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Human Action

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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."[1]

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. [2]

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."[3]

Like geometry, praxeology is not subject to disproof. This method may be called methodological apriorism.[4]

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."[5]

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.[6] Means are scare, like time and oil.

Actions are reflective of our scale of value. 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.[7]

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.[8]

V. Time

Time is a praxeological category: all action is in time and is subject to time.[9]As humans, our time is scare 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.[10]

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.[11] 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."[12](emphasis added)

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."[13](emphasis added)

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.[14]

VII. Action Within the World

Each person possesses one scale of valuations, which is visible through action.[15] Goods and modes of action are chosen based on their utility, or their causal relevance for the removal of felt uneasiness.[15] 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.[15]

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."[15]

"Labor," says Mises, "is preferred to leisure only insofar as the yield of labor is more urgently desired than the enjoyment of leisure."[16] 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."[16]

Labor saving devices reduce want, they do not bring about "technological unemployment." Man economizes both labor and material factors.[16]

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."[17]

Part Two: Actions Within the Framework of Society

  1. Human Society
  2. The Role of Ideas
  3. Exchange Within Society

Part Three: Economic Calculation

  1. Valuation Without Calculation
  2. The Sphere of Economic Calculation
  3. Monetary Calculation as a Tool of Action

Part Four: Catallactics or Economics of the Market Society

  1. The Market
  2. Prices
  3. Indirect Exchange
  4. Action in the Passing of Time
    5. For humans considering action, time matters: there is a too late and a too early. Time preferences affect all action (see Value).[18] 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."[19] The discussion of time preference, and the postponment of consumption, is a lead in to interest.
  5. Interest
    6. Time preference manifests itself in the phenomenon of originary interest, i.e., the discount of future goods as against present goods.[20] Originary interest is a ratio, like profit and loss, and not a price.[21] 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."[21]

    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.[21]

    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.[22]

  6. Interest, Credit Expansion, and the Trade Cycle
  7. Work and Wages
  8. The Nonhuman Original Factors of Production
  9. The Data of the Market
  10. Harmony and Conflict of Interests

Part Five: Social Cooperation Without a Market

  1. The Imaginary Construction of a Socialist Society
  2. The Impossibility of Economic Calculation Under Socialism

Part Six: The Hampered Market Economy

  1. The Government and the Market
  2. Interference by Taxation
  3. Restriction of Production
  4. Interference with the Structure of Prices
  5. Currency and Credit Manipulation
  6. Confiscation and Redistribution
  7. Syndicalism and Corporativism
  8. The Economics of War
  9. The Welfare Principle Versus the Market Principle
  10. The Crisis of Interventionism

Part Seven: The Place of Economics in Society

  1. The Nondescript Character of Economics
  2. The Place of Economics in Learning
  3. Economics and the Essential Problems of Human Existence

References

  1. ↑ Ludwig von Mises. Introduction, 3. Introduction, Human Action, online version, referenced 2011-02-05.
  2. ↑ Ludwig von Mises. I. Acting Man, 1. Purposeful Action and Animal Reaction, Human Action, online version, referenced 2011-02-06.
  3. ↑ Ludwig von Mises. II. Epistemological Problems of Human Action, 1. Praxeology and History, Human Action, online version, referenced 2011-02-06.
  4. ↑ Ludwig von Mises. II. Epistemological Problems of Human Action, 2. The Formal and Aprioristic Character of Praxeology, Human Action, online version, referenced 2011-02-06.
  5. ↑ Ludwig von Mises. III. Economics and the Revolt Against Reason, 1. The Revolt Against Reason, Human Action, online version, referenced 2011-02-06.
  6. ↑ Ludwig von Mises. IV. A First Analysis of The Category of Action, 1. Ends and Means, Human Action, online version, referenced 2011-02-06.
  7. ↑ Ludwig von Mises. IV. A First Analysis of The Category of Action, 2. The Scale of Value, Human Action, online version, referenced 2011-02-06.
  8. ↑ Ludwig von Mises. IV. A First Analysis of The Category of Action, 4. Action as Exchange, Human Action, online version, referenced 2011-02-06.
  9. ↑ Ludwig von Mises. V. Time, 2. Past, Present and Future, Human Action, online version, referenced 2011-02-07.
  10. ↑ Ludwig von Mises. V. Time, 3. The Economization of Time, Human Action, online version, referenced 2011-02-07.
  11. ↑ Ludwig von Mises. VI. Uncertainty, 1. Uncertainty and Acting, Human Action, online version, referenced 2011-02-08.
  12. ↑ Ludwig von Mises. VI. Uncertainty, 3. Class Probability, Human Action, online version, referenced 2011-02-08.
  13. ↑ Ludwig von Mises. VI. Uncertainty, 3. Case Probability, Human Action, online version, referenced 2011-02-08.
  14. ↑ Ludwig von Mises. VI. Uncertainty, 6. Betting, Gambling, and Playing Games, Human Action, online version, referenced 2011-02-08.
  15. ↑ 15.0 15.1 15.2 15.3 Ludwig von Mises. VII. Action Within The World, 1. The Law of Marginal Utility, Human Action, online version, referenced 2011-02-13.
  16. ↑ 16.0 16.1 16.2 Ludwig von Mises. VII. Action Within The World, 3. Labor as Means, Human Action, online version, referenced 2011-02-13.
  17. ↑ Ludwig von Mises. VII. Action Within The World, 4. Production, Human Action, online version, referenced 2011-02-13.
  18. ↑ Ludwig von Mises. XVIII. Action in the Passing of Time, 2. Time Preference as an Essential Requisite of Action, Human Action, online version, referenced 2011-02-04.
  19. ↑ Ludwig von Mises. XVIII. Action in the Passing of Time, 9. Money and Capital; Saving and Investment, Human Action, online version, referenced 2011-02-08.
  20. ↑ Ludwig von Mises. XIX. The Rate of Interest, The Phenomenon of Interest, Human Action, online version, referenced 2011-02-13.
  21. ↑ 21.0 21.1 21.2 Ludwig von Mises. XIX. The Rate of Interest, Originary Interest, Human Action, online version, referenced 2011-02-13.
  22. ↑ Ludwig von Mises. XIX. The Rate of Interest, Originary Interest in the Changing Economy, Human Action, online version, referenced 2011-02-13.

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