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Chapter 2 of 30 · Study Guide to Human Action: A Treatise on Economics by Robert P. Murphy

Part One: Human Action

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Part One—Human Action

CHAPTER I

FUNDAMENTALS OF HUMAN ACTION

Chapter Summary

1. PURPOSEFUL ACTION AND ANIMAL REACTION

Human action is purposeful behavior. The distinguishing feature of action is that the observer imputes a goal to the actor. Action is different from purely reflexive behavior. A man may flinch after a loud noise. This is not necessarily action in the Misesian sense.

Praxeology is the science of action as such. That is, praxeology as a field contains all results that can be deduced from the fact that people have ends (i.e., goals), and adopt means of trying to achieve them. The specific content of the ends, and whether the means chosen are suitable, lie outside the scope of praxeology.

Every action is a choice, where the actor selects one alternative that he prefers to another.

2. THE PREREQUISITES OF HUMAN ACTION

In order for action to occur, the actor must be in a state of uneasiness or dissatisfaction. (If he were perfectly content, he would not act.) Along with the uneasiness, the actor must be able to imagine a more satisfactory state. Finally, the actor must believe that purposeful behavior has the power to remove or reduce the uneasiness. If this last condition were lacking, the unhappy person would not act, since he would be unable to conceive of any way to improve his situation.

On Happiness

It is acceptable to view action as man’s striving for “happiness.” However, such a claim is liable to misinterpretation. In praxeology, happiness (or utility, or satisfaction) is a purely formal term, defined entirely by the subjective goals of the individual actor.

On Instincts and Impulses

Certain schools of thought reject praxeology as “rationalistic.” Instead, these critics claim that people behave on instincts, just like other animals. There are two problems with this view. First, even if the critics were correct, and humans really did act on the basis of “instincts,” nonetheless praxeology would still be valid. Acting on instinct is still action, and praxeology studies action as such, regardless of its underlying causes. A second problem with the instinct argument is that, unlike lower animals, humans clearly can suppress their biological urges. A martyr can choose to go to the stake rather than renounce his beliefs (thus violating the instinct of survival), and cash-strapped couples can use their reason to avoid the instinct to reproduce.

3. HUMAN ACTION AS AN ULTIMATE GIVEN

By its very nature, science will never be able to explain everything. Science proceeds by pushing back the limits of ignorance, but at any point a scientific discipline must start with assumptions or “givens,” and then proceed (scientifically!) from there. In the scientific study of action, the ultimate starting point is action itself. Praxeology simply takes it for granted that action exists, and traces out the implications of this fact.

All studies of human actions must rely on methodological dualism. The second half of this phrase—“dualism”—simply means that there are apparently two different realms of causality. On the one hand is the physical material world, the structure and laws of which the physicists, chemists, and so on can describe with greater and greater accuracy. On the other hand, there is always the mental or subjective world, including thoughts, emotions, desires, and so forth. The first word in the phrase—“methodological”—signifies that Mises is not taking a stand on the ultimate philosophical dispute. That is, Mises concedes that the materialists might be correct; perhaps every thought really can be directly attributed to a configuration of atoms. Nonetheless, even if this is true in some cosmic sense, Mises argues that at present the “mind-body” connection is so poorly understood that praxeologists must adopt dualism if only for pragmatic reasons. It certainly seems as if people have free will and can truly choose among alternatives.

4. RATIONALITY AND IRRATIONALITY; SUBJECTIVISM AND OBJECTIVITY OF PRAXEOLOGICAL RESEARCH

It is redundant to use the phrase “rational action,” because all action is necessarily rational in that the actor uses means to (attempt to) achieve an end. By the same token, there is no such thing as an irrational action. Because praxeology takes preferences as given, it does not analyze their content. Some desires, such as those for food or shelter, are more common than others, yet this doesn’t make the former more “rational.” It is also wrong to condemn an action as irrational simply because the means chosen were ill suited to achieve the desired end. So long as the actor truly believes the means will achieve the end, the attempt to implement this causal relation is an action.

Praxeology exhibits subjectivism in that it takes actors’ subjective ends as they exist in the minds of each person. By refraining from passing judgment on these ends, praxeology itself is objective.

5. CAUSALITY AS A REQUIREMENT OF ACTION

Causality is necessary for action, because without understanding cause and effect an actor could never hope to alter the flow of events and thus increase his happiness. The Heisenberg uncertainty principle and other developments in modern physics do not alter this.

6. THE ALTER EGO

All events must fall in the realm of teleology or causality. That is, all events must be ascribed either to the intentions of an actor or to the mechanical unfolding of physical law. Many thinkers are prejudiced against teleology, but, on their own terms, the positivists must admit that the assumption of the alter ego—that is, the assumption that there are other wills just as one is aware of his own will—is very pragmatic; it works better than to simply view the bodily movements of others as the complex outcome of chemical processes.

On the Serviceableness of Instincts

At first it would seem that an animal’s instinctive behavior is a middle ground between teleology and causality. Yet “instinct” is simply a term to describe the motivation of which we are ignorant. Even the behaviorist unwittingly adopts the vocabulary of praxeology when analyzing animal behavior.

The Absolute End

Praxeology deals with the subjective ends of mortal men. It is irrelevant whether or not God or Manifest Destiny is moving human events toward some ultimate end.

Vegetative Man

Some philosophies, such as Buddhism, teach that happiness can be attained only when all goals are renounced. If a man were to truly achieve such a state of vegetative existence, he would cease to act and praxeology would no longer apply.

Why It Matters

Many times in Human Action the modern reader may be puzzled by the pains Mises takes in critiquing particular views that seem obviously fallacious, or by the lengths to which Mises defends particular views that seem obviously correct. The reader must understand that Mises is not inventing straw men or being paranoid; respected thinkers really did advance the views he attacks, and really did attack economics with weak criticisms.

Mises takes care in the very beginning (pp. 11–13) to distinguish rational action (a term he considers redundant, since action by definition is rational) from reflexive behavior. This is necessary because a very popular objection (pp. 15–16) to the enterprise of praxeology is the claim that people do not always behave “rationally,” and that men often behave like other animals. To the extent that economics allegedly explains all human behavior as the product of sober deliberation, these critics think it is obviously unrealistic. By carefully limiting the scope of praxeology to human actions (rather than the more general class of all human behavior), by definition Mises has defused this particular criticism. (In subsequent chapters, Mises will have much more to say on the role of reason in human affairs.)

The passages concerning happiness (pp. 14–15) relate to the evolving doctrine of utilitarianism. In its original Benthamite form, the criterion for goodness was that which caused more (net) pleasure than (net) pain. Even here the utilitarians recognized that certain pleasures (such as fine art or literature) provided a longer duration of enjoyment than others (such as tobacco or wine). However, much of the literature did seem to be a sophisticated version of hedonism. Moreover, economists in the late 19th century tended to think of “utility” as a measurable quantity of psychic satisfaction. As Mises explains in this section, when he says that man acts to increase his happiness, this is a purely formal statement with no physiological assumptions. Both the bank robber and missionary act to increase their utility. What praxeology has to say about the actions of the former are just as valid for those of the latter, because praxeology concerns action as such.

Technical Notes

  1. Mises argues that an actor must believe “that purposeful behavior has the power to remove or at least to alleviate the felt uneasiness” (p. 14). This wording is ambiguous and might be too strong a requirement. In order to act, a person must merely believe that a particular choice will possibly alleviate the uneasiness. For example, a skeptical man with a terminal illness might, in desperation, consult a faith healer, even though he strongly doubts it will have any effect. (Although Mises’s wording is actually consistent with such cases, other Austrian expositions explicitly—and erroneously—say that an actor must believe that his action will remove uneasiness. The present note is provided to remove any confusion.)
  2. There is some ambiguity in the discussion of ultimate givens. On the one hand, Mises clearly states that human action is an ultimate given; it is the title of section 3 (p. 17). On the other, praxeology has much to say on the necessary prerequisites for action; this is the title of section 2 (p. 13). One possible solution to this apparent contradiction is to recall that action is not simply the outward behavior of the actor; the action as such necessarily includes the subjective motivations of the actor as well. In this sense, it would be inappropriate to say that someone’s value judgments “caused” an action; action is still an ultimate given and cannot be reduced to antecedent constituents. (For an imperfect analogy: the homicide is not simply caused by the killer’s hatred of the victim; without the intention it wouldn’t be murder in the first place.)
  3. At times, Mises is not careful to distinguish limits on praxeology versus limits on reason itself. For example, Mises says that

    it is vain to pass judgment on other people’s aims and volitions. No man is qualified to declare what would make another man happier or less discontente(pp. 18–19)

    Now it is true that praxeology as such does not analyze the content of people’s values or preferences; it simply takes them as given. However, this alone doesn’t mean “it is vain to pass judgment on other people’s aims.” Surely Mises himself disagreed passionately with, say, advocates of socialism, and one could infer that Mises did indeed condemn their aims. By the same token, parents all the time declare what would make their children happier, and surely these claims are not always incorrect (whatever the children might think at the time). To be on solid ground, one can say that no man can ever tell another man what his preferences are. Even so, there is nothing in praxeology that rules out a critique of another’s preferences; it is simply that praxeology itself cannot fashion such a critique.

Study Questions

  1. PURPOSEFUL ACTION AND ANIMAL REACTION
    • What distinguishes praxeology from psychology?
    • Why doesn’t action consist merely in giving preference to something?
    • What does Mises mean by, “Action is a real thing”?
  2. THE PREREQUISITES OF HUMAN ACTION
    • What’s always the incentive for a man to act?
    • What are the general conditions of human action?
    • Why is it a tautology to declare that a man’s unique aim is to attain happiness?
    • What distinguishes man’s behavior from animal behavior?
  3. HUMAN ACTION AS AN ULTIMATE GIVEN

    Comment: “As [human action] cannot be traced back to its causes, it must be considered as an ultimate given and must be studied as such.”

  4. RATIONALITY AND IRRATIONALITY; SUBJECTIVISM AND OBJECTIVITY OF PRAXEOLOGICAL RESEARCH
    • Why must the term “rational action” be rejected as pleonastic (i.e., redundant)?
    • Why does the term “irrational” imply a value judgment?
    • Why can’t an action that is unsuitable for attaining a certain end qualify as “irrational”?
    • Why does the objectivity of our science lie in subjectivism?
  5. CAUSALITY AS A REQUIREMENT OF ACTION
    • In what way does causality influence human action?
    • Why is it inevitable, in order to act, to know the causal relationship between events, processes or states of affairs? If a person falsely believes in a causal relationship, can this allow for action?
  6. THE ALTER EGO
    • How does praxeology deal with the problem of the analysis of other people’s actions?
    • Why are behaviorism and positivism unsuitable for the explanation of the reality of human action?
    • Why are causality and teleology the only appropriate approaches in the field of human research?
    • Can praxeology learn anything from animal psychology?
    • In what way does praxeology deal with purposeful human action? What distinguishes praxeology from the philosophy of history?

CHAPTER II

THE EPISTEMOLOGICAL PROBLEMS OF THE SCIENCES OF HUMAN ACTION

Chapter Summary

1. PRAXEOLOGY AND HISTORY

Praxeology and history are the two main branches of the sciences of human action. History is the collection and systematic arrangement of all data of experience concerning human action. The natural sciences too deal with past events, but their successful use of induction relies on the experience of past experiments. In contrast, in the sciences of human action there can be no controlled experiment, and hence a different method is needed. Praxeology starts from the fact of human action and uses logical deduction to arrive at a priori truths that are valid for all action, both in the past and future.

2. THE FORMAL AND APRIORISTIC CHARACTER OF PRAXEOLOGY

The logical structure of the human mind is an unanalyzable given. One cannot “prove” logical relations because such a proof itself would rely on logic. The principles of causality (cause and effect) and teleology (i.e., understanding certain events by ascribing conscious motivations) are also necessary prerequisites for the mind to make sense of the world.

The Alleged Logical Heterogeneity of Primitive Man

Certain anthropologists believe that the members of primitive tribes possess “prelogical” minds. This confuses the content of their minds with the logical structure. People who do a rain dance are still adopting means to achieve an end; it is simply that they have different technological beliefs from Westerners.

3. THE A PRIORI AND REALITY

Even though praxeology’s claims are a priori, they still “teach us” something about reality. Geometrical or mathematical theorems are also “mere” transformations of the initial premises or axioms, yet mathematicians certainly add to human knowledge and allow people to achieve more in the real world.

Far from relying on past experience to generalize and reach a tentative theory of economics, when it comes to human action we can only interpret past exchanges, costs, and so forth with an antecedent knowledge of praxeology. Without knowing beforehand about action, we would only perceive bodily motions, not buying and selling.

4. THE PRINCIPLE OF METHODOLOGICAL INDIVIDUALISM

Praxeology concerns the actions of individuals. It is true that people may behave differently when they view themselves as members of a nation, or when in the midst of an unruly mob. Even so, the “nation” does not bomb another country; individuals in the armed forces choose to obey such orders.

I and We

The collectivist mindset is apparent when people refer to “we” when in fact such individuals had nothing to do with the actions in question. If a U.S. citizen says, “We won World War I,” this of course is literally false. There is no such confusion in the term “I.”

5. THE PRINCIPLE OF METHODOLOGICAL SINGULARISM

Praxeology deals with individual actions, not vague action in general. Those who think in terms of universals fall into traps such as the classical water-diamond paradox: why is the price of diamonds higher than the price of water, when the latter is more important?

6. THE INDIVIDUAL AND CHANGING FEATURES OF HUMAN ACTION

Although the “common man” doesn’t “think for himself,” he still chooses to act in the traditional way. If someone votes Republican because her father did, she is still acting in the praxeological sense.

7. THE SCOPE AND THE SPECIFIC METHOD OF HISTORY

The historian can’t simply let the facts speak for themselves, because this would lead to a cacophony. Rather he must use his prior value judgments and theories to determine what is relevant and then present the facts accordingly.

The historian can and must rely on the knowledge of other disciplines. But when praxeology, physics, mathematics, etc. cannot contribute anything else to the interpretation of a historical event, the historian relies on understanding, which is his unique contribution.

8. CONCEPTION AND UNDERSTANDING

The task of the sciences of human action is the comprehension of the meaning and relevance of human action. Conception is the tool of praxeology, while understanding is the tool of history.

Natural History and Human History

The natural sciences too deal with historical events, especially in the fields of cosmology and geology. However, they still rely exclusively on the methods of the natural sciences and do not involve understanding.

9. ON IDEAL TYPES

The historian relies on ideal types that represent his judgments of relevance. Unlike the concepts of praxeology or even the natural sciences, ideal types cannot be described by necessary and sufficient attributes. What economic theory says about “the entrepreneur” is valid for all entrepreneurs, but the historian’s use of the term may apply only to a particular period or people.

10. THE PROCEDURE OF ECONOMICS

Economics proceeds with logical deductions from the fact of action. It can study special cases of action by considering specific conditions in which action could occur (for example, if there is a universally accepted medium of exchange).

It would be possible to study the implications of human action in worlds that are utterly different from our own. For example praxeology could consider the case where labor yields no disutility. Yet the end of science is to know reality, and so praxeology restricts its inquiries to those cases where the preconditions could be achieved in the real world. Even so, these deductions are completely a priori. We use our experience to sift out the relevant from the irrelevant chains of thought; we do not use our experience to determine the validity of a particular chain of reasoning.

11. THE LIMITATIONS ON PRAXEOLOGICAL CONCEPTS

Praxeology only makes sense when applied to acting human beings. It breaks down into paradox with a being such as the Christian God. Action implies uneasiness, yet an omnipotent being would in one fell swoop achieve perfect contentment.

Why It Matters

Epistemology seeks to answer the question, “How can we ever ‘know’ something?” In this chapter, Mises establishes the epistemological foundations of praxeology, that is, he explains how it is that economists and other social scientists can arrive at beliefs concerning actors and have confidence in their conclusions.

Especially as the 20th century progressed, most economists thought that they needed to ape the method of the physicists to arrive at “scientific” laws in their field. Mises’s insistence that praxeology’s propositions are “a priori” thus struck them as shocking and quaint.

If a statement is a priori, its truth can be established without external observations. For example, we can verify the Pythagorean theorem without measuring triangles to “test” the claim. On the other hand, if a statement is a posteriori, then logic alone cannot verify or refute it. For example, if someone says, “the sun emits heat,” then sensory observation is necessary to evaluate the claim.

Technical Notes

  1. Mises’s taxonomy is a bit confusing. On page 12, he had defined praxeology as the general theory of human action. Yet in the present chapter, on page 30, he refers to praxeology as simply one branch in the “sciences of human action.”
  2. Mises claims that the natural sciences advance because of their reliance on experiments, which

    can be used for induction, a peculiar procedure of inference which has given pragmatic evidence of its expediency, although its satisfactory epistemological characterization is still an unsolved problem. (p. 31)

    All Mises means here is that philosophers at least since David Hume have noted that there is actually a fallacy involved in the method of the natural sciences. Simply because X led to Y 35 times in a row in the laboratory, does not logically imply that X causes Y. Even so, no one can deny that the experimental method has “worked” in the natural sciences.

  3. Mises distinguishes between a priori and a posteriori statements (see “Why It Matters” above). Hans-Hermann Hoppe draws on Kant to apply yet another distinction, that between analytic and synthetic statements. (Analytic can be determined simply by analyzing the components of the proposition—e.g., “A bachelor is an unmarried male”—while synthetic statements add to our knowledge; they refer to the “real world” and are not merely definitional.) Hoppe argues that Mises’s grand achievement was to prove the existence of true, synthetic a priori propositions—something that Hume and other philosophers considered impossible.

Though a fascinating extension of the Misesian framework, it is interesting to note that in Human Action, Mises himself never discusses the analytic/synthetic dichotomy.

Study Questions

  1. PRAXEOLOGY AND HISTORY
    • What are the two main branches of the sciences of human action?
    • What is the field of research of history? Can it tell us something about the future?
    • Is it possible to establish an a posteriori theory of human action with the aid of historical knowledge?
  2. THE FORMAL AND APRIORISTIC CHARACTER OF PRAXEOLOGY
    • Mises states that the fundamental logical relations are not subject to proof or disproof. Why?
    • What does he mean by methodological apriorism?
    • Why is it fallacious to pretend that the logical structure of the mind of primitive man is different from that of civilized man?
    • Does action imply that it attains the end aimed at?
  3. THE A PRIORI AND REALITY
    • Can aprioristic reasoning enlarge our knowledge?
    • Why do the sciences of human action differ radically from the natural sciences?
    • Why can’t history teach us any general rule, principle, or law?
  4. THE PRINCIPLE OF METHODOLOGICAL INDIVIDUALISM
    • Can a collective whole act? Why not?
    • Why is it necessary to examine collective wholes through an analysis of individuals’ actions?
    • Why is the acting and choosing being always an Ego?
  5. THE PRINCIPLE OF METHODOLOGICAL SINGULARISM
    • What does the act of choosing always imply?
    • What are the two aspects of every action?

    Comment: “A man never chooses between ‘gold’ and ‘iron’ in general, but always only between a definite quantity of gold and a definite quantity of iron.”

  6. THE INDIVIDUAL AND CHANGING FEATURES OF HUMAN ACTION
    • How do inheritance and environment direct a man’s action?
    • How does praxeology deal with routine? Is it due to conscious acting and to a deliberate choice?
  7. THE SCOPE AND THE SPECIFIC METHOD OF HISTORY
    • Can one present history without any value judgments?
    • What is always the genuine problem of historians?
    • Can history ever refute economic theory?
  8. CONCEPTION AND UNDERSTANDING
    • What distinguishes the cognition of praxeology from that of history?
    • Can history be scientific?
    • Why can’t we measure any constant relations between magnitudes in the field of economics?
    • Why is action always speculation?
  9. ON IDEAL TYPES
    • Historical facts are unique and unrepeatable. Yet what do they have in common?

    Comment: “[The physicist] transforms the historical event into a fact of the empirical natural sciences. He disregards the active interference of the experimenter and tries to imagine him as an indifferent observer and relater of unadulterated reality.”

  10. THE PROCEDURE OF ECONOMICS

    Comment: “[N]o being of human descent that pathological conditions have not reduced to a merely vegetative existence lacks [knowledge of the essence of human action]. No special experience is needed in order to comprehend these theorems, and no experience, however rich, could disclose them to a being who did not know a priori what human action is.”

    • Because the “end of science is to know reality,” what does this imply for the proper procedure of economics?
  11. THE LIMITATIONS ON PRAXEOLOGICAL CONCEPTS
    • What happened when philosophers and theologians attempted to apply praxeological categories to an absolute being who was not constrained as human actors are?

CHAPTER III

ECONOMICS AND THE REVOLT AGAINST REASON

Chapter Summary

1. THE REVOLT AGAINST REASON

Reason is the primary tool for acting man. The modern revolt against reason was not due to exaggerated claims by the rationalist philosophers. What really happened was that the socialist opponents of the classical economists could not defeat their arguments, and so instead challenged reason itself. Once the floodgates had been opened in this sphere, nihilism and skepticism spilled over into other branches of thought.

2. THE LOGICAL ASPECT OF POLYLOGISM

Marxian polylogism claims that the bourgeois mind operates on different principles from the proletarian mind, while racial polylogism ascribes a different logical structure to the minds of various races. These doctrines fall apart in cases where a worker becomes a factory owner, or parents of different races produce mixed offspring.

It was not enough for the Marxists to dismiss the teachings of Ricardo and other classical economists by referring to their bourgeois minds; to be consistent, Marx and his followers would have had to specify the axioms of proletarian logic versus those of bourgeois logic, and to demonstrate why Ricardian economics was valid in the latter system but not in the former. Obviously no polylogist has ever attempted such a demonstration.

3. THE PRAXEOLOGICAL ASPECT OF POLYLOGISM

Marxists use the term “ideology” to denote a doctrine that is faulty (using the correct, proletarian logic) but which nevertheless serves the interests of a particular class. Such a stance is untenable, though, for how could it ever be in a class’s interest to believe false ideas?

Marx developed polylogism in order to discredit the economists’ objections to socialism. Rather than refuting their arguments, he simply stated that their doctrines favored the bourgeoisie. Yet psychological motivations, even if base, do not affect the validity of a theory, which either stands or falls on its own merit.

4. RACIAL POLYLOGISM

The claim that different races possess different logical structures of the mind overlooks the fact that reason works. If indeed other races possessed minds that could not grasp cause and effect, or which could not recognize a valid deduction, then natural selection would have weeded out those members who relied on their “minds.” To the extent that other organisms have risen above the instinctive behavior of animals, they necessarily must share the (successful) logic enjoyed by the white race.

5. POLYLOGISM AND UNDERSTANDING

A much milder version of polylogism simply asserts that various classes or races share similar value judgments and historical understanding. Yet even this weaker claim ignores the heterogeneity within classes and races. It also repeats the polylogist’s mistake of thinking that it can ever be beneficial to hold an erroneous judgment.

6. THE CASE FOR REASON

Reason is an ultimate given, a nonrational fact; one cannot establish the validity of reason itself through logical argument. Yet it is man’s foremost tool in action, and distinguishes man from other animals. There can be no such thing as an irrational mode of thinking. To renounce reason and return to guidance by “instinct” would destroy the foundations of civilization.

Why It Matters

Mises considers it crucial to demolish the Marxist notion of polylogism. Without tackling this idea directly, the entire body of praxeology would rest on quicksand. Regardless of the coherence of his demonstrations throughout the rest of the book, the critic could dismiss it all as based on “bourgeois logic.”

Technical Notes

  1. It is interesting that Mises’s handling of Marxian polylogism illustrates his very points on the matter. Mises claims that the motivation for Marx to develop his doctrine was the need to challenge the classical economists (p. 78). Yet Mises’s critique doesn’t end there. He spends countless pages in Human Action detailing the defects of polylogism.
  2. Marxian polylogism is a very strong doctrine and should not be confused with superficially similar attitudes. Mises does not deny that people with different backgrounds may “think differently” about some issues. What he does deny is that such people’s minds operate according to different logical structures. Mises also is aware that certain groups can benefit from the perpetuation of faulty beliefs. But the true Marxist doesn’t claim that the capitalists financed pamphlets on laissez-faire, knowing full well that the doctrines were wrong. On the contrary, the true Marxist must say that the capitalist mind was incapable of seeing the flaws in the doctrines, because to do so would be detrimental to his interests.
  3. Mises affirms Hoppe’s interpretation regarding synthetic a priori truths (though not in these terms) when he writes,

    It is consequently incorrect to assert that aprioristic insight and pure reasoning do not convey any information about reality and the structure of the universe. (p. 86)

Study Questions

  1. THE REVOLT AGAINST REASON
    • What does Mises mean by saying, “The revolt against reason was directed against another target. It did not aim at the natural sciences, but at economics”?
    • Why is human reason “constitutionally unfitted” to find truth, according to Marx?
  2. THE LOGICAL ASPECT OF POLYLOGISM
    • Give examples of some of Mises’s “more serious objections” to the concepts of social class and race as applied by the polylogists.
  3. THE PRAXEOLOGICAL ASPECT OF POLYLOGISM
    • Why is the “ideological” approach erroneous from the praxeological point of view?
    • Why is the psychological background of its creator(s) not important for the examination of a theory?
    • How does workers’ competition among themselves relate to Marx’s theory of the interests of the working class?

    Comment: “It is ideas that make history, and not history that makes ideas.”

  4. RACIAL POLYLOGISM
    • Why is Marxian polylogism irreconcilable with science and reason?
    • Do different races have different logical structures of mind?
    • Has anyone ever documented the different logical structures of the minds of people from different races?
  5. POLYLOGISM AND UNDERSTANDING
    • What determines judgments of value and the choice of ends?
    • Who originally said, “You can’t make an omelet without breaking eggs”?
  6. THE CASE FOR REASON
    • Can we study a science of irrationality?
    • What drives many intellectuals toward socialism?
    • Can we demonstrate the validity of the a priori foundations of logic?

CHAPTER IV

A FIRST ANALYSIS OF THE CATEGORY OF ACTION

Chapter Summary

1. ENDS AND MEANS

The end (or goal or aim) is the result sought by an actor. The means is whatever is used to attain the end. Ends and means do not exist in the physical universe but rather are the product of a valuing mind as it surveys its physical environment.

Praxeology does not concern itself with an idealized actor who has noble ends and knows the best means to achieve any end. On the contrary, praxeology takes an actor’s goals and his beliefs on how to satisfy them as the starting point of analysis. If people erroneously believe that a certain root possesses medicinal properties, it will command a price on the market. The economist must take people as they are to explain market phenomena.

The common distinction between free goods and economic goods is unhelpful, for a “free good” isn’t scarce and is better classified as a general condition of human well-being. Goods that directly satisfy human wants are consumers’ goods or (in Mengerian terminology) goods of the first order. Goods that only satisfy wants indirectly, with the assistance of other goods, are classified as producers’ goods, or factors of production, or (following Menger) goods of higher order. One can conceptually arrange the higher-order goods according to their remoteness from the ultimate end; the second-order goods cooperate to yield the first-order (consumer) goods, while the third-order goods are used to produce second-order goods and so forth.

Nonmaterial goods are called services.

2. THE SCALE OF VALUE

An actor has competing ends, but in any given action he must satisfy some wants while leaving others unfulfilled. The praxeologist interprets this behavior by saying that the satisfied end was higher on the scale of value than the others. Value resides not in objects but in the minds of actors who rank those objects as either directly desirable or as means to some other, more ultimate end.

3. THE SCALE OF NEEDS

Although other disciplines (such as physiology) may usefully distinguish between “real” versus “conditioned” or artificial needs, economics has no need of such a scheme. All of economics can be built on the subjective scale of values possessed by actual individuals.

4. ACTION AS AN EXCHANGE

An action is an attempt to substitute a more satisfactory situation for a less desirable one. In this sense, all actions are voluntary exchanges. That which is abandoned is the price of the action, while the costs of the action are the value of the price paid. Another way to express this is to say that the cost of an action is the value placed on satisfaction that must be forgone in order to achieve the chosen end.

The difference between the value of the price (i.e., the costs) of an action, and the goal attained, is the gain or profit or net yield of the action. In this sense, profit is a purely subjective category and is immeasurable, for an increase in happiness is a psychic phenomenon that defies quantitative treatment. Actions can only rank ends in an ordinal fashion, i.e., first, second, third, etc. An exchange only demonstrates that which is preferred, not “how much” it is preferred.

Actors are fallible, and often an action will not achieve the end sought. However, if the attained outcome is still preferable to the original situation, then the actor still enjoys a profit (though a smaller one than originally hoped). But if the actual outcome is more unsatisfactory than what was sacrificed in carrying out the action, then the actor suffers a loss.

Why It Matters

This relatively short chapter seems simple enough, but it is truly extraordinary and deserves careful study. For this is where Mises finally links his “philosophical tangents” with “real economics.” In particular, Mises shows that the concept of action implies the concepts of value, price, costs, profit, and loss. These are not simply offshoots of an organized market where goods trade against money, but are actually fundamental categories that would exist even for an isolated actor who engages in “barter” with nature.

In this chapter, Mises also lays the framework for the “Austrian” approach to the capital structure, with the hierarchy of goods in terms of their remoteness from the final act of consumption.

Technical Notes

  1. Praxeology neither assumes that people have enlightened value scales, nor that they are omniscient in their pursuit of their aims. This stands in sharp contrast to the approach in mainstream economics, where authors quite explicitly assume that the agents in their models are superhuman calculators capable of solving complex optimization problems.
  2. Mises points out (p. 94) that the purpose of the Mengerian hierarchy of production is purely for conceptual clarity. The economist in practice never needs to determine whether the consumer’s good is “really” the loaf of bread at the grocery store, versus the sandwich as it is being lifted to someone’s mouth during lunch at home. The important point is that, once an end point is specified (however arbitrarily), all higher-order goods derive their value from the value of that stipulated consumer good.
  3. When Mises writes that the “only source from which our knowledge concerning these [value] scales is derived is the observation of a man’s actions” (p. 95), the reader is liable to underestimate the claim. Mises does not simply mean that it is impossible for the outside observer to see another man’s value scale, and so must be content to view the man’s actions as a proxy. No, Mises believes the much deeper claim that the value scale is itself a mental construct that only exists in the context of the means-end framework ascribed to an individual. So it is not that the value scale exists and generates an action, but the poor praxeologist can only see the action; rather, Mises claims that the very decision to classify particular physical events as an action implies the notion of a value scale for the identified actor.
  4. Although it is ambiguous, it appears that Mises may have conceded more to the cardinalists than Rothbard does (e.g., in Rothbard’s discussion in “Toward a Reconstruction of Utility and Welfare Economics,” where Rothbard criticizes talk of degrees of ordinal rankings, such as a man mildly preferring steak to hamburger but strongly preferring hamburger to rat poison for dinner). When discussing psychic profit, Mises writes,

    There is a more or less in the removal of uneasiness felt; but how much one satisfaction surpasses another one can only be felt; it cannot be established and determined in an objective way. (p. 97)

    Indeed it might seem that this concession is necessary, for later on, Mises argues that an action could yield a profit though a “smaller one than that expected” (p. 98). On the face of it, this possibility seems to admit that it is coherent to say that two outcomes are both better than a third, but that one of them is “more better” than the third.

Study Questions

  1. ENDS AND MEANS
    • What do we call the result sought by an action? What does it relieve?
    • What are means? What distinguishes a thing from a means? How can a thing become a means?
    • What is economics about?
    • Why are means necessarily limited?
    • Which goods are objects of human action?
    • Which goods are defined as “consumers’ goods”?
    • Which goods are defined as “producers’ goods”?
    • Which goods are called services?
  2. THE SCALE OF VALUE
    • How does the scale of value manifest itself? In praxeology what is the source of our knowledge concerning an actor’s value scale?

    Explain: “Value is not intrinsic, it is not in things. It is within us...”

  3. THE SCALE OF NEEDS
    • What does action aim at in the first place?

    Explain: “Economics must explain... prices... as they are, not as they would be under different conditions.”

  4. ACTION AS AN EXCHANGE
    • What is action?
    • How is exchange defined?
    • What are costs?
    • What is profit?
    • Why is the cardinal approach erroneous?
    • What happens when action doesn’t attain the aim sought?

CHAPTER V

TIME

Chapter Summary

1. THE TEMPORAL CHARACTER OF PRAXEOLOGY

In a logical system (such as mathematics) all of the implications are coexistent and interdependent. It is not true that the axioms of geometry “cause” its theorems to be true, even though a limited human mind must work step by step through a geometrical proof.

In the sense that praxeology is a logical system, it too is “out of time.” However, the system itself contains parts such as change, causality, and the notions of sooner and later.

Thus the subject matter, the content, of praxeology is intimately related to time.

2. PAST, PRESENT, AND FUTURE

It is action that makes man aware of the flux of time. Time itself is a praxeological category; one can’t make sense of time without understanding action, and one can’t understand action without the concept of time.

In other disciplines such as philosophy or physics, “the present” is simply an idealized boundary line between the past and the future. But in praxeology, there is a real, extended present. In praxeology, the present is not defined as some unit of duration, measured by clock ticks or revolutions of heavenly bodies. Rather, the present is always defined by the presence of a ripe opportunity to take some potential action. Once the conditions have changed, making a potential action now incapable of achieving its desired end, the “moment has passed” and what was the present is now the past.

3. THE ECONOMIZATION OF TIME

Time is scarce, and as such, it must be economized. This is seen most clearly by considering someone living in a paradise where every material need can be satisfied without any labor. Even in this hypothetical world, people would still need to arrange their satisfactions in a particular temporal sequence. Even though scarcity would not be an issue with regard to goods and services, nonetheless the concepts of sooner and later would still have meaning.

4. THE TEMPORAL RELATION BETWEEN ACTIONS

Actions (by the same person) can never occur simultaneously, but rather must occur in succession through time. A given action may achieve several ends at once, but it is misleading to classify this as several simultaneous actions.

It is wrong to suppose that a man has a value scale that then “causes” him to act in a certain way. On the contrary, outsiders infer an underlying value scale only to make sense of an action; it is the action that is the brute fact. It is therefore pointless when some thinkers try to judge the actions of individuals with reference to their value scales, as if they could discover some discrepancy or “irrationality.”

Why It Matters

There are several reasons why this chapter is important. First, time preference is a crucial component of the Misesian theory of interest, and so Mises would naturally want to establish a special role for time in the early chapters when setting up the praxeological framework. Second, Mises wants to demonstrate that the dimension of time is different from the three dimensions of space; Mises uses what O’Driscoll and Rizzo have called Bergsonian time (see footnote 2 on page 100). Unlike space, there is something qualitatively different about time (because of its irreversibility) and this difference has tremendous relevance to action. Finally, this chapter is important because (as we discuss more in the “Technical Notes” below) it underscores the difference between praxeology and mainstream utility theory.

Technical Notes

  1. When Mises writes (p. 99) that “[i]n the frame of the praxeological system any reference to functional correspondence” is misleading and at best metaphorical, his target is mainstream economics. In a neoclassical model, all of the equilibrium values are “simultaneously determined”; it makes no sense to ask, “What causes the price of apples to be $2 per pound?” The honest neoclassical answer to that question is simply, “That’s the only price at which the equations will all be true.”
  2. Related to the above point is the Misesian emphasis on Bergsonian time (as opposed to mechanical, Newtonian time). Here too, mainstream models illustrate Mises’s position through their contrast. In a general equilibrium model as pioneered by Arrow and Debreu, one can certainly deal with “time,” but in a very abstract way. For example, one can posit N types of commodities available at any time, and moreover allow the consumer to purchase them in any time periods from t = 1, 2, 3, ..., T. The nominal gross rate of interest can even be expressed in such a framework as the markup on a particular basket of goods to be delivered at time t rather than time t + 1. Yet clearly this austere approach lacks something; just as a model in classical mechanics, time is simply another dimension and there is nothing peculiar to the future as opposed to the past. In the next chapter, Mises will deal with uncertainty, which is relevant to this difference in viewpoint.
  3. The discussion of consistency (pp. 102–04) again is a reaction to mainstream economics. In formal models of an ordinal value scale, mainstream economists will insist on some “rationality” criteria. For example, they will assume that an agent can compare any two options and determine which one is preferred (or if he is indifferent). They will also usually assume the value scale is transitive, meaning that if a is preferred to b and b is preferred to c, then a is necessarily preferred to c as well. This assumption is necessary in order for mainstream economists to get anywhere with their models; in particular, if they are to employ theorems that show how a cardinal utility function can “represent” an ordinal preference ranking, it is necessary for the ranking to obey transitivity. Mises shows that in the real world, no action could ever demonstrate an intransitive value scale. (In contrast, the “demonstrated preference” approach of Paul Samuelson does allow this possibility, though Samuelson’s approach can’t work properly in such a case.) Mises would no doubt consider the mainstream preoccupation with value scales to attribute too much to what is really a tool of thought; action is the concrete reality.

Study Questions

  1. THE TEMPORAL CHARACTER OF PRAXEOLOGY
    • What makes thinking itself an action?
    • What distinguishes the logical system from the praxeological system?
  2. PAST, PRESENT, AND FUTURE
    • Why is action necessarily directed toward the future?
    • How does man become conscious of the notion of time?
    • What role does the present play for an acting being?
  3. THE ECONOMIZATION OF TIME
    • What does time have in common with economic goods?
    • What distinguishes time from economic goods?
  4. THE TEMPORAL RELATION BETWEEN ACTIONS
    • What is the meaning of “sooner and later”?
    • In what way (if any) do yesterday’s goals serve today’s actions?
    • What’s wrong with the argument that “if A is preferred to B and B is preferred to C, logically A is preferred to C”?
    • What’s the difference between the logical concept of consistency and the praxeological concept of consistency?
    • How does constancy differ from rationality? Give examples.
    • Why does Mises use the example of a speculator at the stock exchange? What is he trying to demonstrate?

CHAPTER VI

UNCERTAINTY

Chapter Summary

1. UNCERTAINTY AND ACTING

Action implies uncertainty of the future. If the future were known, there would be no impetus to action. The praxeologist can recognize this truth without taking a stand on the philosophical question of whether men are really “free.” Even if all events really are determined by natural laws, nonetheless we are nowhere near the ability to accurately predict all future events, and hence there is still scope for human action.

2. THE MEANING OF PROBABILITY

The problem of probable inference—that is, of reaching a decision in the face of incomplete knowledge—is a broad one that cuts across many disciplines. However, the formal treatment of probability by the mathematicians has seduced many people into believing they know more than they really do.

There are two totally distinct fields of probability, namely, class and case probability. The former is applicable to the natural sciences and is governed by causality (i.e., mechanical laws of cause and effect), while the latter is applicable to the social sciences and is governed by teleology (i.e., subjective means/ends frameworks).

3. CLASS PROBABILITY

In class probability we know everything about the entire class of events or phenomena, but we know nothing particular about the individuals making up the class. For example, if we roll a fair die we know the entire class of possible outcomes, but we don’t know anything about the particular outcome of the next roll—save that it will be an element of the entire class. The formal symbols and operations of the calculus of probability allow the manipulation of this knowledge, but they do not enhance it.

The dfference between a gambler and an insurer is not that one uses mathematical techniques. Rather, an insurer must pool the risks by incorporating the entire class (or a reasonable approximation to it). If a life insurance company only sells policies to a handful of people, it is gambling, no matter how sophisticated its actuarial methods.

4. CASE PROBABILITY

Case probability is applicable when we know some of the factors that will affect a particular event, but we are ignorant of other factors that will also influence the outcome.

In case probability, the event in question is not an element of a larger class, of which we have very concrete knowledge. For example, when it comes to the outcome of a particular sporting event or political campaign, past outcomes are informative but do not as such make the situation one of class probability—these types of events form their own “classes.”

Other people’s actions are examples of case probability. Therefore, even if natural events could be predicted with certainty, it would still be necessary for every actor to be a speculator.

5. NUMERICAL EVALUATION OF CASE PROBABILITY

It is purely metaphorical when people use the language of the calculus of probability in reference to events that fall under case probability. For example, someone can say “I believe there is a 70 percent probability that Hillary Clinton will be the next president.”

Yet upon reflection, this statement is simply meaningless. The election in question is a unique event, not a member of a larger class where such frequencies could be established.

6. BETTING, GAMBLING, AND PLAYING GAMES

When a man risks money on an outcome where he knows some of the factors involved, he is betting. When he risks money on an outcome where he knows only the frequencies of the various elements of the class, he is gambling. (The two activities roughly match up with the case/class probability distinction.) To play a game is a special type of action, though the reverse is not true; not all actions can be usefully described as part of a game.

In particular, the attempt to model the market economy with “game theory” is very misleading, because in (most) games the participants try to beat their opponents, while in a market all participants benefit.

7. PRAXEOLOGICAL PREDICTION

Praxeology can make certain predictions about the future, but they are necessarily qualitative. For example, it can tell us that (other things equal) a fall in the demand for apples will lead to a lower price of apples. But praxeology alone can never tell us that (say) a particular change will yield a 9 percent drop in apple prices. Such quantitative forecasts are possible with the aid of understanding, but then of course they are no longer certain.

Why It Matters

In this short chapter, Mises accomplishes several things. First, he establishes the necessary connection between action and uncertainty. Inasmuch as neoclassical economics ignored uncertainty for many decades, this alone is important. But beyond that, Mises shows the limitations of formal mathematical approaches to probability. This has continuing relevance because the mainstream economists answered the criticisms of “perfect information” by simply pushing the problem back one step; instead of assuming that the agents in their models knew the future perfectly, they assumed that their agents knew the exact probability distributions of random variables in the models, which in turn would determine future outcomes. (Israel Kirzner has written extensively on this nonsolution to the problem.) For a third contribution, Mises nonchalantly offers a brilliant approach to defining class probability itself, and as an aside points out the circularity in conventional mathematical treatments!

Technical Notes

  1. Here (pp. 106–07) and elsewhere in the book, Mises refers to the “theorems” of the natural sciences. This usage differs from how most scientists would talk in modern times. In current usage, a theorem is a deductively proven result. In context it is clear that Mises is discussing what the physicists and chemists themselves would classify as theories.
  2. In discussing class probability, Mises refers to the “crude circularity implied in all definitions referring to the equiprobability of possible events” (p. 109). What he seems to have in mind is the typical approach to probability in some mathematical texts, where (say) the definition of a 1/2 probability is “the likelihood of an outcome when it and one other outcome are equally likely.” This approach is circular, because it defines the concept of probability with reference to the concept of probability.
  3. Modern economists might scoff at Mises’s curt dismissal of game theory (pp. 116–17). In particular, they might argue that game theory can model situations in which all players benefit from cooperation. At the time of Mises’s writing, however, von Neumann and Morgenstern’s pioneering treatise (see p. 117, n. 3) was only a few years old, and in this work game theory was still focused on “zero-sum” games, i.e., games where one player’s gain was another’s loss. Moreover, this is what most people mean by the term “game.” Modern game theory has indeed moved beyond this restriction, but only by broadening the term to include any strategic interaction where one player’s payoff is a function not only of his own actions but of all other players’ actions as well.

Study Questions

  1. UNCERTAINTY AND ACTING
    • What is the role of uncertainty in the field of action?
    • Are actions always risky? Why?
  2. THE MEANING OF PROBABILITY

    Comment: “The treatment of probability has been confused by the mathematicians.”

    • Why did John Stuart Mill use the term “the real opprobrium of mathematics” in reference to the calculus of probability?
  3. CLASS PROBABILITY
    • What is the definition of class probability?
    • What supplementary information can we get from the calculus of probability?
    • How does the insurance business differ from gambling?
    • Does insurance belong to the field of class probability? Why?
  4. CASE PROBABILITY
    • What is the definition of case probability?
    • What are the main differences between case probability and class probability?
    • What are the differences between luck, gambling, speculation, and risk?
  5. NUMERICAL EVALUATION OF CASE PROBABILITY
    • Why isn’t case probability open to numerical evaluation?
    • Why is understanding important for problems of case probability?
  6. BETTING, GAMBLING, AND PLAYING GAMES
    • What are the differences between betting and gambling? How does gambling become betting?
    • Is betting an action? Is gambling an action?
    • Why do psychologists have a tendency to confuse combat and competition?
    • Why is it inappropriate to use military terms for the description of business operations?
  7. PRAXEOLOGICAL PREDICTION
    • What can be predicted with the aid of praxeological knowledge?
    • What distinguishes quantitative approaches from qualitative ones?

CHAPTER VII

ACTION WITHIN THE WORLD

Chapter Summary

1. THE LAW OF MARGINAL UTILITY

Acting man must place all ends onto a single scale of values. If he is to choose between (say) acquiring a steak or attending the opera, he must decide which outcome yields the most utility, and thus these entirely different satisfactions must be compared according to a common denominator. Even so, action doesn’t measure utility; rather, it is action that demonstrates the end most highly valued by the actor.

Even though all satisfactions are ultimately placed on a single scale of values, it is still useful to classify various means in groups that yield identical results, i.e., to classify means as units of particular goods. Note that even though successive units of a means (by definition) yield identical results, the utility of these results is not identical. Indeed, the utility of successive units of a given good decreases, because the actor will apply the additional units to ends deemed less and less urgent.

The law of decreasing marginal utility is not a physiological or psychological one, but is rooted in the very fact of action. An actor will always devote a given stock of means to attaining the highest state of satisfaction, and that is why additional units of a good will be devoted to less and less important ends (and hence will have lower marginal utility).

Marginal utility is always defined according to the subjective framework of the actor in question. The relevant “margin” is determined by the choice, not physical or otherwise “objective” constraints. There are no arithmetical operations possible with the utility ascribed to various units. It is possible that the marginal unit of water is far less valuable than the marginal unit of diamonds, even though the utility of the entire stock of water is far more valuable. Yet this latter fact is irrelevant to action, since no one is ever in the position of choosing between all the water and all the diamonds.

2. THE LAW OF RETURNS

Even though all satisfactions are ultimately ranked on an ordinal scale—which is not subject to cardinal manipulation—it is still crucial for an actor to understand the quantitative causal relations of the world. When it comes to a consumer good, each unit yields the same quantity of effect; this is how the units are defined, after all. (Of course successive doses of this same quantity of effect have lower and lower utility.)

Things are more complicated when it comes to producer goods. Here a given unit of a producer good must always act in combination with at least one other producer good in order to yield a definite quantity of a consumer good. (If the higher-order good could yield the first-order good by itself with no reliance on other scarce inputs, then it would itself be a first-order good.)

With full understanding of the technological processes involved, one can compute the additional yield of output attributable to successive units of input of a particular producer good, holding the quantity of all other inputs fixed. At some finite point, an “optimum” level will be reached, in the sense that the quantity of output per unit of input (of the producer good that is being varied) is maximized. Economists often describe this as the point at which “diminishing returns” set in, meaning that further increases in the input result in proportionally smaller increases in output. The notion of diminishing returns explains why farmers must bring additional land under cultivation, rather than continually pumping more fertilizer and seeds into a given plot of land.

3. HUMAN LABOR AS A MEANS

The employment of the powers of the human body as a means is labor. As a general rule, labor carries disutility. That is, even though actors deploy the entire available stock of other means in order to achieve the highest satisfaction, they will not devote the physiological-maximum amount of labor to achieve attainable ends. On the contrary, they will refrain from possible labor in order to enjoy leisure. The economist can handle this empirical fact by acknowledging that (in this world) human actors value leisure as a consumer good. As an actor works additional hours, the disutility of labor increases because the marginal utility of the good leisure is continually rising (as the supply of leisure shrinks). At some point (usually well before the physiological maximum) the marginal utility of the physical fruits of an additional unit of labor is lower than the marginal disutility of an additional unit of labor; at this point the actor ceases to labor.

Everything that is true of a generic factor of production is hence true of labor. However, labor still receives special consideration from the economist because labor is the ultimate “nonspecific” factor; labor is required in every production process. Moreover, in our world labor is the scarcest of inputs. In a market economy with flexible wage rates, all willing laborers are channeled to those ends deemed most urgent; there is no analog to land that remains uncultivated.

Immediately Gratifying Labor and Mediately Gratifying Labor

Although many writers have misunderstood this fact, it is true that some workers derive pleasure from (usually small) applications of labor. Even so, it is still true that the vast majority of labor expended in our world involves disutility, and that no social reform can elude the fact that humans will, as a rule, choose to engage in labor past the point at which it is immediately gratifying (because they value the output more than the forfeited leisure).

The Creative Genius

Mises believes that the “output” of the creative genius cannot usefully be treated in the same framework that praxeology uses for the work of other laborers. Mises believes that a creative genius “labors” neither for immediate nor mediate gratification.

4. PRODUCTION

Production is not creative; it rather transforms the given material objects of the universe into forms that are more pleasing to actors. The true creation occurs in the mind of the actor, who surveys the available means and conceives of a way to improve his condition.

Early economists classified the labor of farmers and carpenters as “productive,” while those of doctors and singers as “unproductive,” because of the intangible and fleeting character of the services of the latter. Modern economists laugh at such irrelevant distinctions, yet they themselves often consider advertising as “wasteful.”

Why It Matters

Mises spends most of his time in section 1 guarding against the numerous fallacies and misconceptions regarding marginal utility. Mainstream economists often treated utility as a cardinal substance that could be manipulated mathematically; the utility of a stock of goods was seen as the integral of the utility of each infinitesimal unit. Other writers tried to explain decreasing marginal utility as an empirical regularity, and they pointed to the Weber-Fechner law, which demonstrated, e.g., that people need larger and larger increments of intensity in order to distinguish between brighter and brighter lights. Yet as Mises points out, the law of decreasing marginal utility is applicable to any actor, whether or not he (or it) has a body with sensory organs that operate like the typical human’s.

Mises accomplishes a great deal in the space devoted to labor. He first defines labor, and explains why it deserves special treatment from the modern economist. Having said that, he explodes numerous fallacies regarding labor and how it is allegedly different from other factors of production.

Technical Notes

  1. Not only is the utility of the marginal unit subjective, but the definition of the unit itself depends on the actor and the circumstances. For example, a chemist might determine that one carton of milk contains 1.01 gallons while another contains 0.99 gallons, yet the consumer could quite properly consider them interchangeable “units of milk,” each yielding the same objective services.
  2. Mises says that the “optimum” amount of input is the one that maximizes the output per unit of input (p. 127). Of course in this context “optimum” is a technological description; an actor might attain the highest utility by operating above or below this technologically “optimum” level. Also, note that the optimum level—which Mises says maximizes output per unit of input—is not the level that maximizes the marginal physical yield of the input good. (Generally speaking, the marginal physical yield will reach its maximum before Mises’s “optimum” level is reached, and for some range above this amount of input the average physical yield will still rise. When the falling marginal yield “crosses” the average yield, Mises’s “optimum” level is reached and then both will begin to fall as the declining marginal yield “pulls down” the average yield.)
  3. Many Austrians disagree with Mises (pp. 138–40) that the creative genius cannot be handled within the framework of praxeology. It may be true that the genius does not labor for his fellow men or even for his “output,” but, even so, he acts (in composing a play, a symphony, etc.) in order to remove felt uneasiness. The fact that a creative genius may never reveal his potential if placed in adverse circumstances proves that his creation is a choice and not a mere datum of the environment to which acting men must adapt.

Study Questions

  1. UNCERTAINTY AND ACTING
    • Action can only be expressed by ordinal numbers. But how are quantitative facts involved?
    • What implies choice from a praxeological point of view?
    • Given the following value scale:
      1. a (first unit)
      2. a (second unit)
      3. b (first unit)
      4. a (third unit)
      5. b (second unit)
      6. b (third unit)
      7. a (fourth unit)
      8. a (fifth unit)
      9. b (fourth unit)
    • If the actor possesses the 9 items shown, will he prefer to lose 2 units of a or 1 unit of b?
    • If the actor already possesses 3 units of a and 3 units of b, will he prefer 1 additional unit of a or 1 additional unit of b?
    • If the actor must choose between all 5 units of a versus all 4 units of b, can we say which he will select?
    • What is the definition of utility?
    • What distinguishes subjective use-value from objective use-value?
    • How was it possible to solve the value paradox? Who solved the problem?
    • Are prices derived from subjective use-value?
    • Is “total utility” relevant for praxeology?
    • What can marginal utility explain that total utility can’t?
    • Does praxeology have a need for the notion of a “class of wants”?
    • Why can’t we compare valuations of different people?
    • What are the flaws in Bernoulli’s approach to the law of diminishing marginal utility?
  2. THE LAW OF RETURNS
    • Why isn’t a recipe considered an economic good?
    • What is the definition of the law of returns? Can we say that it is a priori true?
    • Which problems can’t be solved with the help of the law of returns?
  3. HUMAN LABOR AS A MEANS
    • Why is labor not an end in itself? Is labor an economic good?
    • What is the relation between work and leisure? Why is work linked to disutility?
    • Is leisure an economic good? Can we apply the principle of marginal utility?
    • How can we explain the tendency toward the reduction of working hours?
    • What does “nonspecific character” mean in connection with human labor?
    • Why can a shortage of specialists only emerge in the short run, according to Mises?
    • In what conditions could there be an abundance of labor?
    • Is labor more scarce than material factors of production? What does it mean for a market society?
    • Are geniuses substitutable?
  4. PRODUCTION

    Comment: “Man is creative only in thinking and in the realm of imagination.”

    • How is it erroneous to make a distinction between the employment of labor and that of material factors of production?
    • Why is production an intellectual phenomenon that is guided by human reason?

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