HA, Smiling Dave style. Chapter One, Section One.

Devil’s Advocate: Finally, after thousands of words about the intro, we get to the book itself. Take it away, Professor Mises:

Mises: Human action is purposeful behavior. Or we may say: Action is will put into operation and transformed into an agency, is aiming at ends and goals, is the ego’s meaningful response to stimuli and to the conditions of its environment, is a person’s conscious adjustment to the state of the universe that determines his life. Such paraphrases may clarify the definition given and prevent possible misinterpretations. But the definition itself is adequate and does not need complement or commentary.

DA: I’m glad Smiling Dave is translating that into English.

SD: All he’s saying is that in this book, the word “Action” will mean “what people do to get what they want”.

DA: That simple, hey?

SD: Yep, and there has been tons of ink spilled on these few words, lots of it nonsense. For example, plenty of time was wasted trying to prove that humans act, that they do things to get what they want. As if that needs any proof.

DA: But not everything people do is doing something to get what they want. Sometimes they sleepwalk, sometimes they sneeze and have other reflexive movements, sometimes they do things just for the heck of it, with no goal in mind. Sometimes they suffer brain damage and are reduced to a vegetable state, merely existing in a coma.

SD: Very true, and all that stuff can be ignored in an economics book. That’s why this book is only about humans acting.

DA: Professor Mises, aren’t you afraid that by using the words “act”, “action”, and “acting” in a very special way, not the way they are usually used, that some people will get all confused and have no clue what you are saying?

Mises: It’s true. I am assuming my audience has a level of intelligence above that of primitive caveman. If anyone gets flustered by my using one word in a very special sense that I defined carefully in the very first sentence, then this book is not for them.

SD: Besides, all science books do this. Ask a man in the street what “group” means, then ask a mathematician, and you will get very different answers.

DA: Dave, what do you think of the proof that humans act that’s circulating on the internet, that if you try to prove that humans don’t act, then you are yourself acting. Because you are doing something [presenting an argument] to get what you want [convince people Mises is wrong].

SD: All that would prove is that one person acted one time. Is that all you want to prove? If that’s all you want to do, there is a much simpler way. Walk to the fridge and get some food. Then say, “Look at me, I acted.” Better yet, just say “Look at me, I’m acting. I’m trying to prove people act, which is itself acting.”

Besides, as I said earlier, there is no need to prove such a self evident thing as that people do things to get what they want. I mean, seriously.

DA: What about all this stuff about Kant, that takes a lot of space on the internet when talking about Mises?

SD: Even if everything Kant said or did was permanently erased from everyones memory, the book Human Action would be exactly the same. No need to know anything about Kant to understand it fully.

DA: Say a person does nothing, because he thinks that’s the best thing under the circs. Is that an action?

Mises: Maybe it’s not an action as the man in the street uses the word, but in the technical sense “action” is defined in this book, doing nothing can be an action. If the person thinks doing nothing is the best way to get him what he wants, and makes the decision to do nothing, then doing nothing in that case is an action. To talk or not to talk, to smile or to remain serious, may be action. Action is not only doing but no less omitting to do what possibly could be done.

DA: What about psychology? How does that fit into the scheme of things?

Mises: Psychology is about what people want, why people want what they want, and other things going on peoples’ heads. It’s an important subject, but it’s not economics. Economics is about what people do, the actions they take, to get what they want. Now don’t get me wrong [as some noobies have]. I know very well that people think things, and their thoughts will influence how they “act”, obviously. In fact, I talk about this later, that people have a list in their heads, what they think is most important to get, what is second most important, and so on. But again, we are only going to talk about how what is in their heads affects what they will do, how they will act.

DA: Dave, I am too embarrassed to ask the prof, but I don’t get it. According to what he said, if Homer Simpson hears he can make a million dollars by going outside and picking up some money that fell on the street, but Homer decides to keep lying on his sofa and watching TV, that’s an action. How does that make sense? And why is Homer Simpson, lying around doing nothing, part of economics?

SD: I’m glad you asked. The old time economists, and indeed some of the current ones, have this model of people as always doing what will make them the most money. So they had an unrealistic, and therefore mistaken and flawed model, of the world. Their model has no lazy Homers lying around. This led them to conclude, for example, that if the size of a welfare check is less than what a person will make if he gets a job, then the person will get the job. How shocked they were when their model proved a flop, because we all have some Homer in us. Sometimes we prefer to be lazy, and getting more money is not an incentive to get the job. Sometimes we’d rather get a little less money for doing nothing than a little more money for working.

DA: How would Mises analyze this case?

SD: Mises would begin with what Homer wants. Homer has priorities. At the top is a roof over his head, food in the fridge, clothing and beer, in that order. Next in line in order of importance is being able to sit around and watch TV. This is more important to him than having some extra spending money. Now that we know exactly what he wants, we can analyze the options he has to get what he wants, meaning what possible actions he can take. All his first priorities, the roof, the food, the clothes, the beer, he can get by going on welfare. So he does. His next priority is relaxing, and he gets that accomplished by not getting a job, and not going outside to pick up the money in the street. So he “acts” by doing nothing.

DA: But what about the fact that he’s missing out on all that money?

SD: He has made his decision. To him, laziness is more important. Of course, if Marge would go out and work, he will gladly take her money and spend it, but him personally doing nothing is more important than anything he could buy, once he has his roof, food, clothes, and beer.

DA: Thank you, Dave. I get it. A complete understanding of Homer has to start with what he wants, and this analysis clearly has economic repercussions, so it makes a lot of sense to have it in an economics book. Without it, we will never understand the economics of welfare as it really is.

Now excuse me, I have to pick up my food stamps.

Human Action, Smiling Dave style, continued. Intro, Section 3.

Mises mentions some faults people find with economics. Some say it is not “scientific”, in that there are no laboratory experiments, no differential equations [in the true, that is, Austrian, version of economics]. Mises says the book was written precisely to reply to such a claim. But for now he says that those who are bothered by it suffer from Maslow’s disease. If all you have is a hammer, everything starts looking like a nail.

He then mentions another fault people find, namely that economics is a total flop if measured by results. The world is just as miserable a place as it was before the discovery of economics. In fact, this is true of all the social sciences, they claim. All the social sciences put together, they say,
….have not stamped out misery and starvation, economic crises and unemployment, war and tyranny. They are sterile and have contributed nothing to the promotion of happiness and human welfare. Contrast this with the mighty achievements of the hard sciences, and economics looks pathetic.

Devil’s Advocate: Pretty strong case, Ludwig. What has economics done for me lately? Nothing.

Mises: All the mighty achievements of the hard sciences would never have happened if not for economics.

DA: What?

Mises: …the tremendous progress of technological methods of production and the resulting increase in wealth and welfare were feasible only through the pursuit of those liberal policies which were the practical application of the teachings of economics. It was the ideas of the classical economists that removed the checks imposed by age-old laws, customs, and prejudices upon technological improvement and freed the genius of reformers and innovators from the straitjackets of the guilds, government tutelage, and social pressure of various kinds.

It was they that reduced the prestige of conquerors and expropriators and demonstrated the social benefits derived from business activity. None of the great modern inventions would have been put to use if the mentality of the pre-capitalistic era had not been thoroughly demolished by the economists.What is commonly called the “industrial revolution” was an offspring of the ideological revolution brought about by the doctrines of the economists.

The economists exploded the old tenets: that it is unfair and unjust to outdo a competitor by producing better and cheaper goods; that it is iniquitous to deviate from the traditional methods of production; that machines are an evil because they bring about unemployment; that it is one of the tasks of civil government to prevent efficient businessmen from getting rich and to protect the less efficient against the competition of the more efficient; that to restrict the freedom of entrepreneurs by government compulsion or by coercion on the part of other social powers is an appropriate means to promote a nation’s well-being. British political economy and French Physiocracy were the pacemakers of modern capitalism. It is they that made possible the progress of the natural sciences that has heaped benefits upon the masses.

DA: Funny how all the old tenets you mention are alive and well and preached by all govts today.
1. that it is unfair and unjust to outdo a competitor by producing better and cheaper goods They made that illegal, calling it having a monopoly.

2. that it is iniquitous to deviate from the traditional methods of production. It’s the unions, who are supported by the govts, who fight changes tooth and nail.

3. that machines are an evil because they bring about unemployment. Obama himself used this excuse to explain why there is high unemployment.

4.that it is one of the tasks of civil government to prevent efficient businessmen from getting rich and to protect the less efficient against the competition of the more efficient Piketty’s book in a nutshell.

5. that to restrict the freedom of entrepreneurs by government compulsion or by coercion on the part of other social powers is an appropriate means to promote a nation’s well-being. This is a biggy. All the laws restricting the freedom of entrepreneurs are always touted as being for the benefit of the nation.

Mises: Yep, all those blunders the old time economists spent so much time refuting have made a huge comeback, which is why we are in such a mess. And of course there is a huge cover up going on, as nobody teaches that the reason we are so much richer than, say, Merrie Englande of 1400, is because the economists destroyed those myths. And trust Marx to make a right mess of things, again:

What is wrong with our age is precisely the widespread ignorance of the role which these policies of economic freedom played in the technical evolution of the last two hundred years. People fell prey to the fallacy that the improvement of the methods of production was contemporaneous with the policy of laissez faire only by accident. Deluded by Marxian myths, they consider modern industrialism an outcome of the operation of mysterious “productive forces” that do not depend in any way on ideological factors. Classical economics, they believe, was not a factor in the rise of capitalism, but rather its product, its “ideological superstructure,” i.e., a doctrine designed to defend the unfair claims of the capitalist exploiters. Hence the abolition of capitalism and the substitution of socialist totalitarianism for a market economy and free enterprise would not impair the further progress of technology. It would, on the contrary, promote technological improvement by removing the obstacles which the selfish interests of the capitalists place in its way.

DA: Talk about turning things topsy turvy!

Mises: Coming back to the claim that economics has not ended war, or stamped out starvation and tyranny, we see now that’s because everyone with any power despises and belittles economics:

The characteristic feature of this age of destructive wars and social disintegration is the revolt against economics. Thomas Carlyle branded economics a “dismal science,” and Karl Marx stigmatized the economists as “the sycophants of the bourgeoisie.” Quacks—praising their patent medicines and short cuts to the earthly paradise—take pleasure in scorning economics as “orthodox” and “reactionary.” Demagogues pride themselves on what they call their victories over economics. The “practical” man boasts of his contempt for economics and his ignorance of the teachings of “armchair” economists. The economic policies of the last decades have been the outcome of a mentality that scoffs at any variety of sound economic theory and glorifies the spurious doctrines of its detractors. What is called “orthodox” economics is in most countries barred from the universities and is virtually unknown to the leading statesmen, politicians, and writers. The blame for the unsatisfactory state of economic affairs can certainly not be placed upon a science which both rulers and masses despise and ignore.

DA: Because if people understood basic economics, they would realize that war means only one thing for them personally: Death at the worst and increased poverty at best. And if they allowed the free market to flourish, we would all get richer and richer.

Mises: As we will show in this book. The truth is, our whole civilization is imperiled because people have turned their back on Austrian Economics:

It must be emphasized that the destiny of modern civilization as developed by the white peoples in the last two hundred years is inseparably linked with the fate of economic science. This civilization was able to spring into existence because the peoples were dominated by ideas which were the application of the teachings of economics to the problems of economic policy. It will and must perish if the nations continue to pursue the course which they entered upon under the spell of doctrines rejecting economic thinking.

DA: You know that saying anything good about white people is bad form nowadays. How about if we touch this up a bit to “modern civilization as developed by ethnic diversity, with women especially taking the lead whenever they were not oppressed into dust by the ruling white racist imperialist male dominated elitist capitalist power structure.”

Mises: You want me to say black men can’t jump?

DA: If you say it about white men, it’s fine. But if you say it about black men, you’re a racist. That’s the way it is nowadays.

Mises: Whatever.

DA: You know, Professor, the Ayn Rand crowd really got on your case because you said Economics should not make value judgements.

Mises: It is true that economics is a theoretical science and as such abstains from any judgment of value. It is not its task to tell people what ends they should aim at. It is a science of the means to be applied for the attainment of ends chosen, not, to be sure, a science of the choosing of ends. Ultimate decisions, the valuations and the choosing of ends, are beyond the scope of any science. Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends.

DA: Makes sense to me.

Smiling Dave: Devil, it’s funny how you always agree with Mises, but never give me a moment’s rest.

DA: Sane sicut lux se ipsam et tenebras manifestat, sic Veritas norma sui et falsi est. [Indeed, just as light defines itself and darkness, so truth sets the standard for itself and falsity.]

Human Action, Introduction, Section 2, Smiling Dave Style.

Our “translation” of HA continues.

Previously in HA: Mises talked about the big splash Economics made when it first appeared [proved all kinds of utopias impossible], the flaw it still contained [value was not understood], and the removal of the flaw requiring a new understanding of Economics. The flaw was a result of thinking about economic problems in terms of graphs and charts and numbers. The flaw’s removal showed that the way to study economics was to study human action, meaning think about the people involved and what they will do under the circs, using good old logical thinking.

In Section 2, Mises talks a bit about how people took to this new understanding of what Economics is, and how to go about it. Short version: They hated it. The whole thing met tremendous resistance, that continues to this day. And they did not keep their dislike a secret. The Germans had alternate proposal about how to do Economics, namely, read up on the historical data and come up with something [= Historicism]. The Americans had a similar proposal, do experiments somehow and take it from there [= Empiricism].

Mises points out that this was not a debate about “What’s the best way to do economics?”, but about “What’s the ONLY way to do it?”, each side totally rejecting anything derived from the methods of the others as fatally flawed, like a modern scientist rejects any opinion derived from reading tea leaves, for example.

But the attack did not end there. Economics, the real Economics, known today as Austrian Economics, was not only attacked as being “unscientific” because it tackled economic questions in a way people didn’t like. It was also rejected out of hand because its professors came from the wrong “class”. Yes, Marx put his two cents into the debate, claiming that unless you are from the working class, you will never know anything, because your mind is just a muddled mess. Others jumped on Marx’s bandwagon, claiming that if you live in the wrong period of history, your mind is but mush, or if you come from the wrong race, you will never be able to think straight. The low point of this whole thing was the claim that anyone who thinks at all cannot possibly know Economics or anything else involving people, because people are irrational, and how can a rational being grasp irrationality?

Devil’s Advocate: Professor, what do you care? Those attacks on logical thinking are attacks on math and physics and all the sciences, not just economics. And you don’t see the physicists losing any sleep over it. They just do what they do, and don’t care that Marx thinks their physics is all wrong, because they are from the wrong class or race. So why this thousand page book here to refute those idiotic ideas? Remember what the philosopher Spinoza said. Sane sicut lux se ipsam et tenebras manifestat, sic Veritas norma sui et falsi est.”

Mises: Say what?

DA: Indeed, just as light defines itself and darkness, so truth sets the standard for itself and falsity.

Mises: Thank you. And to answer your question, all these attacks on logical thinking, which we will call polylogism, the idea that different classes and races have different standards for what makes a good argument, and irrationalism, the idea that rational thinking is not the right weapon for understanding people, are really attacks on Austrian Economics.
Although they formulate their statements in a general way to refer to all branches of knowledge, it is the sciences of human action that they really have in view. They say that it is an illusion to believe that scientific research can achieve results valid for people of all eras, races, and social classes, and they take pleasure in disparaging certain physical and biological theories as bourgeois or Western. But if the solution of practical problems requires the application of these stigmatized doctrines, they forget their criticism. The technology of Soviet Russia utilizes without scruple all the results of bourgeois physics, chemistry, and biology just as if they were valid for all classes. The Nazi engineers and physicians did not disdain to utilize the theories, discoveries, and inventions of people of “inferior” races and nations. The behavior of people of all races, nations, religions, linguistic groups, and social classes clearly proves that they do not endorse the doctrines of polylogism and irrationalism as far as logic, mathematics, and the natural sciences are concerned.

But it is quite different with praxeology and economics. The main motive for the development of the doctrines of polylogism, historicism, and irrationalism was to provide a justification for disregarding the teachings of economics in the determination of economic policies. The socialists, racists, nationalists, and étatists failed in their endeavors to refute the theories of the economists and to demonstrate the correctness of their own spurious doctrines. It was precisely this frustration that prompted them to negate the logical and epistemological principles upon which all human reasoning both in mundane activities and in scientific research is founded.

DA: In other words, Austrian Economics tells politicians things they do not want to hear. After trying and failing to show the flaws in AE, they stooped to attacking logic itself. But they only did that as an excuse to ignore AE.

Mises: Exactly, my son.

DA: In that case, now we know their ugly motives, there is no need to refute them, right?

Mises: Wrong. Marx made a big deal about the person presenting an idea. Attack the person, he thought, and you automatically attack his idea, at least in the eyes of the people who take Marx seriously. But we have a higher standard. Talking about a person is not the same as talking about his ideas. If the most evil man in the world, for the most evil of motives, makes some claim, his claim must still be examined on its own merits. Person being evil is not the same as idea being wrong.

DA: So that’s why you are going to disprove Historicism and Empiricism and Polylogism and Irrationality.

Mises: Yeppers. Plus, there’s another attack on AE making the rounds lately, that it talks about hypothetical situations that don’t exist in the real world. Or about situations that only apply to a Capitalist economy, not a Socialist Economy.

DA: But these same people who say AE is unrealistic then turn around and scribble equations and draw up charts that don’t apply to the real world either, by their own admission. SO can’t we ignore them.

Mises: Once more, my son, if a fool says something, it is not automatically folly. It must be proven so. For all these reasons…

The system of economic thought must be built up in such a way that it is proof against any criticism on the part of irrationalism, historicism, panphysicalism, behaviorism, and all varieties of polylogism. It is an intolerable state of affairs that while new arguments are daily advanced to demonstrate the absurdity and futility of the endeavors of economics, the economists pretend to ignore all this.
It is no longer enough to deal with the economic problems within the traditional framework. It is necessary to build the theory of catallactics [=the market process] upon the solid foundation of a general theory of human action, praxeology.

DA: When you say economics, you mean Austrian Economics.

Mises: But of course. What other kind is there, that has any validity? As Peter Schiff is fond of saying, one day Austrian Economics will be called simply Economics, and all the other kinds will be called Nonsense.

DA: I always wondered why you rambled on about philosophy for ten chapters of this book before doing any economics.

Mises: Now you know why. I had to strike down all the opposing silliness before I could get to the meat of the subject. Plus, it will clarify many problems hitherto not even adequately seen, still less satisfactorily solved. There is, especially, the fundamental problem of economic calculation.

Reisman’s Objection to Praxeology.

This is an ongoing piece, a heroic attempt to translate Human Action into Smiling Dave’s English. [Here's Part one and Part Two]. All quotes in italics, of course.

Previously on Smiling Dave’s blog:
Mises: [Economics] is the science of every kind of human action. Choosing determines all human decisions. In making his choice man chooses not only between various material things and services. All human values are offered for option. All ends and all means, both material and ideal issues, the sublime and the base, the noble and the ignoble, are ranged in a single row and subjected to a decision which picks out one thing and sets aside another. Nothing that men aim at or want to avoid remains outside of this arrangement into a unique scale of gradation and preference.

The modern theory of value widens the scientific horizon and enlarges the field of economic studies. Out of the political economy of the classical school emerges the general theory of human action, praxeology.1 The economic or catallactic problems2 are embedded in a more general science, and can no longer be severed from this connection. No treatment of economic problems proper can avoid starting from acts of choice; economics becomes a part, although the hitherto best elaborated part, of a more universal science, praxeology.

Devil’s Advocate: Dave, I’ve been reading Reisman’s Capitalism, and he kinda disagrees here:
…the mistaken claim that economics is a science of choices rather than a science of wealth—a science which studies the “allocation of scarce means among competing ends.”11
This contention rests on a logical fallacy. It does not see that what gives rise to economics’ study of choices and its concern with the allocation of scarce means among competing ends is the fact that people have a virtually limitless need for wealth but only a limited capability of satisfying that need at any given time. Thus, people must choose which aspects of their need for wealth are to be satisfied and which are not. Economics studies the determinants of human choice only insofar as they concern choices of how to spend incomes that are of necessity limited, and only insofar as they affect the attraction of capital and labor to the production of some goods rather than other goods. In other words, it studies the issue of choices for no other reason than that it is necessary to do so as part of its study of the production of wealth under a system of division of labor.
To claim that economics is on this account a science of human choices rather than of wealth is to confuse an aspect of the science with its totality. To adopt this view is to be led to ignore all the really crucial matters that economics deals with and to seek esoteric extensions of the subject that have nothing whatever to do with its actual nature. Fortunately, those who adopt this view are highly inconsistent in its application and generally continue to devote most of their attention to the serious business of economics and leave the alleged necessity of extending the subject beyond the domain of wealth as a task to be carried out in the indefinite future.12

SD: May as well add the footnote:
12. Regrettably, this criticism applies to the great von Mises and his efforts to portray economics as merely the “hitherto best developed part” of an allegedly wider science of human action known as praxeology. See Ludwig von Mises, Human Action… I wish to note, indeed to stress, however, that even when I have ultimately come to disagree with some position of von Mises, as in this case, I do not recall ever having read so much as a single paragraph of his writings that did not serve as the most powerful stimulus to my own thinking. Therefore, I urge everyone to give the most serious consideration to every portion of his writings.

DA: So what have we got here? What is each side saying, and who is right?

SD: I dunno. I think it’s a case of how many angels can dance on the head of a pin. Mises is saying that it’s not enough to follow the money; we have to put people’s pursuit of money in the larger context of their pursuit of happiness, which is what economics is really about. Reisman is saying that we have to put people’s pursuit of happiness in the larger context of what they do with their money, which is what economics is really about.

I see it like this:
Let Set A = {all things people do to pursue happiness}.
Let B ={all things people do with their money}.
Let C = A intersect B.
The old time economists thought C was an empty set, and economics is all about B. Mises says that C being non empty means economics is really about A. Reisman says it means economics it’s still really about B, but C cannot be ignored, being an important subset of B.

DA: In other words, not the most vital topic out there.

SD: Exactly.

DA: What about his claim that Mises’s view will get people “to seek esoteric extensions of the subject that have nothing whatever to do with its actual nature.”

SD: It seems to have happened, on the internet level of Austrian Economics. The old mises.org forum had plenty of threads about deep philosophical matters related to praxeology and the action axiom. Personally, I don’t mind. They’re fun. If people find that intriguing, go for it. But I agree with Reisman that it’s not really economics, they way the word is commonly used, and all the truly economic parts of AE don’t have to seek far and wide into the forests of praxeology to get results.

**************

Thinking about it a little more, maybe part of what Mises meant is this. Take Keynes and his multiplier equation, or MV=PQ, or even the concept of GDP. When those things are discussed in the mainstream, nobody talks about choices people make. Mises is saying that therefore everything they say must be wrong, a gross misunderstanding. Because to understand an economic situation is to understand who is choosing what and why. If you don’t know that, you don’t know anything about what is really happening.

Frank Shostak gives an excellent example. Here’s an economic analysis devoid of people choosing anything, a supply and demand curve argument:

Using the supply-demand framework for a particular good, mainstream economists proceed further and introduce supply and demand curves for the whole economy. They hold, for example, that if the economy is underperforming, then what is needed is a bolstering of demand by means of fiscal or monetary policies. For a given supply curve, they contend, this will push the demand curve to the right, thereby lifting overall output. Needless to say, the supply-demand framework provides the rationale for government and central bank interference with businesses.

Push the demand curve to the right, thereby lifting overall output. It all happens by itself. No humans were consulted in constructing this analysis. And naive little children go to universities, and are taught this nonsense, and think they are now ever so educated and understand how an economy works. Push the demand curve to the right.

Where’s the flaw? The good Prof explains:

This framework, however, says absolutely nothing about how the increase in demand generates more output. Furthermore, it is silent regarding the funding required in order to raise output. Also, we have seen that, in reality, it is producers that initiate the introduction of new products. They set in motion increases in goods and services, and not consumers as such. Producers present new products, so to speak, to consumers who, in turn, by buying or abstaining from buying, determine the fate of products. Hence there is no such thing as an autonomous demand that somehow triggers supply. Moreover, one cannot demand something before offering something in return.

Notice how all the points he raises are about people’s choices. Why will A make more just because he finally managed to sell the inventory that has been languishing for months? Why will someone decide to invest in more of something that had a hard time being sold? How does govt spending on the old make a producer produce something new? And on and on. All his q’s are about the people involved, and how the simplistic “push that puppy over to the right” has no answers to such questions.

That, I think, is the heart of Mises’s claim that it’s all about choices, and you have to start from choices. And I have no doubt that Prof. Reisman agrees with this.

BTW, there is some Deep Stuff about Mises vs Reisman right here.

Next time on Smiling Dave’s blog:
DA: I’m tired of being the straight man here. How about if you let me be right for a change?
SD: You’re right.

Human Action Intro, continued.

Just go to previous post for part one.

The story thus far: Mises states that all the planners of The Way Things Should Be were stunned to discover that they cannot set up whatever society they want, because there are laws of economics that decree certain things impossible. [One example that he will talk about in the book is the impossibility of Socialism, no matter how perfect and well meaning everyone is]. That was the first splash economics made in the world. He goes on [and all italics are quotes]:

For more than a hundred years, however, the effects of this radical change in the methods of reasoning were greatly restricted because people believed that they referred only to a narrow segment of the total field of human action, namely, to market phenomena. The classical economists met in the pursuit of their investigations an obstacle which they failed to remove, the apparent antinomy of value.

DA: Antinomy? That’s a a silvery-white metal that breaks easily and that is used especially in alloys.

SD: Nope, that’s antimony. Mises is talking about antinomy, which means contradiction.

DA: What’s so contradictory about value?

SD: Basically, the problem is that the usefulness and importance of something is not the same as its market price. The classic example is the contrast between water and Curt Schilling’s bloody sock. Without water, you die. Without Curt Schilling’s bloody sock, you really aren’t missing much. And yet the market price for water is pennies. But the bloody sock worn by Curt Schilling while pitching in the 2004 World Series was sold for $92,613.

DA: Indeed, what’s up with that?

SD: As Mises explains, the problem is that the early economists forgot about the human element:

Their theory of value was defective, and forced them to restrict the scope of their science. Until the late nineteenth century political economy remained a science of the “economic” aspects of human action, a theory of wealth and selfishness. It dealt with human action only to the extent that it is actuated by what was—very unsatisfactorily— described as the profit motive, and it asserted that there is in addition other human action whose treatment is the task of other disciplines.

SD: In other words, their picture of a market was of people trying to make as much money as possible. That was the only goal of the actors in their model of the economy, to rake in the moolah. If people do something for any other reason than to make money, that something is not part of economics, they said. Which was their big mistake.

DA: Why is that?

SD: Because they forgot that people spend money, too, and on the most frivolous things. People who do foolish things with their money are also part of the economy. And of course, they are the secret behind Curt Schilling’s sock.

The transformation of thought which the classical economists had initiated was brought to its consummation only by modern subjectivist economics, which converted the theory of market prices into a general theory of human choice.

SD: In other words, the value of Object X is not something inherent in the object, like how vital it is, or how much labor went into making it, or what color it is, or anything else. The price a very personal thing, different for every person. In other words, the question is not “What value does this have?”, but rather “What value do this have, in my opinion, to me, right now?” In other words, the value [to me] is how much I am willing to pay for it, for whatever reasons I may have.

DA: So everything people want, for whatever reason, has gotten into economics through the back door, as it were. Because what people want, they will pay for. Thus their wants are part of the economy, and cannot be separated from any study of economics.

SD: Well, yes and no. After all, only the last part of the story enters into the market, the part when someone shows up, with cash, looking for Curt Schilling’s sock. But economics does not have to go into the back story, about why he wants that sock, why it is important to him, what need does it fulfill for him, and so forth.

DA: Which is what Mises meant when he wrote later on that psychology is not relevant to economics.

SD: So that was stage two of mankind’s economic understanding. Stage one was grasping that there are economic laws. Stage two was realizing that economics is not just about things. It’s about people buying and selling, and what those people think about things is what determines the price of the things. And then there came Stage three:

For a long time men failed to realize that the transition from the classical theory of value to the subjective theory of value was much more than the substitution of a more satisfactory theory of market exchange for a less satisfactory one. The general theory of choice and preference goes far beyond the horizon which encompassed the scope of economic problems as circumscribed by the economists from Cantillon, Hume, and Adam Smith down to John Stuart Mill. It is much more than merely a theory of the “economic side” of human endeavors and of man’s striving for commodities and an improvement in his material well-being.

DA: But Dave, I’ve been reading Reisman’s Capitalism, and he kinda disagrees here.

SD: Tell you what, we’ll end with Mises’s take on what economics is about, and next article we’ll hopefully discuss Reisman’s objections.

[Economics] is the science of every kind of human action. Choosing determines all human decisions. In making his choice man chooses not only between various material things and services. All human values are offered for option. All ends and all means, both material and ideal issues, the sublime and the base, the noble and the ignoble, are ranged in a single row and subjected to a decision which picks out one thing and sets aside another. Nothing that men aim at or want to avoid remains outside of this arrangement into a unique scale of gradation and preference.

The modern theory of value widens the scientific horizon and enlarges the field of economic studies. Out of the political economy of the classical school emerges the general theory of human action, praxeology.1 The economic or catallactic problems2 are embedded in a more general science, and can no longer be severed from this connection. No treatment of economic problems proper can avoid starting from acts of choice; economics becomes a part, although the hitherto best elaborated part, of a more universal science, praxeology.

DA: Praxeology? Catallactics? Is that even English?

SD: That’s why we’re translating, Devil.

Human Action, the Smiling Dave Translation, Featuring Devil’s Advocate. Introduction.

In response to a suggestion by one of my reader’s I’m going to take a crack at this gigantic undertaking.
I’m going with the Scholar’s Edition, available free here: http://mises.org/books/humanactionscholars.pdf Everything in italics is a quote from there.

Most books have an intro worth skipping. Thanks to the wife, to the dog, to the publisher. But this intro explains why he wrote the first hundred or so pages.

Devil’s Advocate: I always wondered about that. Praxeology, methodological individualism, polylogism, ideal types, that stuff belongs in a philosophy book, not an economics book.

Smiling Dave: The intro explains that he wrote it to refute Marx. But first, let’s follow Mises as he places Economics in context, explaining where it belongs in that great map of Knowledge.

I. Economics and Praxeology
ECONOMICS is the youngest of all sciences.
[It]…opened to human science
a domain previously inaccessible
and never thought of.
The discovery of a regularity
in the sequence and interdependence of market phenomena
went beyond the limits
of the traditional system of learning.
It conveyed knowledge which could be regarded
neither as logic, mathematics,
psychology, physics,
nor biology.

DA: OK, so it’s a whole new field.

SD: Now Mises explains where it fits into the scheme of things.

Philosophers had long since been eager to ascertain the ends which God
or Nature was trying to realize in the course of human history.
They searched for the law of mankind’s destiny and evolution.

DA: Sounds good to me. The ultimate question. What’s it all about?

But even those thinkers whose inquiry was free from any theological tendency
failed utterly in these endeavors
because they were committed to a faulty method.

DA: Which was?

They dealt with humanity as a whole
or with other holistic concepts
like nation, race, or church.

They set up quite arbitrarily
the ends to which the behavior of such wholes
is bound to lead.

DA: A bit harsh, no? Quite arbitrarily?

SD: Let’s be generous and say he means that they faced no problems proclaiming what man’s destiny is.
That was the easy part.
But after deciding what man’s destiny is,
they ran into a brick wall explaining how he is supposed to get there.

But they could not satisfactorily answer the question
regarding what factors compelled the various acting individuals
to behave in such a way
that the goal aimed at by the whole’s inexorable evolution was attained.

SD: In other words, they understood quite clearly that a nation, race or church is not a living physical thing. A nation does not get up in the morning and drink coffee, or do anything else. It’s an abstract concept. The only ones who get anything done here on Earth are people. So if mankind is going to reach it’s destiny, or evolve into something, it’s people who are going to get it done.

DA: But nobody ever says, “How will I fulfill mankind’s destiny today?” They think about their job, their, family, their beer in the evening, but almost never about mankind’s destiny. Which means they are going to make no effort at all to get mankind closer to its destiny, whatever its destiny may be. And if nobody is trying, how will it get done?

SD: That was the brick wall they ran into. Having set up an abstraction, and a goal for that abstraction, they then realized that almost nobody is out there trying to move that abstraction closer to its goal. So they had to resort to mysticism. Some supernatural force had to take on the burden.

DA: He who lives by the abstract, dies by the abstract. By the way, what’s wrong with a little mysticism?

SD: Nothing, except that you are no closer to understanding what it’s all about than when you started. You have a mystical goal, which gets accomplished by mystical means. You have no way of proving anything, and so no way of knowing that your conclusion is correct.

So once the mysticism was out of the way, the next step was to say, “If there is no provable goal, then I’m going to go out on a limb and say there is no goal at all. Which means the world is my oyster. I can make the world have any goal I like.”

Other philosophers were more realistic. They did not try to guess the designs of Nature or God. They looked at human things from the viewpoint of government. They were intent upon establishing rules of political action, a technique, as it were, of government and statesmanship. Speculative minds drew ambitious plans for a thorough reform and reconstruction of society.

DA: Like Plato, and like the Spartans.

[A]ll were fully convinced that there was in the course of social events no such regularity and invariance of phenomena as had already been found in the operation of human reasoning and in the sequence of natural phenomena. They did not search for the laws of social cooperation because they thought that man could organize society as he pleased. If social conditions did not fulfill the wishes of the reformers, if their Utopias proved unrealizable, the fault was seen in the moral failure of man. Social problems were considered ethical problems. What was needed in order to construct the ideal society, they thought, was good princes and virtuous citizens. With righteous men any Utopia might be realized.

DA: The beatings will continue until morale improves.

SD: One classical example of this blunderous way of thinking is good old Marcus Aurelius. I mean, talk about virtue. Talk about ethics. He had it all. But he didn’t know economics. He thought that you could debase the coinage and nothing will happen. There are historians who claim that the debasement was the key reason the Roman Empire fell.

So the realists too, ran into a brick wall, without even knowing it was there:

The discovery of the inescapable interdependence of market phenomena overthrew this opinion.

DA: Can you give me an example?

SD: Sure. Many people still think that it’s not right to charge interest, or to collect rent for doing nothing but owning the land, or to raise the price of drinking water right in the middle of Hurricane Katrina, when people need water most. It’s not right, and not ethical, and what we should do is educate people to be fair, or else use the full power of govt force to make them do the right thing.

DA: Sounds pretty reasonable to me, actually.

SD: That’s because, begging your pardon, you don’t know economics. It teaches us that if you enact those laws that forbid interest, or collecting rent, or raising prices during a shortage, the consequences will be disastrous.

Bewildered, people had to face a new view of society. They learned with stupefaction that there is another aspect from which human action might be viewed than that of good and bad, of fair and unfair, of just and unjust. In the course of social events there prevails a regularity of phenomena to which man must adjust his action if he wishes to succeed. It is futile to approach social facts with the attitude of a censor who approves or disapproves from the point of view of quite arbitrary standards and subjective judgments of value. One must study the laws of human action and social cooperation as the physicist studies the laws of nature. Human action and social cooperation seen as the object of a science of given relations, no longer as a normative discipline of things that ought to be—this was a revolution of tremendous consequences for knowledge and philosophy as well as for social action.

DA: So economics came along and everybody wised up.

SD: But not wise enough, as we’ll see next time, God willing.

Real Athletes and Video Game Athletes.

People invest a lot of emotion in sports, a phenomenon dating back at least to Roman times. Back then, the leaders knew they just had to provide bread and circuses, and everyone would be happy. In the end, they kept providing the circuses, but ran out of bread.

But some of the emotions, powerful though they may be, are very mistaken, like Quasimodo’s intense love of Esmeralda leading him to kill those who would protect her, and defend those who wanted her dead, because he was too stupid to know the difference.

So let’s help everyone sort their emotions by explaining what is a proper feeling toward a real life athlete, and what is appropriate only towards a video game character.

It all stems from one huge mistake. We think an athlete has to have only one goal in mind, pleasing us, the fan. And if he wants money more than winning a championship, or wants to play for a team other than ours, we hate him.

This feeling is certainly appropriate to a video game character. He is not real. He does not need a job, or money. He has no life but the present moment, and no life outside of the video game. He was created by his Creator, the programmer, for one purpose only, to amuse us. So if our video character rebels and wants money, or to play for a different team, there’s something wrong, some glitch in the program. Our indignation is righteous.

“Video game character, you are here to do what I want. Do it!”

“Yes, master.”

But a real life athlete is different. God did not make him our slave. He did not program nor command the athlete to do whatever we want. When he joins our team, he is not committing himself to anything but doing his job description for the life of the contract. And guess what? We did not even hire him, someone else did.

“But I want him to be on my team forever.”

Well, my son, in real life, if you want something from someone, you have to offer him something in exchange. In other words, pay him.

“Don’t be ridiculous. I don’t have that kind of money.”

You can’t afford to live like an Arab sheik either, but I don’t see you indignant about that. Because unless you are totally bonkers, you realize you cannot live beyond your means, and are OK with that. Having an athlete slave is beyond your means. And it’s OK.

Even if you have the money to make him an offer, he can always refuse. That’s what real people are about. They do what they want, not what you want. So suck it up, or better yet, don’t be foolish in the first place.

The Economics of Valley Forge.

Every American child is taught all about Valley Forge. This quote from http://www.eyewitnesstohistory.com/valleyforge.htm tells the official version.

The winter of 1777-8 was the low point of America’s struggle for independence. The troubles began the previous August when the British fleet unloaded a force of Redcoats at the top of the Chesapeake Bay with the objective of capturing the American capital at Philadelphia. The Americans were routed by the British at the Battle of Brandywine on September 11, leaving Philadelphia undefended. Members of the Continental Congress fled the city. The British entered Philadelphia on September 26.

The Continental Army suffered another defeat at the Battle of Germantown just north of Philadelphia on Oct. 4. General Washington led his weary and demoralized army to Valley Forge a few miles away where they would camp for the winter and prepare for battle with the return of warm weather.

Conditions in the camp were horrendous. Forced to live in damp, crowded quarters, Washington’s army of approximately 12,000 suffered from a lack of adequate clothing and food.

And by “lack”, we mean enough lack to close down the whole army forever. Washington wrote “unless some great and capital change suddenly takes place…this Army must inevitably…starve, dissolve, or disperse, in order to obtain subsistence in the best manner they can.

That “lack” of clothing was pretty bad, too. Clothing was wholly inadequate. Many wounded soldiers from previous battles died from exposure. Long marches had destroyed shoes. Blankets were scarce. Tattered garments were seldom replaced. At one point these shortages caused nearly 4,000 men to be listed as unfit for duty. [Wikipedia].

One third of the army unfit for duty because they did not have clothes.

“General Washington, Father of Our Country, the British are coming.”

“Gather all the 12,500 men for one last stand.”

“Actually, General, you mean 10,000, because the rest have starved to death.”

“I knew it. I predicted it. 10,000 then.”

“General, you mean 6,000, because one third of the 12,500 is unfit for duty.”

“Why?”

“They can’t fight naked, sir.”

But why? Why is it that just exactly then they ran out of food and clothing, just when they needed them most? Keep this q. in mind as we continue.

Diseases such as typhoid, dysentery, typhus and pneumonia ran rampant.

Wikipedia adds sheer starvation to that list, just as Washington predicted.

An estimated 2,500 died.

Morale plummeted.

And by morale plummeting, we’re talking about “Forget this whole USA thing, guys. I’m outta here.” As Wikipedia puts it,

Soldiers deserted in “astonishing great numbers” as hardships at camp overcame their motivation and dedication to fight for the cause of liberty. General Varnum warned that the desperate lack of supplies would “force the army to mutiny.” 

Gouverneur Morris of New York later stated that the Continentals were a “skeleton of an army…in a naked, starving condition, out of health, out of spirits.”

General Washington was in despair as he watched his army disintegrate. [eyewitnesstohistory.com]

But then, for some reason, things got better. Eyewitnesstohistory.com says it was Washington’s leadership that magically made food and clothing and new recruits show up.

Devil’s Advocate: That’s unfair, Dave. Eyewitnesstohistory.com says imposing German military discipline was the single most important thing. I guess that means it was what made the food and clothing magically show up. Or maybe he means better an army starving to death, naked and diseased, but disciplined, than one healthy and clothed and well fed, but lacking German discipline. I mean, that’s what the soldiers were proud of. Let me quote it to you:

However, as time progressed, a transformation occurred. Under Washington’s inspired leadership, conditions improved: more food, equipment and new recruits reached the camp lifting spirits. Most importantly, the training efforts of Baron von Steuben increased discipline and reinvigorated pride among the troops. A former member of the General Staff of the Prussian Army, Steuben arrived in camp in February bearing a letter of introduction from Benjamin Franklin whom he had met in Paris

Washington immediately assigned the seasoned soldier the task of training his army. Drilling started immediately. From dawn to dusk individual soldiers, companies, regiments and battalions were incessantly schooled in the art of war. What had been a ragtag and undisciplined collection of individuals became a cohesive fighting force.

Wave that flag, bro.

“Man, I may be starving and naked and dying of disease, with no horses, but I can drill like nobody’s business. I am so proud. I wanted to mutiny, or just run away and be done with it, but now that I’m marching around from dawn to dusk all that has changed.”

“It’s what makes for cohesion, bro. And look at all the food that’s magically growing on the parade grounds in the dead of winter.”

“Sieg Hiel!”

Of course, it would have been better had 20% of the army not starved to death, right? Wrong, says, eyewitnesstohistory.com. It was a good thing, because all that starvation and nakedness and potential mutiny is what won us the war:

Out of this terrible winter emerged a new Army, confident and ready to do battle. On June 19, 1778 the British abandoned Philadelphia and marched back to New York City. Washington led his Continental Army in pursuit. The subsequent battle at Monmouth, New Jersey ended in a draw. The War for Independence would last another five years, but a major victory of the spirit had been won during the winter at Valley Forge.

Yep, that’s the story all little kiddies are taught in America. For some unknown reason, it was cold and hungry out there, and 2,500 people dropped like flies, not to mention 700 horses starving to death [Wikipedia]. But Washington stuck it out, and for some unknown reason, [possibly incessant drill from dawn to dusk, naked and hungry in the freezing cold and damp], everything got better after a while.

DA: Unknown reasons. Pretty odd.

SD: And isn’t it odd that there was famine and nakedness in Valley Forge, but right next door things were fine? As Wikipedia writes, Washington appointed Nathanael Greene as Quartermaster General to take charge of the supplies, who “found” caches of food and clothing and “hauled” them there for the troops and horses.

I mean, what’s that about?

And caches? Who “caches” food and clothing? Enough to feed an army?

DA: Just one of life’s mystery’s, I guess. Valley Forge, the Bermuda Triangle of 1777.

SD: Actually, the answer is well documented, and is a basic lesson in Austrian Economics.

Let’s quote the minor masterpiece, Forty Centuries of Wage and Price Controls: How Not to Fight Inflation, by Robert L. Scheuttinger and Eamonn F. Butler [available free at mises.org]:

WASHINGTON BATTLES STARVATION
In Pennsylvania, where the main force of Washington’s army was quartered in 1777, the situation was even worse. The legislature of that commonwealth decided to try a period of price control limited to those commodities needed for use by the army. The theory was that this policy would reduce the expense of supplying the army and lighten the burden of the war upon the population.

DA: What’s not to like? Cheap food and clothes for the soldiers, a lessened burden on the civilians. And freedom is preserved, too, somewhat. The price controls only applied to commodities needed by the army.

The result might have been anticipated by those with some knowledge of the trials and tribulations of other states. The prices of uncontrolled goods, mostly imported, rose to record heights. Most farmers kept back their produce, refusing to sell at what they regarded as an unfair price.

DA: So that’s where the caches came from.

SD: And it didn’t lessen the burden for anybody, either. The Congress started printing paper money on top of everything else, which AE predicts will cause price inflation. And sure enough:

The prices of uncontrolled goods, mostly imported, rose to record heights.

SD: And with higher inflation comes lower patriotism:

Some who had large families to take care of even secretly sold their food to the British, who paid in gold [=as opposed to the Americans, who paid in paper money].

DA: They needed some Prussian drilling from dawn to dusk to lift their spirits.

Dave, have you nothing good to say about the Continental Congress? We’re talking about the Founding Fathers here.

SD: They learned from their mistakes:

After the disastrous winter at Valley Forge when Washington’s army nearly starved to death (thanks largely to these well-intentioned but misdirected laws), the ill-fated experiment in price controls was finally ended. The Continental Congress on June 4, 1778, adopted the following resolution:

Whereas. . . it hath been found by experience that limitations upon the prices of commodities are not only ineffectual for the purposes proposed, but likewise productive of very evil consequences to the great detriment of the public service and grievous oppression of individuals. . . resolved, that it be recommended to the several states to repeal or suspend all laws or resolutions within the said states respectively limiting, regulating or restraining the Price of any Article, Manufacture or Commodity.

DA: Did it work? Did the soldiers finally get their food and clothing?

SD: You bet:

One historian of the period tells us that after this date, commissary agents were instructed “to give the current price. . . let it be what it may, rather than that the army should suffer, which you have to supply and the intended expedition be retarded for want of it.” By the fall of 1778 the army was fairly well-provided for as a direct result of this change in policy. The same historian goes on to say that “the flexibility in offering prices and successful purchasing in the country in 1778 procured needed winter supplies wanting in the previous year.”

In the immortal words of an economist of the period, Pelatiah Webster:

Trade, if let alone, will ever make its own way best, and like an irresistible river, will ever run safest, do least mischief and do most good, suffered to run without obstruction in its own natural channel.

EDIT: The learned Kakugo of mises.org and libertyhq fame, has allowed me to add his comments:

May I also add that Von Steuben’s contribution was not the introduction of “Prussian discipline” (which caused enormous problems to the French who had adopted it after the Seven Years War) but in schooling American officers into the benefits of having a proper General Staff and something akin to a chain of command, very much like Kosciuzko taught the Colonials military engineering and the value of tactical reconnaissance.

For Kosciuszko quote Kajenci, Francis, Thaddeus Kosciuzko: Military Engineer of the American Revolution, 1998, Hedgesville, Southwest Polonia Press

For Von Steuben quote Fleming, Thomas, Washington’s Secret War: The Hidden History of Valley Forge, 2006, New York, Harper Perennial

You may also add Von Steuben personally attempted to drill a company of Colonials but they could not understand his constant swearing… because the general spoke almost no English. When that failed, he decided to train officers and instructors (to pass his knowledge along) and write a handbook for the army with the help of a translator. In that he was far more successful.

Father Clifford Stevens Defends the Pope.

In response to my humble article, Pope Has Heart in Right Place, But Does He Understand Austrian Economics?, Father Clifford Stevens, Archdiocese of Omaha, [so he signed himself], sent in the following comment:

Pope Francis knows Austrian Economics only too well – because Austrian Economics is opposed to just laws to regulate the Ecomomy and it is nit [sic] Capitalism that is the issue, but Free \Market Economy w hich is Capitalism gone wild

Austrian Economics has a market acceleratoe, but no brake. Pope Fran cis listens to a different drummer -something.that is called the Aquinas School of Economics, based squarely on justice in the marketplace. Austrian Ecomoics is “value-free” .

Ask ant [sic] Austrian Economist what “value-free” and “subjective value” means.

You might be surprised.

Father Clifford Stevens
Archdiocese of Omaha

1. Without further ado, let’s get to the heart of the matter. Austrian Economics is indeed “value free”. But what does this phrase mean? That AE is opposed to just laws? That it does not squarely believe in justice in the marketplace? Is value free the same as “subjective value”?

We can understand best what value free means, when an Austrian Economist uses the phrase, with a few examples. Let’s peek into a Math class and listen to a dialogue between the kindly professor and his students.

Teacher: 2+2=4.

Student: Is that just or unjust, oh kindly teacher?

T: That 2+2=4 is neither just nor unjust. It just is. It is a statement of fact.

We now enter a Physics class.

Teacher: And so, if you split the atom the way I taught you, you can destroy a whole city.

Pupil: But it is unjust to kill so many people.

Teacher: You may be right, and you may be wrong. But what you are talking about, dear pupil, is not physics. Physics is the study of the facts of the universe. The facts I taught you about atomic energy are correct, and they remain correct whether it is moral to destroy a city or not. And as a physicist, it is my task to uncover the facts of the universe. As a human being with heart, I have an opinion about destroying cities, of course, but my opinion is merely my opinion. It is not part of physics. Physics is “value free”, in that, when it is being physics, it does not discuss the ethics of the facts it discovers. That discussion is of course important, more important that physics itself, but it is not part of physics.

Pupil: Just like math is value free.

Teacher: There is a difference. It is absurd to discuss the ethics of 2+2=4. There is no just and unjust about it. No ethical discussion can possibly arise about the facts Math presents. But Physics is different. Physics knowledge gives power, and that opens up the possibility of abusing that power.

Pupil: But even though there are important moral questions begging to be asked after a physics lesson, like is it right to just nuke a whole city, those questions are not part of the study of physics. And a physicist is not more qualified to decide those questions than anyone else. He is more qualified than others to tell you if your bomb is effective or not, but not more qualified to tell you if it is just or unjust to use it.

T: Exactly. Which is why Physics, the science, is “value free”. It tells you the facts, without stating any opinions about them.

Last stop. We enter a Austrian Economics classroom.

Pupil: Down with injustice! Long live a Just market place!

T: My erring son, here at Austrian Economics we talk about the facts. What happens when people do this or that in the market? How is the economy affected when such and such a law is passed? We do not talk about whether the actions and the laws discussed are just or unjust. We talk only about what their consequences are. And we don’t talk about whether the consequences are just or unjust either. We leave all questions of just and unjust for the individual to decide.

P: Can you give me an example?

T: Sure. In Austrian Economics, we prove that government ownership of the means of production, socialism, will impoverish a whole economy very quickly. That is a fact, and we prove it. But we do not take any position about the justice or injustice of socialism. If a person decides that impoverishing the masses to starvation is a good thing, we cannot prove him wrong, and we don’t try. We just tell everyone how to achieve their economic goals, letting them decide on their own what goal they want. If their goal is greater wealth for everyone, we can show them how to do that. If their goal is to starve everyone to death, we know how to do that, too.

Pupil: But the Pope and the Archdiocese of Omaha thinks the Pope’s ideas will not impoverish anyone.

Teacher: Then they are making a factual error, and we can prove that.

Pupil: But if you are against the Pope, it means you are against his goals. It means you love injustice.

T: We are not against the Pope, and not against his goals. We are all on the same side, in that we want everyone to be better off.

P: Then how can you say the Pope is wrong?

T: The Pope was taught by erring teachers that his plans will improve the lot of the poor. Little does he know that his plans will impoverish the poor still further.

P: And you can prove that scientifically?

T: Yes.

2.

Pupil: What about “subjective value”? Doesn’t that mean that Austrian Economics is all about making subjective valuations full of injustice? Doesn’t that prove that Austrian Economics is Capitalism gone wild?

T: Nope. Subjective value is a technical term, and its central idea is universally accepted by all economists.

P: Enlighten me, that I may spread the good word in my Archdiocese.

T: It’s very simple. The old time economists, including Adam Smith and Karl Marx, thought that the value of an object is somehow part of the object. Every object has a color, a weight, a shape. So too, every object has a value, that is an inherent property of the object, just like its color, weight, and shape. It has Objective Value, meaning the value comes from the object, and is part of the object.

P: And that’s wrong?

T: It sure is. Today all economists say that the value of an object is in the eyes of the beholder.

P: Like beauty. What one person thinks is beautiful another person thinks is plain. Shakespeare noticed that.

T: Yep. And the same thing for the value of an object. It is not a part of the object, the same for everyone alive, but it is part of the way an individual looks at an object.

P: The person gives it value.

T: Yes. Value is subjective.

P: What does that have to do with Capitalism gone wild, or the Pope?

T: Nothing.

P: What is your source for all you claim in this article?

T: It’s in the writings of all the Austrian Economists. Mosey on over to Mises.org and do a search, or read Human Action.

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