Human Action

Human Action is the magnum opus of Ludwig von Mises, first published in 1949. It defined a large part of present Austrian Economics.

"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."

Part One: Human Action

I. Acting Man

Main Article: Action.

The science of human action is called praxeology. Human action always involves opportunity cost and it is always purposeful.

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.

"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."

Like geometry, praxeology is not subject to disproof. This method may be called methodological apriorism.

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."

See German Idealism.

IV. A First Analysis of the Category of Action

Main Article: Value

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. Means are scarce.

Actions are reflective of our scale of 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.

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.

V. Time

Time is a praxeological category: all action is in time and is subject to time. As humans, our time is 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.

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. But, Mises tells us, probability is a primary concern of praxeology.

He distingushish between two types of propability: class probability and case probability.

"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."

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.

"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."

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, the 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.

VII. Action Within the World

Each person possesses one scale of valuations, which is visible through action. Goods and modes of action are chosen based on their utility, or their causal relevance for the removal of felt uneasiness. 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.

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. Conversely, unit n + 1 is satisfying a want less urgent than n because 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, 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."

"Labor," says Mises, "is preferred to leisure only insofar as the yield of labor is more urgently desired than the enjoyment of leisure." Work involves disutility. To this note, labor is more scarce than other material factors of production:

"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."

Labor saving devices reduce want, they do not bring about "technological unemployment." Man economizes both labor and material factors.

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."

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. It is an institution for the preservation of peaceful human relations. It is the social apparatus of compulsion and coercion.

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.

"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."

Mises expounds the Ricardian Law of Association or comparative advantage as the fundamental characteristic of society. The division of labor assigns to each man the best job for him in society. 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.

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. Action is always directed by ideas.

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." 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:

"The power of an ideology consists precisely in the fact that people submit to it without any wavering and scruples."

Traditionalism and the idea of progress are ideologies also. Progress toward a more prosperous life, and the evolutionary progress must not be confused with evolution toward higher forms of life. Progress may not continue, majorities may error. 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. The interpersonal exchange of goods weaves the bonds which unites men into societies. 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. 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.

The 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. 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.

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, i.e., the history of prices.

Part Three: Economic Calculation

XI. Valuation Without Calculation

We apply the 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."

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, 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. 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:

"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."

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.

In using technology, we are resorting to knowledge of causal relations. We are not, however, addressing the technologies applicability to human wants and desires.

"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."

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.

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.

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.

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.

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.

Prices, or exchange ratios, are in constant fluctuation with the changing data of the market and the changing whims of consumers.

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

"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."

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.

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.

"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.'"

Part Four: Catallactics or Economics of the Market Society

15. The Market
16. Prices
17. Indirect Exchange
18. Action in the Passing of Time
For humans considering action, time matters: there is a too late and a too early. Time preferences affect all action (see Value). 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." The discussion of time preference, and the postponment of consumption, is a lead in to interest.
19. Interest

Main Article: Interest

Time preference manifests itself in the phenomenon of originary interest, i.e., the discount of future goods as against present goods. Originary interest is a ratio, like profit and loss, and not a price. 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:

"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."

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.

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.

20. Interest, Credit Expansion, and the Trade Cycle
21. Work and Wages
22. The Nonhuman Original Factors of Production
23. The Data of the Market
24. Harmony and Conflict of Interests

Part Five: Social Cooperation Without a Market

25. The Imaginary Construction of a Socialist Society
26. The Impossibility of Economic Calculation Under Socialism

Part Six: The Hampered Market Economy

27. The Government and the Market
28. Interference by Taxation
29. Restriction of Production
30. Interference with the Structure of Prices
31. Currency and Credit Manipulation
32. Confiscation and Redistribution
33. Syndicalism and Corporativism
34. The Economics of War
35. The Welfare Principle Versus the Market Principle
36. The Crisis of Interventionism

Part Seven: The Place of Economics in Society

38. The Nondescript Character of Economics
39. The Place of Economics in Learning
40. Economics and the Essential Problems of Human Existence

Links

• Human Action complete text (pdf)
• Human Action audiobook, read by Jeff Riggenbach
• Human Action Study Guide(pdf), also for sale
• Acting Man online lesson

See also: Human Action Comics