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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.

The other parts of this epic attempt can be found here: https://smilingdavesblog.wordpress.com/2014/07/26/human-action-smiling-dave-style-toc/

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