Two Theoretical Approaches to Human Behavior and Social Institutions

0:00Good afternoon, ladies and gentlemen. It's a good pleasure to be here at Mises Institute talking on Mises, so it's really nice. What I'm going to present today is the key ideas I have developed in my book, Liberalism against Legalism. You can say, OK, have there is a little bite. The professor's this morning talking about the books, so here it is. The first point is to recognize that we We have a real problem today, and I would like to quote Professor Sumantra Gosal, defined Sumantra Gosal, that he wrote in 2005 a really famous article, and the title is quite telling.

0:45Bad theories are destroying good practices, and he's talking about neoclassical mainstream economics. And I want to quote him, like he said, combined agency theory, quintessential cost economies act in the standard versions of game theory and negotiation analysis, and the picture of the manager that emerges is one that is now very familiar in practice. The radically hard driving, strictly top-down, common and contract-focused shareholder value-obsessed, win-and-any-cause business leaders on which Scott Papers, Shenzhou, Dunlap, Tykos, Dennis Koslowski are only These are only the most extreme examples. This is what Salerno implied when he wrote about absurdities in theory leading to the dissemination of practice.

1:35So, in my opinion, the current crisis, not only the financial crisis, the banking crisis, is having a very dangerous effect because it is calling into question the role of the market economy and the importance of the firm as a social institution. So, I would like to quote, again, Samantha Gozal, who is echoing Herbert Simon, Nobel Prize. He said, nothing is more fundamental in setting our research agenda and informing our research methods that our view of the nature of human beings, whose behaviors we are studying, makes a difference to research, but it also makes a difference of the proper design of institution. So what I am going to talk now is about human behavior and how to approach human behavior within two different, absolutely different theoretical approaches.

2:27First one, because our problem is clearly when we are talking about economic behavior, obviously we are talking about preference, valuation, choice, ends and means. So we find all these concepts, the real things in all human behavior. So taking this into account, I think there are three questions very important. The first question, you want to explain the phenomena of the market, it's necessary to go to market transactions. We find preferences in every action. So what's the scope of economics? Does economics include mercantile and non-mercantile transactions? And the second question applies, as you have said, the basic elements of economic hair work has to be found in every axiom. What's the difference between mercantile and non-mercantile phenomena? And the third and the most important question, could be any human axiom reduced to monetary terms? I have chosen two authors, Ludwig von Mises from Austrian School and Gary Baker. The reason is clear, Mises' Human Axiom. He has a theory The Theory of Human Action, he thought, was the basis for all social sciences.

3:43So the first point is mis-establishing the categories necessary for the study of any human action. His theory of action, praxeology, but fracties, there are a lot of theory of action, from Aristotle up to Kurt Arbanski, Polish, there are a lot of them. But the most important thing is that he has a big difference, a clear difference between in mercantile and non-mercantile actions. So, if I take Intercom, in praxeology, Human Action, there is the economist in the broad sense, with the social interactions. There are non-money disabled. This could be doing in other Italian terms, the protein, the agere in Latin terms.

4:30But there are another very narrow sense, catallactics, is making policies when it is able. But from the beginning, it's absolutely different. They're having the same theoretical basis. So it's impossible to reduce all human behavior to monetary terms. But in the second position, let's take Gary Baker. Why Gary Baker? As Hayek said, he was the most witty, the best Chicago School economist. And he clearly gave answers to the three questions. Because in his most important book, Mrs. Majority, The Economic Approach to Human Behavior, he says clearly, they combine assumptions of maximizing behavior, market equilibrium, and stable preferences used reliance and inflexibility from the health economic approach.

5:27So clearly for him, the answer to the second and the third question are yes. We have just one approach, one method to all human behavior. So we can explain through prices, or subtle prices, all human behavior. So taking us in the cone, have this diagram with the theoretical differences. The first point, the comparison, is what is the economic point of view? What is human action? Clearly, for Ludwig von Mises, he's a real man. He's talking about the logic of action. For, obviously, as we know, neoclassical model, he's talking about homo economicus, absolutely different.

6:13It's abstract, theoretical abstract. The second point was just the definition of means-ends relationship. For Austrian School, discovery of means and creation of police possibilities. For Becker, means are, and ends, are given. Third point, quite important, the dynamics of the K-concept. Mises, the person constructs his structure of means and ends in the exercise of entrepreneurship. The core, the driving force of the market is entrepreneurship. For Becker, a static and temporal analysis of choice with facing given alternatives. Four point, quite important, concept of competition, Dynamic Process of Discovery for Mises, for Brecker, Second Hypothesis, Model Market Equilibrium, Five Points to Project, the end is projecting going beyond the statistic given, so for me quoting Henri Berzon, the future is something to be done, it's nothing to happen to us, We must do it. It's something creative. For Becker's third hypothesis, stability preferences over time.

7:31In that way, obviously, the stress point for Mises is that there are clear differences between non-money-disabled social interrelations, institutions, social institutions, family, the law, and money-disabled market catalactical actions. For Becker, they don't succeed. All is the same. So, what is the concept of society? For obviously for our student school, society is a problem of coordination. For Brecker, it's just a figure, a data, in the extended utility function, where we call about social capital. And what is culture? For Mises, culture is cultural transmission of possibilities of action.

8:17For Becker, it's another data, it's such a new data in the standard utility function. So, in a nutshell, what is the structure of the model? Mises' praxeological categories about the logic of human action. For Becker, the three hypotheses we have said. So clearly, he is the man, the Beckerian man. That's it all. I can't recognize me there. Perhaps here, the structure of human action. Because clearly, we have, at the core, action of action. Human is rational. It's the economy principle.

9:03But curiously, the prerequisites of action are the state of unison, unison is knowledge and willingness to change the situation. But clearly the three categories that Aristotle in Nicomachean Ethics recognized to voluntary action. So it's quite easy to link human mises, praxeology, with the theory of human action that Aristotle established in his work. And you know the category, sorry, the praxeological categories, causality, temporality. We have, obviously, the subjective cost-benefit evaluation, but that's just what a part of the whole history. And obviously, we have the action-execution, how that is an interactive process in which social process is established.

9:59And it's not so difficult to go a step ahead in praxeology, Mises praxeology, to overcome a problem in Mises' work, his utilitarianism. Following words from Hans-Hermann Hoppe, Kirzner and Rothbard, it's not difficult, but that is my own, obviously. Sure, I am wrong. Just to put the acting person, the individual, with her institutional framework, linking the individual person with society, with norms, with culture. So in that way, it's not difficult to recognize that the acting person is forming his character, his ethics.

10:46Ethics is about character, the second nature that we are acquiring through our actions. And in that moment, it's possible to apply Aristotelian ethics based in Woods, Bertus, Estelens, Arete and Norns. And the rest of the model applies. We have the praxeological categories, causality, we have cost-benefit subjective evaluation, but not monetary. It's the instrument, it's the mean, but it's subjective. And this subject is not relative, it's relative to the person. And we have the realization, sorry, the education of the action who is feedbacking on the system.

11:32So I would like to express on what Lady Thatcher always said. Society doesn't exist, obviously. The only what exists is human action. But human action is social. and Human Action is cultural. So let me conclude. The most important thing now, everybody is talking about economic imperialism. We are talking about the economy of the family, the economy of punishment, and whatever. I would like to make a difference here, because it can refer to enlargement economics, Or it can refer to the definition of economic behavior. For the first question, my answer, it is that, if we're talking about the scope economics, this accusation has no place.

12:26Because in Mises, economics is combated in praxeology with the two spheres. But if we adopt Backer's characterization of economic behavior, the accusation of economic imperialism is totally appropriate. Because all behavior, human behavior, is reduced to prices. And look at things like this. But Samantha Goldstein, in the same article, she's talking about Chicago School as the most powerful example of ministerial economics. And he said about the gloomy vision about men that Chicago School has. And he said, end quote, when Richard Sporner, Judge Posner, claims that justice is important only because it leads to avoidance of case.

13:18He perpetrates absurdities in theory. When Gary Baker asserts, this is another book about accounting for taste, this is 93 book, and in 2000s he wrote with Murphy, Contability of Social Capital, so far it's that book, that theft is harmful only because it diminishes productivity. He closes his eyes at the proof's incapable of quantification and false-bitten of the false consciousness to which Isaiah Berlin refers. And I would like to conclude quoting Mises in Human Action, because I think that this paragraph is very, very important today, warning us about social engineering, because I quote A new sophisticated version of the image of the perfect society has arisen lately out of a crass misinterpretation of the procedures of economics.

14:21In order to deal with the effects of changes in the market situation, the endeavors to adjust production to those changes and the phenomenal profit and loss, The economist constructs the image of hypothetical, although untenable, state of affairs, in which production is always fully adjusted to the realized wishes of the consumers and not far the changes whatever occur. It's not a strange in the neoclassical model. Entrepreneurs, what is entrepreneurs? What is creativity? It's impossible to explain. It's something giving. In this imaginary world, tomorrow doesn't differ from today. No maladjustments can arise, and no need for any entrepreneurial accent emerges. The conduct of business does not require any initiative. It is a self-acting process and consistently performed by autonomists impaled by mysterious quasi-institutes. That is for the economists, and for that matter, Also for layman, discussing economic issues, another way to conceive what is going on the real, continually changing world, that to contrast it in this way with a fictitious world of stability and absence of change.

15:39Close quotation, and that's all. Thanks for your attention.