Revolution

Ludwig von Mises' Human Action

These are my notes on Ludwig von Mises' Human Action taken as part of an economics project in college. These are by no means scholarly, just a way for me to enhance my understanding of the book's theories.

Notes on Part I (pp. 1 - 142)

The Sciences

The natural sciences are the experimental sciences: biology, chemistry, physics etc. They depend on observation and constant relations (repeatability of experiments) for gaining knowledge.

Praxeology is the study of human action, and includes economics and history. Economics is the study of what is universal about action, history is the study of what is specific.

History in itself is objective. The history of a subject is the study of all facts, actions etc. that are relevant to the subject. The historian must use his understanding to determine which facts are relevant to his subject, and so introduces his subjective beliefs and errors.

Praxeology studies human action as a given, without regard to its causes or motives, which are studied by psychology. Praxeology studies only purposeful (chosen) action. Medicine and physiology study involuntary action.

Epistemology is the basis of all other sciences. It is the study of knowledge itself, of what we are capable of knowing, of the validity of our knowledge.

Epistemology

There are two sources of knowledge: observation (experimental knowledge) and logic (aprioristic knowledge).

Experimental science is based on the assumption of constant relations; when the same conditions occur, the same results occur. Experimental knowledge is valid if it accurately describes events in the natural realm.

Aprioristic knowledge is inherently true for its assumptions. For example, the laws of geometry are implied in the basic axioms of geometry. Aprioristic knowledge is valid if its reasoning from premises to conclusions is logically correct. Aprioristic theories cannot be validated or invalidated by experience. For example, the Pythagorean theorem cannot be proved or disproved by measuring real-life triangles; it is inherently true for its assumptions.

Many theories attack economics at the point of epistemology. Historicism claims that only experience is valid (that logic is invalid). Irrationalism claims that the human mind is incapable of any knowledge of the world, which is irrational. Polylogism (including racism and multiculturalism) claims that different group of humans have different types of logic, and that knowledge valid for one group is invalid for others. Positivism, panphysicalism and behaviorism also attack the validity of logic.

The attacks on the validity of logic are insufficient. The critics of logic never point out just what logical relation is valid for the bourgeois but not the proletariat, or for the Jew and not the Aryan. They cannot explain disagreement among members of the same class, and they do not hesitate to make use of the scientific discoveries of other classes.

Methodology of Economics

Humans experience two worlds, the external world of natural phenomenon and the internal world of thought, feeling and value. Human action deals with both, causing change in the natural world in response to chosen goals. Economists must assume a methodological dualism, describing economics in terms of subjective intentions. Change has two causes: causality is the laws of nature, teleology is purposeful action.

Human action does not exhibit constant relations. Different people placed in the same situation, or the same person placed in the same situation twice, behave differently. They choose how to act. Therefore economists must assume a methodological apriorism, the gaining of knowledge by deductive reasoning from first principles, and not experimental methods. Experience can neither prove nor disprove any economic theory, but only direct economists' curiosity towards certain topics.

Human action, the underlying assumption of all economic conclusions, is an external fact, not a creation of the human mind (as other aprioristic knowledge is). Therefore the conclusions of economics accurately describe reality when logically derived from human action and when its other assumptions are present in reality.

All purposeful action is performed by individuals, even when the individuals are acting on behalf of a group, and even when the individual's existence depends on the existence of a group. Therefore economists must assume a methodological individualism, tracing all economic events back to the actions of individuals.

Economics is the study of human action, and must be concerned with actual, concrete action. Economists must adopt a methodological singularism, studying what is necessary and universal about actual actions performed by actual human beings.

Purposeful Action

Human action is purposeful behavior, action taken to achieve a goal desired by the individual. Humans choose; it makes no difference to today's economist whether they in some metaphysical sense "really" choose or whether they are propelled to choose by some other cause, "destiny" or the arrangement of molecules in their brains. With today's knowledge, human action cannot be reduced, that is, broken down into further causes. It is an ultimate given -- something which can not be further analyzed by contemporary science.

All action is necessarily rational from the point of view of economics, since it cannot be further analyzed than to accept it as a given. The opposite of action is not irrational action but involuntary action, the response of the human body to stimuli.

Humans act because they believe their action will result in a state of affairs more desirable to them. Humans act purposefully to achieve chosen goals - this is all economists mean by saying that humans act "in their self-interst," or "to increase their happiness," or "to maximize their utility." Economics is not concerned only with the "economic side" of life, or only with "the profit motive," or only with material things. Economics is the study of all that men aim at and the means they use to achieve their aims.

The end, goal or aim of an action is the result sought by it. The end of every action can be said to be the removal of a felt uneasiness, that is, the exchange of a better state of affairs for the current state. One end may be a step towards another end, in which case it can be called an "intermediate" end.

A means is what an acting individual uses to attain his end. A thing has no identity as a means, or as any other economic concept, except when an individual considers it such.

A good is any means or end, anything an individual desires. Goods may be material or nonmaterial (services). Goods may be arbitrarily classed according to whether they satisfy human wants directly or indirectly. A consumer good or good of the first order is one that satisfies in itself. A producer good or good of a higher order is one that must be combined with other goods to produce a consumer good. This classification is only a mental tool.

Value or utility is the perceived usefulness of a good for the attainment of an end. Economic value is subjective, existing solely within the mind of the acting individual, and differs from technological utility, the objective capability of an object to produce an effect. Value is an ordering, a ranking of alternatives. Thus man may be considered to have a scale of value, ranking every possible choice ordinally. This scale is a mental tool with no existence outside of concrete actions.

Value is attached only to economic or scarce goods, those which have limited effects and availability. That is, value is attached only to alternatives, mutually exclusive choices. Free goods are those which produce unlimited effects at no cost. For example, a known recipe can be used repeatedly without losing any effect.

The "paradox of value" seen by early economists was a fallacious viewpoint. They could not explain why gold was more valuable than iron, when iron was more useful. In reality, man does not choose between "gold" and "iron," but between definite quantities of gold and iron at a definite time and place. He chooses the quantity that best furthers his aims.

Value (utility) cannot be measured, calculated or even communicated. The value of one quantity of a good need not depend on the value of other quantities of the same good. The value of seven cows need not be seven times the value of one cow. Thus the concepts of "total value" and "total utility" are meaningless when the individual is not faced with a choice involving the complete stock of a good.

Marginal value or marginal utility is the smallest value derived from one unit of a supply of a homogeneous good. A unit in this case is the smallest quantity usable for a purpose. The law of marginal utility states that the utility of one unit of a supply is the marginal value of the supply, since if an individual is to give up a unit, he will give up the one that renders him the least utility. Similarly, any additional unit will be less valuable than the least valuable existing unit, since if an existing unit could be applied to a more valuable use it would.

The law of returns, popularly called the law of diminishing returns, states that for the combination of producer goods there exists an optimum. Holding the quantity of one of the goods constant, there is a quantity of the other good which will yield the highest value per unit of the constant good. This law is implied in the fact that goods produce limited effects. It does not apply to free goods, only economic goods.

There is no need for a distinction in economics between needs and wants. Men choose their ends; what those ends "should" be are irrelevant to the study of the world as it is.

The price of any action (which is an exchange of states) is that which is abandoned. Cost is the value of the price paid to the individual paying it. The gain, profit, loss or net yield of an action is the difference between the costs of an action and the value of the state attained to the acting individual.

Labor is the use of the "manifestations of human life" as a means. Labor is economized because it is scarce (produces limited effects), but also because leisure (refraining from labor) is a good. The disutility of labor (the value of leisure) is an observed feature of human life; it is not implied in the category of human action. The use of the human faculties is labor if it is a means to an end, and simply life and leisure otherwise.

Labor is relatively nonspecific; it can be applied to a wider range of uses than most natural resources. Labor is required for every act of production. Becauser of these facts, labor is the most scarce of all producer goods.

Complementary producer goods can be utilized only to the extent allowed by the most scarce of them. Technological advancement cannot make any labor useless as long as there are other ways to increase human well-being.

Production is the use of human reason to direct (transform, not create) resources for the attainment of human ends. There is no fundamental difference between producing material goods and producing services, or between using labor and using other factors of production.

Time

Action implies time, the sequence of events. The present is a span of time during which a given set of alternatives are still available to an acting individual.

Time, being scarce to mortal and aging humans, must be economized as any other scarce resource, but is unique in that it is irreversible. Time applied for one purpose cannot be reallocated for another purpose, and two actions of an individual can never be synchronous.

Humans choose, and their values may change, with every action. Therefore sequential actions of an individual may not be compared to determine if they are "consistent" or "rational."

Uncertainty

Action implies uncertainty. If the future were known, humans could not choose; their actions would be predetermined.

A statement is probable if some knowledge about it is known but not enough to determine exactly its truth. With class probability, we know nothing about a singular event except that it is a member of a larger class that we know exactly. This involves repeatable instances of natural phenomena, the rolling of dice, the survival rate of disease. With case probability, we know some but not all the factors determining the outcome of a singular event. This includes nonrepeatable events involving human action. Past outcomes of similar events have no direct bearing on a unique event.

Betting is risking something against another person on the results of a unique event. Gambling is risking something against another person on the result of an event that is a member of a class.

Case probability is not open to numerical evaluation. The correctly reasoned conclusions of economics are certain and true, and so can predict the outcome of action. However, economics cannot numerically predict outcomes because there are no constant relations in the field of human action.


Notes on Part II (pp. 143 - 199)

Society

Society is the concerted action, or cooperation, of individuals. Only individuals act; only individuals have interests (ends, goals, aims). Society does not have interests because it does not act.

Holistic theories of society (collectivism) view society as an entity separate from the individuals acting in it. In this view, society acts independently of individuals, and thus individual interests may conflict with society's interests. Society must therefore be forced upon individuals, who are unwilling and would not cooperate in the absence of force.

Individualism maintains that individuals make up society entirely. Indivuduals cooperate with others because this cooperation allows them to achieve their own desires better than solitary action.

Varieties of collectivism differ on what constitutes society's interests. The justification of their view of society's interests relies on transcendental beliefs, and thus they cannot convince men by reason alone. They rely on faith for believers and violent suppression of nonbelievers. Collectivism thus inevitably leads to warfare and antagonism, the opposite of societal relations.

Liberalism

Liberalism (now called classical liberalism or libertarianism) is a political doctrine, not a praxeological or economic study. It is an application of economic theory, and has definite values and judgments. It assumes that people prefer abundance to poverty, and tries to teach man how to live in accordance with such values. It is not materialistic in the sense of putting material values above others, but merely states that men prefer material abundance to material security.

Liberalism favors democracy to allow for the peaceful transition of government, in the belief that a man is better fit to rule if he can persuade voters than if he can successfully fight the current government militarily. Liberalism does not believe in the infallibility of majorities, and supports consitutions that safeguard peace and avoid violent conflict.

Liberalism relies on rational economics, and not on transcendent, mystical or superhuman phenomenon. It is not antireligious or antitheistic, but neutral with regard to religious beliefs that do not disturb the peace required for the conduct of social and economic affairs. Liberalism is opposed to theocracy, states which claim supernatural legitimacy for their laws.

Liberalism "maintains that it is possible to convince the immense majority that peaceful cooperation within the framework of society better serves their rightly understood interests than mutual battling and social disintegration."

Division of Labor

Individuals cooperate in society because "work performed under the division of labor is more productive than isolated work" and because "man's reason is capable of recognizing this truth."

Division of labor is more productive than isolated labor because men are unequal in their ability to perform various kinds of labor, because the nonhuman factors of production are unequally distributed about the earth, and because there are undertakings which exceed the capacity of one man.

The law of association, developed by Ricardo and commonly called the law of comparative advantage when applied to international trade, demonstrates the preferability of division of labor to all participants, even when one participant is more productive in every respect than another.

The Ricardian law of association assumes two countries producing two goods, where the goods are mobile but labor and capital (factors of production) are not. Under these conditions, both countries will benefit if the more efficient area produces the commodity for which its superiority is greatest. To generalize the law of association requires economic calculation, that is, market prices.

The division of labor enhances natural differentiation, as different geographic areas take on different tasks. It enchances the inequality of men, as men develop some abilities and ignore others. It splits production of good into discrete steps, which allows for mechanization and production.

World View and Ideology

Action requires thinking. To act man must have an idea (theory) of a causal relation, that is, that his action will produce a desired effect.

A world view is all theories guiding an individual's actions, taken as a comprehensive system of knowledge. A world view is an interpretation of all things and an opinion concerning the best means for removing uneasiness as much as possible.

An ideology is a subset of a world view, all theories of an individual concerning individual conduct and social relations.

Asceticism as a world view and ideology recommends complete withdrawal from material concerns. However, complete ascetics would die fairly quickly, so even most ascetics have some concern for material well-being, such as nourishment.

For everyone but complete ascetics, the higher productivity of division of labor makes society the foremost means of attaining ends. Since most ideologies have a common end, material abundance, ideological disputes are mainly over means.

Popular ideologies are usually logically inconsistent, eclectic mixtures of ideas. Logically fallacious ideologies cannot "work" but instead merely obscure the true causes of problems and delay their resolution. One of the tasks of praxeology is to substitute correct ideologies for contradictory eclecticism.

Society is the product of ideologies, because every action that makes up society assumes an ideology (a belief that the action will produce a result.)

Might

Government, the state, is the monopoly of violence in society. It maintains peace so that people can cooperate and enjoy the benefits of cooperation. In order for a government to survive, the mass of its citizens must feel that to be loyal to it better serves their own interests than overthrowing it.

Not all interhuman relations are societal relations. Human actions directed at mutual detriment are not social. Only actions directed at peaceful cooperation are social relations.

Some theorists attack society as an unnatural rejection of animal instincts towards aggression, or as anti-evolutionary because it allows the physically weak to survive. However, reason is as part of man's nature as instinct, and evolution tends merely towards survival. Man survives better in society. Man chooses, and must choose between the satisfaction of the lust for violence and the benefits brought about by peaceful cooperation.

Might is the power or ability to direct action. Rule is the exercise of might in the political body.

Might is derived from ideology, beause people must accept and ideology to obey the directions of the mighty. Even if the directions are imposed by force, those who do the imposing must accept the ideology.

"A durable system of government must rest upon an ideology acknowledged by the majority."

Progress

Without reference to actions and goals, progress and retrogression have no meaning. Change does not imply improvement, and evolution does not imply evolution to a higher form of life. Change and evolution merely signify the process which led from one point in time to a later one.

Progress towards social perfection is not inevitable because man chooses and because man is not infallible. Man may choose barbarism to society.

Progress can be a shorthand term for progress towards the common goals of the immense majority of men, especially the preference of material abundance to material scarcity.

Exchange

Action is always an exchange of states. If an action is performed by an individual without any reference to cooperation with other individuals, it is autistic exchange, otherwise it is interpersonal exchange.

Autistic exchange may be beneficial or harmful to other individuals, or have no effect on them. Aggression is autistic action.

Cooperation

If social cooperation is voluntary exchange, it is contractual; if it is based on command and subordination, it is hegemonic. With contractual bonds, all parties choose and act. With hegemonic bonds, only the director chooses and acts; subordinates choose only whether to be subordinates.

Social cooperation whether contractual or hegemonic is an order of peace and peaceful settlement of disputes. As far as there are violent conflicts, there is not society.

Hegemonic societies must either forego the advantages of the division of labor with societies that do not accept the hegemony, or attempt a worldwide hegemony.

In contractual societies rights and law determine the scope of action. In hegemonic societies the director determines all action. Hegemonic societies use violence and threats of violence to affect the decisions of those who choose not to obey.

The Laws of Economics

The categories of praxeology are universally valid because they reflect the structure of the human mind and the natural world. Conclusions derived solely from the axioms of economics are also universally valid. However, some economic laws assume certain conditions, and are valid solely for those conditions. For example, the economics of the free market depend on the existence of a free market.