What Makes 'Human Action' Different?

0:00The title of my talk this morning is What Makes Human Action Different, but I must begin by saying that that particular question would not have occurred to me the first time I read Mises' treatise, if only because Human Action was one of the first books I read in getting into the subject of economics. Like a number of other economists my age, I found Human Action and Mises writings by reading Ayn Rand. Rand published in 1966 a book entitled Capitalism, the Unknown Ideal, and in the back of that book he provided a list of suggested readings. One of the readings in that list was Mises' Human Action.

0:47I remember at the time looking around in a few used bookstores for a copy of Human Action. To no avail, of course. I discovered later there were at least two reasons I couldn't find a copy. First, people who buy new copies of that book tend to keep them. This fact alone makes Human Action stand apart from many, many other books on economics. Second, when a used bookstore manager does get his hands on a copy, he's likely to miscategorize it. With a title like Human Action, the book might find itself in the anthropology section, the sociology section, or worse.

1:32I'm going to leave to another speaker the discussion of alternative titles to Human Action suggested by Mises himself. The most appropriate section in the bookstore for Mises' book would be one labeled praxeology. It would be a small section. But praxeology is a term that makes his title understandable. Praxeology translates readily into action logic. In Mises own words, he says what distinguishes the praxeological system from the logical system is that the former implies the categories of time and causality. Praxeology is the logic of action in the passage of time.

2:20Human actors perceive cause and effect relationships. Their actions are purposeful. They employ means to achieve ends. Interacting with one another, the individual human actors attempt to carry out plans, plans that have time horizons measured in both days and in decades. Mises factors in this critical time element from the very beginning. That's one of the things, by the way, that makes human action different. The time element comes in on the ground floor. Under the right institutional arrangements, private property and sound money, the separate plans of the individual human actors can each be carried out despite the absence of an overall plan.

3:08Mises takes a step back from the interplay of acting humanity and identifies from cause and effect relationships of his own. What are the consequences of the fact that a multitude of individuals are each employing means to achieve their own separate Notice he doesn't ask if the various ends individually chosen are worth pursuing. He doesn't ask why the individual chose those particular ends and not others. It's their choice.

3:54He doesn't ask if the actual means employed in each particular case are the appropriate ones. They'll find out. He only asks about the consequences of human action. He answers variously depending on the nature of the society's institutional framework. The consequences are one thing, for instance, if property rights are respected, another if they are not. The consequences are one thing if money is sound, another if it is not. Human action falls short of their full potential if monopolies are established and protected by government, if proxies are fixed or manipulated by government, if profits are heavily taxed or confiscated by government.

4:43In sum, the consequences of human action are coordination and prosperity under a system of laissez-faire, but chaos and hardship under a system of socialism or interventionism. And by the way, interventionism was seen by Mises as simply an early stage of socialism. Mises' book gives us plenty of ammunition to defend the system of laissez-faire over alternative systems. Praxeology imbues Mises' economics with a unity that is nowhere else to be found in other schools of thought. His system is resistant to the compartmentalization of topics. in an article titled The Why of Human Action published in the same year that his book was published in 1949.

5:40Mises remarked rather glibly, actually, that economics does not allow any breaking up into spatial branches. This statement may be seen as, well, let's say, less than prescient to the modern students The actual splitting up of economics into micro-economics and macro-economics, and the further breaking up of these halves into separate fields and sub-fields together with the insular nature of the Highly Spatialized Areas of Concentration are by mocking contrast testimony to the essential unity of Mises' praxeology.

6:31So what makes human action different? I want to argue this morning that his economics is a seamless web, and it's seamless in at least three other dimensions. The first dimension I've already mentioned, no breaking up into fields and subfields, its whole praxeology is a seamless web in that sense. A second sense, an important one that I'll spend some time on this morning, is that there's There is no visible seam in human action between the short run and the long run. Two years ago, a small group of prominent economists, mainstream economists, serving as panelists in a session of the American Economic Association meetings, addressed themselves to the question, is there a core of practical macroeconomics that we should all believe?

7:31We can hardly imagine that gathered across the hall was a similar panel asking the same question about microeconomics. But the Keynesian revolution that began in the 1930s had ushered in a phony macroeconomics that was essentially coreless. Let me quote from one of those papers of the ADA panel. This was by Robert Solow. One major weakness in the core of macroeconomics The core of macroeconomics identified by panelists Solo and Nobel Prize winner Solo is the lack of any real coupling between the short-run picture and the long-run picture. He goes on to say, since the long-run and the short-run merge into one another, one The two runs together with not a few intermediate runs are wholly interdependent. They are in fact but different perspectives on the self-same market process. Modern macroeconomic theory must deal with a very visible and problematic scene. In truth, a disconnect between the short-run picture and the long-run picture.

8:50And here I might mention that Solow would be the one to know, whose specialty is growth theory, neoclassical growth theory. If you contrast Keynesian macroeconomics with classical growth theory, you see the disconnect. In Keynesian theory, the whole capital structure is put on ice. It's assumed to be fixed, while Keynes deals with disequilibrium that always affects the economy. In Solow's Growth Economics, disequilibrium is assumed not to exist. The economy is forever in equilibrium, and he deals with the variation in the economy's capital stock. Those two theories don't mesh well. Students figure that out as they take their courses, and Solow, who is the architect of the neoclassical growth theory, knows it In contrast, Mises Economics features the economy's capital structure, providing a natural link between the runs of various horizons. More specifically, the means-ends framework found in Human Action allow the means to take the form of capital, including goods in process, as well as capital goods of various degrees of specificity, durability, and related to one another in various degrees of complementarity.

10:16and Substitutability is a very rich theory that allows us to take different perspectives of the economy as it proceeds from short-run to long-run issues. Capital Theory not only establishes the link between the short-run and the long-run, but also serves as that core relationship in the macroeconomics developed by the Austrian School. It was no part of Keynesian Theory, however, but no alternative core was brought in to fill the void, hence is the phony macroeconomics of Keynes. If Keynes focused on the short-run picture, and the classicists, including growth theories by Robert Soto, focused on the long-run picture, then Mises, in following him, F.A. Hayek and Murray Rothbard, focused on that real coupling between the two pictures, under a system of The calculation of profit and loss made in each successive short run allows the market process to play itself out in the long run as economic growth.

11:24Under a system of unsound money, in which the central bank can flood credit markets with newly created funds, the market process does not play itself out, but rather does itself in. Artificially cheap credit leads to an economic crisis. Mises's capital-based macroeconomics allowed him to identify monitoring of his management as a source of economy-wide distortions in the allocation of resources and hence as a cause of business cycles. This Austrian theory of the business cycle, together with related issues of economic growth, are precisely what are lacking in so-called lament. Let me consider now a little more briefly still two other dimensions in which I argue that Mises' human action is seamless. There is no visible seam in human action between economics and its sister disciplines such as political science and especially history. Though economics is based on logic while history requires much observation and interpretation, the two disciplines in the hands of Mises blend together well at the margin. Mises' use of both theory and history in linking the value of money to the value of the monetary commodity and so-called

12:39regression theorem found in Human Action and also in his earlier book on money and credit come readily to mind. I might say here that I know a lot of professional I've never met an Austrian-oriented economist who wasn't interested in history. If you get In short, economics from Mises, you get an appreciation for history along with it. Human Action has a substantial historical, should I say, empirical content, as does his earliest book, The Theory of Money and Credit. I might even mention in this regard that in 1969 Mises published his book, Theory and History, in which he argued that the two disciplines are The Austrian has very much taken a bum rap over the issue of the empirical content of Austrian economics as applied to historical episodes.

13:55Mises pointed, of course, that it takes both theory and history to understand what's going on in the world around us. I would like to consider still another seamless web in Mises. There's no visible seam separating the various audiences for whom Mises wrote. As an academic economist, I've become accustomed to thinking in terms of elementary this and intermediate that and advanced something else. And don't try to make sense out of the advanced stuff, which usually means more math, until you've mastered the earlier levels.

14:43In fact, I like to say in this connection, since so many professional economists have gotten the reputation of being math nerds, a term that has become popular in recent years, I love the term. I was amused to read critical remarks by Paul Krugman, who in recent times has turned his attention to the Austrian theory and hasn't yet been able to make sense out of it. Krugman, who actually has a pretty good understanding of the limits of math, insists that professional economists should use it only to communicate amongst themselves. Of course, that's what But when he turned his attention to the Austrians to find out what they were saying, he discovered no math.

15:33What he found and said, using his own description, was that the Austrian works contained a blizzard In the professional sphere of economics we deal with the elementary, the intermediate and the advanced, and so I'm here to ask you this morning, how would we describe human action? Is it elementary, intermediate or advanced? Many people in this room have read Human Action and have gained much understanding from it.

16:23Many professional economists could read it to their own great benefit. As I mentioned at the beginning of my talk, my first reading of this book came early. In fact, I read Mises' Human Action, then Keynes' General Theory, then Hazlitt's Failure of the New Economics, and then Sandwich's Principles of Economics. Then I began to wonder why I decided to go into economics. I approached economics on a two-track basis. One was starting with the Sandelssohn and moving up. The other was continuing to read in the Austrian literature, following my nose from Mises to Hayek to Rothbard and the rest of the Austrians.

17:20Looking back now, I realize that Mises helped me to understand, or should I say to see through Samuelson. Though advanced in every relevant respect, human action has no prerequisites. If you're interested in economics and history, or are willing to become interested in these subjects, then human action is for you. And finally, let me conclude by saying that it's not only a seamless web, that Human Action is also a monumental work. Though his book has no prerequisites, it does have important forerunners, including a book of similar weight, both literally and figuratively, by Eugen Boehm-Bawerk.

18:11This was critical of many of the particulars in Boehm-Bawerk's three-volume Capital and Interest, but when he came to review the 1959 translation of it, he chose to praise it. When one author seeks to praise another's book, he tends to say things that he would please to hear said about his own. Or so it seems to me to be the case when Mises wrote favorably of Capital and Interest. This is a monumental work, he wrote, the most imminent contribution to modern economic theory. He indicated that no one could claim to be an economist unless he was perfectly familiar with the ideas advanced in this book. And he even went on to suggest, as only Mises could, that no citizen who takes his civic do these seriously, should exercise his right to vote until he has read... Boehm-Bawerk.

19:11If you've ever tried to read Boehm-Bawerk, that imperative may strike you as a bit odd, but substitute Mises for Boehm-Bawerk and it makes perfect sense. Thank you.