contact with the consumers, but the consumers buying and abstention from buying is transmitted from the [[consumer goods]] to the [[higher order]] goods (the [[producers goods]]). Consumers, in their capricious buying, determine the income of every member of society and direct production into the hands of individuals best able to serve the consumers.<ref name="ch15sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec4.asp XV. The Market], 4. The Sovereignty of the Consumers, ''[[Human Action]]'', online version, referenced 2011-04-30.</ref>

The consumers designate everyones place in society. The classical economists favored the abolition of the all trade barriers because they protected the less efficient from the more efficient. Trade barriers curtail production and lower the standard of living of all those effected. It is the actions of consumers which determine the prices on the market, and it is these prices which push investors into new lines of business. The bigness of one business will not stop others from trying to compete with it. [[Mises]] writes:

<blockquote>"What a newcomer who wants to defy the vested interests of the old established firms needs most is brains and ideas. If his project is fit to fill the most urgent of the unsatisfied needs of the consumers or to purvey them at a cheaper price than their old purveyors, he will succeed in spite of the much talked of bigness and power of the old firms."<ref name="ch15sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec5.asp XV. The Market], 5. Competition, ''[[Human Action]]'', online version, referenced 2011-05-17.</ref></blockquote>

Competition in the [[catallactic]] sense (i.e., competition in the market place) has a different function than that of games and beauty contests. Its function is to select the individuals most able to control the resources of society to the greatest benefit of the consumers. Humans are not born equal and the consumers do not care: "Their only interest is to secure the best possible satisfaction of their needs."<ref name="ch15sec5"></ref>

In human society, the terms "[[freedom]]" and "[[liberty]]" reference to interhuman relations. For instance [[Mises]] writes, "man was not created free; what freedom he may possess has been given to him by society...Liberty and freedom are the conditions of man within a contractual society."<ref name="ch15sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec6.asp XV. The Market], 6. Freedom, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref> Man in this condition is free to exchange goods and services, but he is by no means independent. He depends on other members of society. We say that a man is free in a contractual society because he serves others to serve himself. The restrains of freedom a man may experience in this environment is due to natural phenomenon only--the laws of nature to which we all unconditionally submit.<ref name="ch15sec6"></ref>

The market system will invariably bestow unequal rewards. This is primarily due to the different levels of service people provide to each other on the [[market]]. That is, it rewards every effort according to its [[value]] as determined by the subjective valuations of the consumers. With respect to inequality, [[Mises]] says:

<blockquote>"No system of social division of labor can do without a method that makes individuals responsible for their contribution to the joint productive effort. If this responsibility is not brought about by the price structure of the market and the inequality of wealth and income it begets, it must be enforced by the methods of direct compulsion as practiced by the police."<ref name="ch15sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec7.asp XV. The Market], 7. Inequality of Wealth and Income, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref></blockquote>

The economic phenomenon of [[profit]] and [[loss]] can be analyzed from an psychic point of view. [[Profit]], in a boarder sense, is the gain derived from [[action]]; it is the increase in satisfaction brought about by the action. In this sense, then, profit is the end of every action. Profit in this psychic sense is not measurable. However in the market economy, [[goods]] and [[services]] are bought and sold with money prices. This allows for the computation of profit and loss using the market prices of the goods and services. [[Profit]], in monetary calculus, is the surplus of [[money]] received over the money expended. It is everyone acting to attain the highest psychic which actuates the market-price mechanism and allows for monetary calculus.

The [[entrepreneur]] encounters the ever changing price structure of the market and makes his profit from correctly anticipating the changes in money prices. In this sense, he is always a speculator.<ref name="ch15sec8">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec8.asp XV. The Market], 8. Entrepreneurial Profit and Loss, ''[[Human Action]]'', online version, referenced 2011-05-19.</ref>

In an expanding or progressing economy the amount of capital invested is increasing per capita. Income is increased either by an increase in technological methods brought about by the increase in capital or simply by an increase in production. Of the increase in wealth (the result of the progressing economy) the majority of it goes to non-entrepreneurial groups. To note again, the market has a tendency to eliminate entrepreneurial profit and it is therefore temporary. In the long run, i.e., when profits have been eliminated by competition, the increase in productivity benefits exclusively the workers and consumers. On progress [[Mises]] writes:

<blockquote>"The vehicle of economic progress is the accumulation of technological methods of production the execution of which is almost always conditioned by the availability of such new capital."<ref name="ch15sec9">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec9.asp XV. The Market], 9. Entrepreneurial Profits and Losses in a Progressing Economy, ''[[Human Action]]'', online version, referenced 2011-05-21.</ref></blockquote>

The greater profits are, the greater is the increment in general prosperity that the enterprise brings. The entrepreneurial function, the driving after profits, is the driving of capital into the most profitable line of business. Which is another way of saying, the driving of capital into which the greatest increase in general prosperity results. Profits and losses are the devices through which consumers exercise their superiority over the owners of capital.<ref name="ch15sec9"></ref>

<ol style="list-style-type:upper-roman;" start="15">
<li> Prices</li>
<li> Indirect Exchange</li>
<li> '''Action in the Passing of Time'''</li>
For humans considering [[action]], time matters: there is a ''too late'' and a ''too early''. [[Time preferences]] affect all action (see [[Value]]).<ref name="mises_action_in_passage_of_time_2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec2.asp XVIII. Action in the Passing of Time], 2. Time Preference as an Essential Requisite of Action, ''[[Human Action]]'', online version, referenced 2011-02-04.</ref>

Postponements of consumption, or [[saving]], is always embodied in concrete goods. "The act of saving," [[Mises]] tells us, "always has its counterpart in a supply of goods produced and not consumed...Man's savings are always embodied in concrete capital goods."<ref name="mises_action_in_passage_of_time_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec9.asp XVIII. Action in the Passing of Time], 9. Money and Capital; Saving and Investment, ''[[Human Action]]'', online version, referenced 2011-02-08.</ref>

The discussion of [[time preference]], and the postponment of consumption, is a lead in to [[interest]].

<li> '''Interest'''</li>

<blockquote>''Main Article: [[Interest]]''</blockquote>

Time preference manifests itself in the phenomenon of [[originary interest]], i.e., the discount of future goods as against present goods.<ref name="mises__human_action_chap19sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec1.asp XIX. The Rate of Interest], The Phenomenon of Interest, [[Human Action]], online version, referenced 2011-02-13.</ref> Originary interest is a ratio, like profit and loss, and not a price.<ref name="mises__human_action_chap19sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec2.asp XIX. The Rate of Interest], Originary Interest, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref> It is the ratio between the value assigned to presents goods against the value assigned to future goods. This discounting explains, for example, the reason why there is finite prices on usable land:

<blockquote>"If the future services which a piece of land can render were to be valued in the same way in which its present services are valued, no finite price would be high enough to impel its owner to sell it."<ref name="mises__human_action_chap19sec2"></ref></blockquote>

We [[discount]] future services and [[goods]] because of [[time preference]]. The fact that we can purchase land which is usable into the foreseeable future is proof of this. Furthermore, [[originary interest]] is not determined by supply and demand of [[loanable funds]]. Time preference, manifesting in the discount of future goods against present goods (i.e., originary interest) determines both the demand and supply of capital and capital goods.<ref name="mises__human_action_chap19sec2"></ref>

Interest rates in loans, in a changing economy, always have an element of entrepreneurial profit. The lender, taking a risk and and making a prediciton about the future state of the market, is engaging in an entrepreneurial venture. Therefore, interest rates on loans are never pure [[originary interest]] but also entrepreneurial profit.<ref name="mises__human_action_chap19sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec4.asp XIX. The Rate of Interest], Originary Interest in the Changing Economy, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref>

<li> Interest, Credit Expansion, and the Trade Cycle</li>
<li> Work and Wages</li>
<li> The Nonhuman Original Factors of Production</li>
<li> The Data of the Market</li>
<li> Harmony and Conflict of Interests</li>
</ol>

== Part Five: Social Cooperation Without a Market ==

<ol style="list-style-type:upper-roman;" start="25">
<li> The Imaginary Construction of a Socialist Society</li>
<li> The Impossibility of Economic Calculation Under Socialism</li>
</ol>

== Part Six: The Hampered Market Economy ==

<ol style="list-style-type:upper-roman;" start="27">
<li> The Government and the Market</li>
<li> Interference by Taxation</li>
<li> Restriction of Production</li>
<li> Interference with the Structure of Prices</li>
<li> Currency and Credit Manipulation</li>
<li> Confiscation and Redistribution</li>
<li> Syndicalism and Corporativism</li>
<li> The Economics of War</li>
<li> The Welfare Principle Versus the Market Principle</li>
<li> The Crisis of Interventionism</li>
</ol>

== Part Seven: The Place of Economics in Society ==
<ol style="list-style-type:upper-roman;" start="38">
<li> The Nondescript Character of Economics</li>
<li> The Place of Economics in Learning</li>
<li> Economics and the Essential Problems of Human Existence</li>
</ol>

==References==
{{Reflist|2}}

==Links==
''{{Store|http://www.mises.org/store/Human-Action-The-Scholars-Edition-P119.aspx|Human Action (Scholar's Edition)}}''

* [http://mises.org/resources.aspx?Id=3250&html=1#Publication_History ''Human Action'' publication history]
* Mises Made Easier: [http://mises.org/Easier/Easier.asp Glossary for Human Action]
* [http://mises.org/humanaction/theindex.asp Human Action interactive index]

===Editions===
* ''Human Action: A Treatise on Economics'', 1998 Scholar's Edition:
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** [http://mises.org/media/category/139 Audiobook] read by [[Jeff Riggenbach]]
** Mises Daily excerpts
*** [http://mises.org/daily/3328 Introduction]
*** [http://mises.org/daily/2506 Chapter 1] "Acting Man"
*** [http://mises.org/daily/2565 Chapter 2] "The Sciences of Human Action" ([http://mises.org/daily/2606 study guide])
*** [http://mises.org/daily/2535 Chapter 3] "Economics and the Revolt Against Reason" ([http://mises.org/daily/2574 study guide])
*** [http://mises.org/daily/2711 Chapter 4] "A First Analysis of the Category of Action" ([http://mises.org/daily/2712 study guide])
*** [http://mises.org/daily/2730 Chapter 5] "Time and Praxeology" ([http://mises.org/daily/2731 study guide])
*** [http://mises.org/daily/2608 Chapter 6] "Uncertainty" ([http://mises.org/daily/2615 study guide])
*** [http://mises.org/daily/2774 Chapter 7] "Action Within the World" ([http://mises.org/daily/2778 study guide])
*** [http://mises.org/daily/2813 Chapter 8] "Human Society" ([http://mises.org/daily/2814 study guide])
*** [http://mises.org/daily/2841 Chapter 9] "The Role of Ideas" ([http://mises.org/daily/2843 study guide])
*** [http://mises.org/daily/2849 Chapter 10] "Exchange Within Society" ([http://mises.org/daily/2850 study guide])
*** [http://mises.org/daily/2880 Chapter 11] "Valuation Without Calculation" ([http://mises.org/daily/2881 study guide])
*** [http://mises.org/daily/2933 Chapter 12] "The Sphere of Economic Calculation" ([http://mises.org/daily/2939 study guide])
*** [http://mises.org/daily/2979 Chapter 14] "The Scope and Method of Catallactics" ([http://mises.org/daily/2980 study guide])
*** Chapter 15 ([http://mises.org/daily/3029 Part I], [http://mises.org/daily/3030 Part II]) "The Market" ([http://mises.org/daily/3005 study guide])
*** Chapter 16 ([http://mises.org/daily/3067 Part I], [http://mises.org/daily/3099 Part II], [http://mises.org/daily/3552 Part III]) "Prices" ([http://mises.org/daily/3068 study guide])

* ''Human Action: A Treatise on Economics'', 1996 4th Revised Edition:
** Foreword to the 4th edition by Bettina B. Greaves (p. v) ([http://mises.org/humanaction/forward.asp HTML], [http://mises.org/humanaction/pdf/ha_002.pdf PDF])
** Full text ([http://mises.org/books/humanaction.pdf PDF])

* ''Human Action: A Treatise on Economics'', 1966 3rd Revised Edition:
** Foreword to the 3rd edition by Ludwig von Mises ([http://mises.org/humanaction/foreword3.asp HTML], [http://mises.org/humanaction/pdf/ha_003.pdf PDF])
** Additions to Human Action in the 3rd edition ([http://mises.org/humanaction/ha3rd-addition.pdf PDF])

* ''Human Action: A Treatise on Economics'', Abridged Edition:
** Text ([http://blog.mises.org/9147/human-action-abridged/ HTML])

===Other resources===
*Articles, essays & reviews
** [http://mises.org/daily/2975 "Epistemological Relativism in the Sciences of Human Action"] Ludwig von Mises, 1960
** "The Place of Mises's Human Action in the Development of Modern Economic Thought" ([http://mises.org/journals/qjae/pdf/Qjae213.pdf PDF]) {{Nowrap|by [[Joseph T. Salerno]], Spring 1999}}
** [http://mises.org/resources/804 "Reflections on Human Action after 50 Years"] by [[Vernon L. Smith]], Fall 1999
** [http://mises.org/resources/805 "The Methodology of Human Action"] by [[Lawrence H. White]], Fall 1999
** [http://mises.org/daily/3363 "Human Action at Sixty"] by Richard M. Ebeling, March 2009
** [http://mises.org/daily/5237/Misess-Gift-of-Human-Action "Mises's Gift of Human Action"] by Jonathan M. Finegold Catalan, May 2011
** [http://mises.org/efandi/ch10.asp "The Why of Human Action"] by Ludwig von Mises, September 1949
** Mises Review: [http://mises.org/misesreview_detail.aspx?control=127 "Human Action, The Scholar's Edition"] by [[David Gordon]], Winter 1999 (republished as Mises Daily [http://mises.org/daily/3655 here])
** [http://blog.mises.org/14807/the-power-of-the-pocket-edition/ "The Power of the Pocket Edition"] by [[Jeffrey Tucker]], November 2010

* Other media
** In Studio: "Human Action: Pocket Edition" interview with [[Douglas French]], ([http://www.youtube.com/watch?v=Mou5ID13HqI YouTube])
** [http://www.apriorist.de/modx/hauyf/ ''Acting Man'' online lesson]
** [http://mises.org/quotes.aspx?action=source&Source=Human%20Action ''Human Action'' quotes]

* {{wplink}}

{{See also|Human Action Comics}}
[[Category:Writings of Ludwig von Mises]]
[[Category:Writings on economics]]

Human Action

2011-05-25T20:42:38Z

Huckelberry: /* The Market */

{{Infobox book
| name = Human Action: A Treatise on Economics
| title_orig =
| translator =
| image = 
| image_caption =
| author = [[Ludwig von Mises]]
| illustrator =
| cover_artist =
| country = [[United States]]
| language =
| series =
| subject = [[Economics]], [[Political economy]]
| genre = [[Non-fiction]]
| publisher = [[Yale University Press]]
| pub_date = [[1949]]
| english_pub_date =
| media_type = Print
| pages = 889 pp.
| isbn =
| oclc = 2595286
| dewey =
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}}

'''''Human Action: A Treatise on Economics''''' is the [[magnum opus]] of [[Ludwig von Mises]], first published in 1949. It defined a large part of present [[Austrian Economics]].

<blockquote>"It is true that economics is a theoretical science and as such abstains from any judgment of value...Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends."<ref name="humanaction_intro_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/introsec3.asp Introduction], 3. Introduction, [[Human Action]], online version, referenced 2011-02-05.</ref></blockquote>

== Part One: Human Action ==

===I. Acting Man===

<blockquote>''Main Article: [[Action]].''</blockquote>

The science of human action is called [[praxeology]]. Human action always involves [[opportunity cost]] and it is always ''purposeful''. <ref name="humanaction_ch1sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap1sec1.asp I. Acting Man], 1. Purposeful Action and Animal Reaction, [[Human Action]], online version, referenced 2011-02-06.</ref>

===II. The Epistemological Problems of the Sciences of Human Action===

[[Ludwig von Mises]] takes the [[logical deductive]] approach to economics, as opposed to the [[empirical]] (or the [[logical positivist]] approach). Economic problems cannot be solved [[empirically]] because renunciation and long-term planning can not be seen. Humans act to attain definite ends--and economic phenomena can be understood as such.

<blockquote>"[[Praxeology]] is a theoretical and systematic, not a historical, science...It aims at knowledge valid for all instances in which the conditions exactly correspond to those implied in its assumptions and inferences. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, ''[[a priori]]''."<ref name="humanaction_ch2sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec1.asp II. Epistemological Problems of Human Action], 1. Praxeology and History, [[Human Action]], online version, referenced 2011-02-06.</ref></blockquote>

Like geometry, [[praxeology]] is not subject to disproof. This method may be called ''methodological apriorism''.<ref name="humanaction_ch2sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec2.asp II. Epistemological Problems of Human Action], 2. The Formal and Aprioristic Character of Praxeology, [[Human Action]], online version, referenced 2011-02-06.</ref>

===III. Economics and the Revolt Against Reason===

[[Mises]] dismisses the [[Historical School]], [[Hegel]] and [[Marx]] with it. In discussing the "bourgeois logic" and "bourgeois mentality" of [[Marx]], [[Mises]] is able to attack [[polylogism]] in general. There does not exist multiple logics, only differing interests and their logical conclusions--whether they are spurious or well-founded. [[Mises]] states with regard to the [[Historical School]], "History, in due time, will arrange everything for the best. It does not need the advice of mortal men."<ref name="humanaction_ch3sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap3sec1.asp III. Economics and the Revolt Against Reason], 1. The Revolt Against Reason, [[Human Action]], online version, referenced 2011-02-06.</ref>

<blockquote>''See [[German Idealism]].''</blockquote>

===IV. A First Analysis of the Category of Action===

<blockquote>''Main Article: [[Value]]''</blockquote>

All actions are directed toward goals, aims or ends. The end, speaking generally, is always to remove a ''felt uneasiness''. Means are the ways by which we approach an end. Things in the world, when applied to our ends, become means and are commonly referred to as [[goods]].<ref name="humanaction_ch4sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec1.asp IV. A First Analysis of The Category of Action], 1. Ends and Means, [[Human Action]], online version, referenced 2011-02-06.</ref> Means are [[Scarcity|scarce]].

Actions are reflective of our ''scale of [[value|values]]''. All things equal, we satisfy wants of higher [[value]] to us, and leave unsatisfied wants of lower [[value]] to us. Things in the world have no intrinsic [[value]], our actions give things [[value]].<ref name="humanaction_ch4sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec2.asp IV. A First Analysis of The Category of Action], 2. The Scale of Value, [[Human Action]], online version, referenced 2011-02-06.</ref>

Given that every action is an attempt to establish a more satisfactory state of affairs, viz., to remove a ''felt uneasiness'', all actions are in a sense an [[exchange]]. We [[exchange]] one state for another, hopefully better, state. Lastly, value judgments arrange wants, but do not measure them. They are expressive of sequence and order rather than of measurement and weight.<ref name="humanaction_ch4sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp IV. A First Analysis of The Category of Action], 4. Action as Exchange, [[Human Action]], online version, referenced 2011-02-06.</ref>

===V. Time===

Time is a [[Praxeology|praxeological]] category: all action is in time and is subject to time.<ref name="humanaction_ch5sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp V. Time], 2. Past, Present and Future, [[Human Action]], online version, referenced 2011-02-07.</ref> As humans, our time is [[Scarcity|scarce]] and we must economize it accordingly. Our scales of [[value]] and therefore our actions are always with reference to time. As we will see later, time is important in the determination of [[interest]] and consumption.<ref name="humanaction_ch5sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap5sec3.asp V. Time], 3. The Economization of Time, [[Human Action]], online version, referenced 2011-02-07.</ref>

===VI. Uncertainty===

All action is speculative. We never know exactly what will occur. The natural sciences make it possible to foretell results from specific actions. They do not make the future predictable.<ref name="humanaction_ch6sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec1.asp VI. Uncertainty], 1. Uncertainty and Acting, [[Human Action]], online version, referenced 2011-02-08.</ref> But, [[Mises]] tells us, probability is a primary concern of [[praxeology]].

He distinguished between two types of propability: [[class probability]] and [[case probability]].

<blockquote>"''[[Class probability]] means'': We know or assume to know, with regard to the problem concerned, everything about the behavior of a whole class of events or phenomena; but about the actual singular events or phenomena we know nothing but that they are elements of this class."<ref name="humanaction_ch6sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec3.asp VI. Uncertainty], 3. Class Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, car insurance works on the premise that with a large pool of policies, they can use class probability to decide upon an approriate premium given the ''class probability'' of accidents. But, they know nothing about the probability of the individual policy holder getting into an accident.

<blockquote>"''[[Case probability]]'' means: We know, with regard to a particular event, some of the factors which determine its outcome; but there are other determining factors about which we know nothing."<ref name="humanaction_ch6sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec4.asp VI. Uncertainty], 4. Case Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, foreign policy experts may make predictions about the settlement of foreign disputes. They are well informed but it is impossible for them to predict the outcome perfectly because they can not grasp all the data and all the opinions of individuals shaping decisions. Therefore, they may know some of the factors that will shape the future, but never perfectly.

For [[Mises]], we make decisions with incomplete knowledge. To say it again, all action is speculative in character. To this difficulty in decisions, specifically in social cooperation where selection occurs, competition serves as a function to select the most able person for specific positions. It assigns every member of society to the position where they best serve society.<ref name="humanaction_ch6sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec6.asp VI. Uncertainty], 6. Betting, Gambling, and Playing Games, [[Human Action]], online version, referenced 2011-02-08.</ref>

===VII. Action Within the World===

Each person possesses one scale of valuations, which is visible through action.<ref name="humanaction_ch7sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec1.asp VII. Action Within The World], 1. The Law of Marginal Utility, [[Human Action]], online version, referenced 2011-02-13.</ref> Goods and modes of action are chosen based on their utility, or their causal relevance for the removal of felt ''uneasiness''.<ref name="humanaction_ch7sec1"></ref> Here [[Mises]] discusses the [[paradox of value]]: why is ''gold'' more valuable than ''iron''? Despite the many uses of iron, gold is valued more on the market because of its value in exchange. Iron may have more technological prospects or ''objective use-value'' but it lacks ''subjective use-value'', that is, gold is valuable in exchange due to scarcity, appearance and its tradition as a form of money. [[Mises]], however, dismisses the question as one which never occurs in reality.<ref name="humanaction_ch7sec1"></ref>

The [[Law of Marginal Utility]] is implied by the category of action: If a supply increases from quantity ''n'' to ''n + 1'' the extra unit provides less [[utility]] than unit ''n''. This is because ''n'' is satisfying a more urgent want than unit ''n + 1''. We satisfy more urgent wants first by their definition. Unit ''n'' is satisfying the more urgent want, ''n + 1'' is satisfying a less urgent want. Therefore, increasing units of a homogeneous supply are each applied to decreasingly important wants (seeing as the more urgent wants are always satisfied first). The [[law of marginal utility]], "does not deal primarily with the [[value]] of things, but with the [[value]] of the services a man expects to get from them."<ref name="humanaction_ch7sec1"></ref>

"[[Labor]]," says [[Mises]], "is preferred to leisure only insofar as the yield of [[labor]] is more urgently desired than the enjoyment of leisure."<ref name="humanaction_ch7sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec3.asp VII. Action Within The World], 3. Labor as Means, [[Human Action]], online version, referenced 2011-02-13.</ref> Work involves disutility. To this note, [[labor]] is more scarce than other material factors of production:

<blockquote>"In our world there is no abundance, but a shortage of manpower, and there are unused material factors of production, i.e. land, mineral deposits, and even plants and equipment."<ref name="humanaction_ch7sec3"></ref></blockquote>

Labor saving devices reduce want, they do not bring about "technological unemployment." Man economizes both labor and material factors.<ref name="humanaction_ch7sec3"></ref>

Action is successful it it produces the intended result: it produces the product. The human mind directs [[action]] with a purpose and production is creative. It is not something physical, natural, and external; it is a spiritual and intellectual phenomenon. All material actions within the world are a product of the mind. "In this sense," [[Mises]] tells us, "[[praxeology]] can be called a moral science."<ref name="humanaction_ch7sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec4.asp VII. Action Within The World], 4. Production, [[Human Action]], online version, referenced 2011-02-13.</ref>

== Part Two: Actions Within the Framework of Society ==

===VIII. Human Society===

We are born into society and only in this sense does society exist before the individual. [[Society]] is the supreme example of the benefits of the [[division of labor]].<ref name="ch8sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec1.asp VIII. Human Society], 1. Human Cooperation, [[Human Action]], online version, referenced 2011-02-17.</ref> It is an institution for the preservation of peaceful human relations. It is the social apparatus of compulsion and coercion.<ref name="ch8sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec2.asp VIII. Human Society], 2. A Critique of the Holistic and Metaphysical View of Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

[[Democratic government]] provides a method for the peaceful adjustment of government to the will of the majority. Wisdom and science thrive in a peaceful and affluent society. <ref name="ch8sec2"></ref>

<blockquote>"[[Liberalism]] aims at a political constitution which safeguards the smooth working of social cooperation and the progressive intensification of mutual social relations. Its main objective is the avoidance of violent conflicts, of wars and revolutions that must disintegrate the social collaboration of men and throw people back into the primitive conditions of barbarism where all tribes and political bodies endlessly fought one another. Because the division of labor requires undisturbed peace, liberalism aims at the establishment of a system of government that is likely to preserve peace, viz., democracy."<ref name="ch8sec2"></ref></blockquote>

[[Mises]] expounds the Ricardian Law of Association or [[comparative advantage]] as the fundamental characteristic of society.<ref name="ch8sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association, [[Human Action]], online version, referenced 2011-02-17.</ref> The division of labor assigns to each man the best job for him in society.<ref name="humanaction_ch6sec6"></ref> However, the end result of division of labor in society--a diversity which attests to the innate inequalities between individuals--does not illistrate ideas of [[Social Darwinism]]. Biology and evolutionary views cannot pass value judgments on the benefits of civilization.<ref name="ch8sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec7.asp VIII. Human Society], 7. The Great Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

===IX. The Role of Ideas===

All [[action]] is preceded by thinking. Thinking is to deliberate before [[action]] and to reflect upon past [[action]]. Thinking is a tool of action and language is a tool of thinking. All action is based on a definite idea about causal relations. Thinking and ideas are, like material wealth, passed down the generations.<ref name="ch9sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec1.asp IX. Human Society], 1. Human Reason, [[Human Action]], online version, referenced 2011-02-18.</ref> Action is always directed by ideas.<ref name="ch9sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec3.asp IX. Human Society], 3. Might, [[Human Action]], online version, referenced 2011-02-18.</ref>

[[Ideologies|Ideology]] and world views are explanations of social phenomena and technologies for prescriptive politics. All political doctrines imply that: "the political system we support will render you more prosperous and more content."<ref name="ch9sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec2.asp IX. Human Society], 2. World View and Ideology, [[Human Action]], online version, referenced 2011-02-18.</ref> [[Ideologies]], to [[Mises]], are the most powerful form of control. The might of a politician is due to his [[ideology]], his interpretation of the world and his prescriptive measures to ensure his followers are more prosperous and more content. Thinking, the ideological interpretation, succeeds through the cooperation of other minds. No thinker is isolated in his thoughts, they have been influenced by others. A politician's power dwindles if his [[ideology]] loses support. To [[Mises]]:

<blockquote>"The power of an ideology consists precisely in the fact that people submit to it without any wavering and scruples."<ref name="ch9sec3"></ref></blockquote>

Traditionalism and the idea of progress are ideologies also. Progress toward a more prosperous life and evolutionary progress must not be confused with evolution toward higher forms of life. Progress may not continue, majorities may error.<ref name="ch9sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec4.asp IX. Human Society], 4. Meliorism and the Idea of Progress, [[Human Action]], online version, referenced 2011-02-18.</ref> Ideologies may protect the material interest of the race or they may destroy it.

===X. Exchange Within Society===

[[Action]] always is essentially the exchange of one state of affairs for another state of affairs.<ref name="ch10sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec1.asp X. Exchange Within Society], 1. Autistic Exchange and Interpersonal Exchange, [[Human Action]], online version, referenced 2011-02-25.</ref> The interpersonal exchange of goods weaves the bonds which unites men into societies.<ref name="ch10sec1"></ref> [[Mises]] defines two different kinds of social cooperation: cooperation by virtue of contract and coordination, and contract by virtue of command and subordination or hegemony.<ref name="ch10sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec2.asp X. Exchange Within Society], 2. Contractual Bonds and Hegemonic Bonds, [[Human Action]], online version, referenced 2011-02-25.</ref> In the former state there are men who cooperate to achieve goals--their plans are symmetrical and share a common goal. In the latter state their is always two classes of men, those who command and those who obey. Again [[Mises]] emphasizes the important of ideology to animate the social body. The individuals must share an [[ideology]] if they are to cooperate. Hegemonic control needs an ideology that the controlling system is the best or the traditional norm. [[Ideologies]] imply obedience to the [[ideology]]. Contractual relation order society by free association held together by the order of right and law.<ref name="ch10sec2"></ref>

The [[Praxeology|praxeological]] categories, [[Mises]] tells us, are eternal and unchangable. They are the categories within which all action takes place. No [[action]] is free from the facts of existence--of which the praxeological categories belong.<ref name="ch10sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec3.asp X. Exchange Within Society], 3. Calculative Action, [[Human Action]], online version, referenced 2011-02-25.</ref> Man can never comprehend anything that is neither [[action]] or none action.

Modern civilization is characterized by the fact that it has elaborated a method which makes use of the arithmetic possible in a broad field of activities. [[Economic calculation]], for example in modern capital [[accounting]], is a fundamental issue in all comprehension of economic phenomena.<ref name="ch10sec3"></ref>

Despite the extended use of capital [[accounting]] and arithmetic, [[action]] can only make use of ordinal numbers. That is, actions order desires but do not measure them. But in our rational and contractual society we are able to make use of cardinal numbers in capital accounting. By this feature of capital accounting and contractual relations civilization opened the door to computation and calculation regarding the planning of the future and measuring the effects of past actions. Still, the applicability of cardinal numbers to economic thinking require these circumstances and economic law and theory cannot be deduced from [[economic history]], namely, the history of prices.<ref name="ch10sec3"></ref>

== Part Three: Economic Calculation ==

===XI. Valuation Without Calculation===

We apply the [[value|values]] we attribute to the ends of [[action]], to the means necessary to achieve those ends: "Other things being equal, [acting man] assigns to the total amount of the various means the same value he attaches to the end which they are fit to bring about."<ref name="ch11sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec1.asp XI. Valuation Without Calculation], 1. Gradation of Means, [[Human Action]], online version, referenced 2011-02-26.</ref>

The preferences used in [[action]], the laying aside of some things for other things, allows--as said above--the use of ordinal numbers but not cardinal numbers. Again, [[value|values]] attributable to actions cannot be measured arithmetically. Yet, in the activity of using means to attain certain ends, the acquisition of countable and measurable supplies of things becomes an immediate goal of action.<ref name="ch11sec1"></ref> [[Economic calculation]] can occur, despite that the values we attribute to different means and ends cannot be measured, by the results of actions of interpersonal exchange:

<blockquote>"The modern theory of value and prices show how the choices of individuals, their preferring some things and setting aside of other things, results, in the sphere of interpersonal exchange, in the emergence of market prices."<ref name="ch11sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec2.asp XI. Valuation Without Calculation], 2. The Barter-Fiction of the Elementary Theory of Value and Prices, [[Human Action]], online version, referenced 2011-02-26.</ref></blockquote>

[[Mises]] reminds us that is it a fallacy to think things exchanged are of the same value. Rather, people buy and sell only because they appraise the things given up less than those received.<ref name="ch11sec2"></ref> "Market prices," [[Mises]] says in a later chapter, "are not expressive of equivalence, but of a divergence in the valuation of the exchanging parties."<ref name="ch26sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap26sec3.asp XXVI. Economic Calculation under Socialism], 3. Recent Suggestions for Socialist Economic Calculation, [[Human Action]], online version, referenced 2011-04-25.</ref>

In using technology, we are resorting to knowledge of causal relations. We are not, however, addressing the technologies applicability to human wants and desires.<ref name="ch11sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec3.asp XI. Valuation Without Calculation], 3. The Problem of Economic Calculation, [[Human Action]], online version, referenced 2011-02-26.</ref>

<blockquote>"Technology tells how a given end could be attained by the employment of various means which can be used together in various combinations, or how various available means could be employed for certain purposes. But it is at a loss to tell man which procedures he should choose out of the infinite variety of imaginable and possible modes of production."<ref name="ch11sec3"></ref></blockquote>

Engineering can tell us how to build a bridge but not whether its construction would draw resources from other areas where they would be used to satisfy more urgently felt needs. [[Action]], as opposed to the casual relations of engineering, must discover the relations between dissimilar projects. [[Money]], holding the status of "universally used medium of exchange," becomes the measure of the worthiness of differing possiblities in the realm of action. Because [[goods]] and services have money prices we can use these in planning and decisions.<ref name="ch11sec3"></ref>

With all action directed toward the future, all economic planning and calculation must be made in regards to the future state of prices. In entrepreneurial ventures the acting man wants the prices of goods produced and sold to be greater than the price of the goods used in production. The practical meaning of [[economic calculation]] is to show how much one is free to consume without impairing the future capacity to produce. The concepts of [[economic calculation]]--[[Profit]] and [[loss]], [[capital]] and [[income]], spending and [[saving]], cost and yield--are developed to ensure efficient use of the resources of society.<ref name="ch11sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec4.asp XI. Valuation Without Calculation], 4. Economic Calculation and The Market, [[Human Action]], online version, referenced 2011-02-26.</ref>

===XII. The Sphere of Economic Calculation===

The acting individual is always concerned with the future. In action he is either, (1) anticipating the future and acting accordingly, or (2) trying to change the outcomes of the future even if there are no other changes to the data. Economic calculation cannot predict the outcomes of the future, it can only assist man in adjusting his actions to his opinion of the future. The numerical exactitude of balance sheets and income statements must not prevent us from realizing their inherent uncertainty and estimation.<ref name="ch12sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec1.asp XII. The Sphere of Economic Calculation], 1. The Character of Monetary Entries, [[Human Action]], online version, referenced 2011-02-27.</ref>

[[Money]] is not a measuring stick. Money prices do not transmit the intrinsic value of a good. [[Prices]] are not measured in money, they consist in money. They are either prices of the past or prices of the future. Furthermore, although it is possible to aggregate prices paid in goods, it makes no sense to talk about a national income or any other aggregate of spending which "characterizes" a society.<ref name="ch12sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec2.asp XII. The Sphere of Economic Calculation], 2. The Limits of Economic Calculation [[Human Action]], online version, referenced 2011-02-27.</ref>

Economic calculation makes sense only in a society with private ownership of the means of production. Economic calculation is not to blame of the masses preferring detective stories to books of philosophy--that is an outcome of the desires and preferences of individuals acting in society. Economic calculation cannot be blamed for the less than ideal characters and habits of other members of society.<ref name="ch12sec2"></ref>

Prices, or exchange ratios, are in constant fluctuation with the changing data of the market and the changing whims of consumers.<ref name="ch12sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec3.asp XII. The Sphere of Economic Calculation], 3. The Changeability of Prices[[Human Action]], online version, referenced 2011-02-27.</ref>

[[Mises]] dismisses the idea of measurement in [[purchasing power]] as unfeasible:

<blockquote>"A measurement of purchasing power would have to rely upon the prices of the goods and services of the first order and, what is more, of ''all'' of them."<ref name="ch12sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec4.asp XII. The Sphere of Economic Calculation], 4. Stabilization [[Human Action]], online version, referenced 2011-02-27.</ref></blockquote>

Further, changes in the [[purchasing power]] of [[money]] must necessarily effect different goods and services at different times and therefore efforts to stabilize the purchasing power of money by attempting to change the money relation is an impossible feat.<ref name="ch12sec4"></ref>

===XIII. Monetary Calculation as a Tool of Action===

Monetary calculation is the decisive factor of action in the social system of [[division of labor]]. Every action of the [[entrepreneur]] is analyzed by monetary calculation. Only in the institutional settings of [[private property]] and [[division of labor]] where goods and services are exchanged by a money can the system of monetary calculation be used. The use of aggregates derived from the use of monetary calculation is useless. That is, monetary calculation is useful for individual acting but cannot be useful to determining "social" values or welfare. By the use of monetary calculation, for example in capital [[accounting]], arithmetic has become a tool in the struggle for a better life. Capital [[accounting]] allows us to analyze the success or failure of men in satisfying the needs of [[consumers]].<ref name="ch13sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap13sec1.asp XIII. Monetary Calculation as a Tool of Action], 1. Monetary Calculation as Method of Thinking [[Human Action]], online version, referenced 2011-03-14.</ref>

<blockquote>"Our civilization is inseparably linked with our methods of economic calculation. It would parish if we were to abandon this most precious intellectual tool of acting. Goethe was right in calling bookkeeping by double entry "one of the finest inventions of the human mind.'"<ref name="ch13sec1"></ref></blockquote>

== Part Four: Catallactics or Economics of the Market Society ==

=== The Market ===

<blockquote>"The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of actions of various individuals cooperating under the division of labor."<ref name="ch15sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec1.asp XV. The Market], 1. Characteristics of the Market Economy, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref></blockquote>

In the market place everyone is an end in himself and an end for other people. Each individual acts on his own behalf, but everyones actions of the market also serve another. In acting everyone is serving everyone else's ends while serving their own. They each aim at the satisfaction of other peoples needs as much as at his own.<ref name="ch15sec1"></ref>

The state of the market is characterized by the totality of [[prices]] within the market which are determined by individuals eager to buy and sell. Additionally, there is no such thing as a "mixed" economy: "it is directed either by the market of by the decrees of a [[production]] tsar or a committee of production tsars."<ref name="ch15sec1"></ref> Publicly owned entities which operating in a market economy must obey the rules of profit and loss as others do. The characteristic feature of the [[market economy]] is its ability to [[calculate]]. Monetary calculation along with the determination of market prices allows the market to calculate. The rational ordering of the [[division of labor]] and of production are resultants of this.<ref name="ch15sec1"></ref>

<blockquote>"The market economy is real because it can calculate."<ref name="ch15sec1"></ref></blockquote>

The central principles in the market economy's calculation are [[income]] and [[capital]]. Income is the amount of resources which can be consumed without lowering the capital of the individual or business. If income is greater than the amount consumed, ''[[savings]]'' results. Conversely, if a man consumes more than his income is it referred to as ''capital consumption''. Capital, here, is the quantity of money representing ownership in the assets of a enterprise (using the term broadly) or the total [[assets]] less the total [[liabilities]].<ref name="ch15sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec2.asp XV. The Market], 2. Capital, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref>

"All civilizations" says [[Mises]], "have up to now been based on private ownership of the means of production." Our system of private ownership of the means of production has poured the horn of plenty on growing population figures. Capitalism has served to allow each man a higher material wealth than even the kings of past ages. Many who argue against capitalism do so because they look upon capitalism as an accidental phenomenon. They do not understand [[private property]] and the concept of free-associations causal relationship with the material wealth of the era. It is the critics of [[capitalism]], [[Mises]] contends, which lack historical understanding, not the economists. To capitalism's enemies, it is the policy advocated by big business, regardless of the fact that big business often advocates for "[[protectionism]], [[cartels]], and the abolition of [[competition]]." And today, it is considered a "legitimate task of government to prevent an efficient man from competing with the less efficient." Advocates of protection, and state imposed limitations on the free-market want to make us believe that the consequences of [[government intervention]] are produced by capitalism.<ref name="ch15sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec3.asp XV. The Market], 3. Capitalism, ''[[Human Action]]'', online version, referenced 2011-04-10.</ref>

In a market economy the [[The Sovereignty of the Consumers|consumers are sovereign]]. Only sellers of the [[first order]] goods are in contact with the consumers, but the consumers buying and abstention from buying is transmitted from the [[consumer goods]] to the [[higher order]] goods (the [[producers goods]]). Consumers, in their capricious buying, determine the income of every member of society and direct production into the hands of individuals best able to serve the consumers.<ref name="ch15sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec4.asp XV. The Market], 4. The Sovereignty of the Consumers, ''[[Human Action]]'', online version, referenced 2011-04-30.</ref>

The consumers designate everyones place in society. The classical economists favored the abolition of the all trade barriers because they protected the less efficient from the more efficient. Trade barriers curtail production and lower the standard of living of all those effected. It is the actions of consumers which determine the prices on the market, and it is these prices which push investors into new lines of business. The bigness of one business will not stop others from trying to compete with it. [[Mises]] writes:

<blockquote>"What a newcomer who wants to defy the vested interests of the old established firms needs most is brains and ideas. If his project is fit to fill the most urgent of the unsatisfied needs of the consumers or to purvey them at a cheaper price than their old purveyors, he will succeed in spite of the much talked of bigness and power of the old firms."<ref name="ch15sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec5.asp XV. The Market], 5. Competition, ''[[Human Action]]'', online version, referenced 2011-05-17.</ref></blockquote>

Competition in the [[catallactic]] sense (i.e., competition in the market place) has a different function than that of games and beauty contests. Its function is to select the individuals most able to control the resources of society to the greatest benefit of the consumers. Humans are not born equal and the consumers do not care: "Their only interest is to secure the best possible satisfaction of their needs."<ref name="ch15sec5"></ref>

In human society, the terms "[[freedom]]" and "[[liberty]]" reference to interhuman relations. For instance [[Mises]] writes, "man was not created free; what freedom he may possess has been given to him by society...Liberty and freedom are the conditions of man within a contractual society."<ref name="ch15sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec6.asp XV. The Market], 6. Freedom, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref> Man in this condition is free to exchange goods and services, but he is by no means independent. He depends on other members of society. We say that a man is free in a contractual society because he serves others to serve himself. The restrains of freedom a man may experience in this environment is due to natural phenomenon only--the laws of nature to which we all unconditionally submit.<ref name="ch15sec6"></ref>

The market system will invariably bestow unequal rewards. This is primarily due to the different levels of service people provide to each other on the [[market]]. That is, it rewards every effort according to its [[value]] as determined by the subjective valuations of the consumers. With respect to inequality, [[Mises]] says:

<blockquote>"No system of social division of labor can do without a method that makes individuals responsible for their contribution to the joint productive effort. If this responsibility is not brought about by the price structure of the market and the inequality of wealth and income it begets, it must be enforced by the methods of direct compulsion as practiced by the police."<ref name="ch15sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec7.asp XV. The Market], 7. Inequality of Wealth and Income, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref></blockquote>

The economic phenomenon of [[profit]] and [[loss]] can be analyzed from an psychic point of view. [[Profit]], in a boarder sense, is the gain derived from [[action]]; it is the increase in satisfaction brought about by the action. In this sense, then, profit is the end of every action. Profit in this psychic sense is not measurable. However in the market economy, [[goods]] and [[services]] are bought and sold with money prices. This allows for the computation of profit and loss using the market prices of the goods and services. [[Profit]], in monetary calculus, is the surplus of [[money]] received over the money expended. It is everyone acting to attain the highest psychic which actuates the market-price mechanism and allows for monetary calculus.

The [[entrepreneur]] encounters the ever changing price structure of the market and makes his profit from correctly anticipating the changes in money prices. In this sense, he is always a speculator.<ref name="ch15sec8">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec8.asp XV. The Market], 8. Entrepreneurial Profit and Loss, ''[[Human Action]]'', online version, referenced 2011-05-19.</ref>

In an expanding or progressing economy the amount of capital invested is increasing per capita. Income is increased either by an increase in technological methods brought about by the increase in capital or simply by an increase in production. Of the increase in wealth (the result of the progressing economy) the majority of it goes to non-entrepreneurial groups. To note again, the market has a tendency to eliminate entrepreneurial profit and it is therefore temporary. In the long run, i.e., when profits have been eliminated by competition, the increase in productivity benefits exclusively the workers and consumers. On progress [[Mises]] writes:

<blockquote>"The vehicle of economic progress is the accumulation of technological methods of production the execution of which is almost always conditioned by the availability of such new capital."<ref name="ch15sec9">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec9.asp XV. The Market], 9. Entrepreneurial Profits and Losses in a Progressing Economy, ''[[Human Action]]'', online version, referenced 2011-05-21.</ref></blockquote>

The greater profits are, the greater is the increment in general prosperity that the enterprise brings. The entrepreneurial function, the driving after profits, is the driving of capital into the most profitable line of business. Which is another way of saying, the driving of capital into which the greatest increase in general prosperity results. Profits and losses are the devices through which consumers exercise their superiority over the owners of capital.<ref name="ch15sec9"></ref>

<ol style="list-style-type:upper-roman;" start="15">
<li> Prices</li>
<li> Indirect Exchange</li>
<li> '''Action in the Passing of Time'''</li>
For humans considering [[action]], time matters: there is a ''too late'' and a ''too early''. [[Time preferences]] affect all action (see [[Value]]).<ref name="mises_action_in_passage_of_time_2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec2.asp XVIII. Action in the Passing of Time], 2. Time Preference as an Essential Requisite of Action, ''[[Human Action]]'', online version, referenced 2011-02-04.</ref>

Postponements of consumption, or [[saving]], is always embodied in concrete goods. "The act of saving," [[Mises]] tells us, "always has its counterpart in a supply of goods produced and not consumed...Man's savings are always embodied in concrete capital goods."<ref name="mises_action_in_passage_of_time_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec9.asp XVIII. Action in the Passing of Time], 9. Money and Capital; Saving and Investment, ''[[Human Action]]'', online version, referenced 2011-02-08.</ref>

The discussion of [[time preference]], and the postponment of consumption, is a lead in to [[interest]].

<li> '''Interest'''</li>

<blockquote>''Main Article: [[Interest]]''</blockquote>

Time preference manifests itself in the phenomenon of [[originary interest]], i.e., the discount of future goods as against present goods.<ref name="mises__human_action_chap19sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec1.asp XIX. The Rate of Interest], The Phenomenon of Interest, [[Human Action]], online version, referenced 2011-02-13.</ref> Originary interest is a ratio, like profit and loss, and not a price.<ref name="mises__human_action_chap19sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec2.asp XIX. The Rate of Interest], Originary Interest, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref> It is the ratio between the value assigned to presents goods against the value assigned to future goods. This discounting explains, for example, the reason why there is finite prices on usable land:

<blockquote>"If the future services which a piece of land can render were to be valued in the same way in which its present services are valued, no finite price would be high enough to impel its owner to sell it."<ref name="mises__human_action_chap19sec2"></ref></blockquote>

We [[discount]] future services and [[goods]] because of [[time preference]]. The fact that we can purchase land which is usable into the foreseeable future is proof of this. Furthermore, [[originary interest]] is not determined by supply and demand of [[loanable funds]]. Time preference, manifesting in the discount of future goods against present goods (i.e., originary interest) determines both the demand and supply of capital and capital goods.<ref name="mises__human_action_chap19sec2"></ref>

Interest rates in loans, in a changing economy, always have an element of entrepreneurial profit. The lender, taking a risk and and making a prediciton about the future state of the market, is engaging in an entrepreneurial venture. Therefore, interest rates on loans are never pure [[originary interest]] but also entrepreneurial profit.<ref name="mises__human_action_chap19sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec4.asp XIX. The Rate of Interest], Originary Interest in the Changing Economy, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref>

<li> Interest, Credit Expansion, and the Trade Cycle</li>
<li> Work and Wages</li>
<li> The Nonhuman Original Factors of Production</li>
<li> The Data of the Market</li>
<li> Harmony and Conflict of Interests</li>
</ol>

== Part Five: Social Cooperation Without a Market ==

<ol style="list-style-type:upper-roman;" start="25">
<li> The Imaginary Construction of a Socialist Society</li>
<li> The Impossibility of Economic Calculation Under Socialism</li>
</ol>

== Part Six: The Hampered Market Economy ==

<ol style="list-style-type:upper-roman;" start="27">
<li> The Government and the Market</li>
<li> Interference by Taxation</li>
<li> Restriction of Production</li>
<li> Interference with the Structure of Prices</li>
<li> Currency and Credit Manipulation</li>
<li> Confiscation and Redistribution</li>
<li> Syndicalism and Corporativism</li>
<li> The Economics of War</li>
<li> The Welfare Principle Versus the Market Principle</li>
<li> The Crisis of Interventionism</li>
</ol>

== Part Seven: The Place of Economics in Society ==
<ol style="list-style-type:upper-roman;" start="38">
<li> The Nondescript Character of Economics</li>
<li> The Place of Economics in Learning</li>
<li> Economics and the Essential Problems of Human Existence</li>
</ol>

==References==
{{Reflist|2}}

==Links==
''{{Store|http://www.mises.org/store/Human-Action-The-Scholars-Edition-P119.aspx|Human Action (Scholar's Edition)}}''

* [http://mises.org/resources.aspx?Id=3250&html=1#Publication_History ''Human Action'' publication history]
* Mises Made Easier: [http://mises.org/Easier/Easier.asp Glossary for Human Action]
* [http://mises.org/humanaction/theindex.asp Human Action interactive index]

===Editions===
* ''Human Action: A Treatise on Economics'', 1998 Scholar's Edition:
** {{mr|3250|Resources page}}
** {{mr|3810|Study Guide}}
*** [http://mises.org/daily/3262 "Study Guide to Human Action"] by [[Robert Murphy]], December 2008
*** [http://blog.mises.org/6708/weekend-study-guide/ "Weekend Study Guide"] (individual chapter downloads)
*** [http://blog.mises.org/15181/the-human-action-study-guide-as-our-armor/ "The Human Action Study Guide is our armor"] by Jim Fedako, December 2010
** [http://mises.org/media/category/139 Audiobook] read by [[Jeff Riggenbach]]
** Mises Daily excerpts
*** [http://mises.org/daily/3328 Introduction]
*** [http://mises.org/daily/2506 Chapter 1] "Acting Man"
*** [http://mises.org/daily/2565 Chapter 2] "The Sciences of Human Action" ([http://mises.org/daily/2606 study guide])
*** [http://mises.org/daily/2535 Chapter 3] "Economics and the Revolt Against Reason" ([http://mises.org/daily/2574 study guide])
*** [http://mises.org/daily/2711 Chapter 4] "A First Analysis of the Category of Action" ([http://mises.org/daily/2712 study guide])
*** [http://mises.org/daily/2730 Chapter 5] "Time and Praxeology" ([http://mises.org/daily/2731 study guide])
*** [http://mises.org/daily/2608 Chapter 6] "Uncertainty" ([http://mises.org/daily/2615 study guide])
*** [http://mises.org/daily/2774 Chapter 7] "Action Within the World" ([http://mises.org/daily/2778 study guide])
*** [http://mises.org/daily/2813 Chapter 8] "Human Society" ([http://mises.org/daily/2814 study guide])
*** [http://mises.org/daily/2841 Chapter 9] "The Role of Ideas" ([http://mises.org/daily/2843 study guide])
*** [http://mises.org/daily/2849 Chapter 10] "Exchange Within Society" ([http://mises.org/daily/2850 study guide])
*** [http://mises.org/daily/2880 Chapter 11] "Valuation Without Calculation" ([http://mises.org/daily/2881 study guide])
*** [http://mises.org/daily/2933 Chapter 12] "The Sphere of Economic Calculation" ([http://mises.org/daily/2939 study guide])
*** [http://mises.org/daily/2979 Chapter 14] "The Scope and Method of Catallactics" ([http://mises.org/daily/2980 study guide])
*** Chapter 15 ([http://mises.org/daily/3029 Part I], [http://mises.org/daily/3030 Part II]) "The Market" ([http://mises.org/daily/3005 study guide])
*** Chapter 16 ([http://mises.org/daily/3067 Part I], [http://mises.org/daily/3099 Part II], [http://mises.org/daily/3552 Part III]) "Prices" ([http://mises.org/daily/3068 study guide])

* ''Human Action: A Treatise on Economics'', 1996 4th Revised Edition:
** Foreword to the 4th edition by Bettina B. Greaves (p. v) ([http://mises.org/humanaction/forward.asp HTML], [http://mises.org/humanaction/pdf/ha_002.pdf PDF])
** Full text ([http://mises.org/books/humanaction.pdf PDF])

* ''Human Action: A Treatise on Economics'', 1966 3rd Revised Edition:
** Foreword to the 3rd edition by Ludwig von Mises ([http://mises.org/humanaction/foreword3.asp HTML], [http://mises.org/humanaction/pdf/ha_003.pdf PDF])
** Additions to Human Action in the 3rd edition ([http://mises.org/humanaction/ha3rd-addition.pdf PDF])

* ''Human Action: A Treatise on Economics'', Abridged Edition:
** Text ([http://blog.mises.org/9147/human-action-abridged/ HTML])

===Other resources===
*Articles, essays & reviews
** [http://mises.org/daily/2975 "Epistemological Relativism in the Sciences of Human Action"] Ludwig von Mises, 1960
** "The Place of Mises's Human Action in the Development of Modern Economic Thought" ([http://mises.org/journals/qjae/pdf/Qjae213.pdf PDF]) {{Nowrap|by [[Joseph T. Salerno]], Spring 1999}}
** [http://mises.org/daily/3363 "Human Action at Sixty"] by Richard M. Ebeling, March 2009
** [http://mises.org/daily/5237/Misess-Gift-of-Human-Action "Mises's Gift of Human Action"] by Jonathan M. Finegold Catalan, May 2011
** [http://mises.org/efandi/ch10.asp "The Why of Human Action"] by Ludwig von Mises, September 1949
** Mises Review: [http://mises.org/misesreview_detail.aspx?control=127 "Human Action, The Scholar's Edition"] by [[David Gordon]], Winter 1999 (republished as Mises Daily [http://mises.org/daily/3655 here])
** [http://blog.mises.org/14807/the-power-of-the-pocket-edition/ "The Power of the Pocket Edition"] by [[Jeffrey Tucker]], November 2010

* Other media
** In Studio: "Human Action: Pocket Edition" interview with [[Douglas French]], ([http://www.youtube.com/watch?v=Mou5ID13HqI YouTube])
** [http://www.apriorist.de/modx/hauyf/ ''Acting Man'' online lesson]
** [http://mises.org/quotes.aspx?action=source&Source=Human%20Action ''Human Action'' quotes]

* {{wplink}}

{{See also|Human Action Comics}}
[[Category:Writings of Ludwig von Mises]]
[[Category:Writings on economics]]

Final Utility

2011-05-25T17:43:35Z

Huckelberry: /* Example */ revised example..

'''Final Utility''' is the [[utility]] of a [[good]] applied to our least desirable use of it. That is, the last (i.e., least important) use of a supply. If a use of a good must be given up, it will logically be the last use of the good we would choose: we give up the least important of our satisfactions first--which would be satisfied by the last good.
:''See [[Law of Marginal Utility]]''
For example, if we lost a unit of a good, the ''[[value]]'' of the loss would be the value of the least important use of the good. This last good, which represents its final utility, was being applied to our least important wants. In the case of the lost good, it is replaced and the value to which we can assign the loss is not the value of the first most important use of the good, but the least important--what we call the final utility.<ref>[[Böhm-Bawerk]], Eugen von. "The Law of Final Utility - Eugen von Böhm-Bawerk - Mises Daily ." The Ludwig von Mises Institute . http://mises.org/daily/4637 (accessed April 29, 2011).</ref>

According to the [[law of marginal utility]], the value of each good in a stock of identical goods is [[utility]] of the last and most easily dispensable unit.<ref>von Böhm-Bawerk, Eugen, trans. George Reisman. "Eugen von Böhm-Bawerk’s “Value, Cost, and Marginal Utility”." Ludwig von Mises Institute. mises.org/pdf/asc/2002/asc8-reisman.pdf (accessed April 30, 2011).</ref> That is why price is said to be determined by supply and demand: the price reflects all the uses of the good, including the last use. If the price increases, because of a shortage of supply, the least desirable uses of a good are not considered in the purchase of the good and therefore the price ''must'' "reflect" the marginal utility of the good.

[[Ludwig von Mises]] writes:

<blockquote>"When face with the problem of the value to be attached to one unit of a homogeneous supply, man decides on the basis of the value of the least important use he makes of the units of the whole supply; he decides on the basis of marginal utility."<ref name="humanaction_ch7sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec1.asp VII. Action Within The World], 1. The Law of Marginal Utility, ''[[Human Action]]'', online version, referenced 2011-04-30.</ref></blockquote>

==Example==

If a hurricane struck Florida and there was a shortage of water, everything else equal, the [[price]] of bottled water would increase. Water in Florida, before this [[shortage]], was used for drinking water, cooking, watering plants, and bathing. With the tap off, the price of bottled water has increased to such an extent that bottled water will surely not be purchased for watering plants or bathing. That is, the increase in price reflects the increase in the value we attribute to the last use of the last unit in the [[supply]] of the [[good]]. To explain, before the hurricane water was valued according to the fact that it would be used for bathing and watering plants. Now, with a shortage, it is valued according to its ability to quench thirst and cook food. The latter uses importance is "approximated" in the price of the good. The bottled water which now costs, say, $20 dollars a bottle, is an approximation of the [[value]] attribute to drinking water, cooking water, and whatever else it might be used for at the higher price--given that previous uses are not considered due to the shortage of supply and its corollary, the increase in price. That is why it is said that a homogeneous stock of goods is valued according to its final utility--according to its last use of a stock of a good.

A supply of a good will be applied to most important wants first and least important wants last. When there is a shortage, all else being equal, the price increases. The small supply is being used for the most important wants, but is not being used for the least important wants. In this sense, we can say the increase in price represents the increase in value which the last unit of the supply is filling. Before water cost very little and was used for washing and watering plants. Now, since there is not enough for washing and watering plants and it is instead being used exclusively to drink and cook--the value we attribute to those activities is, in a sense, communicated through the higher price. The price reflects that importance of the last use of a supply--and in this case the supply was truncated to only allow for the more important uses.

Final utility is the logical conclusion of [[marginal utility]] and a corner stone of [[price]] theory.

==Reference==
{{reflist}}

{{stub}}

Final Utility

2011-05-23T16:54:23Z

Huckelberry: /* Example */

'''Final Utility''' is the [[utility]] of a [[good]] applied to our least desirable use of it. That is, the last (i.e., least important) use of a supply. If a use of a good must be given up, it will logically be the last use of the good we would choose: we give up the least important of our satisfactions first--which would be satisfied by the last good.
:''See [[Law of Marginal Utility]]''
For example, if we lost a unit of a good, the ''[[value]]'' of the loss would be the value of the least important use of the good. This last good, which represents its final utility, was being applied to our least important wants. In the case of the lost good, it is replaced and the value to which we can assign the loss is not the value of the first most important use of the good, but the least important--what we call the final utility.<ref>[[Böhm-Bawerk]], Eugen von. "The Law of Final Utility - Eugen von Böhm-Bawerk - Mises Daily ." The Ludwig von Mises Institute . http://mises.org/daily/4637 (accessed April 29, 2011).</ref>

According to the [[law of marginal utility]], the value of each good in a stock of identical goods is [[utility]] of the last and most easily dispensable unit.<ref>von Böhm-Bawerk, Eugen, trans. George Reisman. "Eugen von Böhm-Bawerk’s “Value, Cost, and Marginal Utility”." Ludwig von Mises Institute. mises.org/pdf/asc/2002/asc8-reisman.pdf (accessed April 30, 2011).</ref> That is why price is said to be determined by supply and demand: the price reflects all the uses of the good, including the last use. If the price increases, because of a shortage of supply, the least desirable uses of a good are not considered in the purchase of the good and therefore the price ''must'' "reflect" the marginal utility of the good.

[[Ludwig von Mises]] writes:

<blockquote>"When face with the problem of the value to be attached to one unit of a homogeneous supply, man decides on the basis of the value of the least important use he makes of the units of the whole supply; he decides on the basis of marginal utility."<ref name="humanaction_ch7sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec1.asp VII. Action Within The World], 1. The Law of Marginal Utility, ''[[Human Action]]'', online version, referenced 2011-04-30.</ref></blockquote>

==Example==

If a hurricane struck Florida and there was a shortage of water, everything else equal, the [[price]] of bottled water would increase. Water in Florida, before this [[shortage]], was used for drinking water, cooking, watering plants, and bathing. With the tap off, the price of bottled water has increased to such an extent that bottled water will surely not be purchased for watering plants or bathing. That is, the increase in price reflects the increase in the value we attribute to the last unit in the [[supply]] of the [[good]]. Before, water was valued according to the fact that it would be used for bathing and watering plants. Now, with a shortage, it is valued according to its ability to quench thirst and cook food. The latter uses importance (aside from the efficient allocation of resources that prices bring) is "approximated" in the price of the good. The bottled water which now costs, say, $20 dollars a bottle, is an approximation of the [[value]] attribute to drinking water, cooking water, and whatever else it might be used for at the higher price--given that previous uses are not considered due to the shortage of supply and its corollary, the increase in price. That is why it is said that a homogeneous stock of goods is valued according to its final utility--according to its last use of a stock of a good.

==Reference==
{{reflist}}

{{stub}}

Final Utility

2011-05-23T16:52:03Z

Huckelberry: added an example

'''Final Utility''' is the [[utility]] of a [[good]] applied to our least desirable use of it. That is, the last (i.e., least important) use of a supply. If a use of a good must be given up, it will logically be the last use of the good we would choose: we give up the least important of our satisfactions first--which would be satisfied by the last good.
:''See [[Law of Marginal Utility]]''
For example, if we lost a unit of a good, the ''[[value]]'' of the loss would be the value of the least important use of the good. This last good, which represents its final utility, was being applied to our least important wants. In the case of the lost good, it is replaced and the value to which we can assign the loss is not the value of the first most important use of the good, but the least important--what we call the final utility.<ref>[[Böhm-Bawerk]], Eugen von. "The Law of Final Utility - Eugen von Böhm-Bawerk - Mises Daily ." The Ludwig von Mises Institute . http://mises.org/daily/4637 (accessed April 29, 2011).</ref>

According to the [[law of marginal utility]], the value of each good in a stock of identical goods is [[utility]] of the last and most easily dispensable unit.<ref>von Böhm-Bawerk, Eugen, trans. George Reisman. "Eugen von Böhm-Bawerk’s “Value, Cost, and Marginal Utility”." Ludwig von Mises Institute. mises.org/pdf/asc/2002/asc8-reisman.pdf (accessed April 30, 2011).</ref> That is why price is said to be determined by supply and demand: the price reflects all the uses of the good, including the last use. If the price increases, because of a shortage of supply, the least desirable uses of a good are not considered in the purchase of the good and therefore the price ''must'' "reflect" the marginal utility of the good.

[[Ludwig von Mises]] writes:

<blockquote>"When face with the problem of the value to be attached to one unit of a homogeneous supply, man decides on the basis of the value of the least important use he makes of the units of the whole supply; he decides on the basis of marginal utility."<ref name="humanaction_ch7sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec1.asp VII. Action Within The World], 1. The Law of Marginal Utility, ''[[Human Action]]'', online version, referenced 2011-04-30.</ref></blockquote>

==Example==

If a hurricane struck Florida and there was a shortage of water, everything else equal, the [[price]] of bottled water would increase. Water in Florida, before this [[shortage]], was used for drinking water, cooking, watering plants, and bathing. With the tap off, the price of bottled water has increased to such an extent that bottled water will surely not be purchased for watering plants or bathing. That is, the increase in price reflects the increase in the value we attribute to the last unit in the [[supply]] of the [[good]]. Before, water was valued according to the fact that it would be used for bathing and watering plants. Now, with a shortage, it is valued according to its ability to quench thirst and cook food. The latter uses importance (aside from the efficient allocation of resources that prices bring) is "approximated" in the price of the good. The bottled water which now costs, say, $20 dollars a bottle, is an approximation of the [[value]] attribute to drinking water, cooking water, and whatever else it might be used for at the higher price--given that previous uses are not considered due to the shortage of supply and its colliery, the increase in price. That is why it is said that a homogeneous stock of goods is valued according to its final utility--according to its last use of a stock of a good.

==Reference==
{{reflist}}

{{stub}}

Comparative advantage

2011-05-23T16:18:18Z

Huckelberry: /* Origins and Original Example */

{{rightTOC}}

{{cleanup}}

'''Comparative Advantage''' refers to the ability of an entity (individual, company, or country) to produce a [[good]] or service at a lower [[opportunity cost]] than another one. It is the ability to produce a product with an highest ''relative'' efficiency than one's trade partner, given all the other products that could be produced. It can be contrasted with [[Absolute Advantage]] which refers to the ability of one to produce a particular good or service at a lower absolute cost than another.

'''Comparative Advantage''' is also know as '''comparative cost''', '''the law of association''' or the '''Ricardian Law of Association'''.<ref name="Mises_law_of_association"></ref>

==Origins and Original Example==

In ''[[Principles of Political Economy and Taxation]]'', [[David Ricardo]] uses the example of wine production in [[Portugal]] and cloth production in [[England]] to illustrate '''comparative advantage'''. [[England]] can produce a certain quantity of cloth with 100 men for one year or a certain quantity of wine with 120 men in the same time. [[Portugal]], on the other hand, may only require 90 men for one year to produce the same quantity of cloth and 80 men for one year to produce the wine. [[Portugal]], in [[Richardo's]] example, has an [[absolute advantage]]: it makes both wine and cloth more efficiently than [[England]]. Yet, [[Ricardo]] concludes:

<blockquote>Though [Portugal] could make cloth with the labor of 90 men, she would import it from a country where it requires the labor of 100 men to produce it, because it would be advantageous to her rather to employ her capital in production of wine, for which she would obtain more cloth from [[England]], than she could produce by diverting a portion of her capital from cultivation of vines to the manufacture of cloth.<ref name="Ricardo_comparative_advantage">[[David Ricardo]] [[Principles of Political Economy and Taxation]], VII. On Foreign Trade, (Amherst, New York: Prometheus Books) 94-95</ref></blockquote>

If [[Portugal]] did not trade, she would need to produce the cloth locally, therefore devoting part of her capital to the manufacture of cloth, "which she would thus obtain probably inferior in quality as well as quantity."<ref name="Ricardo_comparative_advantage"></ref> The conclusion to be drawn is that the benefits of [[division of labor]] and [[specialization]] apply to international trade as well as to domestic trade.

==Examples==
In addressing the "paradox" where it is worthwhile for a country with [[absolute advantage]] to trade with a country who has ''absolute disadvantage (i.e., is more efficient in nothing)'', [[Paul Samuelson]] writes:

<blockquote>
A traditional example used to illustrate this paradox of comparative advantage is the case of the best lawyer in town who is also the best typist in town. Will she not specialize in law and leave typing to a secretary? How can she afford to give up precious time from the legal field, where her comparative advantage is very great, to perform typing activities in which she is efficient but in which she lacks ''comparative'' advantage? Or look at it from the secretary's point of view. She is less efficient than the lawyer in both activities; but her relative disadvantage compared with the lawyer's is least in typing. Relatively speaking, the secretary has a '''comparative advantage''' in typing.<ref name="samelson_comparative_advantage">[[Paul Samuelson]], ''Economics'' (McGraw-Hill, 1973) p. 669</ref></blockquote>

==The Meaning of Comparative Advantage==

Ricardo's explication is a particular instance of the more universal law of association: all [[division of labor]] brings advantages. Demonstrated above, cooperation between the more able and the less able brings advantages to both. The law of association allows us to understand the progressive increase in human cooperation and the intensification of the division of labor.<ref name="Mises_law_of_association">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association, [[Human Action]], online version, referenced 2011-02-06.</ref>

==Assumptions==

Comparative cost between countries is true under the assumption that capital and labor are immobile.<ref name="Ricardo_comparative_advantage"></ref><ref name="Mises_law_of_association"></ref>After his publication labor and capital increased in mobility, and countries with absolute advantages saw increases in migration and capital movements in the late 1800's. Towards the late 20th century capital and labor increasingly become less mobile. The mobility labor and capital can make it more advantageous for labor and capital to migrate in the case of [[absolute advantage]] rather than stay and trade under conditions of [[comparative advantage]].<ref name="Mises_law_of_association_ce">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association: ''Current Errors Concerning the Law of Association'', [[Human Action]], online version, referenced 2011-02-07.</ref>

==References==
{{reflist}}

==Links==
* [http://www.econlib.org/library/Ricardo/ricP.html ''On the Principles of Political Economy and Taxation''], by David Ricardo. Complete, fully-searchable text at the Library of Economics and Liberty.
* [http://web.mit.edu/krugman/www/ricardo.htm Ricardo's Difficult Idea]
* [http://mises.org/daily/3744 Tire Trade Tirade]
* [http://blog.mises.org/13753/gains-from-trade-with-extreme-differences/ Gains From Trade With Extreme Differences]
* [http://blog.mises.org/13752/gains-from-trade-an-example/ Gains From Trade: An Example]
* [http://www.youtube.com/watch?v=y0gGyeA-8C4&feature=player_embedded Trade is Made of Win, Part 1: Wealth Creation]
* [http://www.youtube.com/watch?v=7yOHjRThM_o&feature=player_embedded Trade is Made of Win, Part 2: Cooperation]
* [http://www.youtube.com/watch?v=qdcQLWGaJoM&feature=player_embedded Trade is Made of Win, Part 3: Conservation]

[[Category:Economic concepts]]

Human Action

2011-05-22T22:38:15Z

Huckelberry: /* The Market */

{{Infobox book
| name = Human Action: A Treatise on Economics
| title_orig =
| translator =
| image = 
| image_caption =
| author = [[Ludwig von Mises]]
| illustrator =
| cover_artist =
| country = [[United States]]
| language =
| series =
| subject = [[Economics]], [[Political economy]]
| genre = [[Non-fiction]]
| publisher = [[Yale University Press]]
| pub_date = [[1949]]
| english_pub_date =
| media_type = Print
| pages = 889 pp.
| isbn =
| oclc = 2595286
| dewey =
| congress =
| preceded_by =
| followed_by =
}}

'''''Human Action: A Treatise on Economics''''' is the [[magnum opus]] of [[Ludwig von Mises]], first published in 1949. It defined a large part of present [[Austrian Economics]].

<blockquote>"It is true that economics is a theoretical science and as such abstains from any judgment of value...Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends."<ref name="humanaction_intro_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/introsec3.asp Introduction], 3. Introduction, [[Human Action]], online version, referenced 2011-02-05.</ref></blockquote>

== Part One: Human Action ==

===I. Acting Man===

<blockquote>''Main Article: [[Action]].''</blockquote>

The science of human action is called [[praxeology]]. Human action always involves [[opportunity cost]] and it is always ''purposeful''. <ref name="humanaction_ch1sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap1sec1.asp I. Acting Man], 1. Purposeful Action and Animal Reaction, [[Human Action]], online version, referenced 2011-02-06.</ref>

===II. The Epistemological Problems of the Sciences of Human Action===

[[Ludwig von Mises]] takes the [[logical deductive]] approach to economics, as opposed to the [[empirical]] (or the [[logical positivist]] approach). Economic problems cannot be solved [[empirically]] because renunciation and long-term planning can not be seen. Humans act to attain definite ends--and economic phenomena can be understood as such.

<blockquote>"[[Praxeology]] is a theoretical and systematic, not a historical, science...It aims at knowledge valid for all instances in which the conditions exactly correspond to those implied in its assumptions and inferences. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, ''[[a priori]]''."<ref name="humanaction_ch2sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec1.asp II. Epistemological Problems of Human Action], 1. Praxeology and History, [[Human Action]], online version, referenced 2011-02-06.</ref></blockquote>

Like geometry, [[praxeology]] is not subject to disproof. This method may be called ''methodological apriorism''.<ref name="humanaction_ch2sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec2.asp II. Epistemological Problems of Human Action], 2. The Formal and Aprioristic Character of Praxeology, [[Human Action]], online version, referenced 2011-02-06.</ref>

===III. Economics and the Revolt Against Reason===

[[Mises]] dismisses the [[Historical School]], [[Hegel]] and [[Marx]] with it. In discussing the "bourgeois logic" and "bourgeois mentality" of [[Marx]], [[Mises]] is able to attack [[polylogism]] in general. There does not exist multiple logics, only differing interests and their logical conclusions--whether they are spurious or well-founded. [[Mises]] states with regard to the [[Historical School]], "History, in due time, will arrange everything for the best. It does not need the advice of mortal men."<ref name="humanaction_ch3sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap3sec1.asp III. Economics and the Revolt Against Reason], 1. The Revolt Against Reason, [[Human Action]], online version, referenced 2011-02-06.</ref>

<blockquote>''See [[German Idealism]].''</blockquote>

===IV. A First Analysis of the Category of Action===

<blockquote>''Main Article: [[Value]]''</blockquote>

All actions are directed toward goals, aims or ends. The end, speaking generally, is always to remove a ''felt uneasiness''. Means are the ways by which we approach an end. Things in the world, when applied to our ends, become means and are commonly referred to as [[goods]].<ref name="humanaction_ch4sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec1.asp IV. A First Analysis of The Category of Action], 1. Ends and Means, [[Human Action]], online version, referenced 2011-02-06.</ref> Means are [[Scarcity|scarce]].

Actions are reflective of our ''scale of [[value|values]]''. All things equal, we satisfy wants of higher [[value]] to us, and leave unsatisfied wants of lower [[value]] to us. Things in the world have no intrinsic [[value]], our actions give things [[value]].<ref name="humanaction_ch4sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec2.asp IV. A First Analysis of The Category of Action], 2. The Scale of Value, [[Human Action]], online version, referenced 2011-02-06.</ref>

Given that every action is an attempt to establish a more satisfactory state of affairs, viz., to remove a ''felt uneasiness'', all actions are in a sense an [[exchange]]. We [[exchange]] one state for another, hopefully better, state. Lastly, value judgments arrange wants, but do not measure them. They are expressive of sequence and order rather than of measurement and weight.<ref name="humanaction_ch4sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp IV. A First Analysis of The Category of Action], 4. Action as Exchange, [[Human Action]], online version, referenced 2011-02-06.</ref>

===V. Time===

Time is a [[Praxeology|praxeological]] category: all action is in time and is subject to time.<ref name="humanaction_ch5sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp V. Time], 2. Past, Present and Future, [[Human Action]], online version, referenced 2011-02-07.</ref> As humans, our time is [[Scarcity|scarce]] and we must economize it accordingly. Our scales of [[value]] and therefore our actions are always with reference to time. As we will see later, time is important in the determination of [[interest]] and consumption.<ref name="humanaction_ch5sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap5sec3.asp V. Time], 3. The Economization of Time, [[Human Action]], online version, referenced 2011-02-07.</ref>

===VI. Uncertainty===

All action is speculative. We never know exactly what will occur. The natural sciences make it possible to foretell results from specific actions. They do not make the future predictable.<ref name="humanaction_ch6sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec1.asp VI. Uncertainty], 1. Uncertainty and Acting, [[Human Action]], online version, referenced 2011-02-08.</ref> But, [[Mises]] tells us, probability is a primary concern of [[praxeology]].

He distinguished between two types of propability: [[class probability]] and [[case probability]].

<blockquote>"''[[Class probability]] means'': We know or assume to know, with regard to the problem concerned, everything about the behavior of a whole class of events or phenomena; but about the actual singular events or phenomena we know nothing but that they are elements of this class."<ref name="humanaction_ch6sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec3.asp VI. Uncertainty], 3. Class Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, car insurance works on the premise that with a large pool of policies, they can use class probability to decide upon an approriate premium given the ''class probability'' of accidents. But, they know nothing about the probability of the individual policy holder getting into an accident.

<blockquote>"''[[Case probability]]'' means: We know, with regard to a particular event, some of the factors which determine its outcome; but there are other determining factors about which we know nothing."<ref name="humanaction_ch6sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec4.asp VI. Uncertainty], 4. Case Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, foreign policy experts may make predictions about the settlement of foreign disputes. They are well informed but it is impossible for them to predict the outcome perfectly because they can not grasp all the data and all the opinions of individuals shaping decisions. Therefore, they may know some of the factors that will shape the future, but never perfectly.

For [[Mises]], we make decisions with incomplete knowledge. To say it again, all action is speculative in character. To this difficulty in decisions, specifically in social cooperation where selection occurs, competition serves as a function to select the most able person for specific positions. It assigns every member of society to the position where they best serve society.<ref name="humanaction_ch6sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec6.asp VI. Uncertainty], 6. Betting, Gambling, and Playing Games, [[Human Action]], online version, referenced 2011-02-08.</ref>

===VII. Action Within the World===

Each person possesses one scale of valuations, which is visible through action.<ref name="humanaction_ch7sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec1.asp VII. Action Within The World], 1. The Law of Marginal Utility, [[Human Action]], online version, referenced 2011-02-13.</ref> Goods and modes of action are chosen based on their utility, or their causal relevance for the removal of felt ''uneasiness''.<ref name="humanaction_ch7sec1"></ref> Here [[Mises]] discusses the [[paradox of value]]: why is ''gold'' more valuable than ''iron''? Despite the many uses of iron, gold is valued more on the market because of its value in exchange. Iron may have more technological prospects or ''objective use-value'' but it lacks ''subjective use-value'', that is, gold is valuable in exchange due to scarcity, appearance and its tradition as a form of money. [[Mises]], however, dismisses the question as one which never occurs in reality.<ref name="humanaction_ch7sec1"></ref>

The [[Law of Marginal Utility]] is implied by the category of action: If a supply increases from quantity ''n'' to ''n + 1'' the extra unit provides less [[utility]] than unit ''n''. This is because ''n'' is satisfying a more urgent want than unit ''n + 1''. We satisfy more urgent wants first by their definition. Unit ''n'' is satisfying the more urgent want, ''n + 1'' is satisfying a less urgent want. Therefore, increasing units of a homogeneous supply are each applied to decreasingly important wants (seeing as the more urgent wants are always satisfied first). The [[law of marginal utility]], "does not deal primarily with the [[value]] of things, but with the [[value]] of the services a man expects to get from them."<ref name="humanaction_ch7sec1"></ref>

"[[Labor]]," says [[Mises]], "is preferred to leisure only insofar as the yield of [[labor]] is more urgently desired than the enjoyment of leisure."<ref name="humanaction_ch7sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec3.asp VII. Action Within The World], 3. Labor as Means, [[Human Action]], online version, referenced 2011-02-13.</ref> Work involves disutility. To this note, [[labor]] is more scarce than other material factors of production:

<blockquote>"In our world there is no abundance, but a shortage of manpower, and there are unused material factors of production, i.e. land, mineral deposits, and even plants and equipment."<ref name="humanaction_ch7sec3"></ref></blockquote>

Labor saving devices reduce want, they do not bring about "technological unemployment." Man economizes both labor and material factors.<ref name="humanaction_ch7sec3"></ref>

Action is successful it it produces the intended result: it produces the product. The human mind directs [[action]] with a purpose and production is creative. It is not something physical, natural, and external; it is a spiritual and intellectual phenomenon. All material actions within the world are a product of the mind. "In this sense," [[Mises]] tells us, "[[praxeology]] can be called a moral science."<ref name="humanaction_ch7sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec4.asp VII. Action Within The World], 4. Production, [[Human Action]], online version, referenced 2011-02-13.</ref>

== Part Two: Actions Within the Framework of Society ==

===VIII. Human Society===

We are born into society and only in this sense does society exist before the individual. [[Society]] is the supreme example of the benefits of the [[division of labor]].<ref name="ch8sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec1.asp VIII. Human Society], 1. Human Cooperation, [[Human Action]], online version, referenced 2011-02-17.</ref> It is an institution for the preservation of peaceful human relations. It is the social apparatus of compulsion and coercion.<ref name="ch8sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec2.asp VIII. Human Society], 2. A Critique of the Holistic and Metaphysical View of Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

[[Democratic government]] provides a method for the peaceful adjustment of government to the will of the majority. Wisdom and science thrive in a peaceful and affluent society. <ref name="ch8sec2"></ref>

<blockquote>"[[Liberalism]] aims at a political constitution which safeguards the smooth working of social cooperation and the progressive intensification of mutual social relations. Its main objective is the avoidance of violent conflicts, of wars and revolutions that must disintegrate the social collaboration of men and throw people back into the primitive conditions of barbarism where all tribes and political bodies endlessly fought one another. Because the division of labor requires undisturbed peace, liberalism aims at the establishment of a system of government that is likely to preserve peace, viz., democracy."<ref name="ch8sec2"></ref></blockquote>

[[Mises]] expounds the Ricardian Law of Association or [[comparative advantage]] as the fundamental characteristic of society.<ref name="ch8sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association, [[Human Action]], online version, referenced 2011-02-17.</ref> The division of labor assigns to each man the best job for him in society.<ref name="humanaction_ch6sec6"></ref> However, the end result of division of labor in society--a diversity which attests to the innate inequalities between individuals--does not illistrate ideas of [[Social Darwinism]]. Biology and evolutionary views cannot pass value judgments on the benefits of civilization.<ref name="ch8sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec7.asp VIII. Human Society], 7. The Great Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

===IX. The Role of Ideas===

All [[action]] is preceded by thinking. Thinking is to deliberate before [[action]] and to reflect upon past [[action]]. Thinking is a tool of action and language is a tool of thinking. All action is based on a definite idea about causal relations. Thinking and ideas are, like material wealth, passed down the generations.<ref name="ch9sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec1.asp IX. Human Society], 1. Human Reason, [[Human Action]], online version, referenced 2011-02-18.</ref> Action is always directed by ideas.<ref name="ch9sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec3.asp IX. Human Society], 3. Might, [[Human Action]], online version, referenced 2011-02-18.</ref>

[[Ideologies|Ideology]] and world views are explanations of social phenomena and technologies for prescriptive politics. All political doctrines imply that: "the political system we support will render you more prosperous and more content."<ref name="ch9sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec2.asp IX. Human Society], 2. World View and Ideology, [[Human Action]], online version, referenced 2011-02-18.</ref> [[Ideologies]], to [[Mises]], are the most powerful form of control. The might of a politician is due to his [[ideology]], his interpretation of the world and his prescriptive measures to ensure his followers are more prosperous and more content. Thinking, the ideological interpretation, succeeds through the cooperation of other minds. No thinker is isolated in his thoughts, they have been influenced by others. A politician's power dwindles if his [[ideology]] loses support. To [[Mises]]:

<blockquote>"The power of an ideology consists precisely in the fact that people submit to it without any wavering and scruples."<ref name="ch9sec3"></ref></blockquote>

Traditionalism and the idea of progress are ideologies also. Progress toward a more prosperous life and evolutionary progress must not be confused with evolution toward higher forms of life. Progress may not continue, majorities may error.<ref name="ch9sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec4.asp IX. Human Society], 4. Meliorism and the Idea of Progress, [[Human Action]], online version, referenced 2011-02-18.</ref> Ideologies may protect the material interest of the race or they may destroy it.

===X. Exchange Within Society===

[[Action]] always is essentially the exchange of one state of affairs for another state of affairs.<ref name="ch10sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec1.asp X. Exchange Within Society], 1. Autistic Exchange and Interpersonal Exchange, [[Human Action]], online version, referenced 2011-02-25.</ref> The interpersonal exchange of goods weaves the bonds which unites men into societies.<ref name="ch10sec1"></ref> [[Mises]] defines two different kinds of social cooperation: cooperation by virtue of contract and coordination, and contract by virtue of command and subordination or hegemony.<ref name="ch10sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec2.asp X. Exchange Within Society], 2. Contractual Bonds and Hegemonic Bonds, [[Human Action]], online version, referenced 2011-02-25.</ref> In the former state there are men who cooperate to achieve goals--their plans are symmetrical and share a common goal. In the latter state their is always two classes of men, those who command and those who obey. Again [[Mises]] emphasizes the important of ideology to animate the social body. The individuals must share an [[ideology]] if they are to cooperate. Hegemonic control needs an ideology that the controlling system is the best or the traditional norm. [[Ideologies]] imply obedience to the [[ideology]]. Contractual relation order society by free association held together by the order of right and law.<ref name="ch10sec2"></ref>

The [[Praxeology|praxeological]] categories, [[Mises]] tells us, are eternal and unchangable. They are the categories within which all action takes place. No [[action]] is free from the facts of existence--of which the praxeological categories belong.<ref name="ch10sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec3.asp X. Exchange Within Society], 3. Calculative Action, [[Human Action]], online version, referenced 2011-02-25.</ref> Man can never comprehend anything that is neither [[action]] or none action.

Modern civilization is characterized by the fact that it has elaborated a method which makes use of the arithmetic possible in a broad field of activities. [[Economic calculation]], for example in modern capital [[accounting]], is a fundamental issue in all comprehension of economic phenomena.<ref name="ch10sec3"></ref>

Despite the extended use of capital [[accounting]] and arithmetic, [[action]] can only make use of ordinal numbers. That is, actions order desires but do not measure them. But in our rational and contractual society we are able to make use of cardinal numbers in capital accounting. By this feature of capital accounting and contractual relations civilization opened the door to computation and calculation regarding the planning of the future and measuring the effects of past actions. Still, the applicability of cardinal numbers to economic thinking require these circumstances and economic law and theory cannot be deduced from [[economic history]], namely, the history of prices.<ref name="ch10sec3"></ref>

== Part Three: Economic Calculation ==

===XI. Valuation Without Calculation===

We apply the [[value|values]] we attribute to the ends of [[action]], to the means necessary to achieve those ends: "Other things being equal, [acting man] assigns to the total amount of the various means the same value he attaches to the end which they are fit to bring about."<ref name="ch11sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec1.asp XI. Valuation Without Calculation], 1. Gradation of Means, [[Human Action]], online version, referenced 2011-02-26.</ref>

The preferences used in [[action]], the laying aside of some things for other things, allows--as said above--the use of ordinal numbers but not cardinal numbers. Again, [[value|values]] attributable to actions cannot be measured arithmetically. Yet, in the activity of using means to attain certain ends, the acquisition of countable and measurable supplies of things becomes an immediate goal of action.<ref name="ch11sec1"></ref> [[Economic calculation]] can occur, despite that the values we attribute to different means and ends cannot be measured, by the results of actions of interpersonal exchange:

<blockquote>"The modern theory of value and prices show how the choices of individuals, their preferring some things and setting aside of other things, results, in the sphere of interpersonal exchange, in the emergence of market prices."<ref name="ch11sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec2.asp XI. Valuation Without Calculation], 2. The Barter-Fiction of the Elementary Theory of Value and Prices, [[Human Action]], online version, referenced 2011-02-26.</ref></blockquote>

[[Mises]] reminds us that is it a fallacy to think things exchanged are of the same value. Rather, people buy and sell only because they appraise the things given up less than those received.<ref name="ch11sec2"></ref> "Market prices," [[Mises]] says in a later chapter, "are not expressive of equivalence, but of a divergence in the valuation of the exchanging parties."<ref name="ch26sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap26sec3.asp XXVI. Economic Calculation under Socialism], 3. Recent Suggestions for Socialist Economic Calculation, [[Human Action]], online version, referenced 2011-04-25.</ref>

In using technology, we are resorting to knowledge of causal relations. We are not, however, addressing the technologies applicability to human wants and desires.<ref name="ch11sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec3.asp XI. Valuation Without Calculation], 3. The Problem of Economic Calculation, [[Human Action]], online version, referenced 2011-02-26.</ref>

<blockquote>"Technology tells how a given end could be attained by the employment of various means which can be used together in various combinations, or how various available means could be employed for certain purposes. But it is at a loss to tell man which procedures he should choose out of the infinite variety of imaginable and possible modes of production."<ref name="ch11sec3"></ref></blockquote>

Engineering can tell us how to build a bridge but not whether its construction would draw resources from other areas where they would be used to satisfy more urgently felt needs. [[Action]], as opposed to the casual relations of engineering, must discover the relations between dissimilar projects. [[Money]], holding the status of "universally used medium of exchange," becomes the measure of the worthiness of differing possiblities in the realm of action. Because [[goods]] and services have money prices we can use these in planning and decisions.<ref name="ch11sec3"></ref>

With all action directed toward the future, all economic planning and calculation must be made in regards to the future state of prices. In entrepreneurial ventures the acting man wants the prices of goods produced and sold to be greater than the price of the goods used in production. The practical meaning of [[economic calculation]] is to show how much one is free to consume without impairing the future capacity to produce. The concepts of [[economic calculation]]--[[Profit]] and [[loss]], [[capital]] and [[income]], spending and [[saving]], cost and yield--are developed to ensure efficient use of the resources of society.<ref name="ch11sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec4.asp XI. Valuation Without Calculation], 4. Economic Calculation and The Market, [[Human Action]], online version, referenced 2011-02-26.</ref>

===XII. The Sphere of Economic Calculation===

The acting individual is always concerned with the future. In action he is either, (1) anticipating the future and acting accordingly, or (2) trying to change the outcomes of the future even if there are no other changes to the data. Economic calculation cannot predict the outcomes of the future, it can only assist man in adjusting his actions to his opinion of the future. The numerical exactitude of balance sheets and income statements must not prevent us from realizing their inherent uncertainty and estimation.<ref name="ch12sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec1.asp XII. The Sphere of Economic Calculation], 1. The Character of Monetary Entries, [[Human Action]], online version, referenced 2011-02-27.</ref>

[[Money]] is not a measuring stick. Money prices do not transmit the intrinsic value of a good. [[Prices]] are not measured in money, they consist in money. They are either prices of the past or prices of the future. Furthermore, although it is possible to aggregate prices paid in goods, it makes no sense to talk about a national income or any other aggregate of spending which "characterizes" a society.<ref name="ch12sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec2.asp XII. The Sphere of Economic Calculation], 2. The Limits of Economic Calculation [[Human Action]], online version, referenced 2011-02-27.</ref>

Economic calculation makes sense only in a society with private ownership of the means of production. Economic calculation is not to blame of the masses preferring detective stories to books of philosophy--that is an outcome of the desires and preferences of individuals acting in society. Economic calculation cannot be blamed for the less than ideal characters and habits of other members of society.<ref name="ch12sec2"></ref>

Prices, or exchange ratios, are in constant fluctuation with the changing data of the market and the changing whims of consumers.<ref name="ch12sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec3.asp XII. The Sphere of Economic Calculation], 3. The Changeability of Prices[[Human Action]], online version, referenced 2011-02-27.</ref>

[[Mises]] dismisses the idea of measurement in [[purchasing power]] as unfeasible:

<blockquote>"A measurement of purchasing power would have to rely upon the prices of the goods and services of the first order and, what is more, of ''all'' of them."<ref name="ch12sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec4.asp XII. The Sphere of Economic Calculation], 4. Stabilization [[Human Action]], online version, referenced 2011-02-27.</ref></blockquote>

Further, changes in the [[purchasing power]] of [[money]] must necessarily effect different goods and services at different times and therefore efforts to stabilize the purchasing power of money by attempting to change the money relation is an impossible feat.<ref name="ch12sec4"></ref>

===XIII. Monetary Calculation as a Tool of Action===

Monetary calculation is the decisive factor of action in the social system of [[division of labor]]. Every action of the [[entrepreneur]] is analyzed by monetary calculation. Only in the institutional settings of [[private property]] and [[division of labor]] where goods and services are exchanged by a money can the system of monetary calculation be used. The use of aggregates derived from the use of monetary calculation is useless. That is, monetary calculation is useful for individual acting but cannot be useful to determining "social" values or welfare. By the use of monetary calculation, for example in capital [[accounting]], arithmetic has become a tool in the struggle for a better life. Capital [[accounting]] allows us to analyze the success or failure of men in satisfying the needs of [[consumers]].<ref name="ch13sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap13sec1.asp XIII. Monetary Calculation as a Tool of Action], 1. Monetary Calculation as Method of Thinking [[Human Action]], online version, referenced 2011-03-14.</ref>

<blockquote>"Our civilization is inseparably linked with our methods of economic calculation. It would parish if we were to abandon this most precious intellectual tool of acting. Goethe was right in calling bookkeeping by double entry "one of the finest inventions of the human mind.'"<ref name="ch13sec1"></ref></blockquote>

== Part Four: Catallactics or Economics of the Market Society ==

=== The Market ===

<blockquote>"The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of actions of various individuals cooperating under the division of labor."<ref name="ch15sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec1.asp XV. The Market], 1. Characteristics of the Market Economy, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref></blockquote>

In the market place everyone is an end in himself and an end for other people. Each individual acts on his own behalf, but everyones actions of the market also serve another. In acting everyone is serving everyone else's ends while serving their own. They each aim at the satisfaction of other peoples needs as much as at his own.<ref name="ch15sec1"></ref>

The state of the market is characterized by the totality of [[prices]] within the market which are determined by individuals eager to buy and sell. Additionally, there is no such thing as a "mixed" economy: "it is directed either by the market of by the decrees of a [[production]] tsar or a committee of production tsars."<ref name="ch15sec1"></ref> Publicly owned entities which operating in a market economy must obey the rules of profit and loss as others do. The characteristic feature of the [[market economy]] is its ability to [[calculate]]. Monetary calculation along with the determination of market prices allows the market to calculate. The rational ordering of the [[division of labor]] and of production are resultants of this.<ref name="ch15sec1"></ref>

<blockquote>"The market economy is real because it can calculate."<ref name="ch15sec1"></ref></blockquote>

The central principles in the market economy's calculation are [[income]] and [[capital]]. Income is the amount of resources which can be consumed without lowering the capital of the individual or business. If income is greater than the amount consumed, ''[[savings]]'' results. Conversely, if a man consumes more than his income is it referred to as ''capital consumption''. Capital, here, is the quantity of money representing ownership in the assets of a enterprise (using the term broadly) or the total [[assets]] less the total [[liabilities]].<ref name="ch15sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec2.asp XV. The Market], 2. Capital, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref>

"All civilizations" says [[Mises]], "have up to now been based on private ownership of the means of production." Our system of private ownership of the means of production has poured the horn of plenty on growing population figures. Capitalism has served to allow each man a higher material wealth than even the kings of past ages. Many who argue against capitalism do so because they look upon capitalism as an accidental phenomenon. They do not understand [[private property]] and the concept of free-associations causal relationship with the material wealth of the era. It is the critics of [[capitalism]], [[Mises]] contends, which lack historical understanding, not the economists. To capitalism's enemies, it is the policy advocated by big business, regardless of the fact that big business often advocates for "[[protectionism]], [[cartels]], and the abolition of [[competition]]." And today, it is considered a "legitimate task of government to prevent an efficient man from competing with the less efficient." Advocates of protection, and state imposed limitations on the free-market want to make us believe that the consequences of [[government intervention]] are produced by capitalism.<ref name="ch15sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec3.asp XV. The Market], 3. Capitalism, ''[[Human Action]]'', online version, referenced 2011-04-10.</ref>

In a market economy the [[The Sovereignty of the Consumers|consumers are sovereign]]. Only sellers of the [[first order]] goods are in contact with the consumers, but the consumers buying and abstention from buying is transmitted from the [[consumer goods]] to the [[higher order]] goods (the [[producers goods]]). Consumers, in their capricious buying, determine the income of every member of society and direct production into the hands of individuals best able to serve the consumers.<ref name="ch15sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec4.asp XV. The Market], 4. The Sovereignty of the Consumers, ''[[Human Action]]'', online version, referenced 2011-04-30.</ref>

The consumers designate everyones place in society. The classical economists favored the abolition of the all trade barriers because they protected the less efficient from the more efficient. Trade barriers curtail production and lower the standard of living of all those effected. It is the actions of consumers which determine the prices on the market, and it is these prices which push investors into new lines of business. The bigness of one business will not stop others from trying to compete with it. [[Mises]] writes:

<blockquote>"What a newcomer who wants to defy the vested interests of the old established firms needs most is brains and ideas. If his project is fit to fill the most urgent of the unsatisfied needs of the consumers or to purvey them at a cheaper price than their old purveyors, he will succeed in spite of the much talked of bigness and power of the old firms."<ref name="ch15sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec5.asp XV. The Market], 5. Competition, ''[[Human Action]]'', online version, referenced 2011-05-17.</ref></blockquote>

Competition in the [[catallactic]] sense (i.e., competition in the market place) has a different function than that of games and beauty contests. Its function is to select the individuals most able to control the resources of society to the greatest benefit of the consumers. Humans are not born equal and the consumers do not care: "Their only interest is to secure the best possible satisfaction of their needs."<ref name="ch15sec5"></ref>

In human society, the terms "[[freedom]]" and "[[liberty]]" reference to interhuman relations. For instance [[Mises]] writes, "man was not created free; what freedom he may possess has been given to him by society...Liberty and freedom are the conditions of man within a contractual society."<ref name="ch15sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec6.asp XV. The Market], 6. Freedom, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref> Man in this condition is free to exchange goods and services, but he is by no means independent. He depends on other members of society. We say that a man is free in a contractual society because he serves others to serve himself. The restrains of freedom a man may experience in this environment is due to natural phenomenon only--the laws of nature to which we all unconditionally submit.<ref name="ch15sec6"></ref>

The market system will invariably bestow unequal rewards. This is primarily due to the different levels of service people provide to each other on the [[market]]. That is, it rewards every effort according to its [[value]] as determined by the subjective valuations of the consumers. With respect to inequality, [[Mises]] says:

<blockquote>"No system of social division of labor can do without a method that makes individuals responsible for their contribution to the joint productive effort. If this responsibility is not brought about by the price structure of the market and the inequality of wealth and income it begets, it must be enforced by the methods of direct compulsion as practiced by the police."<ref name="ch15sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec7.asp XV. The Market], 7. Inequality of Wealth and Income, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref></blockquote>

The economic phenomenon of [[profit]] and [[loss]] can be analyzed from an psychic point of view. [[Profit]], in a boarder sense, is the gain derived from [[action]]; it is the increase in satisfaction brought about by the action. In this sense, then, profit is the end of every action. Profit in this psychic sense is not measurable. However in the market economy, [[goods]] and [[services]] are bought and sold with money prices. This allows for the computation of profit and loss using the market prices of the goods and services. [[Profit]], in monetary calculus, is the surplus of [[money]] received over the money expended. It is everyone acting to attain the highest psychic which actuates the market-price mechanism and allows for monetary calculus.

The [[entrepreneur]] encounters the ever changing price structure of the market and makes his profit from correctly anticipating the changes in money prices. In this sense, he is always a speculator.<ref name="ch15sec8">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec8.asp XV. The Market], 8. Entrepreneurial Profit and Loss, ''[[Human Action]]'', online version, referenced 2011-05-19.</ref>

In an expanding or progressing economy the amount of capital invested is increasing per capita. Income is increased either by an increase in technological methods brought about by the increase in capital or simply by an increase in production. Of the increase in wealth (the result of the progressing economy) the majority of it goes to non-entrepreneurial groups. To note again, the market has a tendency to eliminate entrepreneurial profit and it is therefore temporary. In the long run, i.e., when profits have been eliminated by competition, the increase in productivity benefits exclusively the workers and consumers. On progress [[Mises]] writes:

<blockquote>"The vehicle of economic progress is the accumulation of technological methods of production the execution of which is almost always conditioned by the availability of such new capital."<ref name="ch15sec9">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec9.asp XV. The Market], 9. Entrepreneurial Profits and Losses in a Progressing Economy, ''[[Human Action]]'', online version, referenced 2011-05-21.</ref></blockquote>

<ol style="list-style-type:upper-roman;" start="15">
<li> Prices</li>
<li> Indirect Exchange</li>
<li> '''Action in the Passing of Time'''</li>
For humans considering [[action]], time matters: there is a ''too late'' and a ''too early''. [[Time preferences]] affect all action (see [[Value]]).<ref name="mises_action_in_passage_of_time_2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec2.asp XVIII. Action in the Passing of Time], 2. Time Preference as an Essential Requisite of Action, ''[[Human Action]]'', online version, referenced 2011-02-04.</ref>

Postponements of consumption, or [[saving]], is always embodied in concrete goods. "The act of saving," [[Mises]] tells us, "always has its counterpart in a supply of goods produced and not consumed...Man's savings are always embodied in concrete capital goods."<ref name="mises_action_in_passage_of_time_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec9.asp XVIII. Action in the Passing of Time], 9. Money and Capital; Saving and Investment, ''[[Human Action]]'', online version, referenced 2011-02-08.</ref>

The discussion of [[time preference]], and the postponment of consumption, is a lead in to [[interest]].

<li> '''Interest'''</li>

<blockquote>''Main Article: [[Interest]]''</blockquote>

Time preference manifests itself in the phenomenon of [[originary interest]], i.e., the discount of future goods as against present goods.<ref name="mises__human_action_chap19sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec1.asp XIX. The Rate of Interest], The Phenomenon of Interest, [[Human Action]], online version, referenced 2011-02-13.</ref> Originary interest is a ratio, like profit and loss, and not a price.<ref name="mises__human_action_chap19sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec2.asp XIX. The Rate of Interest], Originary Interest, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref> It is the ratio between the value assigned to presents goods against the value assigned to future goods. This discounting explains, for example, the reason why there is finite prices on usable land:

<blockquote>"If the future services which a piece of land can render were to be valued in the same way in which its present services are valued, no finite price would be high enough to impel its owner to sell it."<ref name="mises__human_action_chap19sec2"></ref></blockquote>

We [[discount]] future services and [[goods]] because of [[time preference]]. The fact that we can purchase land which is usable into the foreseeable future is proof of this. Furthermore, [[originary interest]] is not determined by supply and demand of [[loanable funds]]. Time preference, manifesting in the discount of future goods against present goods (i.e., originary interest) determines both the demand and supply of capital and capital goods.<ref name="mises__human_action_chap19sec2"></ref>

Interest rates in loans, in a changing economy, always have an element of entrepreneurial profit. The lender, taking a risk and and making a prediciton about the future state of the market, is engaging in an entrepreneurial venture. Therefore, interest rates on loans are never pure [[originary interest]] but also entrepreneurial profit.<ref name="mises__human_action_chap19sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec4.asp XIX. The Rate of Interest], Originary Interest in the Changing Economy, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref>

<li> Interest, Credit Expansion, and the Trade Cycle</li>
<li> Work and Wages</li>
<li> The Nonhuman Original Factors of Production</li>
<li> The Data of the Market</li>
<li> Harmony and Conflict of Interests</li>
</ol>

== Part Five: Social Cooperation Without a Market ==

<ol style="list-style-type:upper-roman;" start="25">
<li> The Imaginary Construction of a Socialist Society</li>
<li> The Impossibility of Economic Calculation Under Socialism</li>
</ol>

== Part Six: The Hampered Market Economy ==

<ol style="list-style-type:upper-roman;" start="27">
<li> The Government and the Market</li>
<li> Interference by Taxation</li>
<li> Restriction of Production</li>
<li> Interference with the Structure of Prices</li>
<li> Currency and Credit Manipulation</li>
<li> Confiscation and Redistribution</li>
<li> Syndicalism and Corporativism</li>
<li> The Economics of War</li>
<li> The Welfare Principle Versus the Market Principle</li>
<li> The Crisis of Interventionism</li>
</ol>

== Part Seven: The Place of Economics in Society ==
<ol style="list-style-type:upper-roman;" start="38">
<li> The Nondescript Character of Economics</li>
<li> The Place of Economics in Learning</li>
<li> Economics and the Essential Problems of Human Existence</li>
</ol>

==References==
{{Reflist|2}}

==Links==
''{{Store|http://www.mises.org/store/Human-Action-The-Scholars-Edition-P119.aspx|Human Action (Scholar's Edition)}}''

* [http://mises.org/resources.aspx?Id=3250&html=1#Publication_History ''Human Action'' publication history]

* ''Human Action: A Treatise on Economics'', 1998 Scholar's Edition:
** {{mr|3250|Resources page}}
** {{mr|3810|Study Guide}}
** [http://mises.org/media/category/139 Audiobook] read by [[Jeff Riggenbach]]

* ''Human Action: A Treatise on Economics'', 1996 4th Revised Edition:
** Foreword to the 4th edition by Bettina B. Greaves (p. v) ([http://mises.org/humanaction/forward.asp HTML], [http://mises.org/humanaction/pdf/ha_002.pdf PDF])
** Full text ([http://mises.org/books/humanaction.pdf PDF])

* ''Human Action: A Treatise on Economics'', 1966 3rd Revised Edition:
** Foreword to the 3rd edition by Ludwig von Mises ([http://mises.org/humanaction/foreword3.asp HTML], [http://mises.org/humanaction/pdf/ha_003.pdf PDF])
** Additions to Human Action in the 3rd edition ([http://mises.org/humanaction/ha3rd-addition.pdf PDF])

* ''Human Action: A Treatise on Economics'', Abridged Edition:
** [http://blog.mises.org/9147/human-action-abridged/ Human Action, Abridged]

* [http://mises.org/humanaction/theindex.asp Human Action interactive index]

*Articles, essays & reviews
** [http://mises.org/journals/qjae/pdf/Qjae213.pdf "The Place of Mises's Human Action in the Development of Modern Economic Thought" (PDF)]
** [http://mises.org/daily/3363 "Human Action at Sixty"]
** [http://mises.org/daily/5237/Misess-Gift-of-Human-Action "Mises's Gift of Human Action"]
** [http://mises.org/efandi/ch10.asp "The Why of Human Action"]
** [http://mises.org/daily/3262 "Human Action Study Guide"]
** Mises Review: [http://mises.org/misesreview_detail.aspx?control=127 "Human Action, The Scholar's Edition"]

* Other media
** [http://www.youtube.com/watch?v=Mou5ID13HqI Human Action: Pocket Edition] interview with [[Douglas French]] at Mises Institute
** [http://www.apriorist.de/modx/hauyf/ ''Acting Man'' online lesson]
** [http://mises.org/quotes.aspx?action=source&Source=Human%20Action ''Human Action'' quotes]

* {{wplink}}

{{See also|Human Action Comics}}
[[Category:Writings of Ludwig von Mises]]
[[Category:Writings on economics]]

{{stub}}

Human Action

2011-05-21T20:45:31Z

Huckelberry: /* The Market */ entrepreneurial profit/loss

{{Infobox book
| name = Human Action: A Treatise on Economics
| title_orig =
| translator =
| image = 
| image_caption =
| author = [[Ludwig von Mises]]
| illustrator =
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| country = [[United States]]
| language =
| series =
| subject = [[Economics]], [[Political economy]]
| genre = [[Non-fiction]]
| publisher = [[Yale University Press]]
| pub_date = [[1949]]
| english_pub_date =
| media_type = Print
| pages = 889 pp.
| isbn =
| oclc = 2595286
| dewey =
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}}

'''''Human Action: A Treatise on Economics''''' is the [[magnum opus]] of [[Ludwig von Mises]], first published in 1949. It defined a large part of present [[Austrian Economics]].

<blockquote>"It is true that economics is a theoretical science and as such abstains from any judgment of value...Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends."<ref name="humanaction_intro_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/introsec3.asp Introduction], 3. Introduction, [[Human Action]], online version, referenced 2011-02-05.</ref></blockquote>

== Part One: Human Action ==

===I. Acting Man===

<blockquote>''Main Article: [[Action]].''</blockquote>

The science of human action is called [[praxeology]]. Human action always involves [[opportunity cost]] and it is always ''purposeful''. <ref name="humanaction_ch1sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap1sec1.asp I. Acting Man], 1. Purposeful Action and Animal Reaction, [[Human Action]], online version, referenced 2011-02-06.</ref>

===II. The Epistemological Problems of the Sciences of Human Action===

[[Ludwig von Mises]] takes the [[logical deductive]] approach to economics, as opposed to the [[empirical]] (or the [[logical positivist]] approach). Economic problems cannot be solved [[empirically]] because renunciation and long-term planning can not be seen. Humans act to attain definite ends--and economic phenomena can be understood as such.

<blockquote>"[[Praxeology]] is a theoretical and systematic, not a historical, science...It aims at knowledge valid for all instances in which the conditions exactly correspond to those implied in its assumptions and inferences. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, ''[[a priori]]''."<ref name="humanaction_ch2sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec1.asp II. Epistemological Problems of Human Action], 1. Praxeology and History, [[Human Action]], online version, referenced 2011-02-06.</ref></blockquote>

Like geometry, [[praxeology]] is not subject to disproof. This method may be called ''methodological apriorism''.<ref name="humanaction_ch2sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec2.asp II. Epistemological Problems of Human Action], 2. The Formal and Aprioristic Character of Praxeology, [[Human Action]], online version, referenced 2011-02-06.</ref>

===III. Economics and the Revolt Against Reason===

[[Mises]] dismisses the [[Historical School]], [[Hegel]] and [[Marx]] with it. In discussing the "bourgeois logic" and "bourgeois mentality" of [[Marx]], [[Mises]] is able to attack [[polylogism]] in general. There does not exist multiple logics, only differing interests and their logical conclusions--whether they are spurious or well-founded. [[Mises]] states with regard to the [[Historical School]], "History, in due time, will arrange everything for the best. It does not need the advice of mortal men."<ref name="humanaction_ch3sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap3sec1.asp III. Economics and the Revolt Against Reason], 1. The Revolt Against Reason, [[Human Action]], online version, referenced 2011-02-06.</ref>

<blockquote>''See [[German Idealism]].''</blockquote>

===IV. A First Analysis of the Category of Action===

<blockquote>''Main Article: [[Value]]''</blockquote>

All actions are directed toward goals, aims or ends. The end, speaking generally, is always to remove a ''felt uneasiness''. Means are the ways by which we approach an end. Things in the world, when applied to our ends, become means and are commonly referred to as [[goods]].<ref name="humanaction_ch4sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec1.asp IV. A First Analysis of The Category of Action], 1. Ends and Means, [[Human Action]], online version, referenced 2011-02-06.</ref> Means are [[Scarcity|scarce]].

Actions are reflective of our ''scale of [[value|values]]''. All things equal, we satisfy wants of higher [[value]] to us, and leave unsatisfied wants of lower [[value]] to us. Things in the world have no intrinsic [[value]], our actions give things [[value]].<ref name="humanaction_ch4sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec2.asp IV. A First Analysis of The Category of Action], 2. The Scale of Value, [[Human Action]], online version, referenced 2011-02-06.</ref>

Given that every action is an attempt to establish a more satisfactory state of affairs, viz., to remove a ''felt uneasiness'', all actions are in a sense an [[exchange]]. We [[exchange]] one state for another, hopefully better, state. Lastly, value judgments arrange wants, but do not measure them. They are expressive of sequence and order rather than of measurement and weight.<ref name="humanaction_ch4sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp IV. A First Analysis of The Category of Action], 4. Action as Exchange, [[Human Action]], online version, referenced 2011-02-06.</ref>

===V. Time===

Time is a [[Praxeology|praxeological]] category: all action is in time and is subject to time.<ref name="humanaction_ch5sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp V. Time], 2. Past, Present and Future, [[Human Action]], online version, referenced 2011-02-07.</ref> As humans, our time is [[Scarcity|scarce]] and we must economize it accordingly. Our scales of [[value]] and therefore our actions are always with reference to time. As we will see later, time is important in the determination of [[interest]] and consumption.<ref name="humanaction_ch5sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap5sec3.asp V. Time], 3. The Economization of Time, [[Human Action]], online version, referenced 2011-02-07.</ref>

===VI. Uncertainty===

All action is speculative. We never know exactly what will occur. The natural sciences make it possible to foretell results from specific actions. They do not make the future predictable.<ref name="humanaction_ch6sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec1.asp VI. Uncertainty], 1. Uncertainty and Acting, [[Human Action]], online version, referenced 2011-02-08.</ref> But, [[Mises]] tells us, probability is a primary concern of [[praxeology]].

He distinguished between two types of propability: [[class probability]] and [[case probability]].

<blockquote>"''[[Class probability]] means'': We know or assume to know, with regard to the problem concerned, everything about the behavior of a whole class of events or phenomena; but about the actual singular events or phenomena we know nothing but that they are elements of this class."<ref name="humanaction_ch6sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec3.asp VI. Uncertainty], 3. Class Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, car insurance works on the premise that with a large pool of policies, they can use class probability to decide upon an approriate premium given the ''class probability'' of accidents. But, they know nothing about the probability of the individual policy holder getting into an accident.

<blockquote>"''[[Case probability]]'' means: We know, with regard to a particular event, some of the factors which determine its outcome; but there are other determining factors about which we know nothing."<ref name="humanaction_ch6sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec4.asp VI. Uncertainty], 4. Case Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, foreign policy experts may make predictions about the settlement of foreign disputes. They are well informed but it is impossible for them to predict the outcome perfectly because they can not grasp all the data and all the opinions of individuals shaping decisions. Therefore, they may know some of the factors that will shape the future, but never perfectly.

For [[Mises]], we make decisions with incomplete knowledge. To say it again, all action is speculative in character. To this difficulty in decisions, specifically in social cooperation where selection occurs, competition serves as a function to select the most able person for specific positions. It assigns every member of society to the position where they best serve society.<ref name="humanaction_ch6sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec6.asp VI. Uncertainty], 6. Betting, Gambling, and Playing Games, [[Human Action]], online version, referenced 2011-02-08.</ref>

===VII. Action Within the World===

Each person possesses one scale of valuations, which is visible through action.<ref name="humanaction_ch7sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec1.asp VII. Action Within The World], 1. The Law of Marginal Utility, [[Human Action]], online version, referenced 2011-02-13.</ref> Goods and modes of action are chosen based on their utility, or their causal relevance for the removal of felt ''uneasiness''.<ref name="humanaction_ch7sec1"></ref> Here [[Mises]] discusses the [[paradox of value]]: why is ''gold'' more valuable than ''iron''? Despite the many uses of iron, gold is valued more on the market because of its value in exchange. Iron may have more technological prospects or ''objective use-value'' but it lacks ''subjective use-value'', that is, gold is valuable in exchange due to scarcity, appearance and its tradition as a form of money. [[Mises]], however, dismisses the question as one which never occurs in reality.<ref name="humanaction_ch7sec1"></ref>

The [[Law of Marginal Utility]] is implied by the category of action: If a supply increases from quantity ''n'' to ''n + 1'' the extra unit provides less [[utility]] than unit ''n''. This is because ''n'' is satisfying a more urgent want than unit ''n + 1''. We satisfy more urgent wants first by their definition. Unit ''n'' is satisfying the more urgent want, ''n + 1'' is satisfying a less urgent want. Therefore, increasing units of a homogeneous supply are each applied to decreasingly important wants (seeing as the more urgent wants are always satisfied first). The [[law of marginal utility]], "does not deal primarily with the [[value]] of things, but with the [[value]] of the services a man expects to get from them."<ref name="humanaction_ch7sec1"></ref>

"[[Labor]]," says [[Mises]], "is preferred to leisure only insofar as the yield of [[labor]] is more urgently desired than the enjoyment of leisure."<ref name="humanaction_ch7sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec3.asp VII. Action Within The World], 3. Labor as Means, [[Human Action]], online version, referenced 2011-02-13.</ref> Work involves disutility. To this note, [[labor]] is more scarce than other material factors of production:

<blockquote>"In our world there is no abundance, but a shortage of manpower, and there are unused material factors of production, i.e. land, mineral deposits, and even plants and equipment."<ref name="humanaction_ch7sec3"></ref></blockquote>

Labor saving devices reduce want, they do not bring about "technological unemployment." Man economizes both labor and material factors.<ref name="humanaction_ch7sec3"></ref>

Action is successful it it produces the intended result: it produces the product. The human mind directs [[action]] with a purpose and production is creative. It is not something physical, natural, and external; it is a spiritual and intellectual phenomenon. All material actions within the world are a product of the mind. "In this sense," [[Mises]] tells us, "[[praxeology]] can be called a moral science."<ref name="humanaction_ch7sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec4.asp VII. Action Within The World], 4. Production, [[Human Action]], online version, referenced 2011-02-13.</ref>

== Part Two: Actions Within the Framework of Society ==

===VIII. Human Society===

We are born into society and only in this sense does society exist before the individual. [[Society]] is the supreme example of the benefits of the [[division of labor]].<ref name="ch8sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec1.asp VIII. Human Society], 1. Human Cooperation, [[Human Action]], online version, referenced 2011-02-17.</ref> It is an institution for the preservation of peaceful human relations. It is the social apparatus of compulsion and coercion.<ref name="ch8sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec2.asp VIII. Human Society], 2. A Critique of the Holistic and Metaphysical View of Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

[[Democratic government]] provides a method for the peaceful adjustment of government to the will of the majority. Wisdom and science thrive in a peaceful and affluent society. <ref name="ch8sec2"></ref>

<blockquote>"[[Liberalism]] aims at a political constitution which safeguards the smooth working of social cooperation and the progressive intensification of mutual social relations. Its main objective is the avoidance of violent conflicts, of wars and revolutions that must disintegrate the social collaboration of men and throw people back into the primitive conditions of barbarism where all tribes and political bodies endlessly fought one another. Because the division of labor requires undisturbed peace, liberalism aims at the establishment of a system of government that is likely to preserve peace, viz., democracy."<ref name="ch8sec2"></ref></blockquote>

[[Mises]] expounds the Ricardian Law of Association or [[comparative advantage]] as the fundamental characteristic of society.<ref name="ch8sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association, [[Human Action]], online version, referenced 2011-02-17.</ref> The division of labor assigns to each man the best job for him in society.<ref name="humanaction_ch6sec6"></ref> However, the end result of division of labor in society--a diversity which attests to the innate inequalities between individuals--does not illistrate ideas of [[Social Darwinism]]. Biology and evolutionary views cannot pass value judgments on the benefits of civilization.<ref name="ch8sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec7.asp VIII. Human Society], 7. The Great Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

===IX. The Role of Ideas===

All [[action]] is preceded by thinking. Thinking is to deliberate before [[action]] and to reflect upon past [[action]]. Thinking is a tool of action and language is a tool of thinking. All action is based on a definite idea about causal relations. Thinking and ideas are, like material wealth, passed down the generations.<ref name="ch9sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec1.asp IX. Human Society], 1. Human Reason, [[Human Action]], online version, referenced 2011-02-18.</ref> Action is always directed by ideas.<ref name="ch9sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec3.asp IX. Human Society], 3. Might, [[Human Action]], online version, referenced 2011-02-18.</ref>

[[Ideologies|Ideology]] and world views are explanations of social phenomena and technologies for prescriptive politics. All political doctrines imply that: "the political system we support will render you more prosperous and more content."<ref name="ch9sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec2.asp IX. Human Society], 2. World View and Ideology, [[Human Action]], online version, referenced 2011-02-18.</ref> [[Ideologies]], to [[Mises]], are the most powerful form of control. The might of a politician is due to his [[ideology]], his interpretation of the world and his prescriptive measures to ensure his followers are more prosperous and more content. Thinking, the ideological interpretation, succeeds through the cooperation of other minds. No thinker is isolated in his thoughts, they have been influenced by others. A politician's power dwindles if his [[ideology]] loses support. To [[Mises]]:

<blockquote>"The power of an ideology consists precisely in the fact that people submit to it without any wavering and scruples."<ref name="ch9sec3"></ref></blockquote>

Traditionalism and the idea of progress are ideologies also. Progress toward a more prosperous life and evolutionary progress must not be confused with evolution toward higher forms of life. Progress may not continue, majorities may error.<ref name="ch9sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec4.asp IX. Human Society], 4. Meliorism and the Idea of Progress, [[Human Action]], online version, referenced 2011-02-18.</ref> Ideologies may protect the material interest of the race or they may destroy it.

===X. Exchange Within Society===

[[Action]] always is essentially the exchange of one state of affairs for another state of affairs.<ref name="ch10sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec1.asp X. Exchange Within Society], 1. Autistic Exchange and Interpersonal Exchange, [[Human Action]], online version, referenced 2011-02-25.</ref> The interpersonal exchange of goods weaves the bonds which unites men into societies.<ref name="ch10sec1"></ref> [[Mises]] defines two different kinds of social cooperation: cooperation by virtue of contract and coordination, and contract by virtue of command and subordination or hegemony.<ref name="ch10sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec2.asp X. Exchange Within Society], 2. Contractual Bonds and Hegemonic Bonds, [[Human Action]], online version, referenced 2011-02-25.</ref> In the former state there are men who cooperate to achieve goals--their plans are symmetrical and share a common goal. In the latter state their is always two classes of men, those who command and those who obey. Again [[Mises]] emphasizes the important of ideology to animate the social body. The individuals must share an [[ideology]] if they are to cooperate. Hegemonic control needs an ideology that the controlling system is the best or the traditional norm. [[Ideologies]] imply obedience to the [[ideology]]. Contractual relation order society by free association held together by the order of right and law.<ref name="ch10sec2"></ref>

The [[Praxeology|praxeological]] categories, [[Mises]] tells us, are eternal and unchangable. They are the categories within which all action takes place. No [[action]] is free from the facts of existence--of which the praxeological categories belong.<ref name="ch10sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec3.asp X. Exchange Within Society], 3. Calculative Action, [[Human Action]], online version, referenced 2011-02-25.</ref> Man can never comprehend anything that is neither [[action]] or none action.

Modern civilization is characterized by the fact that it has elaborated a method which makes use of the arithmetic possible in a broad field of activities. [[Economic calculation]], for example in modern capital [[accounting]], is a fundamental issue in all comprehension of economic phenomena.<ref name="ch10sec3"></ref>

Despite the extended use of capital [[accounting]] and arithmetic, [[action]] can only make use of ordinal numbers. That is, actions order desires but do not measure them. But in our rational and contractual society we are able to make use of cardinal numbers in capital accounting. By this feature of capital accounting and contractual relations civilization opened the door to computation and calculation regarding the planning of the future and measuring the effects of past actions. Still, the applicability of cardinal numbers to economic thinking require these circumstances and economic law and theory cannot be deduced from [[economic history]], namely, the history of prices.<ref name="ch10sec3"></ref>

== Part Three: Economic Calculation ==

===XI. Valuation Without Calculation===

We apply the [[value|values]] we attribute to the ends of [[action]], to the means necessary to achieve those ends: "Other things being equal, [acting man] assigns to the total amount of the various means the same value he attaches to the end which they are fit to bring about."<ref name="ch11sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec1.asp XI. Valuation Without Calculation], 1. Gradation of Means, [[Human Action]], online version, referenced 2011-02-26.</ref>

The preferences used in [[action]], the laying aside of some things for other things, allows--as said above--the use of ordinal numbers but not cardinal numbers. Again, [[value|values]] attributable to actions cannot be measured arithmetically. Yet, in the activity of using means to attain certain ends, the acquisition of countable and measurable supplies of things becomes an immediate goal of action.<ref name="ch11sec1"></ref> [[Economic calculation]] can occur, despite that the values we attribute to different means and ends cannot be measured, by the results of actions of interpersonal exchange:

<blockquote>"The modern theory of value and prices show how the choices of individuals, their preferring some things and setting aside of other things, results, in the sphere of interpersonal exchange, in the emergence of market prices."<ref name="ch11sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec2.asp XI. Valuation Without Calculation], 2. The Barter-Fiction of the Elementary Theory of Value and Prices, [[Human Action]], online version, referenced 2011-02-26.</ref></blockquote>

[[Mises]] reminds us that is it a fallacy to think things exchanged are of the same value. Rather, people buy and sell only because they appraise the things given up less than those received.<ref name="ch11sec2"></ref> "Market prices," [[Mises]] says in a later chapter, "are not expressive of equivalence, but of a divergence in the valuation of the exchanging parties."<ref name="ch26sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap26sec3.asp XXVI. Economic Calculation under Socialism], 3. Recent Suggestions for Socialist Economic Calculation, [[Human Action]], online version, referenced 2011-04-25.</ref>

In using technology, we are resorting to knowledge of causal relations. We are not, however, addressing the technologies applicability to human wants and desires.<ref name="ch11sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec3.asp XI. Valuation Without Calculation], 3. The Problem of Economic Calculation, [[Human Action]], online version, referenced 2011-02-26.</ref>

<blockquote>"Technology tells how a given end could be attained by the employment of various means which can be used together in various combinations, or how various available means could be employed for certain purposes. But it is at a loss to tell man which procedures he should choose out of the infinite variety of imaginable and possible modes of production."<ref name="ch11sec3"></ref></blockquote>

Engineering can tell us how to build a bridge but not whether its construction would draw resources from other areas where they would be used to satisfy more urgently felt needs. [[Action]], as opposed to the casual relations of engineering, must discover the relations between dissimilar projects. [[Money]], holding the status of "universally used medium of exchange," becomes the measure of the worthiness of differing possiblities in the realm of action. Because [[goods]] and services have money prices we can use these in planning and decisions.<ref name="ch11sec3"></ref>

With all action directed toward the future, all economic planning and calculation must be made in regards to the future state of prices. In entrepreneurial ventures the acting man wants the prices of goods produced and sold to be greater than the price of the goods used in production. The practical meaning of [[economic calculation]] is to show how much one is free to consume without impairing the future capacity to produce. The concepts of [[economic calculation]]--[[Profit]] and [[loss]], [[capital]] and [[income]], spending and [[saving]], cost and yield--are developed to ensure efficient use of the resources of society.<ref name="ch11sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec4.asp XI. Valuation Without Calculation], 4. Economic Calculation and The Market, [[Human Action]], online version, referenced 2011-02-26.</ref>

===XII. The Sphere of Economic Calculation===

The acting individual is always concerned with the future. In action he is either, (1) anticipating the future and acting accordingly, or (2) trying to change the outcomes of the future even if there are no other changes to the data. Economic calculation cannot predict the outcomes of the future, it can only assist man in adjusting his actions to his opinion of the future. The numerical exactitude of balance sheets and income statements must not prevent us from realizing their inherent uncertainty and estimation.<ref name="ch12sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec1.asp XII. The Sphere of Economic Calculation], 1. The Character of Monetary Entries, [[Human Action]], online version, referenced 2011-02-27.</ref>

[[Money]] is not a measuring stick. Money prices do not transmit the intrinsic value of a good. [[Prices]] are not measured in money, they consist in money. They are either prices of the past or prices of the future. Furthermore, although it is possible to aggregate prices paid in goods, it makes no sense to talk about a national income or any other aggregate of spending which "characterizes" a society.<ref name="ch12sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec2.asp XII. The Sphere of Economic Calculation], 2. The Limits of Economic Calculation [[Human Action]], online version, referenced 2011-02-27.</ref>

Economic calculation makes sense only in a society with private ownership of the means of production. Economic calculation is not to blame of the masses preferring detective stories to books of philosophy--that is an outcome of the desires and preferences of individuals acting in society. Economic calculation cannot be blamed for the less than ideal characters and habits of other members of society.<ref name="ch12sec2"></ref>

Prices, or exchange ratios, are in constant fluctuation with the changing data of the market and the changing whims of consumers.<ref name="ch12sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec3.asp XII. The Sphere of Economic Calculation], 3. The Changeability of Prices[[Human Action]], online version, referenced 2011-02-27.</ref>

[[Mises]] dismisses the idea of measurement in [[purchasing power]] as unfeasible:

<blockquote>"A measurement of purchasing power would have to rely upon the prices of the goods and services of the first order and, what is more, of ''all'' of them."<ref name="ch12sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec4.asp XII. The Sphere of Economic Calculation], 4. Stabilization [[Human Action]], online version, referenced 2011-02-27.</ref></blockquote>

Further, changes in the [[purchasing power]] of [[money]] must necessarily effect different goods and services at different times and therefore efforts to stabilize the purchasing power of money by attempting to change the money relation is an impossible feat.<ref name="ch12sec4"></ref>

===XIII. Monetary Calculation as a Tool of Action===

Monetary calculation is the decisive factor of action in the social system of [[division of labor]]. Every action of the [[entrepreneur]] is analyzed by monetary calculation. Only in the institutional settings of [[private property]] and [[division of labor]] where goods and services are exchanged by a money can the system of monetary calculation be used. The use of aggregates derived from the use of monetary calculation is useless. That is, monetary calculation is useful for individual acting but cannot be useful to determining "social" values or welfare. By the use of monetary calculation, for example in capital [[accounting]], arithmetic has become a tool in the struggle for a better life. Capital [[accounting]] allows us to analyze the success or failure of men in satisfying the needs of [[consumers]].<ref name="ch13sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap13sec1.asp XIII. Monetary Calculation as a Tool of Action], 1. Monetary Calculation as Method of Thinking [[Human Action]], online version, referenced 2011-03-14.</ref>

<blockquote>"Our civilization is inseparably linked with our methods of economic calculation. It would parish if we were to abandon this most precious intellectual tool of acting. Goethe was right in calling bookkeeping by double entry "one of the finest inventions of the human mind.'"<ref name="ch13sec1"></ref></blockquote>

== Part Four: Catallactics or Economics of the Market Society ==

=== The Market ===

<blockquote>"The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of actions of various individuals cooperating under the division of labor."<ref name="ch15sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec1.asp XV. The Market], 1. Characteristics of the Market Economy, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref></blockquote>

In the market place everyone is an end in himself and an end for other people. Each individual acts on his own behalf, but everyones actions of the market also serve another. In acting everyone is serving everyone else's ends while serving their own. They each aim at the satisfaction of other peoples needs as much as at his own.<ref name="ch15sec1"></ref>

The state of the market is characterized by the totality of [[prices]] within the market which are determined by individuals eager to buy and sell. Additionally, there is no such thing as a "mixed" economy: is directed either by the market of by the decrees of a [[production]] tsar or a committee of production tsars."<ref name="ch15sec1"></ref> Publicly owned entities which operating in a market economy must obey the rules of profit and loss as others do. The characteristic feature of the [[market economy]] is its ability to [[calculate]]. Monetary calculation along with the determination of market prices allows the market to calculate. The rational ordering of the [[division of labor]] and of production are a result of this.<ref name="ch15sec1"></ref>

<blockquote>"The market economy is real because it can calculate."<ref name="ch15sec1"></ref></blockquote>

The central principles in the market economy's calculation are [[income]] and [[capital]]. Income is the amount of resources which can be consumed without lowering the capital of the individual or business. If income is greater than the amount consumed, ''[[savings]]'' results. Conversely, if a man consumes more than his income is it referred to as ''capital consumption''. Capital, here, is the quantity of money representing ownership in the assets of a enterprise (using the term broadly) or the total [[assets]] less the total [[liabilities]].<ref name="ch15sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec2.asp XV. The Market], 2. Capital, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref>

"All civilizations" says [[Mises]], "have up to now been based on private ownership of the means of production." Our system of private ownership of the means of production has poured the horn of plenty on growing population figures. Capitalism has served to allow each man a higher material wealth than even the kings of past ages. Many who argue against capitalism do so because they look upon capitalism as an accidental phenomenon. They do not understand [[private property]] and the concept of free-associations causal relationship with the material wealth of the era. It is the critics of [[capitalism]], [[Mises]] contends, which lack historical understanding, not the economists. To capitalism's enemies, it is the policy advocated by big business, regardless of the fact that big business often advocates for "[[protectionism]], [[cartels]], and the abolition of [[competition]]." And today, it is considered a "legitimate task of government to prevent an efficient man from competing with the less efficient." Advocates of protection, and state imposed limitations on the free-market want to make us believe that the consequences of [[government intervention]] are produced by capitalism.<ref name="ch15sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec3.asp XV. The Market], 3. Capitalism, ''[[Human Action]]'', online version, referenced 2011-04-10.</ref>

In a market economy the [[The Sovereignty of the Consumers|consumers are sovereign]]. Only sellers of the [[first order]] goods are in contact with the consumers, but the consumers buying and abstention from buying is transmitted from the [[consumer goods]] to the [[higher order]] goods (the [[producers goods]]). Consumers, in their capricious buying, determine the income of every member of society and direct production into the hands of individuals best able to serve the consumers.<ref name="ch15sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec4.asp XV. The Market], 4. The Sovereignty of the Consumers, ''[[Human Action]]'', online version, referenced 2011-04-30.</ref>

The consumers designate everyones place in society. The classical economists favored the abolition of the all trade barriers because they protected the less efficient from the more efficient. Trade barriers curtail production and lower the standard of living of all those effected. It is the actions of consumers which determine the prices on the market, and it is these prices which push investors into new lines of business. The bigness of one business will not stop others from trying to compete with it. [[Mises]] writes:

<blockquote>"What a newcomer who wants to defy the vested interests of the old established firms needs most is brains and ideas. If his project is fit to fill the most urgent of the unsatisfied needs of the consumers or to purvey them at a cheaper price than their old purveyors, he will succeed in spite of the much talked of bigness and power of the old firms."<ref name="ch15sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec5.asp XV. The Market], 5. Competition, ''[[Human Action]]'', online version, referenced 2011-05-17.</ref></blockquote>

Competition in the [[catallactic]] sense (i.e., competition in the market place) has a different function than that of games and beauty contests. Its function is to select the individuals most able to control the resources of society to the greatest benefit of the consumers. Humans are not born equal and the consumers do not care: "Their only interest is to secure the best possible satisfaction of their needs."<ref name="ch15sec5"></ref>

In human society, the terms "[[freedom]]" and "[[liberty]]" reference to interhuman relations. For instance [[Mises]] writes, "man was not created free; what freedom he may possess has been given to him by society...Liberty and freedom are the conditions of man within a contractual society."<ref name="ch15sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec6.asp XV. The Market], 6. Freedom, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref> Man in this condition is free to exchange goods and services, but he is by no means independent. He depends on other members of society. We say that a man is free in a contractual society because he serves others to serve himself. The restrains of freedom a man may experience in this environment is due to natural phenomenon only--the laws of nature to which we all unconditionally submit.<ref name="ch15sec6"></ref>

The market system will invariably bestow unequal rewards. This is primarily due to the different levels of service people provide to each other on the [[market]]. That is, it rewards every effort according to its [[value]] as determined by the subjective valuations of the consumers. With respect to inequality, [[Mises]] says:

<blockquote>"No system of social division of labor can do without a method that makes individuals responsible for their contribution to the joint productive effort. If this responsibility is not brought about by the price structure of the market and the inequality of wealth and income it begets, it must be enforced by the methods of direct compulsion as practiced by the police."<ref name="ch15sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec7.asp XV. The Market], 7. Inequality of Wealth and Income, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref></blockquote>

The economic phenomenon of [[profit]] and [[loss]] can be analyzed from an psychic point of view. [[Profit]], in a boarder sense, is the gain derived from [[action]]; it is the increase in satisfaction brought about by the action. In this sense, then, profit is the end of every action. Profit in this psychic sense is not measurable. However in the market economy, [[goods]] and [[services]] are bought and sold with money prices. This allows for the computation of profit and loss using the market prices of the goods and services. [[Profit]], in monetary calculus, is the surplus of [[money]] received over the money expended. It is everyone acting to attain the highest psychic which actuates the market-price mechanism and allows for monetary calculus.

The [[entrepreneur]] encounters the ever changing price structure of the market and makes his profit from correctly anticipating the changes in money prices. In this sense, he is always a speculator.<ref name="ch15sec8">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec8.asp XV. The Market], 8. Entrepreneurial Profit and Loss, ''[[Human Action]]'', online version, referenced 2011-05-19.</ref>

In an expanding or progressing economy the amount of capital invested is increasing per capita. Income is increased either by an increase in technological methods brought about by the increase in capital or simply by an increase in production. Of the increase in wealth (the result of the progressing economy) the majority of it goes to non-entrepreneurial groups. To note again, the market has a tendency to eliminate entrepreneurial profit and it is therefore temporary. In the long run, i.e., when profits have been eliminated by competition, the increase in productivity benefits exclusively the workers and consumers. On progress [[Mises]] writes:

<blockquote>"The vehicle of economic progress is the accumulation of technological methods of production the execution of which is almost always conditioned by the availability of such new capital."<ref name="ch15sec9">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec9.asp XV. The Market], 9. Entrepreneurial Profits and Losses in a Progressing Economy, ''[[Human Action]]'', online version, referenced 2011-05-21.</ref></blockquote>

<ol style="list-style-type:upper-roman;" start="15">
<li> Prices</li>
<li> Indirect Exchange</li>
<li> '''Action in the Passing of Time'''</li>
For humans considering [[action]], time matters: there is a ''too late'' and a ''too early''. [[Time preferences]] affect all action (see [[Value]]).<ref name="mises_action_in_passage_of_time_2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec2.asp XVIII. Action in the Passing of Time], 2. Time Preference as an Essential Requisite of Action, ''[[Human Action]]'', online version, referenced 2011-02-04.</ref>

Postponements of consumption, or [[saving]], is always embodied in concrete goods. "The act of saving," [[Mises]] tells us, "always has its counterpart in a supply of goods produced and not consumed...Man's savings are always embodied in concrete capital goods."<ref name="mises_action_in_passage_of_time_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec9.asp XVIII. Action in the Passing of Time], 9. Money and Capital; Saving and Investment, ''[[Human Action]]'', online version, referenced 2011-02-08.</ref>

The discussion of [[time preference]], and the postponment of consumption, is a lead in to [[interest]].

<li> '''Interest'''</li>

<blockquote>''Main Article: [[Interest]]''</blockquote>

Time preference manifests itself in the phenomenon of [[originary interest]], i.e., the discount of future goods as against present goods.<ref name="mises__human_action_chap19sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec1.asp XIX. The Rate of Interest], The Phenomenon of Interest, [[Human Action]], online version, referenced 2011-02-13.</ref> Originary interest is a ratio, like profit and loss, and not a price.<ref name="mises__human_action_chap19sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec2.asp XIX. The Rate of Interest], Originary Interest, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref> It is the ratio between the value assigned to presents goods against the value assigned to future goods. This discounting explains, for example, the reason why there is finite prices on usable land:

<blockquote>"If the future services which a piece of land can render were to be valued in the same way in which its present services are valued, no finite price would be high enough to impel its owner to sell it."<ref name="mises__human_action_chap19sec2"></ref></blockquote>

We [[discount]] future services and [[goods]] because of [[time preference]]. The fact that we can purchase land which is usable into the foreseeable future is proof of this. Furthermore, [[originary interest]] is not determined by supply and demand of [[loanable funds]]. Time preference, manifesting in the discount of future goods against present goods (i.e., originary interest) determines both the demand and supply of capital and capital goods.<ref name="mises__human_action_chap19sec2"></ref>

Interest rates in loans, in a changing economy, always have an element of entrepreneurial profit. The lender, taking a risk and and making a prediciton about the future state of the market, is engaging in an entrepreneurial venture. Therefore, interest rates on loans are never pure [[originary interest]] but also entrepreneurial profit.<ref name="mises__human_action_chap19sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec4.asp XIX. The Rate of Interest], Originary Interest in the Changing Economy, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref>

<li> Interest, Credit Expansion, and the Trade Cycle</li>
<li> Work and Wages</li>
<li> The Nonhuman Original Factors of Production</li>
<li> The Data of the Market</li>
<li> Harmony and Conflict of Interests</li>
</ol>

== Part Five: Social Cooperation Without a Market ==

<ol style="list-style-type:upper-roman;" start="25">
<li> The Imaginary Construction of a Socialist Society</li>
<li> The Impossibility of Economic Calculation Under Socialism</li>
</ol>

== Part Six: The Hampered Market Economy ==

<ol style="list-style-type:upper-roman;" start="27">
<li> The Government and the Market</li>
<li> Interference by Taxation</li>
<li> Restriction of Production</li>
<li> Interference with the Structure of Prices</li>
<li> Currency and Credit Manipulation</li>
<li> Confiscation and Redistribution</li>
<li> Syndicalism and Corporativism</li>
<li> The Economics of War</li>
<li> The Welfare Principle Versus the Market Principle</li>
<li> The Crisis of Interventionism</li>
</ol>

== Part Seven: The Place of Economics in Society ==
<ol style="list-style-type:upper-roman;" start="38">
<li> The Nondescript Character of Economics</li>
<li> The Place of Economics in Learning</li>
<li> Economics and the Essential Problems of Human Existence</li>
</ol>

==References==
{{Reflist|2}}

==Links==
''{{Store|http://www.mises.org/store/Human-Action-The-Scholars-Edition-P119.aspx|Human Action (Scholar's Edition)}}''

* [http://mises.org/resources.aspx?Id=3250&html=1#Publication_History ''Human Action'' publication history]

* ''Human Action: A Treatise on Economics'', 1998 Scholar's Edition:
** {{mr|3250|Resources page}}
** {{mr|3810|Study Guide}}
** [http://mises.org/media/category/139 Audiobook] read by [[Jeff Riggenbach]]

* ''Human Action: A Treatise on Economics'', 1996 4th Revised Edition:
** Foreword to the 4th edition by Bettina B. Greaves (p. v) ([http://mises.org/humanaction/forward.asp HTML], [http://mises.org/humanaction/pdf/ha_002.pdf PDF])
** Full text ([http://mises.org/books/humanaction.pdf PDF])

* ''Human Action: A Treatise on Economics'', 1966 3rd Revised Edition:
** Foreword to the 3rd edition by Ludwig von Mises ([http://mises.org/humanaction/foreword3.asp HTML], [http://mises.org/humanaction/pdf/ha_003.pdf PDF])
** Additions to Human Action in the 3rd edition ([http://mises.org/humanaction/ha3rd-addition.pdf PDF])

* ''Human Action: A Treatise on Economics'', Abridged Edition:
** [http://blog.mises.org/9147/human-action-abridged/ Human Action, Abridged]

* [http://mises.org/humanaction/theindex.asp Human Action interactive index]

*Articles, essays & reviews
** [http://mises.org/journals/qjae/pdf/Qjae213.pdf "The Place of Mises's Human Action in the Development of Modern Economic Thought" (PDF)]
** [http://mises.org/daily/3363 "Human Action at Sixty"]
** [http://mises.org/daily/5237/Misess-Gift-of-Human-Action "Mises's Gift of Human Action"]
** [http://mises.org/efandi/ch10.asp "The Why of Human Action"]
** [http://mises.org/daily/3262 "Human Action Study Guide"]
** Mises Review: [http://mises.org/misesreview_detail.aspx?control=127 "Human Action, The Scholar's Edition"]

* Other media
** [http://www.youtube.com/watch?v=Mou5ID13HqI Human Action: Pocket Edition] interview with [[Douglas French]] at Mises Institute
** [http://www.apriorist.de/modx/hauyf/ ''Acting Man'' online lesson]
** [http://mises.org/quotes.aspx?action=source&Source=Human%20Action ''Human Action'' quotes]

* {{wplink}}

{{See also|Human Action Comics}}
[[Category:Writings of Ludwig von Mises]]
[[Category:Writings on economics]]

{{stub}}

Human Action

2011-05-19T19:43:21Z

Huckelberry: /* The Market */ 8/13; wikify

{{Infobox book
| name = Human Action: A Treatise on Economics
| title_orig =
| translator =
| image = 
| image_caption =
| author = [[Ludwig von Mises]]
| illustrator =
| cover_artist =
| country = [[United States]]
| language =
| series =
| subject = [[Economics]], [[Political economy]]
| genre = [[Non-fiction]]
| publisher = [[Yale University Press]]
| pub_date = [[1949]]
| english_pub_date =
| media_type = Print
| pages = 889 pp.
| isbn =
| oclc = 2595286
| dewey =
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}}

'''''Human Action: A Treatise on Economics''''' is the [[magnum opus]] of [[Ludwig von Mises]], first published in 1949. It defined a large part of present [[Austrian Economics]].

<blockquote>"It is true that economics is a theoretical science and as such abstains from any judgment of value...Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends."<ref name="humanaction_intro_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/introsec3.asp Introduction], 3. Introduction, [[Human Action]], online version, referenced 2011-02-05.</ref></blockquote>

== Part One: Human Action ==

===I. Acting Man===

<blockquote>''Main Article: [[Action]].''</blockquote>

The science of human action is called [[praxeology]]. Human action always involves [[opportunity cost]] and it is always ''purposeful''. <ref name="humanaction_ch1sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap1sec1.asp I. Acting Man], 1. Purposeful Action and Animal Reaction, [[Human Action]], online version, referenced 2011-02-06.</ref>

===II. The Epistemological Problems of the Sciences of Human Action===

[[Ludwig von Mises]] takes the [[logical deductive]] approach to economics, as opposed to the [[empirical]] (or the [[logical positivist]] approach). Economic problems cannot be solved [[empirically]] because renunciation and long-term planning can not be seen. Humans act to attain definite ends--and economic phenomena can be understood as such.

<blockquote>"[[Praxeology]] is a theoretical and systematic, not a historical, science...It aims at knowledge valid for all instances in which the conditions exactly correspond to those implied in its assumptions and inferences. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, ''[[a priori]]''."<ref name="humanaction_ch2sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec1.asp II. Epistemological Problems of Human Action], 1. Praxeology and History, [[Human Action]], online version, referenced 2011-02-06.</ref></blockquote>

Like geometry, [[praxeology]] is not subject to disproof. This method may be called ''methodological apriorism''.<ref name="humanaction_ch2sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec2.asp II. Epistemological Problems of Human Action], 2. The Formal and Aprioristic Character of Praxeology, [[Human Action]], online version, referenced 2011-02-06.</ref>

===III. Economics and the Revolt Against Reason===

[[Mises]] dismisses the [[Historical School]], [[Hegel]] and [[Marx]] with it. In discussing the "bourgeois logic" and "bourgeois mentality" of [[Marx]], [[Mises]] is able to attack [[polylogism]] in general. There does not exist multiple logics, only differing interests and their logical conclusions--whether they are spurious or well-founded. [[Mises]] states with regard to the [[Historical School]], "History, in due time, will arrange everything for the best. It does not need the advice of mortal men."<ref name="humanaction_ch3sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap3sec1.asp III. Economics and the Revolt Against Reason], 1. The Revolt Against Reason, [[Human Action]], online version, referenced 2011-02-06.</ref>

<blockquote>''See [[German Idealism]].''</blockquote>

===IV. A First Analysis of the Category of Action===

<blockquote>''Main Article: [[Value]]''</blockquote>

All actions are directed toward goals, aims or ends. The end, speaking generally, is always to remove a ''felt uneasiness''. Means are the ways by which we approach an end. Things in the world, when applied to our ends, become means and are commonly referred to as [[goods]].<ref name="humanaction_ch4sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec1.asp IV. A First Analysis of The Category of Action], 1. Ends and Means, [[Human Action]], online version, referenced 2011-02-06.</ref> Means are [[Scarcity|scarce]].

Actions are reflective of our ''scale of [[value|values]]''. All things equal, we satisfy wants of higher [[value]] to us, and leave unsatisfied wants of lower [[value]] to us. Things in the world have no intrinsic [[value]], our actions give things [[value]].<ref name="humanaction_ch4sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec2.asp IV. A First Analysis of The Category of Action], 2. The Scale of Value, [[Human Action]], online version, referenced 2011-02-06.</ref>

Given that every action is an attempt to establish a more satisfactory state of affairs, viz., to remove a ''felt uneasiness'', all actions are in a sense an [[exchange]]. We [[exchange]] one state for another, hopefully better, state. Lastly, value judgments arrange wants, but do not measure them. They are expressive of sequence and order rather than of measurement and weight.<ref name="humanaction_ch4sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp IV. A First Analysis of The Category of Action], 4. Action as Exchange, [[Human Action]], online version, referenced 2011-02-06.</ref>

===V. Time===

Time is a [[Praxeology|praxeological]] category: all action is in time and is subject to time.<ref name="humanaction_ch5sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp V. Time], 2. Past, Present and Future, [[Human Action]], online version, referenced 2011-02-07.</ref> As humans, our time is [[Scarcity|scarce]] and we must economize it accordingly. Our scales of [[value]] and therefore our actions are always with reference to time. As we will see later, time is important in the determination of [[interest]] and consumption.<ref name="humanaction_ch5sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap5sec3.asp V. Time], 3. The Economization of Time, [[Human Action]], online version, referenced 2011-02-07.</ref>

===VI. Uncertainty===

All action is speculative. We never know exactly what will occur. The natural sciences make it possible to foretell results from specific actions. They do not make the future predictable.<ref name="humanaction_ch6sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec1.asp VI. Uncertainty], 1. Uncertainty and Acting, [[Human Action]], online version, referenced 2011-02-08.</ref> But, [[Mises]] tells us, probability is a primary concern of [[praxeology]].

He distinguished between two types of propability: [[class probability]] and [[case probability]].

<blockquote>"''[[Class probability]] means'': We know or assume to know, with regard to the problem concerned, everything about the behavior of a whole class of events or phenomena; but about the actual singular events or phenomena we know nothing but that they are elements of this class."<ref name="humanaction_ch6sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec3.asp VI. Uncertainty], 3. Class Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, car insurance works on the premise that with a large pool of policies, they can use class probability to decide upon an approriate premium given the ''class probability'' of accidents. But, they know nothing about the probability of the individual policy holder getting into an accident.

<blockquote>"''[[Case probability]]'' means: We know, with regard to a particular event, some of the factors which determine its outcome; but there are other determining factors about which we know nothing."<ref name="humanaction_ch6sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec4.asp VI. Uncertainty], 4. Case Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, foreign policy experts may make predictions about the settlement of foreign disputes. They are well informed but it is impossible for them to predict the outcome perfectly because they can not grasp all the data and all the opinions of individuals shaping decisions. Therefore, they may know some of the factors that will shape the future, but never perfectly.

For [[Mises]], we make decisions with incomplete knowledge. To say it again, all action is speculative in character. To this difficulty in decisions, specifically in social cooperation where selection occurs, competition serves as a function to select the most able person for specific positions. It assigns every member of society to the position where they best serve society.<ref name="humanaction_ch6sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec6.asp VI. Uncertainty], 6. Betting, Gambling, and Playing Games, [[Human Action]], online version, referenced 2011-02-08.</ref>

===VII. Action Within the World===

Each person possesses one scale of valuations, which is visible through action.<ref name="humanaction_ch7sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec1.asp VII. Action Within The World], 1. The Law of Marginal Utility, [[Human Action]], online version, referenced 2011-02-13.</ref> Goods and modes of action are chosen based on their utility, or their causal relevance for the removal of felt ''uneasiness''.<ref name="humanaction_ch7sec1"></ref> Here [[Mises]] discusses the [[paradox of value]]: why is ''gold'' more valuable than ''iron''? Despite the many uses of iron, gold is valued more on the market because of its value in exchange. Iron may have more technological prospects or ''objective use-value'' but it lacks ''subjective use-value'', that is, gold is valuable in exchange due to scarcity, appearance and its tradition as a form of money. [[Mises]], however, dismisses the question as one which never occurs in reality.<ref name="humanaction_ch7sec1"></ref>

The [[Law of Marginal Utility]] is implied by the category of action: If a supply increases from quantity ''n'' to ''n + 1'' the extra unit provides less [[utility]] than unit ''n''. This is because ''n'' is satisfying a more urgent want than unit ''n + 1''. We satisfy more urgent wants first by their definition. Unit ''n'' is satisfying the more urgent want, ''n + 1'' is satisfying a less urgent want. Therefore, increasing units of a homogeneous supply are each applied to decreasingly important wants (seeing as the more urgent wants are always satisfied first). The [[law of marginal utility]], "does not deal primarily with the [[value]] of things, but with the [[value]] of the services a man expects to get from them."<ref name="humanaction_ch7sec1"></ref>

"[[Labor]]," says [[Mises]], "is preferred to leisure only insofar as the yield of [[labor]] is more urgently desired than the enjoyment of leisure."<ref name="humanaction_ch7sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec3.asp VII. Action Within The World], 3. Labor as Means, [[Human Action]], online version, referenced 2011-02-13.</ref> Work involves disutility. To this note, [[labor]] is more scarce than other material factors of production:

<blockquote>"In our world there is no abundance, but a shortage of manpower, and there are unused material factors of production, i.e. land, mineral deposits, and even plants and equipment."<ref name="humanaction_ch7sec3"></ref></blockquote>

Labor saving devices reduce want, they do not bring about "technological unemployment." Man economizes both labor and material factors.<ref name="humanaction_ch7sec3"></ref>

Action is successful it it produces the intended result: it produces the product. The human mind directs [[action]] with a purpose and production is creative. It is not something physical, natural, and external; it is a spiritual and intellectual phenomenon. All material actions within the world are a product of the mind. "In this sense," [[Mises]] tells us, "[[praxeology]] can be called a moral science."<ref name="humanaction_ch7sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec4.asp VII. Action Within The World], 4. Production, [[Human Action]], online version, referenced 2011-02-13.</ref>

== Part Two: Actions Within the Framework of Society ==

===VIII. Human Society===

We are born into society and only in this sense does society exist before the individual. [[Society]] is the supreme example of the benefits of the [[division of labor]].<ref name="ch8sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec1.asp VIII. Human Society], 1. Human Cooperation, [[Human Action]], online version, referenced 2011-02-17.</ref> It is an institution for the preservation of peaceful human relations. It is the social apparatus of compulsion and coercion.<ref name="ch8sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec2.asp VIII. Human Society], 2. A Critique of the Holistic and Metaphysical View of Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

[[Democratic government]] provides a method for the peaceful adjustment of government to the will of the majority. Wisdom and science thrive in a peaceful and affluent society. <ref name="ch8sec2"></ref>

<blockquote>"[[Liberalism]] aims at a political constitution which safeguards the smooth working of social cooperation and the progressive intensification of mutual social relations. Its main objective is the avoidance of violent conflicts, of wars and revolutions that must disintegrate the social collaboration of men and throw people back into the primitive conditions of barbarism where all tribes and political bodies endlessly fought one another. Because the division of labor requires undisturbed peace, liberalism aims at the establishment of a system of government that is likely to preserve peace, viz., democracy."<ref name="ch8sec2"></ref></blockquote>

[[Mises]] expounds the Ricardian Law of Association or [[comparative advantage]] as the fundamental characteristic of society.<ref name="ch8sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association, [[Human Action]], online version, referenced 2011-02-17.</ref> The division of labor assigns to each man the best job for him in society.<ref name="humanaction_ch6sec6"></ref> However, the end result of division of labor in society--a diversity which attests to the innate inequalities between individuals--does not illistrate ideas of [[Social Darwinism]]. Biology and evolutionary views cannot pass value judgments on the benefits of civilization.<ref name="ch8sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec7.asp VIII. Human Society], 7. The Great Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

===IX. The Role of Ideas===

All [[action]] is preceded by thinking. Thinking is to deliberate before [[action]] and to reflect upon past [[action]]. Thinking is a tool of action and language is a tool of thinking. All action is based on a definite idea about causal relations. Thinking and ideas are, like material wealth, passed down the generations.<ref name="ch9sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec1.asp IX. Human Society], 1. Human Reason, [[Human Action]], online version, referenced 2011-02-18.</ref> Action is always directed by ideas.<ref name="ch9sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec3.asp IX. Human Society], 3. Might, [[Human Action]], online version, referenced 2011-02-18.</ref>

[[Ideologies|Ideology]] and world views are explanations of social phenomena and technologies for prescriptive politics. All political doctrines imply that: "the political system we support will render you more prosperous and more content."<ref name="ch9sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec2.asp IX. Human Society], 2. World View and Ideology, [[Human Action]], online version, referenced 2011-02-18.</ref> [[Ideologies]], to [[Mises]], are the most powerful form of control. The might of a politician is due to his [[ideology]], his interpretation of the world and his prescriptive measures to ensure his followers are more prosperous and more content. Thinking, the ideological interpretation, succeeds through the cooperation of other minds. No thinker is isolated in his thoughts, they have been influenced by others. A politician's power dwindles if his [[ideology]] loses support. To [[Mises]]:

<blockquote>"The power of an ideology consists precisely in the fact that people submit to it without any wavering and scruples."<ref name="ch9sec3"></ref></blockquote>

Traditionalism and the idea of progress are ideologies also. Progress toward a more prosperous life and evolutionary progress must not be confused with evolution toward higher forms of life. Progress may not continue, majorities may error.<ref name="ch9sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec4.asp IX. Human Society], 4. Meliorism and the Idea of Progress, [[Human Action]], online version, referenced 2011-02-18.</ref> Ideologies may protect the material interest of the race or they may destroy it.

===X. Exchange Within Society===

[[Action]] always is essentially the exchange of one state of affairs for another state of affairs.<ref name="ch10sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec1.asp X. Exchange Within Society], 1. Autistic Exchange and Interpersonal Exchange, [[Human Action]], online version, referenced 2011-02-25.</ref> The interpersonal exchange of goods weaves the bonds which unites men into societies.<ref name="ch10sec1"></ref> [[Mises]] defines two different kinds of social cooperation: cooperation by virtue of contract and coordination, and contract by virtue of command and subordination or hegemony.<ref name="ch10sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec2.asp X. Exchange Within Society], 2. Contractual Bonds and Hegemonic Bonds, [[Human Action]], online version, referenced 2011-02-25.</ref> In the former state there are men who cooperate to achieve goals--their plans are symmetrical and share a common goal. In the latter state their is always two classes of men, those who command and those who obey. Again [[Mises]] emphasizes the important of ideology to animate the social body. The individuals must share an [[ideology]] if they are to cooperate. Hegemonic control needs an ideology that the controlling system is the best or the traditional norm. [[Ideologies]] imply obedience to the [[ideology]]. Contractual relation order society by free association held together by the order of right and law.<ref name="ch10sec2"></ref>

The [[Praxeology|praxeological]] categories, [[Mises]] tells us, are eternal and unchangable. They are the categories within which all action takes place. No [[action]] is free from the facts of existence--of which the praxeological categories belong.<ref name="ch10sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec3.asp X. Exchange Within Society], 3. Calculative Action, [[Human Action]], online version, referenced 2011-02-25.</ref> Man can never comprehend anything that is neither [[action]] or none action.

Modern civilization is characterized by the fact that it has elaborated a method which makes use of the arithmetic possible in a broad field of activities. [[Economic calculation]], for example in modern capital [[accounting]], is a fundamental issue in all comprehension of economic phenomena.<ref name="ch10sec3"></ref>

Despite the extended use of capital [[accounting]] and arithmetic, [[action]] can only make use of ordinal numbers. That is, actions order desires but do not measure them. But in our rational and contractual society we are able to make use of cardinal numbers in capital accounting. By this feature of capital accounting and contractual relations civilization opened the door to computation and calculation regarding the planning of the future and measuring the effects of past actions. Still, the applicability of cardinal numbers to economic thinking require these circumstances and economic law and theory cannot be deduced from [[economic history]], namely, the history of prices.<ref name="ch10sec3"></ref>

== Part Three: Economic Calculation ==

===XI. Valuation Without Calculation===

We apply the [[value|values]] we attribute to the ends of [[action]], to the means necessary to achieve those ends: "Other things being equal, [acting man] assigns to the total amount of the various means the same value he attaches to the end which they are fit to bring about."<ref name="ch11sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec1.asp XI. Valuation Without Calculation], 1. Gradation of Means, [[Human Action]], online version, referenced 2011-02-26.</ref>

The preferences used in [[action]], the laying aside of some things for other things, allows--as said above--the use of ordinal numbers but not cardinal numbers. Again, [[value|values]] attributable to actions cannot be measured arithmetically. Yet, in the activity of using means to attain certain ends, the acquisition of countable and measurable supplies of things becomes an immediate goal of action.<ref name="ch11sec1"></ref> [[Economic calculation]] can occur, despite that the values we attribute to different means and ends cannot be measured, by the results of actions of interpersonal exchange:

<blockquote>"The modern theory of value and prices show how the choices of individuals, their preferring some things and setting aside of other things, results, in the sphere of interpersonal exchange, in the emergence of market prices."<ref name="ch11sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec2.asp XI. Valuation Without Calculation], 2. The Barter-Fiction of the Elementary Theory of Value and Prices, [[Human Action]], online version, referenced 2011-02-26.</ref></blockquote>

[[Mises]] reminds us that is it a fallacy to think things exchanged are of the same value. Rather, people buy and sell only because they appraise the things given up less than those received.<ref name="ch11sec2"></ref> "Market prices," [[Mises]] says in a later chapter, "are not expressive of equivalence, but of a divergence in the valuation of the exchanging parties."<ref name="ch26sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap26sec3.asp XXVI. Economic Calculation under Socialism], 3. Recent Suggestions for Socialist Economic Calculation, [[Human Action]], online version, referenced 2011-04-25.</ref>

In using technology, we are resorting to knowledge of causal relations. We are not, however, addressing the technologies applicability to human wants and desires.<ref name="ch11sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec3.asp XI. Valuation Without Calculation], 3. The Problem of Economic Calculation, [[Human Action]], online version, referenced 2011-02-26.</ref>

<blockquote>"Technology tells how a given end could be attained by the employment of various means which can be used together in various combinations, or how various available means could be employed for certain purposes. But it is at a loss to tell man which procedures he should choose out of the infinite variety of imaginable and possible modes of production."<ref name="ch11sec3"></ref></blockquote>

Engineering can tell us how to build a bridge but not whether its construction would draw resources from other areas where they would be used to satisfy more urgently felt needs. [[Action]], as opposed to the casual relations of engineering, must discover the relations between dissimilar projects. [[Money]], holding the status of "universally used medium of exchange," becomes the measure of the worthiness of differing possiblities in the realm of action. Because [[goods]] and services have money prices we can use these in planning and decisions.<ref name="ch11sec3"></ref>

With all action directed toward the future, all economic planning and calculation must be made in regards to the future state of prices. In entrepreneurial ventures the acting man wants the prices of goods produced and sold to be greater than the price of the goods used in production. The practical meaning of [[economic calculation]] is to show how much one is free to consume without impairing the future capacity to produce. The concepts of [[economic calculation]]--[[Profit]] and [[loss]], [[capital]] and [[income]], spending and [[saving]], cost and yield--are developed to ensure efficient use of the resources of society.<ref name="ch11sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec4.asp XI. Valuation Without Calculation], 4. Economic Calculation and The Market, [[Human Action]], online version, referenced 2011-02-26.</ref>

===XII. The Sphere of Economic Calculation===

The acting individual is always concerned with the future. In action he is either, (1) anticipating the future and acting accordingly, or (2) trying to change the outcomes of the future even if there are no other changes to the data. Economic calculation cannot predict the outcomes of the future, it can only assist man in adjusting his actions to his opinion of the future. The numerical exactitude of balance sheets and income statements must not prevent us from realizing their inherent uncertainty and estimation.<ref name="ch12sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec1.asp XII. The Sphere of Economic Calculation], 1. The Character of Monetary Entries, [[Human Action]], online version, referenced 2011-02-27.</ref>

[[Money]] is not a measuring stick. Money prices do not transmit the intrinsic value of a good. [[Prices]] are not measured in money, they consist in money. They are either prices of the past or prices of the future. Furthermore, although it is possible to aggregate prices paid in goods, it makes no sense to talk about a national income or any other aggregate of spending which "characterizes" a society.<ref name="ch12sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec2.asp XII. The Sphere of Economic Calculation], 2. The Limits of Economic Calculation [[Human Action]], online version, referenced 2011-02-27.</ref>

Economic calculation makes sense only in a society with private ownership of the means of production. Economic calculation is not to blame of the masses preferring detective stories to books of philosophy--that is an outcome of the desires and preferences of individuals acting in society. Economic calculation cannot be blamed for the less than ideal characters and habits of other members of society.<ref name="ch12sec2"></ref>

Prices, or exchange ratios, are in constant fluctuation with the changing data of the market and the changing whims of consumers.<ref name="ch12sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec3.asp XII. The Sphere of Economic Calculation], 3. The Changeability of Prices[[Human Action]], online version, referenced 2011-02-27.</ref>

[[Mises]] dismisses the idea of measurement in [[purchasing power]] as unfeasible:

<blockquote>"A measurement of purchasing power would have to rely upon the prices of the goods and services of the first order and, what is more, of ''all'' of them."<ref name="ch12sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec4.asp XII. The Sphere of Economic Calculation], 4. Stabilization [[Human Action]], online version, referenced 2011-02-27.</ref></blockquote>

Further, changes in the [[purchasing power]] of [[money]] must necessarily effect different goods and services at different times and therefore efforts to stabilize the purchasing power of money by attempting to change the money relation is an impossible feat.<ref name="ch12sec4"></ref>

===XIII. Monetary Calculation as a Tool of Action===

Monetary calculation is the decisive factor of action in the social system of [[division of labor]]. Every action of the [[entrepreneur]] is analyzed by monetary calculation. Only in the institutional settings of [[private property]] and [[division of labor]] where goods and services are exchanged by a money can the system of monetary calculation be used. The use of aggregates derived from the use of monetary calculation is useless. That is, monetary calculation is useful for individual acting but cannot be useful to determining "social" values or welfare. By the use of monetary calculation, for example in capital [[accounting]], arithmetic has become a tool in the struggle for a better life. Capital [[accounting]] allows us to analyze the success or failure of men in satisfying the needs of [[consumers]].<ref name="ch13sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap13sec1.asp XIII. Monetary Calculation as a Tool of Action], 1. Monetary Calculation as Method of Thinking [[Human Action]], online version, referenced 2011-03-14.</ref>

<blockquote>"Our civilization is inseparably linked with our methods of economic calculation. It would parish if we were to abandon this most precious intellectual tool of acting. Goethe was right in calling bookkeeping by double entry "one of the finest inventions of the human mind.'"<ref name="ch13sec1"></ref></blockquote>

== Part Four: Catallactics or Economics of the Market Society ==

=== The Market ===

<blockquote>"The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of actions of various individuals cooperating under the division of labor."<ref name="ch15sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec1.asp XV. The Market], 1. Characteristics of the Market Economy, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref></blockquote>

In the market place everyone is an end in himself and an end for other people. Each individual acts on his own behalf, but everyones actions of the market also serve another. In acting everyone is serving everyone else's ends while serving their own. They each aim at the satisfaction of other peoples needs as much as at his own.<ref name="ch15sec1"></ref>

The state of the market is characterized by the totality of [[prices]] within the market which are determined by individuals eager to buy and sell. Additionally, there is no such thing as a "mixed" economy: is directed either by the market of by the decrees of a [[production]] tsar or a committee of production tsars."<ref name="ch15sec1"></ref> Publicly owned entities which operating in a market economy must obey the rules of profit and loss as others do. The characteristic feature of the [[market economy]] is its ability to [[calculate]]. Monetary calculation along with the determination of market prices allows the market to calculate. The rational ordering of the [[division of labor]] and of production are a result of this.<ref name="ch15sec1"></ref>

<blockquote>"The market economy is real because it can calculate."<ref name="ch15sec1"></ref></blockquote>

The central principles in the market economy's calculation are [[income]] and [[capital]]. Income is the amount of resources which can be consumed without lowering the capital of the individual or business. If income is greater than the amount consumed, ''[[savings]]'' results. Conversely, if a man consumes more than his income is it referred to as ''capital consumption''. Capital, here, is the quantity of money representing ownership in the assets of a enterprise (using the term broadly) or the total [[assets]] less the total [[liabilities]].<ref name="ch15sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec2.asp XV. The Market], 2. Capital, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref>

"All civilizations" says [[Mises]], "have up to now been based on private ownership of the means of production." Our system of private ownership of the means of production has poured the horn of plenty on growing population figures. Capitalism has served to allow each man a higher material wealth than even the kings of past ages. Many who argue against capitalism do so because they look upon capitalism as an accidental phenomenon. They do not understand [[private property]] and the concept of free-associations causal relationship with the material wealth of the era. It is the critics of [[capitalism]], [[Mises]] contends, which lack historical understanding, not the economists. To capitalism's enemies, it is the policy advocated by big business, regardless of the fact that big business often advocates for "[[protectionism]], [[cartels]], and the abolition of [[competition]]." And today, it is considered a "legitimate task of government to prevent an efficient man from competing with the less efficient." Advocates of protection, and state imposed limitations on the free-market want to make us believe that the consequences of [[government intervention]] are produced by capitalism.<ref name="ch15sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec3.asp XV. The Market], 3. Capitalism, ''[[Human Action]]'', online version, referenced 2011-04-10.</ref>

In a market economy the [[The Sovereignty of the Consumers|consumers are sovereign]]. Only sellers of the [[first order]] goods are in contact with the consumers, but the consumers buying and abstention from buying is transmitted from the [[consumer goods]] to the [[higher order]] goods (the [[producers goods]]). Consumers, in their capricious buying, determine the income of every member of society and direct production into the hands of individuals best able to serve the consumers.<ref name="ch15sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec4.asp XV. The Market], 4. The Sovereignty of the Consumers, ''[[Human Action]]'', online version, referenced 2011-04-30.</ref>

The consumers designate everyones place in society. The classical economists favored the abolition of the all trade barriers because they protected the less efficient from the more efficient. Trade barriers curtail production and lower the standard of living of all those effected. It is the actions of consumers which determine the prices on the market, and it is these prices which push investors into new lines of business. The bigness of one business will not stop others from trying to compete with it. [[Mises]] writes:

<blockquote>"What a newcomer who wants to defy the vested interests of the old established firms needs most is brains and ideas. If his project is fit to fill the most urgent of the unsatisfied needs of the consumers or to purvey them at a cheaper price than their old purveyors, he will succeed in spite of the much talked of bigness and power of the old firms."<ref name="ch15sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec5.asp XV. The Market], 5. Competition, ''[[Human Action]]'', online version, referenced 2011-05-17.</ref></blockquote>

Competition in the [[catallactic]] sense (i.e., competition in the market place) has a different function than that of games and beauty contests. Its function is to select the individuals most able to control the resources of society to the greatest benefit of the consumers. Humans are not born equal and the consumers do not care: "Their only interest is to secure the best possible satisfaction of their needs."<ref name="ch15sec5"></ref>

In human society, the terms "[[freedom]]" and "[[liberty]]" reference to interhuman relations. For instance [[Mises]] writes, "man was not created free; what freedom he may possess has been given to him by society...Liberty and freedom are the conditions of man within a contractual society."<ref name="ch15sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec6.asp XV. The Market], 6. Freedom, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref> Man in this condition is free to exchange goods and services, but he is by no means independent. He depends on other members of society. We say that a man is free in a contractual society because he serves others to serve himself. The restrains of freedom a man may experience in this environment is due to natural phenomenon only--the laws of nature to which we all unconditionally submit.<ref name="ch15sec6"></ref>

The market system will invariably bestow unequal rewards. This is primarily due to the different levels of service people provide to each other on the [[market]]. That is, it rewards every effort according to its [[value]] as determined by the subjective valuations of the consumers. With respect to inequality, [[Mises]] says:

<blockquote>"No system of social division of labor can do without a method that makes individuals responsible for their contribution to the joint productive effort. If this responsibility is not brought about by the price structure of the market and the inequality of wealth and income it begets, it must be enforced by the methods of direct compulsion as practiced by the police."<ref name="ch15sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec7.asp XV. The Market], 7. Inequality of Wealth and Income, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref></blockquote>

The economic phenomenon of [[profit]] and [[loss]] can be analyzed from an psychic point of view. [[Profit]], in a boarder sense, is the gain derived from [[action]]; it is the increase in satisfaction brought about by the action. In this sense, then, profit is the end of every action. Profit in this psychic sense is not measurable. However in the market economy, [[goods]] and [[services]] are bought and sold with money prices. This allows for the computation of profit and loss using the market prices of the goods and services. [[Profit]], in monetary calculus, is the surplus of [[money]] received over the money expended. It is everyone acting to attain the highest psychic which actuates the market-price mechanism and allows for monetary calculus.

The [[entrepreneur]] encounters the ever changing price structure of the market and makes his profit from correctly anticipating the changes in money prices. In this sense, he is always a speculator.<ref name="ch15sec8">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec8.asp XV. The Market], 8. Entrepreneurial Profit and Loss, ''[[Human Action]]'', online version, referenced 2011-05-19.</ref>

<ol style="list-style-type:upper-roman;" start="15">
<li> Prices</li>
<li> Indirect Exchange</li>
<li> '''Action in the Passing of Time'''</li>
For humans considering [[action]], time matters: there is a ''too late'' and a ''too early''. [[Time preferences]] affect all action (see [[Value]]).<ref name="mises_action_in_passage_of_time_2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec2.asp XVIII. Action in the Passing of Time], 2. Time Preference as an Essential Requisite of Action, ''[[Human Action]]'', online version, referenced 2011-02-04.</ref>

Postponements of consumption, or [[saving]], is always embodied in concrete goods. "The act of saving," [[Mises]] tells us, "always has its counterpart in a supply of goods produced and not consumed...Man's savings are always embodied in concrete capital goods."<ref name="mises_action_in_passage_of_time_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec9.asp XVIII. Action in the Passing of Time], 9. Money and Capital; Saving and Investment, ''[[Human Action]]'', online version, referenced 2011-02-08.</ref>

The discussion of [[time preference]], and the postponment of consumption, is a lead in to [[interest]].

<li> '''Interest'''</li>

<blockquote>''Main Article: [[Interest]]''</blockquote>

Time preference manifests itself in the phenomenon of [[originary interest]], i.e., the discount of future goods as against present goods.<ref name="mises__human_action_chap19sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec1.asp XIX. The Rate of Interest], The Phenomenon of Interest, [[Human Action]], online version, referenced 2011-02-13.</ref> Originary interest is a ratio, like profit and loss, and not a price.<ref name="mises__human_action_chap19sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec2.asp XIX. The Rate of Interest], Originary Interest, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref> It is the ratio between the value assigned to presents goods against the value assigned to future goods. This discounting explains, for example, the reason why there is finite prices on usable land:

<blockquote>"If the future services which a piece of land can render were to be valued in the same way in which its present services are valued, no finite price would be high enough to impel its owner to sell it."<ref name="mises__human_action_chap19sec2"></ref></blockquote>

We [[discount]] future services and [[goods]] because of [[time preference]]. The fact that we can purchase land which is usable into the foreseeable future is proof of this. Furthermore, [[originary interest]] is not determined by supply and demand of [[loanable funds]]. Time preference, manifesting in the discount of future goods against present goods (i.e., originary interest) determines both the demand and supply of capital and capital goods.<ref name="mises__human_action_chap19sec2"></ref>

Interest rates in loans, in a changing economy, always have an element of entrepreneurial profit. The lender, taking a risk and and making a prediciton about the future state of the market, is engaging in an entrepreneurial venture. Therefore, interest rates on loans are never pure [[originary interest]] but also entrepreneurial profit.<ref name="mises__human_action_chap19sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec4.asp XIX. The Rate of Interest], Originary Interest in the Changing Economy, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref>

<li> Interest, Credit Expansion, and the Trade Cycle</li>
<li> Work and Wages</li>
<li> The Nonhuman Original Factors of Production</li>
<li> The Data of the Market</li>
<li> Harmony and Conflict of Interests</li>
</ol>

== Part Five: Social Cooperation Without a Market ==

<ol style="list-style-type:upper-roman;" start="25">
<li> The Imaginary Construction of a Socialist Society</li>
<li> The Impossibility of Economic Calculation Under Socialism</li>
</ol>

== Part Six: The Hampered Market Economy ==

<ol style="list-style-type:upper-roman;" start="27">
<li> The Government and the Market</li>
<li> Interference by Taxation</li>
<li> Restriction of Production</li>
<li> Interference with the Structure of Prices</li>
<li> Currency and Credit Manipulation</li>
<li> Confiscation and Redistribution</li>
<li> Syndicalism and Corporativism</li>
<li> The Economics of War</li>
<li> The Welfare Principle Versus the Market Principle</li>
<li> The Crisis of Interventionism</li>
</ol>

== Part Seven: The Place of Economics in Society ==
<ol style="list-style-type:upper-roman;" start="38">
<li> The Nondescript Character of Economics</li>
<li> The Place of Economics in Learning</li>
<li> Economics and the Essential Problems of Human Existence</li>
</ol>

==References==
{{Reflist|2}}

==Links==
''{{Store|http://www.mises.org/store/Human-Action-The-Scholars-Edition-P119.aspx|Human Action (Scholar's Edition)}}''

* [http://mises.org/resources.aspx?Id=3250&html=1#Publication_History ''Human Action'' publication history]

* ''Human Action: A Treatise on Economics'', 1998 Scholar's Edition:
** {{mr|3250|Resources page}}
** {{mr|3810|Study Guide}}
** [http://mises.org/media/category/139 Audiobook] read by [[Jeff Riggenbach]]

* ''Human Action: A Treatise on Economics'', 1996 4th Revised Edition:
** Foreword to the 4th edition by Bettina B. Greaves (p. v) ([http://mises.org/humanaction/forward.asp HTML], [http://mises.org/humanaction/pdf/ha_002.pdf PDF])
** Full text ([http://mises.org/books/humanaction.pdf PDF])

* ''Human Action: A Treatise on Economics'', 1966 3rd Revised Edition:
** Foreword to the 3rd edition by Ludwig von Mises ([http://mises.org/humanaction/foreword3.asp HTML], [http://mises.org/humanaction/pdf/ha_003.pdf PDF])
** Additions to Human Action in the 3rd edition ([http://mises.org/humanaction/ha3rd-addition.pdf PDF])

* ''Human Action: A Treatise on Economics'', Abridged Edition:
** [http://blog.mises.org/9147/human-action-abridged/ Human Action, Abridged]

* [http://mises.org/humanaction/theindex.asp Human Action interactive index]

*Articles, essays & reviews
** [http://mises.org/journals/qjae/pdf/Qjae213.pdf "The Place of Mises's Human Action in the Development of Modern Economic Thought" (PDF)]
** [http://mises.org/daily/3363 "Human Action at Sixty"]
** [http://mises.org/daily/5237/Misess-Gift-of-Human-Action "Mises's Gift of Human Action"]
** [http://mises.org/efandi/ch10.asp "The Why of Human Action"]
** [http://mises.org/daily/3262 "Human Action Study Guide"]
** Mises Review: [http://mises.org/misesreview_detail.aspx?control=127 "Human Action, The Scholar's Edition"]

* Other media
** [http://www.youtube.com/watch?v=Mou5ID13HqI Human Action: Pocket Edition] interview with [[Douglas French]] at Mises Institute
** [http://www.apriorist.de/modx/hauyf/ ''Acting Man'' online lesson]
** [http://mises.org/quotes.aspx?action=source&Source=Human%20Action ''Human Action'' quotes]

* {{wplink}}

{{See also|Human Action Comics}}
[[Category:Writings of Ludwig von Mises]]
[[Category:Writings on economics]]

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Entrepreneur

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{{rightTOC}}

The '''Entrepreneur''' performs the function of carrying out "new combinations" of [[labor]], [[natural resources]] or [[capital goods]] for the purpose of making a [[profit]].<ref name="schumpeter_new_combinations">[[Joseph Schumpeter]], ''The Theory of Economic Development'', trans. Redvers Opie (Cambridge, Massachusetts: Harvard University Press, 1961) 75</ref> The '''entrepreneur''' is distinct from the [[capitalist]] because he does not risk [[capital]] while the [[capitalist]] does.<ref name="Mises_functional_distribution">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap14sec7.asp XVIII. The Scope and Method of Catallactics], 7. The Integration of Catallactic Functions, [[Human Action]], online version, referenced 2011-02-05.</ref><ref name="schumpeter_new_combinations"></ref> This distinction is made by [[Mises]] to better explain the different roles individuals play in the economy and is part of the "imaginary construction of [[functional distribution]]."<ref name="Mises_functional_distribution"></ref> Individuals, in the market economy, often perform both functions.

According to [[Ludwig von Mises]]:

<blockquote>"[Economics] also calls entrepreneurs those who are especially eager to profit from adjusting production to the expected changes in conditions, those who have more initiative, more venturesomeness, and a quicker eye than the crowd, the pushing and promoting pioneers of economic improvement."<ref name="Mises_functional_distribution"></ref></blockquote>

[[Mises]] suggests the term "[[promoter]]" in addition to term entrepreneur:

<blockquote>"The driving force of the market, the element tending toward unceasing innovation and improvement, is provided by the restlessness of the promoter and his eagerness to make profits as large as possible."<ref name="Mises_functional_distribution"></ref></blockquote>

==Entrepreneurs and The Future==

Entrepreneurs are primarily concerned with the future state of prices. In anticipating the direction of the market, entrepreneurs must also predict the length of time which will pass before the desired change in prices have emerged. In fact, timing can determine whether a definite project will have success or not.<ref name="humanaction_ch23sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap23sec5.asp XXIII. The Data of the Market], 5. The Period of Adjustment, [[Human Action]], online version, referenced 2011-03-30.</ref>

Entrepreneurs make [[profit|profits]] by providing for future needs which have been neglected by other businessmen. It is not foresight itself which brings profits, but foresight better than the majority.<ref name="humanaction_ch38sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap38sec3.asp XXXVII. The Place of Economics in Learning], 3. Forecasting as a Profession, [[Human Action]], online version, referenced 2011-03-30.</ref> [[Mises]] writes:

<blockquote>"The entrepreneurial idea that carries on and brings profits is precisely that idea which did not occur to the majority...The prize goes only to those dissenters who do not let themselves be misled by the errors accepted by the multitude."<ref name="humanaction_ch38sec3"></ref></blockquote>

According to [[Mises]], the entrepreneur:

<blockquote>"...discovers a discrepancy between the prices of the complementary factors of production and the future prices of the products as he anticipates them, and tries to take advantage of this discrepancy for his own profit."<ref name="humanaction_chsec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap26sec6.asp XXVI. Economic Calculation under Socialism], 6. The Differential Equations of Mathematical Economics, [[Human Action]], online version, referenced 2011-04-25.</ref></blockquote>

:And:

<blockquote>"An entrepreneur can make a profit only if he anticipates the future conditions more correctly than other entrepreneurs."<ref name="humanaction_ch26sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec8.asp XV. The Market], 8. Entrepreneurial Profit and Loss, [[Human Action]], online version, referenced 2011-05-19.</ref></blockquote>

The famous entrepreneur [[Henry Ford]], in ''[[My Life and Work]]'', states with regard to the future and failure one must have:

<blockquote>"An absence of fear of the future and of veneration for the past. One who fears the future, who fears failure, limits his activities. Failure is only the opportunitv more intelligently to begin again. There is no disgraceful honest failure; there is disgrace in fearing to fail. What is past is useful only as it suggests ways and means for progress."<ref name="mylifeandwork_intro">[[Henry Ford]]. [http://books.google.com/books?id=QwckAAAAMAAJ&dq=my%20life%20and%20work%20by%20henry%20ford&pg=PA20#v=onepage&q&f=false Introduction], [[My Life and Work]], online, referenced 2011-03-30.</ref></blockquote>

==Examples of Entrepreneurship==

A recent example of entrepreneurship is [[facebook]] founder Mark Zuckerberg. After winning Times 2010 person of the year Zuckerberg said:

<blockquote>"''If you create value for other people then you might be able to realize a portion of that value yourself.'' I never thought about facebook as starting a business that would grow its own value, but its really good that the world works this way. If someone does something that is valuable, that is enough to build a good business based off of. I don't think that I focus on the same thing that other business people do. ''But every day we just come in and try and build the best product for people.''"<ref name="time_interview_mark_zuckerberg">An Interview with Mark Zuckerberg, ''Time Magazine''. [http://www.time.com/time/specials/packages/article/0,28804,2036683_2037109_2037107,00.html]</ref> (emphasis added)</blockquote>

Other notable living entrepreneurs are Steve Jobs (Apple), Bill Gates (Microsoft), Jeff Bezos (Amazon) and Richard Branson (Virgin).

==References==
{{Reflist}}

==Links==
* [http://mises.org/daily/1530 What is Entrepreneurship?] by Murray N. Rothbard, from ''[[Man, Economy, and State]]''
* [https://mises.org/journals/jls/7_2/7_2_6.pdf Professor Hebert on Entrepreneurship] (pdf) by Murray N. Rothbard, 1985
* [https://mises.org/journals/rae/pdf/RAE2_1_3.pdf Competition and Political Entrepreneur ship: Austrian Insights into Public-Choice Theory] (pdf) by Thomas J. DiLorenzo
* [https://mises.org/journals/qjae/pdf/Q12_3.pdf Entrepreneurship and Economic Growth] (pdf) by Randall G. Holcombe, 1998
* [https://mises.org/journals/rae/pdf/R61_3.PDF The Role of Entrepreneurship in Desocialization] (pdf) by jeffrey M. Herbener, 1992
* [http://mises.org/journals/qjae/pdf/qjae2_2_2.pdf Entrepreneurship and Corporate Governance] (pdf) by Peter G. Klein, 1999
* [https://mises.org/journals/scholar/klein3.pdf Entrepreneurship and the Economic Theory of the Firm: Any Gains from Trade?] (pdf) by Nicolai J. Foss and Peter G. Klein, August 2004
* [https://mises.org/journals/qjae/pdf/qjae8_2_2.pdf The Spatial Nature of Entrepreneurship] (pdf) by David Emanuel Andersson, 2005
* [http://mises.org/journals/scholar/wood.pdf The Development and Present State of the Theory of Entrepreneurship in Product and Asset Markets by Knight, Hayek, Schumpeter, Mises, Kirzner, Shackle, and Lachmann] (pdf) by J. Stuart Wood, March 2005
* [http://mises.org/daily/1862 Producer, Entrepreneur, and the Right to Property] by Israel M. Kirzner, July 2005
* [http://mises.org/daily/1990 The Faith of Entrepreneurs] by Llewellyn H. Rockwell Jr., December 2005
* [http://mises.org/journals/qjae/pdf/qjae10_2_5.pdf Economic Decline and the Failure of Chinese Enterpreneurs] (pdf) by Greg Clydesdale, 2007
* [http://mises.org/journals/scholar/salerno4.pdf The Enterpreneur: Real and Imagined] (pdf) by Joseph T. Salerno, March 2007
* [http://mises.org/daily/2673 Why Don't Entrepreneurs Outsmart the Business Cycle?] by Brian J. Stanley, August 2007
* [http://mises.org/journals/qjae/pdf/qjae12_4_1.pdf Entrepreneurship, Economic Evolution, and the End of Capitalism: Reconsidering Schumpeter's Thesis] (pdf) by Matthew McCaffrey, 2009
* [http://mises.org/journals/qjae/pdf/qjae12_3_1.pdf Entrepreneurship and Economic Growth: The Theory of Emergent Insitutions] (pdf) by Jack High, 2009
* [http://mises.org/resources/5367 The Capitalist and the Entrepreneur: Essays on Organizations and Markets] by Peter G. Klein, 2010
* [http://mises.org/daily/5210/The-Capitalist-in-the-Hat The Capitalist in the Hat] by Robert P. Murphy, April 2011
* [[Wikipedia:Entrepreneur|Entrepreneur]] in Wikipedia

{{Stub}}
[[Category:Economic concepts]]

Human Action

2011-05-18T20:46:05Z

Huckelberry: /* The Market */ market 7 of 13; wikify

{{Infobox book
| name = Human Action: A Treatise on Economics
| title_orig =
| translator =
| image = 
| image_caption =
| author = [[Ludwig von Mises]]
| illustrator =
| cover_artist =
| country = [[United States]]
| language =
| series =
| subject = [[Economics]], [[Political economy]]
| genre = [[Non-fiction]]
| publisher = [[Yale University Press]]
| pub_date = [[1949]]
| english_pub_date =
| media_type = Print
| pages = 889 pp.
| isbn =
| oclc = 2595286
| dewey =
| congress =
| preceded_by =
| followed_by =
}}

'''''Human Action: A Treatise on Economics''''' is the [[magnum opus]] of [[Ludwig von Mises]], first published in 1949. It defined a large part of present [[Austrian Economics]].

<blockquote>"It is true that economics is a theoretical science and as such abstains from any judgment of value...Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends."<ref name="humanaction_intro_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/introsec3.asp Introduction], 3. Introduction, [[Human Action]], online version, referenced 2011-02-05.</ref></blockquote>

== Part One: Human Action ==

===I. Acting Man===

<blockquote>''Main Article: [[Action]].''</blockquote>

The science of human action is called [[praxeology]]. Human action always involves [[opportunity cost]] and it is always ''purposeful''. <ref name="humanaction_ch1sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap1sec1.asp I. Acting Man], 1. Purposeful Action and Animal Reaction, [[Human Action]], online version, referenced 2011-02-06.</ref>

===II. The Epistemological Problems of the Sciences of Human Action===

[[Ludwig von Mises]] takes the [[logical deductive]] approach to economics, as opposed to the [[empirical]] (or the [[logical positivist]] approach). Economic problems cannot be solved [[empirically]] because renunciation and long-term planning can not be seen. Humans act to attain definite ends--and economic phenomena can be understood as such.

<blockquote>"[[Praxeology]] is a theoretical and systematic, not a historical, science...It aims at knowledge valid for all instances in which the conditions exactly correspond to those implied in its assumptions and inferences. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, ''[[a priori]]''."<ref name="humanaction_ch2sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec1.asp II. Epistemological Problems of Human Action], 1. Praxeology and History, [[Human Action]], online version, referenced 2011-02-06.</ref></blockquote>

Like geometry, [[praxeology]] is not subject to disproof. This method may be called ''methodological apriorism''.<ref name="humanaction_ch2sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec2.asp II. Epistemological Problems of Human Action], 2. The Formal and Aprioristic Character of Praxeology, [[Human Action]], online version, referenced 2011-02-06.</ref>

===III. Economics and the Revolt Against Reason===

[[Mises]] dismisses the [[Historical School]], [[Hegel]] and [[Marx]] with it. In discussing the "bourgeois logic" and "bourgeois mentality" of [[Marx]], [[Mises]] is able to attack [[polylogism]] in general. There does not exist multiple logics, only differing interests and their logical conclusions--whether they are spurious or well-founded. [[Mises]] states with regard to the [[Historical School]], "History, in due time, will arrange everything for the best. It does not need the advice of mortal men."<ref name="humanaction_ch3sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap3sec1.asp III. Economics and the Revolt Against Reason], 1. The Revolt Against Reason, [[Human Action]], online version, referenced 2011-02-06.</ref>

<blockquote>''See [[German Idealism]].''</blockquote>

===IV. A First Analysis of the Category of Action===

<blockquote>''Main Article: [[Value]]''</blockquote>

All actions are directed toward goals, aims or ends. The end, speaking generally, is always to remove a ''felt uneasiness''. Means are the ways by which we approach an end. Things in the world, when applied to our ends, become means and are commonly referred to as [[goods]].<ref name="humanaction_ch4sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec1.asp IV. A First Analysis of The Category of Action], 1. Ends and Means, [[Human Action]], online version, referenced 2011-02-06.</ref> Means are [[Scarcity|scarce]].

Actions are reflective of our ''scale of [[value|values]]''. All things equal, we satisfy wants of higher [[value]] to us, and leave unsatisfied wants of lower [[value]] to us. Things in the world have no intrinsic [[value]], our actions give things [[value]].<ref name="humanaction_ch4sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec2.asp IV. A First Analysis of The Category of Action], 2. The Scale of Value, [[Human Action]], online version, referenced 2011-02-06.</ref>

Given that every action is an attempt to establish a more satisfactory state of affairs, viz., to remove a ''felt uneasiness'', all actions are in a sense an [[exchange]]. We [[exchange]] one state for another, hopefully better, state. Lastly, value judgments arrange wants, but do not measure them. They are expressive of sequence and order rather than of measurement and weight.<ref name="humanaction_ch4sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp IV. A First Analysis of The Category of Action], 4. Action as Exchange, [[Human Action]], online version, referenced 2011-02-06.</ref>

===V. Time===

Time is a [[Praxeology|praxeological]] category: all action is in time and is subject to time.<ref name="humanaction_ch5sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp V. Time], 2. Past, Present and Future, [[Human Action]], online version, referenced 2011-02-07.</ref> As humans, our time is [[Scarcity|scarce]] and we must economize it accordingly. Our scales of [[value]] and therefore our actions are always with reference to time. As we will see later, time is important in the determination of [[interest]] and consumption.<ref name="humanaction_ch5sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap5sec3.asp V. Time], 3. The Economization of Time, [[Human Action]], online version, referenced 2011-02-07.</ref>

===VI. Uncertainty===

All action is speculative. We never know exactly what will occur. The natural sciences make it possible to foretell results from specific actions. They do not make the future predictable.<ref name="humanaction_ch6sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec1.asp VI. Uncertainty], 1. Uncertainty and Acting, [[Human Action]], online version, referenced 2011-02-08.</ref> But, [[Mises]] tells us, probability is a primary concern of [[praxeology]].

He distinguished between two types of propability: [[class probability]] and [[case probability]].

<blockquote>"''[[Class probability]] means'': We know or assume to know, with regard to the problem concerned, everything about the behavior of a whole class of events or phenomena; but about the actual singular events or phenomena we know nothing but that they are elements of this class."<ref name="humanaction_ch6sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec3.asp VI. Uncertainty], 3. Class Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, car insurance works on the premise that with a large pool of policies, they can use class probability to decide upon an approriate premium given the ''class probability'' of accidents. But, they know nothing about the probability of the individual policy holder getting into an accident.

<blockquote>"''[[Case probability]]'' means: We know, with regard to a particular event, some of the factors which determine its outcome; but there are other determining factors about which we know nothing."<ref name="humanaction_ch6sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec4.asp VI. Uncertainty], 4. Case Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, foreign policy experts may make predictions about the settlement of foreign disputes. They are well informed but it is impossible for them to predict the outcome perfectly because they can not grasp all the data and all the opinions of individuals shaping decisions. Therefore, they may know some of the factors that will shape the future, but never perfectly.

For [[Mises]], we make decisions with incomplete knowledge. To say it again, all action is speculative in character. To this difficulty in decisions, specifically in social cooperation where selection occurs, competition serves as a function to select the most able person for specific positions. It assigns every member of society to the position where they best serve society.<ref name="humanaction_ch6sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec6.asp VI. Uncertainty], 6. Betting, Gambling, and Playing Games, [[Human Action]], online version, referenced 2011-02-08.</ref>

===VII. Action Within the World===

Each person possesses one scale of valuations, which is visible through action.<ref name="humanaction_ch7sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec1.asp VII. Action Within The World], 1. The Law of Marginal Utility, [[Human Action]], online version, referenced 2011-02-13.</ref> Goods and modes of action are chosen based on their utility, or their causal relevance for the removal of felt ''uneasiness''.<ref name="humanaction_ch7sec1"></ref> Here [[Mises]] discusses the [[paradox of value]]: why is ''gold'' more valuable than ''iron''? Despite the many uses of iron, gold is valued more on the market because of its value in exchange. Iron may have more technological prospects or ''objective use-value'' but it lacks ''subjective use-value'', that is, gold is valuable in exchange due to scarcity, appearance and its tradition as a form of money. [[Mises]], however, dismisses the question as one which never occurs in reality.<ref name="humanaction_ch7sec1"></ref>

The [[Law of Marginal Utility]] is implied by the category of action: If a supply increases from quantity ''n'' to ''n + 1'' the extra unit provides less [[utility]] than unit ''n''. This is because ''n'' is satisfying a more urgent want than unit ''n + 1''. We satisfy more urgent wants first by their definition. Unit ''n'' is satisfying the more urgent want, ''n + 1'' is satisfying a less urgent want. Therefore, increasing units of a homogeneous supply are each applied to decreasingly important wants (seeing as the more urgent wants are always satisfied first). The [[law of marginal utility]], "does not deal primarily with the [[value]] of things, but with the [[value]] of the services a man expects to get from them."<ref name="humanaction_ch7sec1"></ref>

"[[Labor]]," says [[Mises]], "is preferred to leisure only insofar as the yield of [[labor]] is more urgently desired than the enjoyment of leisure."<ref name="humanaction_ch7sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec3.asp VII. Action Within The World], 3. Labor as Means, [[Human Action]], online version, referenced 2011-02-13.</ref> Work involves disutility. To this note, [[labor]] is more scarce than other material factors of production:

<blockquote>"In our world there is no abundance, but a shortage of manpower, and there are unused material factors of production, i.e. land, mineral deposits, and even plants and equipment."<ref name="humanaction_ch7sec3"></ref></blockquote>

Labor saving devices reduce want, they do not bring about "technological unemployment." Man economizes both labor and material factors.<ref name="humanaction_ch7sec3"></ref>

Action is successful it it produces the intended result: it produces the product. The human mind directs [[action]] with a purpose and production is creative. It is not something physical, natural, and external; it is a spiritual and intellectual phenomenon. All material actions within the world are a product of the mind. "In this sense," [[Mises]] tells us, "[[praxeology]] can be called a moral science."<ref name="humanaction_ch7sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec4.asp VII. Action Within The World], 4. Production, [[Human Action]], online version, referenced 2011-02-13.</ref>

== Part Two: Actions Within the Framework of Society ==

===VIII. Human Society===

We are born into society and only in this sense does society exist before the individual. [[Society]] is the supreme example of the benefits of the [[division of labor]].<ref name="ch8sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec1.asp VIII. Human Society], 1. Human Cooperation, [[Human Action]], online version, referenced 2011-02-17.</ref> It is an institution for the preservation of peaceful human relations. It is the social apparatus of compulsion and coercion.<ref name="ch8sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec2.asp VIII. Human Society], 2. A Critique of the Holistic and Metaphysical View of Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

[[Democratic government]] provides a method for the peaceful adjustment of government to the will of the majority. Wisdom and science thrive in a peaceful and affluent society. <ref name="ch8sec2"></ref>

<blockquote>"[[Liberalism]] aims at a political constitution which safeguards the smooth working of social cooperation and the progressive intensification of mutual social relations. Its main objective is the avoidance of violent conflicts, of wars and revolutions that must disintegrate the social collaboration of men and throw people back into the primitive conditions of barbarism where all tribes and political bodies endlessly fought one another. Because the division of labor requires undisturbed peace, liberalism aims at the establishment of a system of government that is likely to preserve peace, viz., democracy."<ref name="ch8sec2"></ref></blockquote>

[[Mises]] expounds the Ricardian Law of Association or [[comparative advantage]] as the fundamental characteristic of society.<ref name="ch8sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association, [[Human Action]], online version, referenced 2011-02-17.</ref> The division of labor assigns to each man the best job for him in society.<ref name="humanaction_ch6sec6"></ref> However, the end result of division of labor in society--a diversity which attests to the innate inequalities between individuals--does not illistrate ideas of [[Social Darwinism]]. Biology and evolutionary views cannot pass value judgments on the benefits of civilization.<ref name="ch8sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec7.asp VIII. Human Society], 7. The Great Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

===IX. The Role of Ideas===

All [[action]] is preceded by thinking. Thinking is to deliberate before [[action]] and to reflect upon past [[action]]. Thinking is a tool of action and language is a tool of thinking. All action is based on a definite idea about causal relations. Thinking and ideas are, like material wealth, passed down the generations.<ref name="ch9sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec1.asp IX. Human Society], 1. Human Reason, [[Human Action]], online version, referenced 2011-02-18.</ref> Action is always directed by ideas.<ref name="ch9sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec3.asp IX. Human Society], 3. Might, [[Human Action]], online version, referenced 2011-02-18.</ref>

[[Ideologies|Ideology]] and world views are explanations of social phenomena and technologies for prescriptive politics. All political doctrines imply that: "the political system we support will render you more prosperous and more content."<ref name="ch9sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec2.asp IX. Human Society], 2. World View and Ideology, [[Human Action]], online version, referenced 2011-02-18.</ref> [[Ideologies]], to [[Mises]], are the most powerful form of control. The might of a politician is due to his [[ideology]], his interpretation of the world and his prescriptive measures to ensure his followers are more prosperous and more content. Thinking, the ideological interpretation, succeeds through the cooperation of other minds. No thinker is isolated in his thoughts, they have been influenced by others. A politician's power dwindles if his [[ideology]] loses support. To [[Mises]]:

<blockquote>"The power of an ideology consists precisely in the fact that people submit to it without any wavering and scruples."<ref name="ch9sec3"></ref></blockquote>

Traditionalism and the idea of progress are ideologies also. Progress toward a more prosperous life and evolutionary progress must not be confused with evolution toward higher forms of life. Progress may not continue, majorities may error.<ref name="ch9sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec4.asp IX. Human Society], 4. Meliorism and the Idea of Progress, [[Human Action]], online version, referenced 2011-02-18.</ref> Ideologies may protect the material interest of the race or they may destroy it.

===X. Exchange Within Society===

[[Action]] always is essentially the exchange of one state of affairs for another state of affairs.<ref name="ch10sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec1.asp X. Exchange Within Society], 1. Autistic Exchange and Interpersonal Exchange, [[Human Action]], online version, referenced 2011-02-25.</ref> The interpersonal exchange of goods weaves the bonds which unites men into societies.<ref name="ch10sec1"></ref> [[Mises]] defines two different kinds of social cooperation: cooperation by virtue of contract and coordination, and contract by virtue of command and subordination or hegemony.<ref name="ch10sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec2.asp X. Exchange Within Society], 2. Contractual Bonds and Hegemonic Bonds, [[Human Action]], online version, referenced 2011-02-25.</ref> In the former state there are men who cooperate to achieve goals--their plans are symmetrical and share a common goal. In the latter state their is always two classes of men, those who command and those who obey. Again [[Mises]] emphasizes the important of ideology to animate the social body. The individuals must share an [[ideology]] if they are to cooperate. Hegemonic control needs an ideology that the controlling system is the best or the traditional norm. [[Ideologies]] imply obedience to the [[ideology]]. Contractual relation order society by free association held together by the order of right and law.<ref name="ch10sec2"></ref>

The [[Praxeology|praxeological]] categories, [[Mises]] tells us, are eternal and unchangable. They are the categories within which all action takes place. No [[action]] is free from the facts of existence--of which the praxeological categories belong.<ref name="ch10sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec3.asp X. Exchange Within Society], 3. Calculative Action, [[Human Action]], online version, referenced 2011-02-25.</ref> Man can never comprehend anything that is neither [[action]] or none action.

Modern civilization is characterized by the fact that it has elaborated a method which makes use of the arithmetic possible in a broad field of activities. [[Economic calculation]], for example in modern capital [[accounting]], is a fundamental issue in all comprehension of economic phenomena.<ref name="ch10sec3"></ref>

Despite the extended use of capital [[accounting]] and arithmetic, [[action]] can only make use of ordinal numbers. That is, actions order desires but do not measure them. But in our rational and contractual society we are able to make use of cardinal numbers in capital accounting. By this feature of capital accounting and contractual relations civilization opened the door to computation and calculation regarding the planning of the future and measuring the effects of past actions. Still, the applicability of cardinal numbers to economic thinking require these circumstances and economic law and theory cannot be deduced from [[economic history]], namely, the history of prices.<ref name="ch10sec3"></ref>

== Part Three: Economic Calculation ==

===XI. Valuation Without Calculation===

We apply the [[value|values]] we attribute to the ends of [[action]], to the means necessary to achieve those ends: "Other things being equal, [acting man] assigns to the total amount of the various means the same value he attaches to the end which they are fit to bring about."<ref name="ch11sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec1.asp XI. Valuation Without Calculation], 1. Gradation of Means, [[Human Action]], online version, referenced 2011-02-26.</ref>

The preferences used in [[action]], the laying aside of some things for other things, allows--as said above--the use of ordinal numbers but not cardinal numbers. Again, [[value|values]] attributable to actions cannot be measured arithmetically. Yet, in the activity of using means to attain certain ends, the acquisition of countable and measurable supplies of things becomes an immediate goal of action.<ref name="ch11sec1"></ref> [[Economic calculation]] can occur, despite that the values we attribute to different means and ends cannot be measured, by the results of actions of interpersonal exchange:

<blockquote>"The modern theory of value and prices show how the choices of individuals, their preferring some things and setting aside of other things, results, in the sphere of interpersonal exchange, in the emergence of market prices."<ref name="ch11sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec2.asp XI. Valuation Without Calculation], 2. The Barter-Fiction of the Elementary Theory of Value and Prices, [[Human Action]], online version, referenced 2011-02-26.</ref></blockquote>

[[Mises]] reminds us that is it a fallacy to think things exchanged are of the same value. Rather, people buy and sell only because they appraise the things given up less than those received.<ref name="ch11sec2"></ref> "Market prices," [[Mises]] says in a later chapter, "are not expressive of equivalence, but of a divergence in the valuation of the exchanging parties."<ref name="ch26sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap26sec3.asp XXVI. Economic Calculation under Socialism], 3. Recent Suggestions for Socialist Economic Calculation, [[Human Action]], online version, referenced 2011-04-25.</ref>

In using technology, we are resorting to knowledge of causal relations. We are not, however, addressing the technologies applicability to human wants and desires.<ref name="ch11sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec3.asp XI. Valuation Without Calculation], 3. The Problem of Economic Calculation, [[Human Action]], online version, referenced 2011-02-26.</ref>

<blockquote>"Technology tells how a given end could be attained by the employment of various means which can be used together in various combinations, or how various available means could be employed for certain purposes. But it is at a loss to tell man which procedures he should choose out of the infinite variety of imaginable and possible modes of production."<ref name="ch11sec3"></ref></blockquote>

Engineering can tell us how to build a bridge but not whether its construction would draw resources from other areas where they would be used to satisfy more urgently felt needs. [[Action]], as opposed to the casual relations of engineering, must discover the relations between dissimilar projects. [[Money]], holding the status of "universally used medium of exchange," becomes the measure of the worthiness of differing possiblities in the realm of action. Because [[goods]] and services have money prices we can use these in planning and decisions.<ref name="ch11sec3"></ref>

With all action directed toward the future, all economic planning and calculation must be made in regards to the future state of prices. In entrepreneurial ventures the acting man wants the prices of goods produced and sold to be greater than the price of the goods used in production. The practical meaning of [[economic calculation]] is to show how much one is free to consume without impairing the future capacity to produce. The concepts of [[economic calculation]]--[[Profit]] and [[loss]], [[capital]] and [[income]], spending and [[saving]], cost and yield--are developed to ensure efficient use of the resources of society.<ref name="ch11sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec4.asp XI. Valuation Without Calculation], 4. Economic Calculation and The Market, [[Human Action]], online version, referenced 2011-02-26.</ref>

===XII. The Sphere of Economic Calculation===

The acting individual is always concerned with the future. In action he is either, (1) anticipating the future and acting accordingly, or (2) trying to change the outcomes of the future even if there are no other changes to the data. Economic calculation cannot predict the outcomes of the future, it can only assist man in adjusting his actions to his opinion of the future. The numerical exactitude of balance sheets and income statements must not prevent us from realizing their inherent uncertainty and estimation.<ref name="ch12sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec1.asp XII. The Sphere of Economic Calculation], 1. The Character of Monetary Entries, [[Human Action]], online version, referenced 2011-02-27.</ref>

[[Money]] is not a measuring stick. Money prices do not transmit the intrinsic value of a good. [[Prices]] are not measured in money, they consist in money. They are either prices of the past or prices of the future. Furthermore, although it is possible to aggregate prices paid in goods, it makes no sense to talk about a national income or any other aggregate of spending which "characterizes" a society.<ref name="ch12sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec2.asp XII. The Sphere of Economic Calculation], 2. The Limits of Economic Calculation [[Human Action]], online version, referenced 2011-02-27.</ref>

Economic calculation makes sense only in a society with private ownership of the means of production. Economic calculation is not to blame of the masses preferring detective stories to books of philosophy--that is an outcome of the desires and preferences of individuals acting in society. Economic calculation cannot be blamed for the less than ideal characters and habits of other members of society.<ref name="ch12sec2"></ref>

Prices, or exchange ratios, are in constant fluctuation with the changing data of the market and the changing whims of consumers.<ref name="ch12sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec3.asp XII. The Sphere of Economic Calculation], 3. The Changeability of Prices[[Human Action]], online version, referenced 2011-02-27.</ref>

[[Mises]] dismisses the idea of measurement in [[purchasing power]] as unfeasible:

<blockquote>"A measurement of purchasing power would have to rely upon the prices of the goods and services of the first order and, what is more, of ''all'' of them."<ref name="ch12sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec4.asp XII. The Sphere of Economic Calculation], 4. Stabilization [[Human Action]], online version, referenced 2011-02-27.</ref></blockquote>

Further, changes in the [[purchasing power]] of [[money]] must necessarily effect different goods and services at different times and therefore efforts to stabilize the purchasing power of money by attempting to change the money relation is an impossible feat.<ref name="ch12sec4"></ref>

===XIII. Monetary Calculation as a Tool of Action===

Monetary calculation is the decisive factor of action in the social system of [[division of labor]]. Every action of the [[entrepreneur]] is analyzed by monetary calculation. Only in the institutional settings of [[private property]] and [[division of labor]] where goods and services are exchanged by a money can the system of monetary calculation be used. The use of aggregates derived from the use of monetary calculation is useless. That is, monetary calculation is useful for individual acting but cannot be useful to determining "social" values or welfare. By the use of monetary calculation, for example in capital [[accounting]], arithmetic has become a tool in the struggle for a better life. Capital [[accounting]] allows us to analyze the success or failure of men in satisfying the needs of [[consumers]].<ref name="ch13sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap13sec1.asp XIII. Monetary Calculation as a Tool of Action], 1. Monetary Calculation as Method of Thinking [[Human Action]], online version, referenced 2011-03-14.</ref>

<blockquote>"Our civilization is inseparably linked with our methods of economic calculation. It would parish if we were to abandon this most precious intellectual tool of acting. Goethe was right in calling bookkeeping by double entry "one of the finest inventions of the human mind.'"<ref name="ch13sec1"></ref></blockquote>

== Part Four: Catallactics or Economics of the Market Society ==

=== The Market ===

<blockquote>"The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of actions of various individuals cooperating under the division of labor."<ref name="ch15sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec1.asp XV. The Market], 1. Characteristics of the Market Economy, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref></blockquote>

In the market place everyone is an end in himself and an end for other people. Each individual acts on his own behalf, but everyones actions of the market also serve another. In acting everyone is serving everyone else's ends while serving their own. They each aim at the satisfaction of other peoples needs as much as at his own.<ref name="ch15sec1"></ref>

The state of the market is characterized by the totality of [[prices]] within the market which are determined by individuals eager to buy and sell. Additionally, there is no such thing as a "mixed" economy: is directed either by the market of by the decrees of a [[production]] tsar or a committee of production tsars."<ref name="ch15sec1"></ref> Publicly owned entities which operating in a market economy must obey the rules of profit and loss as others do. The characteristic feature of the [[market economy]] is its ability to [[calculate]]. Monetary calculation along with the determination of market prices allows the market to calculate. The rational ordering of the [[division of labor]] and of production are a result of this.<ref name="ch15sec1"></ref>

<blockquote>"The market economy is real because it can calculate."<ref name="ch15sec1"></ref></blockquote>

The central principles in the market economy's calculation are [[income]] and [[capital]]. Income is the amount of resources which can be consumed without lowering the capital of the individual or business. If income is greater than the amount consumed, ''[[savings]]'' results. Conversely, if a man consumes more than his income is it referred to as ''capital consumption''. Capital, here, is the quantity of money representing ownership in the assets of a enterprise (using the term broadly) or the total [[assets]] less the total [[liabilities]].<ref name="ch15sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec2.asp XV. The Market], 2. Capital, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref>

"All civilizations" says [[Mises]], "have up to now been based on private ownership of the means of production." Our system of private ownership of the means of production has poured the horn of plenty on growing population figures. Capitalism has served to allow each man a higher material wealth than even the kings of past ages. Many who argue against capitalism do so because they look upon capitalism as an accidental phenomenon. They do not understand [[private property]] and the concept of free-associations causal relationship with the material wealth of the era. It is the critics of [[capitalism]], [[Mises]] contends, which lack historical understanding, not the economists. To capitalism's enemies, it is the policy advocated by big business, regardless of the fact that big business often advocates for "[[protectionism]], [[cartels]], and the abolition of [[competition]]." And today, it is considered a "legitimate task of government to prevent an efficient man from competing with the less efficient." Advocates of protection, and state imposed limitations on the free-market want to make us believe that the consequences of [[government intervention]] are produced by capitalism.<ref name="ch15sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec3.asp XV. The Market], 3. Capitalism, ''[[Human Action]]'', online version, referenced 2011-04-10.</ref>

In a market economy the [[The Sovereignty of the Consumers|consumers are sovereign]]. Only sellers of the [[first order]] goods are in contact with the consumers, but the consumers buying and abstention from buying is transmitted from the [[consumer goods]] to the [[higher order]] goods (the [[producers goods]]). Consumers, in their capricious buying, determine the income of every member of society and direct production into the hands of individuals best able to serve the consumers.<ref name="ch15sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec4.asp XV. The Market], 4. The Sovereignty of the Consumers, ''[[Human Action]]'', online version, referenced 2011-04-30.</ref>

The consumers designate everyones place in society. The classical economists favored the abolition of the all trade barriers because they protected the less efficient from the more efficient. Trade barriers curtail production and lower the standard of living of all those effected. It is the actions of consumers which determine the prices on the market, and it is these prices which push investors into new lines of business. The bigness of one business will not stop others from trying to compete with it. [[Mises]] writes:

<blockquote>"What a newcomer who wants to defy the vested interests of the old established firms needs most is brains and ideas. If his project is fit to fill the most urgent of the unsatisfied needs of the consumers or to purvey them at a cheaper price than their old purveyors, he will succeed in spite of the much talked of bigness and power of the old firms."<ref name="ch15sec5">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec5.asp XV. The Market], 5. Competition, ''[[Human Action]]'', online version, referenced 2011-05-17.</ref></blockquote>

Competition in the [[catallactic]] sense (i.e., competition in the market place) has a different function than that of games and beauty contests. Its function is to select the individuals most able to control the resources of society to the greatest benefit of the consumers. Humans are not born equal and the consumers do not care: "Their only interest is to secure the best possible satisfaction of their needs."<ref name="ch15sec5"></ref>

In human society, the terms "[[freedom]]" and "[[liberty]]" reference to interhuman relations. For instance [[Mises]] writes, "man was not created free; what freedom he may possess has been given to him by society...Liberty and freedom are the conditions of man within a contractual society."<ref name="ch15sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec6.asp XV. The Market], 6. Freedom, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref> Man in this condition is free to exchange goods and services, but he is by no means independent. He depends on other members of society. We say that a man is free in a contractual society because he serves others to serve himself. The restrains of freedom a man may experience in this environment is due to natural phenomenon only--the laws of nature to which we all unconditionally submit.<ref name="ch15sec6"></ref>

The market system will invariably bestow unequal rewards. This is primarily due to the different levels of service people provide to each other on the [[market]]. That is, it rewards every effort according to its [[value]] as determined by the subjective valuations of the consumers. With respect to inequality, [[Mises]] says:

<blockquote>"No system of social division of labor can do without a method that makes individuals responsible for their contribution to the joint productive effort. If this responsibility is not brought about by the price structure of the market and the inequality of wealth and income it begets, it must be enforced by the methods of direct compulsion as practiced by the police."<ref name="ch15sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec7.asp XV. The Market], 7. Inequality of Wealth and Income, ''[[Human Action]]'', online version, referenced 2011-05-18.</ref></blockquote>

<ol style="list-style-type:upper-roman;" start="15">
<li> Prices</li>
<li> Indirect Exchange</li>
<li> '''Action in the Passing of Time'''</li>
For humans considering [[action]], time matters: there is a ''too late'' and a ''too early''. [[Time preferences]] affect all action (see [[Value]]).<ref name="mises_action_in_passage_of_time_2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec2.asp XVIII. Action in the Passing of Time], 2. Time Preference as an Essential Requisite of Action, ''[[Human Action]]'', online version, referenced 2011-02-04.</ref>

Postponements of consumption, or [[saving]], is always embodied in concrete goods. "The act of saving," [[Mises]] tells us, "always has its counterpart in a supply of goods produced and not consumed...Man's savings are always embodied in concrete capital goods."<ref name="mises_action_in_passage_of_time_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec9.asp XVIII. Action in the Passing of Time], 9. Money and Capital; Saving and Investment, ''[[Human Action]]'', online version, referenced 2011-02-08.</ref>

The discussion of [[time preference]], and the postponment of consumption, is a lead in to [[interest]].

<li> '''Interest'''</li>

<blockquote>''Main Article: [[Interest]]''</blockquote>

Time preference manifests itself in the phenomenon of [[originary interest]], i.e., the discount of future goods as against present goods.<ref name="mises__human_action_chap19sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec1.asp XIX. The Rate of Interest], The Phenomenon of Interest, [[Human Action]], online version, referenced 2011-02-13.</ref> Originary interest is a ratio, like profit and loss, and not a price.<ref name="mises__human_action_chap19sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec2.asp XIX. The Rate of Interest], Originary Interest, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref> It is the ratio between the value assigned to presents goods against the value assigned to future goods. This discounting explains, for example, the reason why there is finite prices on usable land:

<blockquote>"If the future services which a piece of land can render were to be valued in the same way in which its present services are valued, no finite price would be high enough to impel its owner to sell it."<ref name="mises__human_action_chap19sec2"></ref></blockquote>

We [[discount]] future services and [[goods]] because of [[time preference]]. The fact that we can purchase land which is usable into the foreseeable future is proof of this. Furthermore, [[originary interest]] is not determined by supply and demand of [[loanable funds]]. Time preference, manifesting in the discount of future goods against present goods (i.e., originary interest) determines both the demand and supply of capital and capital goods.<ref name="mises__human_action_chap19sec2"></ref>

Interest rates in loans, in a changing economy, always have an element of entrepreneurial profit. The lender, taking a risk and and making a prediciton about the future state of the market, is engaging in an entrepreneurial venture. Therefore, interest rates on loans are never pure [[originary interest]] but also entrepreneurial profit.<ref name="mises__human_action_chap19sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec4.asp XIX. The Rate of Interest], Originary Interest in the Changing Economy, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref>

<li> Interest, Credit Expansion, and the Trade Cycle</li>
<li> Work and Wages</li>
<li> The Nonhuman Original Factors of Production</li>
<li> The Data of the Market</li>
<li> Harmony and Conflict of Interests</li>
</ol>

== Part Five: Social Cooperation Without a Market ==

<ol style="list-style-type:upper-roman;" start="25">
<li> The Imaginary Construction of a Socialist Society</li>
<li> The Impossibility of Economic Calculation Under Socialism</li>
</ol>

== Part Six: The Hampered Market Economy ==

<ol style="list-style-type:upper-roman;" start="27">
<li> The Government and the Market</li>
<li> Interference by Taxation</li>
<li> Restriction of Production</li>
<li> Interference with the Structure of Prices</li>
<li> Currency and Credit Manipulation</li>
<li> Confiscation and Redistribution</li>
<li> Syndicalism and Corporativism</li>
<li> The Economics of War</li>
<li> The Welfare Principle Versus the Market Principle</li>
<li> The Crisis of Interventionism</li>
</ol>

== Part Seven: The Place of Economics in Society ==
<ol style="list-style-type:upper-roman;" start="38">
<li> The Nondescript Character of Economics</li>
<li> The Place of Economics in Learning</li>
<li> Economics and the Essential Problems of Human Existence</li>
</ol>

==References==
{{Reflist|2}}

==Links==
''{{Store|http://www.mises.org/store/Human-Action-The-Scholars-Edition-P119.aspx|Human Action (Scholar's Edition)}}''

* [http://mises.org/resources.aspx?Id=3250&html=1#Publication_History ''Human Action'' publication history]

* ''Human Action: A Treatise on Economics'', 1998 Scholar's Edition:
** {{mr|3250|Resources page}}
** {{mr|3810|Study Guide}}
** [http://mises.org/media/category/139 Audiobook] read by [[Jeff Riggenbach]]

* ''Human Action: A Treatise on Economics'', 1996 4th Revised Edition:
** Foreword to the 4th edition by Bettina B. Greaves (p. v) ([http://mises.org/humanaction/forward.asp HTML], [http://mises.org/humanaction/pdf/ha_002.pdf PDF])
** Full text ([http://mises.org/books/humanaction.pdf PDF])

* ''Human Action: A Treatise on Economics'', 1966 3rd Revised Edition:
** Foreword to the 3rd edition by Ludwig von Mises ([http://mises.org/humanaction/foreword3.asp HTML], [http://mises.org/humanaction/pdf/ha_003.pdf PDF])
** Additions to Human Action in the 3rd edition ([http://mises.org/humanaction/ha3rd-addition.pdf PDF])

* ''Human Action: A Treatise on Economics'', Abridged Edition:
** [http://blog.mises.org/9147/human-action-abridged/ Human Action, Abridged]

* [http://mises.org/humanaction/theindex.asp Human Action interactive index]

*Articles, essays & reviews
** [http://mises.org/journals/qjae/pdf/Qjae213.pdf "The Place of Mises's Human Action in the Development of Modern Economic Thought" (PDF)]
** [http://mises.org/daily/3363 "Human Action at Sixty"]
** [http://mises.org/daily/5237/Misess-Gift-of-Human-Action "Mises's Gift of Human Action"]
** [http://mises.org/efandi/ch10.asp "The Why of Human Action"]
** [http://mises.org/daily/3262 "Human Action Study Guide"]
** Mises Review: [http://mises.org/misesreview_detail.aspx?control=127 "Human Action, The Scholar's Edition"]

* Other media
** [http://www.youtube.com/watch?v=Mou5ID13HqI Human Action: Pocket Edition] interview with [[Douglas French]] at Mises Institute
** [http://www.apriorist.de/modx/hauyf/ ''Acting Man'' online lesson]
** [http://mises.org/quotes.aspx?action=source&Source=Human%20Action ''Human Action'' quotes]

* {{wplink}}

{{See also|Human Action Comics}}
[[Category:Writings of Ludwig von Mises]]
[[Category:Writings on economics]]

{{stub}}

Human Action

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Human Action

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Huckelberry: /* The Market */

Human Action

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Huckelberry: /* The Market */

Human Action

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Huckelberry: /* The Market */

Equity

2011-05-08T00:26:49Z

Huckelberry: cat

'''Equity''' is the legal claim of individuals to the [[Asset|assets]] of a business after deducting all obligations to others, namely, the [[Liability|liabilities]]. They are often represented as shares of a business which can be traded (for instances in the corporate form of legal business organizations). Organizations formed to assist the exchange of ownership interests in businesses are called [[Stock Exchange|stock exchanges]].

{{stub}}

[[Category:Concepts]]

Accounting

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Huckelberry: wikify

'''Accounting''' is the method by which an organization measures the use of [[asset|assets]] and [[liability|liabilities]] against [[money]]. It is an indispensable tool and prerequisite to modern day capitalism.<ref name="weber">[[Max Weber]], ''General Economic History'', trans. Frank H. Knight (New York, NY: Collier Books, 1961) 208-209</ref> Double book entry accounting is a method by which every economic action must affect two accounts so that they balance in the equation:<blockquote>'''[[Asset|Assets]] - [[Liability|Liabilities]] = [[Equity]]'''</blockquote>
== Recent Developments ==

Modern day capital accounting in the [[United States]] is under the standard Generally Accepted Accounting Principles (GAAP). The Securities and Exchange Commission ([[SEC]]) has proposed a movement to international financial reporting standards or [[IFRS]].

[[Economic calculation]] directs the actions of individual business persons. "Economic logic prevails over the technological," says Schumpeter.<ref name="schumpeter_economic_logic">[[Joseph Schumpeter]], ''The Theory of Economic Development'', trans. Redvers Opie (Cambridge, Massachusetts: Harvard University Press, 1961) 14</ref> The transition to a world standard of accounting may impart some benefits, for example: "...in more efficient functioning of [[capital markets]] and a lower [[cost of capital]] for the economy as a whole." <ref name="SFAC_8">Statement of Financial Accounting Concepts, No. 8 [http://www.fasb.org/cs/BlobServer?blobcol=urldata&blobtable=MungoBlobs&blobkey=id&blobwhere=1175821997186&blobheader=application/pdf] QC37</ref> In sum, the method of economic calculation has importance in economic analysis.

==References==
{{Reflist}}

{{Stub}}
[[Category:Economic concepts]]

Equity

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Huckelberry: create

Accounting

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Huckelberry: wikify; edit

'''Accounting''' is the method by which an organization measures the use of [[asset|assets]] and [[liability|liabilities]] against [[money]]. It is an indispensable tool and prerequisite to modern day capitalism.<ref name="weber">[[Max Weber]], ''General Economic History'', trans. Frank H. Knight (New York, NY: Collier Books, 1961) 208-209</ref> Double book entry accounting is a method by which every economic action must affect two accounts so that they balance in the equation:<blockquote>'''[[Asset|Assets]] - [[Liability|Liabilities]] = Equity'''</blockquote>
== Recent Developments ==

Modern day capital accounting in the [[United States]] is under the standard Generally Accepted Accounting Principles (GAAP). The Securities and Exchange Commission ([[SEC]]) has proposed a movement to international financial reporting standards or [[IFRS]].

[[Economic calculation]] directs the actions of individual business persons. "Economic logic prevails over the technological," says Schumpeter.<ref name="schumpeter_economic_logic">[[Joseph Schumpeter]], ''The Theory of Economic Development'', trans. Redvers Opie (Cambridge, Massachusetts: Harvard University Press, 1961) 14</ref> The transition to a world standard of accounting may impart some benefits, for example: "...in more efficient functioning of [[capital markets]] and a lower [[cost of capital]] for the economy as a whole." <ref name="SFAC_8">Statement of Financial Accounting Concepts, No. 8 [http://www.fasb.org/cs/BlobServer?blobcol=urldata&blobtable=MungoBlobs&blobkey=id&blobwhere=1175821997186&blobheader=application/pdf] QC37</ref> In sum, the method of economic calculation has importance in economic analysis.

==References==
{{Reflist}}

{{Stub}}
[[Category:Economic concepts]]

Accounting

2011-05-08T00:03:18Z

Huckelberry:

'''Accounting''' is the method by which an organization measures the use of [[assets]] and [[liabilities]] against [[money]]. It is an indispensable tool and prerequisite to modern day capitalism.<ref name="weber">[[Max Weber]], ''General Economic History'', trans. Frank H. Knight (New York, NY: Collier Books, 1961) 208-209</ref> Double book entry accounting is a method by which every economic action must affect two accounts so that they balance in the equation:<blockquote>'''Assets - Liabilities = Equity'''</blockquote>
== Recent Developments ==

Modern day capital accounting in the [[United States]] is under the standard Generally Accepted Accounting Principles (GAAP). The Securities and Exchange Commission ([[SEC]]) has proposed a movement to international financial reporting standards or [[IFRS]].

[[Economic calculation]] directs the actions of individual business persons. "Economic logic prevails over the technological," says Schumpeter.<ref name="schumpeter_economic_logic">[[Joseph Schumpeter]], ''The Theory of Economic Development'', trans. Redvers Opie (Cambridge, Massachusetts: Harvard University Press, 1961) 14</ref> The transition to a world standard of accounting may impart some benefits, for example: "...in more efficient functioning of [[capital markets]] and a lower [[cost of capital]] for the economy as a whole." <ref name="SFAC_8">Statement of Financial Accounting Concepts, No. 8 [http://www.fasb.org/cs/BlobServer?blobcol=urldata&blobtable=MungoBlobs&blobkey=id&blobwhere=1175821997186&blobheader=application/pdf] QC37</ref> In sum, the method of economic calculation has importance in economic analysis.

==References==
{{Reflist}}

{{Stub}}
[[Category:Economic concepts]]

Derivative

2011-05-06T22:45:55Z

Huckelberry: added differing types

A '''derivative''' is a financial instrument whose [[value]] is based on or derived from the value of something else (an "underlying"). That underlying can be the value of another financial instrument, a commodity, an index, an asset, or a [[debt]] instrument. Examples of derivative financial instruments include futures, forward, swap, and option contracts; [[interest]]-rate caps; and fixed-rate loan commitments.<ref name="Baker">Baker, Theodore E. Christensen. "Chapter 11: Multinational Accounting: Foreign Current Transactions and Financial Instruments" In ''Advanced financial accounting .'' S.l.: Mcgraw Hill Higher Educat, 2011. 554-557.</ref>

==Types of Derivatives==

Forwards:

:A forward contact is an agreement between buyer and seller that requires the delivery of some commodity at a specific future date at a price agree to today (called the "exercise price").<ref name="Baker"></ref>

Futures:

:Future contacts are very similar to forward contacts, except that the terms of the contract has been standardized and they are traded actively on future exchanges. Futures are sometimes referred to as ''liquid forward contacts'' because futures trade separately.<ref name="Baker"></ref>

Options:

:An option contract between two parties--the buyer and the seller--gives the buyer ("option holder") the right, ''but not the obligation,'' to purchase from or sell something to the option seller ("option writer") at a date in the future at a price agree to at the time the option contract is exchanged.<ref name="Baker"></ref>

Swaps:

:A swap is an arrangement by which two parties exchange cash flows over a period of time. The two most common types of financial swaps used by companies are (1) currency swaps, and (2) interest rates swaps. Swaps are typically settled at a net of the difference between the two sources of cash flow. For example, company ''A'' has variable rate debt currently at 6% payable to ''B''. ''A'' wants to ensure that their interest payments neither decrease or increase. Therefore, they enter into a "interest rate swap" for fixed interest payments from another financial institution, called ''C'' at 6%. If later the interest rate on the variable rate debt increases to 7%, ''A'' will pay ''B'' the 7% but will be reimbursed by ''C'' for the 1% difference. If the variable rate decreases to 5%, ''A'' will pay ''B'' 5% and an additional 1% to ''C''. ''A'' is guaranteed to pay %6 and essentially betting that the interest rate rises. ''C'' is ensuring that ''A'' pays 6% and is betting that the interest rate falls. The swap, as can be seen in the example, is settled at a "net" amount.<ref name="Baker"></ref>

==Reference==
{{reflist}}

{{stub}}
[[Category:Economic concepts]]

Anne Robert Jacques Turgot

2011-05-04T21:29:06Z

Huckelberry:

<blockquote>''"To suppose all consumers to be dupes, and all merchants and manufacturers to be cheats, has the effect of authorizing them to be so, and of degrading all the working members of the community."''</blockquote>

'''Anne-Robert-Jacques Turgot, Baron de Laune''', often referred to as '''Turgot''' (10 May 1727 – 18 March 1781), was a French economist and statesman. Today he is best remembered as an early advocate for economic liberalism.

==Influence Outside of Economics==

In 1912, Theodore Roosevelt suggested [[France]] could have avoided the French "Reign of Terror," and would have been much better off had they listened to [[Turgot]]:

<blockquote>"...Our aim must be steady, wise progress. It would be well if our people would study the history of a sister republic. All the woes of France for a century and a quarter have been due to the folly of her people in splitting into the two camps of unreasonable conservatism and unreasonable radicalism. Had pre—Revolutionary France listened to men like Turgot, and backed them up, all would have gone well. But the beneficiaries of privilege, the Bourbon reactionaries, the short—sighted ultra—conservatives, turned down Turgot; and then found that instead of him they had obtained Robespierre..."<ref>Roosevelt, Theodore . "The Right of The People To Rule -- Speech by Theodore Roosevelt." wikisource.org. en.wikisource.org/wiki/The_Right_of_the_People_to_Rule (accessed May 4, 2011).</ref></blockquote>

==Notable works==
* [[Formation and Distribution of Riches]] (1770)

==References==

{{reflist}}

==Links==
* [http://mises.org/about/3244 Biography of A.R.J. TURGOT (1727-1781) Brief, Lucid, and Brilliant], by [[Murray N. Rothbard]].
* [[Wikipedia:Anne Robert Jacques Turgot, Baron de Laune|Turgot]] on Wikipedia
* [http://www.econlib.org/library/Essays/TurgotBio.html Life and Works of Anne Robert Jacques Turgot] by David M. Hart, with bibliography
* [http://www.turgot.org/ Institut Turgot] (French)
* [http://mises.org/daily/4767 The Brilliance of Turgot] by Murray N. Rothbard, from ''[http://mises.org/resources/3985/Economic-Thought-Before-Adam-Smith-An-Austrian-Perspective-on-the-History-of-Economic-Thought-Volume-I An Austrian Perspective on the History of Economic Thought, vol. 1, Economic Thought Before Adam Smith]''. October 2010

[[Category:Economists]]
[[Category:Politicians]]
{{DEFAULTSORT:Turgot, Anne Robert Jacques}}

Anne Robert Jacques Turgot

2011-05-04T17:46:11Z

Huckelberry: /* Influence outside of Economics */ edit

<blockquote>''"To suppose all consumers to be dupes, and all merchants and manufacturers to be cheats, has the effect of authorizing them to be so, and of degrading all the working members of the community."''</blockquote>

'''Anne-Robert-Jacques Turgot, Baron de Laune''', often referred to as '''Turgot''' (10 May 1727 – 18 March 1781), was a French economist and statesman. Today he is best remembered as an early advocate for economic liberalism.

==Influence outside of Economics==

In 1912, Theodore Roosevelt suggested [[France]] could have avoided the French "Reign of Terror," and would have been much better off had they listened to [[Turgot]]:

<blockquote>"...Our aim must be steady, wise progress. It would be well if our people would study the history of a sister republic. All the woes of France for a century and a quarter have been due to the folly of her people in splitting into the two camps of unreasonable conservatism and unreasonable radicalism. Had pre—Revolutionary France listened to men like Turgot, and backed them up, all would have gone well. But the beneficiaries of privilege, the Bourbon reactionaries, the short—sighted ultra—conservatives, turned down Turgot; and then found that instead of him they had obtained Robespierre..."<ref>Roosevelt, Theodore . "The Right of The People To Rule -- Speech by Theodore Roosevelt." wikisource.org. en.wikisource.org/wiki/The_Right_of_the_People_to_Rule (accessed May 4, 2011).</ref></blockquote>

==Notable works==
* [[Formation and Distribution of Riches]] (1770)

==References==

{{reflist}}

==Links==
* [http://mises.org/about/3244 Biography of A.R.J. TURGOT (1727-1781) Brief, Lucid, and Brilliant], by [[Murray N. Rothbard]].
* [[Wikipedia:Anne Robert Jacques Turgot, Baron de Laune|Turgot]] on Wikipedia
* [http://www.econlib.org/library/Essays/TurgotBio.html Life and Works of Anne Robert Jacques Turgot] by David M. Hart, with bibliography
* [http://www.turgot.org/ Institut Turgot] (French)
* [http://mises.org/daily/4767 The Brilliance of Turgot] by Murray N. Rothbard, from ''[http://mises.org/resources/3985/Economic-Thought-Before-Adam-Smith-An-Austrian-Perspective-on-the-History-of-Economic-Thought-Volume-I An Austrian Perspective on the History of Economic Thought, vol. 1, Economic Thought Before Adam Smith]''. October 2010

[[Category:Economists]]
[[Category:Politicians]]
{{DEFAULTSORT:Turgot, Anne Robert Jacques}}

Anne Robert Jacques Turgot

2011-05-04T17:20:13Z

Huckelberry:

<blockquote>''"To suppose all consumers to be dupes, and all merchants and manufacturers to be cheats, has the effect of authorizing them to be so, and of degrading all the working members of the community."''</blockquote>

'''Anne-Robert-Jacques Turgot, Baron de Laune''', often referred to as '''Turgot''' (10 May 1727 – 18 March 1781), was a French economist and statesman. Today he is best remembered as an early advocate for economic liberalism.

==Influence outside of Economics==

In 1912, Theodore Roosevelt suggested [[France]] would avoided the French "Reign of Terror," and would have been much better off had they listened to [[Turgot]]:

<blockquote>"...Our aim must be steady, wise progress. It would be well if our people would study the history of a sister republic. All the woes of France for a century and a quarter have been due to the folly of her people in splitting into the two camps of unreasonable conservatism and unreasonable radicalism. Had pre—Revolutionary France listened to men like Turgot, and backed them up, all would have gone well. But the beneficiaries of privilege, the Bourbon reactionaries, the short—sighted ultra—conservatives, turned down Turgot; and then found that instead of him they had obtained Robespierre..."<ref>Roosevelt, Theodore . "The Right of The People To Rule -- Speech by Theodore Roosevelt." wikisource.org. en.wikisource.org/wiki/The_Right_of_the_People_to_Rule (accessed May 4, 2011).</ref></blockquote>

==Notable works==
* [[Formation and Distribution of Riches]] (1770)

==References==

{{reflist}}

==Links==
* [http://mises.org/about/3244 Biography of A.R.J. TURGOT (1727-1781) Brief, Lucid, and Brilliant], by [[Murray N. Rothbard]].
* [[Wikipedia:Anne Robert Jacques Turgot, Baron de Laune|Turgot]] on Wikipedia
* [http://www.econlib.org/library/Essays/TurgotBio.html Life and Works of Anne Robert Jacques Turgot] by David M. Hart, with bibliography
* [http://www.turgot.org/ Institut Turgot] (French)
* [http://mises.org/daily/4767 The Brilliance of Turgot] by Murray N. Rothbard, from ''[http://mises.org/resources/3985/Economic-Thought-Before-Adam-Smith-An-Austrian-Perspective-on-the-History-of-Economic-Thought-Volume-I An Austrian Perspective on the History of Economic Thought, vol. 1, Economic Thought Before Adam Smith]''. October 2010

[[Category:Economists]]
[[Category:Politicians]]
{{DEFAULTSORT:Turgot, Anne Robert Jacques}}

Liberty Defined: Index

2011-05-03T22:16:13Z

Huckelberry: Date said 2001--changed to 2011

{{rightTOC}}

The published edition of ''Liberty Defined: 50 Essential Issues That Affect Our Freedom'' by Ron Paul (Grand Central Publishing, 2011) lacks an index. This page is designed to provide for one.

----

== INDEX ==

===A===
Austrian Economics, 16

Austrian School, 17
===B===
Bacon-Davis Act, 309

Bail Outs
Chrysler, 307
General Motors, 306
M-1 Tank, 307

Blockades, 298

Boeing, 308
===C===
Cap and Trade, 136

Climate Change, 133

Cold War, xiii

CAFTA, 297
===D===
Debt, xv

Declaration of Independence, xi

Dollar hegemony, xiv
===E===
===F===
Foreign Trade
Congress responsibility, 298
===G===
Global Warming, 133

General Motors, 306

Goldman Sachs
Bail out, 308
===H===
Hazlitt, Henry, 17
===I===
Illegal Aliens, 305

Immigration

Immigrants, 305

Import-Export Bank, 308

Iraq, 298

Israel, 297
===J===
Jefferson, Thomas, xi
===K===
Keynes, John Maynard, 18
need for real wages to go down, 311

Keynesian School, 18
===L===
Libertarian, xvii

Liberty, definition, xi-xiii, xvii-xviii; conflict with government, xvii

Locke, John, xii
===M===
Malthusian, 138

Menger, Carl, 16

Militarism, 298

Minimum wage, 309
===N===
NAFTA, 297

National Labor Relations Act, 301

Nixon, President Richard, 303
===O===
===P===
Peak Oil, 143

Public Schools, 282

Protectionists, 298
===R===
Radical Environmentalism, 134

Rights, human, xv-xvii

Robinson, Dr. Arthur B., 139

Roman Republic, xv

Rothbard, Murray, 17

Rumsfeld, Donald, 307
===S===
Sanctions, 298

Skeptic, 133

Security, false sense of, xvi

Sixteenth Amendment to Constitution, 280

Stark, Rodney (n.), xii
===T===
Taxes, 280, 283

Trade Policies, 298

Turkey, 297
===U===
Unemployment, 305

Unions, 301
===V===
von Mises, Ludwig, 17
===W===
Wikileaks, xiii

Wind Power, 135

WTO, 297

Liberty Defined: Index

2011-05-03T22:14:06Z

Huckelberry: J and K were in the wrong order...

{{rightTOC}}

The published edition of ''Liberty Defined: 50 Essential Issues That Affect Our Freedom'' by Ron Paul (Grand Central Publishing, 2001) lacks an index. This page is designed to provide for one.

----

== INDEX ==

===A===
Austrian Economics, 16

Austrian School, 17
===B===
Bacon-Davis Act, 309

Bail Outs
Chrysler, 307
General Motors, 306
M-1 Tank, 307

Blockades, 298

Boeing, 308
===C===
Cap and Trade, 136

Climate Change, 133

Cold War, xiii

CAFTA, 297
===D===
Debt, xv

Declaration of Independence, xi

Dollar hegemony, xiv
===E===
===F===
Foreign Trade
Congress responsibility, 298
===G===
Global Warming, 133

General Motors, 306

Goldman Sachs
Bail out, 308
===H===
Hazlitt, Henry, 17
===I===
Illegal Aliens, 305

Immigration

Immigrants, 305

Import-Export Bank, 308

Iraq, 298

Israel, 297
===J===
Jefferson, Thomas, xi
===K===
Keynes, John Maynard, 18
need for real wages to go down, 311

Keynesian School, 18
===L===
Libertarian, xvii

Liberty, definition, xi-xiii, xvii-xviii; conflict with government, xvii

Locke, John, xii
===M===
Malthusian, 138

Menger, Carl, 16

Militarism, 298

Minimum wage, 309
===N===
NAFTA, 297

National Labor Relations Act, 301

Nixon, President Richard, 303
===O===
===P===
Peak Oil, 143

Public Schools, 282

Protectionists, 298
===R===
Radical Environmentalism, 134

Rights, human, xv-xvii

Robinson, Dr. Arthur B., 139

Roman Republic, xv

Rothbard, Murray, 17

Rumsfeld, Donald, 307
===S===
Sanctions, 298

Skeptic, 133

Security, false sense of, xvi

Sixteenth Amendment to Constitution, 280

Stark, Rodney (n.), xii
===T===
Taxes, 280, 283

Trade Policies, 298

Turkey, 297
===U===
Unemployment, 305

Unions, 301
===V===
von Mises, Ludwig, 17
===W===
Wikileaks, xiii

Wind Power, 135

WTO, 297

Liberty Defined: Index

2011-05-03T22:11:20Z

Huckelberry: Organization

{{rightTOC}}

The published edition of ''Liberty Defined: 50 Essential Issues That Affect Our Freedom'' by Ron Paul (Grand Central Publishing, 2001) lacks an index. This page is designed to provide for one.

----

== INDEX ==

===A===
Austrian Economics, 16

Austrian School, 17
===B===
Bacon-Davis Act, 309

Bail Outs
Chrysler, 307
General Motors, 306
M-1 Tank, 307

Blockades, 298

Boeing, 308
===C===
Cap and Trade, 136

Climate Change, 133

Cold War, xiii

CAFTA, 297
===D===
Debt, xv

Declaration of Independence, xi

Dollar hegemony, xiv
===F===
Foreign Trade
Congress responsibility, 298
===G===
Global Warming, 133

General Motors, 306

Goldman Sachs
Bail out, 308
===H===
Hazlitt, Henry, 17
===I===
Illegal Aliens, 305

Immigration

Immigrants, 305

Import-Export Bank, 308

Iraq, 298

Israel, 297
===K===
Keynes, John Maynard, 18
need for real wages to go down, 311

Keynesian School, 18
===J===
Jefferson, Thomas, xi
===L===
Libertarian, xvii

Liberty, definition, xi-xiii, xvii-xviii; conflict with government, xvii

Locke, John, xii
===M===
Malthusian, 138

Menger, Carl, 16

Militarism, 298

Minimum wage, 309
===N===
NAFTA, 297

National Labor Relations Act, 301

Nixon, President Richard, 303
===P===
Peak Oil, 143

Public Schools, 282

Protectionists, 298
===R===
Radical Environmentalism, 134

Rights, human, xv-xvii

Robinson, Dr. Arthur B., 139

Roman Republic, xv

Rothbard, Murray, 17

Rumsfeld, Donald, 307
===S===
Sanctions, 298

Skeptic, 133

Security, false sense of, xvi

Sixteenth Amendment to Constitution, 280

Stark, Rodney (n.), xii
===T===
Taxes, 280, 283

Trade Policies, 298

Turkey, 297
===U===
Unemployment, 305

Unions, 301
===V===
von Mises, Ludwig, 17
===W===
Wikileaks, xiii

Wind Power, 135

WTO, 297

Human Action

2011-05-02T20:54:09Z

Huckelberry: /* X. Exchange Within Society */ word choice

{{Italic title}}{{rightTOC|25%}}

'''''Human Action''''' is the [[magnum opus]] of [[Ludwig von Mises]], first published in 1949. It defined a large part of present [[Austrian Economics]].

<blockquote>"It is true that economics is a theoretical science and as such abstains from any judgment of value...Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends."<ref name="humanaction_intro_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/introsec3.asp Introduction], 3. Introduction, [[Human Action]], online version, referenced 2011-02-05.</ref></blockquote>

== Part One: Human Action ==

===I. Acting Man===

<blockquote>''Main Article: [[Action]].''</blockquote>

The science of human action is called [[praxeology]]. Human action always involves [[opportunity cost]] and it is always ''purposeful''. <ref name="humanaction_ch1sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap1sec1.asp I. Acting Man], 1. Purposeful Action and Animal Reaction, [[Human Action]], online version, referenced 2011-02-06.</ref>

===II. The Epistemological Problems of the Sciences of Human Action===

[[Ludwig von Mises]] takes the [[logical deductive]] approach to economics, as opposed to the [[empirical]] (or the [[logical positivist]] approach). Economic problems cannot be solved [[empirically]] because renunciation and long-term planning can not be seen. Humans act to attain definite ends--and economic phenomena can be understood as such.

<blockquote>"[[Praxeology]] is a theoretical and systematic, not a historical, science...It aims at knowledge valid for all instances in which the conditions exactly correspond to those implied in its assumptions and inferences. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, ''[[a priori]]''."<ref name="humanaction_ch2sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec1.asp II. Epistemological Problems of Human Action], 1. Praxeology and History, [[Human Action]], online version, referenced 2011-02-06.</ref></blockquote>

Like geometry, [[praxeology]] is not subject to disproof. This method may be called ''methodological apriorism''.<ref name="humanaction_ch2sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap2sec2.asp II. Epistemological Problems of Human Action], 2. The Formal and Aprioristic Character of Praxeology, [[Human Action]], online version, referenced 2011-02-06.</ref>

===III. Economics and the Revolt Against Reason===

[[Mises]] dismisses the [[Historical School]], [[Hegel]] and [[Marx]] with it. In discussing the "bourgeois logic" and "bourgeois mentality" of [[Marx]], [[Mises]] is able to attack [[polylogism]] in general. There does not exist multiple logics, only differing interests and their logical conclusions--whether they are spurious or well-founded. [[Mises]] states with regard to the [[Historical School]], "History, in due time, will arrange everything for the best. It does not need the advice of mortal men."<ref name="humanaction_ch3sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap3sec1.asp III. Economics and the Revolt Against Reason], 1. The Revolt Against Reason, [[Human Action]], online version, referenced 2011-02-06.</ref>

<blockquote>''See [[German Idealism]].''</blockquote>

===IV. A First Analysis of the Category of Action===

<blockquote>''Main Article: [[Value]]''</blockquote>

All actions are directed toward goals, aims or ends. The end, speaking generally, is always to remove a ''felt uneasiness''. Means are the ways by which we approach an end. Things in the world, when applied to our ends, become means and are commonly referred to as [[goods]].<ref name="humanaction_ch4sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec1.asp IV. A First Analysis of The Category of Action], 1. Ends and Means, [[Human Action]], online version, referenced 2011-02-06.</ref> Means are [[Scarcity|scarce]].

Actions are reflective of our ''scale of [[value|values]]''. All things equal, we satisfy wants of higher [[value]] to us, and leave unsatisfied wants of lower [[value]] to us. Things in the world have no intrinsic [[value]], our actions give things [[value]].<ref name="humanaction_ch4sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec2.asp IV. A First Analysis of The Category of Action], 2. The Scale of Value, [[Human Action]], online version, referenced 2011-02-06.</ref>

Given that every action is an attempt to establish a more satisfactory state of affairs, viz., to remove a ''felt uneasiness'', all actions are in a sense an [[exchange]]. We [[exchange]] one state for another, hopefully better, state. Lastly, value judgments arrange wants, but do not measure them. They are expressive of sequence and order rather than of measurement and weight.<ref name="humanaction_ch4sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp IV. A First Analysis of The Category of Action], 4. Action as Exchange, [[Human Action]], online version, referenced 2011-02-06.</ref>

===V. Time===

Time is a [[Praxeology|praxeological]] category: all action is in time and is subject to time.<ref name="humanaction_ch5sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap4sec4.asp V. Time], 2. Past, Present and Future, [[Human Action]], online version, referenced 2011-02-07.</ref> As humans, our time is [[Scarcity|scarce]] and we must economize it accordingly. Our scales of [[value]] and therefore our actions are always with reference to time. As we will see later, time is important in the determination of [[interest]] and consumption.<ref name="humanaction_ch5sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap5sec3.asp V. Time], 3. The Economization of Time, [[Human Action]], online version, referenced 2011-02-07.</ref>

===VI. Uncertainty===

All action is speculative. We never know exactly what will occur. The natural sciences make it possible to foretell results from specific actions. They do not make the future predictable.<ref name="humanaction_ch6sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec1.asp VI. Uncertainty], 1. Uncertainty and Acting, [[Human Action]], online version, referenced 2011-02-08.</ref> But, [[Mises]] tells us, probability is a primary concern of [[praxeology]].

He distinguished between two types of propability: [[class probability]] and [[case probability]].

<blockquote>"''[[Class probability]] means'': We know or assume to know, with regard to the problem concerned, everything about the behavior of a whole class of events or phenomena; but about the actual singular events or phenomena we know nothing but that they are elements of this class."<ref name="humanaction_ch6sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec3.asp VI. Uncertainty], 3. Class Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, car insurance works on the premise that with a large pool of policies, they can use class probability to decide upon an approriate premium given the ''class probability'' of accidents. But, they know nothing about the probability of the individual policy holder getting into an accident.

<blockquote>"''[[Case probability]]'' means: We know, with regard to a particular event, some of the factors which determine its outcome; but there are other determining factors about which we know nothing."<ref name="humanaction_ch6sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec4.asp VI. Uncertainty], 4. Case Probability, [[Human Action]], online version, referenced 2011-02-08.</ref></blockquote>

For example, foreign policy experts may make predictions about the settlement of foreign disputes. They are well informed but it is impossible for them to predict the outcome perfectly because they can not grasp all the data and all the opinions of individuals shaping decisions. Therefore, they may know some of the factors that will shape the future, but never perfectly.

For [[Mises]], we make decisions with incomplete knowledge. To say it again, all action is speculative in character. To this difficulty in decisions, specifically in social cooperation where selection occurs, competition serves as a function to select the most able person for specific positions. It assigns every member of society to the position where they best serve society.<ref name="humanaction_ch6sec6">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap6sec6.asp VI. Uncertainty], 6. Betting, Gambling, and Playing Games, [[Human Action]], online version, referenced 2011-02-08.</ref>

===VII. Action Within the World===

Each person possesses one scale of valuations, which is visible through action.<ref name="humanaction_ch7sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec1.asp VII. Action Within The World], 1. The Law of Marginal Utility, [[Human Action]], online version, referenced 2011-02-13.</ref> Goods and modes of action are chosen based on their utility, or their causal relevance for the removal of felt ''uneasiness''.<ref name="humanaction_ch7sec1"></ref> Here [[Mises]] discusses the [[paradox of value]]: why is ''gold'' more valuable than ''iron''? Despite the many uses of iron, gold is valued more on the market because of its value in exchange. Iron may have more technological prospects or ''objective use-value'' but it lacks ''subjective use-value'', that is, gold is valuable in exchange due to scarcity, appearance and its tradition as a form of money. [[Mises]], however, dismisses the question as one which never occurs in reality.<ref name="humanaction_ch7sec1"></ref>

The [[Law of Marginal Utility]] is implied by the category of action: If a supply increases from quantity ''n'' to ''n + 1'' the extra unit provides less [[utility]] than unit ''n''. This is because ''n'' is satisfying a more urgent want than unit ''n + 1''. We satisfy more urgent wants first by their definition. Unit ''n'' is satisfying the more urgent want, ''n + 1'' is satisfying a less urgent want. Therefore, increasing units of a homogeneous supply are each applied to decreasingly important wants (seeing as the more urgent wants are always satisfied first). The [[law of marginal utility]], "does not deal primarily with the [[value]] of things, but with the [[value]] of the services a man expects to get from them."<ref name="humanaction_ch7sec1"></ref>

"[[Labor]]," says [[Mises]], "is preferred to leisure only insofar as the yield of [[labor]] is more urgently desired than the enjoyment of leisure."<ref name="humanaction_ch7sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec3.asp VII. Action Within The World], 3. Labor as Means, [[Human Action]], online version, referenced 2011-02-13.</ref> Work involves disutility. To this note, [[labor]] is more scarce than other material factors of production:

<blockquote>"In our world there is no abundance, but a shortage of manpower, and there are unused material factors of production, i.e. land, mineral deposits, and even plants and equipment."<ref name="humanaction_ch7sec3"></ref></blockquote>

Labor saving devices reduce want, they do not bring about "technological unemployment." Man economizes both labor and material factors.<ref name="humanaction_ch7sec3"></ref>

Action is successful it it produces the intended result: it produces the product. The human mind directs [[action]] with a purpose and production is creative. It is not something physical, natural, and external; it is a spiritual and intellectual phenomenon. All material actions within the world are a product of the mind. "In this sense," [[Mises]] tells us, "[[praxeology]] can be called a moral science."<ref name="humanaction_ch7sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap7sec4.asp VII. Action Within The World], 4. Production, [[Human Action]], online version, referenced 2011-02-13.</ref>

== Part Two: Actions Within the Framework of Society ==

===VIII. Human Society===

We are born into society and only in this sense does society exist before the individual. [[Society]] is the supreme example of the benefits of the [[division of labor]].<ref name="ch8sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec1.asp VIII. Human Society], 1. Human Cooperation, [[Human Action]], online version, referenced 2011-02-17.</ref> It is an institution for the preservation of peaceful human relations. It is the social apparatus of compulsion and coercion.<ref name="ch8sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec2.asp VIII. Human Society], 2. A Critique of the Holistic and Metaphysical View of Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

[[Democratic government]] provides a method for the peaceful adjustment of government to the will of the majority. Wisdom and science thrive in a peaceful and affluent society. <ref name="ch8sec2"></ref>

<blockquote>"[[Liberalism]] aims at a political constitution which safeguards the smooth working of social cooperation and the progressive intensification of mutual social relations. Its main objective is the avoidance of violent conflicts, of wars and revolutions that must disintegrate the social collaboration of men and throw people back into the primitive conditions of barbarism where all tribes and political bodies endlessly fought one another. Because the division of labor requires undisturbed peace, liberalism aims at the establishment of a system of government that is likely to preserve peace, viz., democracy."<ref name="ch8sec2"></ref></blockquote>

[[Mises]] expounds the Ricardian Law of Association or [[comparative advantage]] as the fundamental characteristic of society.<ref name="ch8sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec4.asp VIII. Human Society], 4. The Ricardian Law of Association, [[Human Action]], online version, referenced 2011-02-17.</ref> The division of labor assigns to each man the best job for him in society.<ref name="humanaction_ch6sec6"></ref> However, the end result of division of labor in society--a diversity which attests to the innate inequalities between individuals--does not illistrate ideas of [[Social Darwinism]]. Biology and evolutionary views cannot pass value judgments on the benefits of civilization.<ref name="ch8sec7">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap8sec7.asp VIII. Human Society], 7. The Great Society, [[Human Action]], online version, referenced 2011-02-17.</ref>

===IX. The Role of Ideas===

All [[action]] is preceded by thinking. Thinking is to deliberate before [[action]] and to reflect upon past [[action]]. Thinking is a tool of action and language is a tool of thinking. All action is based on a definite idea about causal relations. Thinking and ideas are, like material wealth, passed down the generations.<ref name="ch9sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec1.asp IX. Human Society], 1. Human Reason, [[Human Action]], online version, referenced 2011-02-18.</ref> Action is always directed by ideas.<ref name="ch9sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec3.asp IX. Human Society], 3. Might, [[Human Action]], online version, referenced 2011-02-18.</ref>

[[Ideologies|Ideology]] and world views are explanations of social phenomena and technologies for prescriptive politics. All political doctrines imply that: "the political system we support will render you more prosperous and more content."<ref name="ch9sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec2.asp IX. Human Society], 2. World View and Ideology, [[Human Action]], online version, referenced 2011-02-18.</ref> [[Ideologies]], to [[Mises]], are the most powerful form of control. The might of a politician is due to his [[ideology]], his interpretation of the world and his prescriptive measures to ensure his followers are more prosperous and more content. Thinking, the ideological interpretation, succeeds through the cooperation of other minds. No thinker is isolated in his thoughts, they have been influenced by others. A politician's power dwindles if his [[ideology]] loses support. To [[Mises]]:

<blockquote>"The power of an ideology consists precisely in the fact that people submit to it without any wavering and scruples."<ref name="ch9sec3"></ref></blockquote>

Traditionalism and the idea of progress are ideologies also. Progress toward a more prosperous life and evolutionary progress must not be confused with evolution toward higher forms of life. Progress may not continue, majorities may error.<ref name="ch9sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap9sec4.asp IX. Human Society], 4. Meliorism and the Idea of Progress, [[Human Action]], online version, referenced 2011-02-18.</ref> Ideologies may protect the material interest of the race or they may destroy it.

===X. Exchange Within Society===

[[Action]] always is essentially the exchange of one state of affairs for another state of affairs.<ref name="ch10sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec1.asp X. Exchange Within Society], 1. Autistic Exchange and Interpersonal Exchange, [[Human Action]], online version, referenced 2011-02-25.</ref> The interpersonal exchange of goods weaves the bonds which unites men into societies.<ref name="ch10sec1"></ref> [[Mises]] defines two different kinds of social cooperation: cooperation by virtue of contract and coordination, and contract by virtue of command and subordination or hegemony.<ref name="ch10sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec2.asp X. Exchange Within Society], 2. Contractual Bonds and Hegemonic Bonds, [[Human Action]], online version, referenced 2011-02-25.</ref> In the former state there are men who cooperate to achieve goals--their plans are symmetrical and share a common goal. In the latter state their is always two classes of men, those who command and those who obey. Again [[Mises]] emphasizes the important of ideology to animate the social body. The individuals must share an [[ideology]] if they are to cooperate. Hegemonic control needs an ideology that the controlling system is the best or the traditional norm. [[Ideologies]] imply obedience to the [[ideology]]. Contractual relation order society by free association held together by the order of right and law.<ref name="ch10sec2"></ref>

The [[Praxeology|praxeological]] categories, [[Mises]] tells us, are eternal and unchangable. They are the categories within which all action takes place. No [[action]] is free from the facts of existence--of which the praxeological categories belong.<ref name="ch10sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap10sec3.asp X. Exchange Within Society], 3. Calculative Action, [[Human Action]], online version, referenced 2011-02-25.</ref> Man can never comprehend anything that is neither [[action]] or none action.

Modern civilization is characterized by the fact that it has elaborated a method which makes use of the arithmetic possible in a broad field of activities. [[Economic calculation]], for example in modern capital [[accounting]], is a fundamental issue in all comprehension of economic phenomena.<ref name="ch10sec3"></ref>

Despite the extended use of capital [[accounting]] and arithmetic, [[action]] can only make use of ordinal numbers. That is, actions order desires but do not measure them. But in our rational and contractual society we are able to make use of cardinal numbers in capital accounting. By this feature of capital accounting and contractual relations civilization opened the door to computation and calculation regarding the planning of the future and measuring the effects of past actions. Still, the applicability of cardinal numbers to economic thinking require these circumstances and economic law and theory cannot be deduced from [[economic history]], namely, the history of prices.<ref name="ch10sec3"></ref>

== Part Three: Economic Calculation ==

===XI. Valuation Without Calculation===

We apply the [[value|values]] we attribute to the ends of [[action]], to the means necessary to achieve those ends: "Other things being equal, [acting man] assigns to the total amount of the various means the same value he attaches to the end which they are fit to bring about."<ref name="ch11sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec1.asp XI. Valuation Without Calculation], 1. Gradation of Means, [[Human Action]], online version, referenced 2011-02-26.</ref>

The preferences used in [[action]], the laying aside of some things for other things, allows--as said above--the use of ordinal numbers but not cardinal numbers. Again, [[value|values]] attributable to actions cannot be measured arithmetically. Yet, in the activity of using means to attain certain ends, the acquisition of countable and measurable supplies of things becomes an immediate goal of action.<ref name="ch11sec1"></ref> [[Economic calculation]] can occur, despite that the values we attribute to different means and ends cannot be measured, by the results of actions of interpersonal exchange:

<blockquote>"The modern theory of value and prices show how the choices of individuals, their preferring some things and setting aside of other things, results, in the sphere of interpersonal exchange, in the emergence of market prices."<ref name="ch11sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec2.asp XI. Valuation Without Calculation], 2. The Barter-Fiction of the Elementary Theory of Value and Prices, [[Human Action]], online version, referenced 2011-02-26.</ref></blockquote>

[[Mises]] reminds us that is it a fallacy to think things exchanged are of the same value. Rather, people buy and sell only because they appraise the things given up less than those received.<ref name="ch11sec2"></ref> "Market prices," [[Mises]] says in a later chapter, "are not expressive of equivalence, but of a divergence in the valuation of the exchanging parties."<ref name="ch26sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap26sec3.asp XXVI. Economic Calculation under Socialism], 3. Recent Suggestions for Socialist Economic Calculation, [[Human Action]], online version, referenced 2011-04-25.</ref>

In using technology, we are resorting to knowledge of causal relations. We are not, however, addressing the technologies applicability to human wants and desires.<ref name="ch11sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec3.asp XI. Valuation Without Calculation], 3. The Problem of Economic Calculation, [[Human Action]], online version, referenced 2011-02-26.</ref>

<blockquote>"Technology tells how a given end could be attained by the employment of various means which can be used together in various combinations, or how various available means could be employed for certain purposes. But it is at a loss to tell man which procedures he should choose out of the infinite variety of imaginable and possible modes of production."<ref name="ch11sec3"></ref></blockquote>

Engineering can tell us how to build a bridge but not whether its construction would draw resources from other areas where they would be used to satisfy more urgently felt needs. [[Action]], as opposed to the casual relations of engineering, must discover the relations between dissimilar projects. [[Money]], holding the status of "universally used medium of exchange," becomes the measure of the worthiness of differing possiblities in the realm of action. Because [[goods]] and services have money prices we can use these in planning and decisions.<ref name="ch11sec3"></ref>

With all action directed toward the future, all economic planning and calculation must be made in regards to the future state of prices. In entrepreneurial ventures the acting man wants the prices of goods produced and sold to be greater than the price of the goods used in production. The practical meaning of [[economic calculation]] is to show how much one is free to consume without impairing the future capacity to produce. The concepts of [[economic calculation]]--[[Profit]] and [[loss]], [[capital]] and [[income]], spending and [[saving]], cost and yield--are developed to ensure efficient use of the resources of society.<ref name="ch11sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap11sec4.asp XI. Valuation Without Calculation], 4. Economic Calculation and The Market, [[Human Action]], online version, referenced 2011-02-26.</ref>

===XII. The Sphere of Economic Calculation===

The acting individual is always concerned with the future. In action he is either, (1) anticipating the future and acting accordingly, or (2) trying to change the outcomes of the future even if there are no other changes to the data. Economic calculation cannot predict the outcomes of the future, it can only assist man in adjusting his actions to his opinion of the future. The numerical exactitude of balance sheets and income statements must not prevent us from realizing their inherent uncertainty and estimation.<ref name="ch12sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec1.asp XII. The Sphere of Economic Calculation], 1. The Character of Monetary Entries, [[Human Action]], online version, referenced 2011-02-27.</ref>

[[Money]] is not a measuring stick. Money prices do not transmit the intrinsic value of a good. [[Prices]] are not measured in money, they consist in money. They are either prices of the past or prices of the future. Furthermore, although it is possible to aggregate prices paid in goods, it makes no sense to talk about a national income or any other aggregate of spending which "characterizes" a society.<ref name="ch12sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec2.asp XII. The Sphere of Economic Calculation], 2. The Limits of Economic Calculation [[Human Action]], online version, referenced 2011-02-27.</ref>

Economic calculation makes sense only in a society with private ownership of the means of production. Economic calculation is not to blame of the masses preferring detective stories to books of philosophy--that is an outcome of the desires and preferences of individuals acting in society. Economic calculation cannot be blamed for the less than ideal characters and habits of other members of society.<ref name="ch12sec2"></ref>

Prices, or exchange ratios, are in constant fluctuation with the changing data of the market and the changing whims of consumers.<ref name="ch12sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec3.asp XII. The Sphere of Economic Calculation], 3. The Changeability of Prices[[Human Action]], online version, referenced 2011-02-27.</ref>

[[Mises]] dismisses the idea of measurement in [[purchasing power]] as unfeasible:

<blockquote>"A measurement of purchasing power would have to rely upon the prices of the goods and services of the first order and, what is more, of ''all'' of them."<ref name="ch12sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap12sec4.asp XII. The Sphere of Economic Calculation], 4. Stabilization [[Human Action]], online version, referenced 2011-02-27.</ref></blockquote>

Further, changes in the [[purchasing power]] of [[money]] must necessarily effect different goods and services at different times and therefore efforts to stabilize the purchasing power of money by attempting to change the money relation is an impossible feat.<ref name="ch12sec4"></ref>

===XIII. Monetary Calculation as a Tool of Action===

Monetary calculation is the decisive factor of action in the social system of [[division of labor]]. Every action of the [[entrepreneur]] is analyzed by monetary calculation. Only in the institutional settings of [[private property]] and [[division of labor]] where goods and services are exchanged by a money can the system of monetary calculation be used. The use of aggregates derived from the use of monetary calculation is useless. That is, monetary calculation is useful for individual acting but cannot be useful to determining "social" values or welfare. By the use of monetary calculation, for example in capital [[accounting]], arithmetic has become a tool in the struggle for a better life. Capital [[accounting]] allows us to analyze the success or failure of men in satisfying the needs of [[consumers]].<ref name="ch13sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap13sec1.asp XIII. Monetary Calculation as a Tool of Action], 1. Monetary Calculation as Method of Thinking [[Human Action]], online version, referenced 2011-03-14.</ref>

<blockquote>"Our civilization is inseparably linked with our methods of economic calculation. It would parish if we were to abandon this most precious intellectual tool of acting. Goethe was right in calling bookkeeping by double entry "one of the finest inventions of the human mind.'"<ref name="ch13sec1"></ref></blockquote>

== Part Four: Catallactics or Economics of the Market Society ==

=== The Market ===

<blockquote>"The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of actions of various individuals cooperating under the division of labor."<ref name="ch15sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec1.asp XV. The Market], 1. Characteristics of the Market Economy, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref></blockquote>

In the market place everyone is an end in himself and an end for other people. Each individual acts on his own behalf, but everyones actions of the market also serve another. In acting everyone is serving everyone else's ends while serving their own. They each aim at the satisfaction of other peoples needs as much as at his own.<ref name="ch15sec1"></ref>

The state of the market is characterized by the totality of [[prices]] within the market which are determined by individuals eager to buy and sell. Additionally, there is no such thing as a "mixed" economy: is directed either by the market of by the decrees of a [[production]] tsar or a committee of production tsars."<ref name="ch15sec1"></ref> Publicly owned entities which operating in a market economy must obey the rules of profit and loss as others do. The characteristic feature of the [[market economy]] is its ability to [[calculate]]. Monetary calculation along with the determination of market prices allows the market to calculate. The rational ordering of the [[division of labor]] and of production are a result of this.<ref name="ch15sec1"></ref>

<blockquote>"The market economy is real because it can calculate."<ref name="ch15sec1"></ref></blockquote>

The central principles in the market economy's calculation are [[income]] and [[capital]]. Income is the amount of resources which can be consumed without lowering the capital of the individual or business. If income is greater than the amount consumed, ''[[savings]]'' results. Conversely, if a man consumes more than his income is it referred to as ''capital consumption''. Capital, here, is the quantity of money representing ownership in the assets of a enterprise (using the term broadly) or the total [[assets]] less the total [[liabilities]].<ref name="ch15sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec2.asp XV. The Market], 2. Capital, ''[[Human Action]]'', online version, referenced 2011-04-03.</ref>

"All civilizations" says [[Mises]], "have up to now been based on private ownership of the means of production." Our system of private ownership of the means of production has poured the horn of plenty on growing population figures. Capitalism has served to allow each man a higher material wealth than even the kings of past ages. Many who argue against capitalism do so because they look upon capitalism as an accidental phenomenon. They do not understand [[private property]] and the concept of free-associations causal relationship with the material wealth of the era. It is the critics of [[capitalism]], [[Mises]] contends, which lack historical understanding, not the economists. To capitalism's enemies, it is the policy advocated by big business, regardless of the fact that big business often advocates for "[[protectionism]], [[cartels]], and the abolition of [[competition]]." And today, it is considered a "legitimate task of government to prevent an efficient man from competing with the less efficient." Advocates of protection, and state imposed limitations on the free-market want to make us believe that the consequences of [[government intervention]] are produced by capitalism.<ref name="ch15sec3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec3.asp XV. The Market], 3. Capitalism, ''[[Human Action]]'', online version, referenced 2011-04-10.</ref>

In a market economy the [[The Sovereignty of the Consumers|consumers are sovereign]]. Only sellers of the [[first order]] goods are in contact with the consumers, but the consumers buying and abstention from buying is transmitted from the [[consumer goods]] to the [[higher order]] goods (the [[producers goods]]). Consumers, in their capricious buying, determine the income of every member of society and direct production into the hands of individuals best able to serve the consumers.<ref name="ch15sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap15sec3.asp XV. The Market], 3. Capitalism, ''[[Human Action]]'', online version, referenced 2011-04-30.</ref>

<ol style="list-style-type:upper-roman;" start="15">
<li> Prices</li>
<li> Indirect Exchange</li>
<li> '''Action in the Passing of Time'''</li>
For humans considering [[action]], time matters: there is a ''too late'' and a ''too early''. [[Time preferences]] affect all action (see [[Value]]).<ref name="mises_action_in_passage_of_time_2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec2.asp XVIII. Action in the Passing of Time], 2. Time Preference as an Essential Requisite of Action, ''[[Human Action]]'', online version, referenced 2011-02-04.</ref>

Postponements of consumption, or [[saving]], is always embodied in concrete goods. "The act of saving," [[Mises]] tells us, "always has its counterpart in a supply of goods produced and not consumed...Man's savings are always embodied in concrete capital goods."<ref name="mises_action_in_passage_of_time_3">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap18sec9.asp XVIII. Action in the Passing of Time], 9. Money and Capital; Saving and Investment, ''[[Human Action]]'', online version, referenced 2011-02-08.</ref>

The discussion of [[time preference]], and the postponment of consumption, is a lead in to [[interest]].

<li> '''Interest'''</li>

<blockquote>''Main Article: [[Interest]]''</blockquote>

Time preference manifests itself in the phenomenon of [[originary interest]], i.e., the discount of future goods as against present goods.<ref name="mises__human_action_chap19sec1">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec1.asp XIX. The Rate of Interest], The Phenomenon of Interest, [[Human Action]], online version, referenced 2011-02-13.</ref> Originary interest is a ratio, like profit and loss, and not a price.<ref name="mises__human_action_chap19sec2">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec2.asp XIX. The Rate of Interest], Originary Interest, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref> It is the ratio between the value assigned to presents goods against the value assigned to future goods. This discounting explains, for example, the reason why there is finite prices on usable land:

<blockquote>"If the future services which a piece of land can render were to be valued in the same way in which its present services are valued, no finite price would be high enough to impel its owner to sell it."<ref name="mises__human_action_chap19sec2"></ref></blockquote>

We [[discount]] future services and [[goods]] because of [[time preference]]. The fact that we can purchase land which is usable into the foreseeable future is proof of this. Furthermore, [[originary interest]] is not determined by supply and demand of [[loanable funds]]. Time preference, manifesting in the discount of future goods against present goods (i.e., originary interest) determines both the demand and supply of capital and capital goods.<ref name="mises__human_action_chap19sec2"></ref>

Interest rates in loans, in a changing economy, always have an element of entrepreneurial profit. The lender, taking a risk and and making a prediciton about the future state of the market, is engaging in an entrepreneurial venture. Therefore, interest rates on loans are never pure [[originary interest]] but also entrepreneurial profit.<ref name="mises__human_action_chap19sec4">[[Ludwig von Mises]]. [http://mises.org/humanaction/chap19sec4.asp XIX. The Rate of Interest], Originary Interest in the Changing Economy, ''[[Human Action]]'', online version, referenced 2011-02-13.</ref>

<li> Interest, Credit Expansion, and the Trade Cycle</li>
<li> Work and Wages</li>
<li> The Nonhuman Original Factors of Production</li>
<li> The Data of the Market</li>
<li> Harmony and Conflict of Interests</li>
</ol>

== Part Five: Social Cooperation Without a Market ==

<ol style="list-style-type:upper-roman;" start="25">
<li> The Imaginary Construction of a Socialist Society</li>
<li> The Impossibility of Economic Calculation Under Socialism</li>
</ol>

== Part Six: The Hampered Market Economy ==

<ol style="list-style-type:upper-roman;" start="27">
<li> The Government and the Market</li>
<li> Interference by Taxation</li>
<li> Restriction of Production</li>
<li> Interference with the Structure of Prices</li>
<li> Currency and Credit Manipulation</li>
<li> Confiscation and Redistribution</li>
<li> Syndicalism and Corporativism</li>
<li> The Economics of War</li>
<li> The Welfare Principle Versus the Market Principle</li>
<li> The Crisis of Interventionism</li>
</ol>

== Part Seven: The Place of Economics in Society ==
<ol style="list-style-type:upper-roman;" start="38">
<li> The Nondescript Character of Economics</li>
<li> The Place of Economics in Learning</li>
<li> Economics and the Essential Problems of Human Existence</li>
</ol>

==References==
{{Reflist|2}}

==Links==
''{{Store|http://www.mises.org/store/Human-Action-The-Scholars-Edition-P119.aspx|Human Action (Scholar's Edition)}}''
* ''[http://www.mises.org/resources/3250 Human Action]'' complete text ([http://mises.org/humanaction/pdf/humanaction.pdf pdf])
* ''[http://mises.org/media.aspx?action=category&ID=139 Human Action]'' audiobook, read by Jeff Riggenbach
* ''[http://www.mises.org/books/humanactionstudy.pdf Human Action Study Guide]''(pdf), also [http://www.mises.org/store/Human-Action-Study-Guide-P547.aspx for sale]
* [http://www.apriorist.de/modx/hauyf/ ''Acting Man'' online lesson]

{{See also|Human Action Comics}}
[[Category:Writings of Ludwig von Mises]]
[[Category:Writings on economics]]

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