Human Action: A Treatise on Economics (Scholars Edition) [Hardcover]

This book is at odds with the current mainstream of academia mainly because of its first principles. Mises sought to understand social orders on the basis of individual human action. The individualistic approach of von Mises puts him at odds with most academics outside of the economics profession. Notions of a collective will or purpose and individual irrationality still have much credibility among sociologists, anthropologists, political scientists, and other academics outside of economics. It is at odds with what many economists do for different reasons. Human action means perceiving ones current condition, imagining a better state of affairs, and acting to attain this state. This he separates from animal reactions or reflexes. The authors own purpose here is to escape determinism and its consequences. Economists who rigidly insist upon casting all economics in systems of mathematical equations do so without realizing that they have accepted a deterministic straightjacket. Other academics tend to be on the same page with Mises, in his rejection of deterministic math modeling. Mainstream economists who criticize Mises on these grounds tend to do so for pathetic reasons having to do with the fallacy of style. One could argue that Mises devoted too much attention to philosophic and methodological issues, but the simplistic assertions of some that math+statistics=science prove only that most economists do not take philosophy of science the least bit seriously. Mises' contribution here is in asserting the importance of deductive reasoning and of non-deterministic methodological individualism in examining all the actions that people make. His approach did impact upon economics. Prior to Mises economics was about material wealth. Now economics is about scarcity, allocation, and rational individual choice generally, not just with respect to material wealth- an idea that comes to us from Mises, through Lionel Robbins.

The main contributions of Mises on theoretical matters are on economic planning and monetary exchange. Mises launched the interwar debate over socialism in his earlier writings. Human Action integrates this critique of Socialism into a broader system. He contends that the calculation of profit and loss using the common denominator of money makes the rational accumulation and use of capital possible. Mises is examining the problem of using scarce resources across time periods here, and points to the indispensable role that private exchange relations play in enabling people to take advantage of social division of labor. This is a problem of mass coordination and therefore one of how to deal with the division of knowledge that is inherent to mass exchange and division of labor. The principle problem with this critique is in its presentation. While Mises is more clear than many other economists, who present their ideas in mathematical forms that few can decode, but his writing style is often opaque. He also arrives at many conclusions without spelling out his supporting arguments adequately. One must read Carl Menger first to understand Human Action, for what Mises wrote builds out of Menger without making critical details of Menger explicit. One should also note that modern game theoretic models are largely an attempt to deal with the issues that Mises, unlike his contemporary economists, saw as relevant.

Mises also explains trade cycles as a problem of dis-coordination stemming from distorted interest rates. Objections to this argument range from triviality to internal inconsistency. Some say that Mises is assuming systematic irrationality in arguing that investors always get fooled by the actions of central banks. These objections tend to underestimate the extent of the coordination problems that exist in getting a system of worldwide exchange to solve the temporal problems of resource use at all. The idea that other factors, like wage rigidity, are more important than interest rates in explaining recessions and depressions is more plausible. Here one could say that Mises erred in insisting upon deductive rather than inductive reasoning. However, we must remember that Mises did face serious challenges from irrationalists who rejected deductive reasoning, and even the universal legitimacy of any theoretical propositions- even those based on inductive reasoning. His stalwart defense of deductive reasoning, and reason in general, was fully warranted.

Human Action wanders through many other issues- polylogism and reason, interventionism and cooperation, feudalism and equality before the law, progress and warfare. Human Action rivals The Wealth of Nations as an intellectual construct, but contains huge advances beyond Smith's treatise, especially with value theory. These advances also put Mises ahead of his contemporaries. Mises saw critical failings in socialism at a time when most saw it as workable, of not the wave of the future. Mises saw the failings of Keynes' theory of deficient demand and chaos in capital markets- failings that mainstream economists have now acknowledged. Mises saw how critical the issues of time, coordination, and information are to understanding society. The Scholar's edition enables us to see all of this as in the first edition. Economists are gradually addressing these issues. Human Action was revolutionary as a systematic treatise. It challenged many widely held views, and has now become a classic statement of both process orientated non deterministic economic theory and libertarian political values. Human Action is mandatory reading for anyone who takes political economy and the history of economic thought seriously.

I would take Rothbard's praise further. This is not only the single most important economic tome ever, but also the most pathbreaking, definitive exposition of praxeology, the correct basis for social sciences and also necessarily the foundation for epistemology. Only a few living economists of the "Austrian" school of economics seem to have truly absorbed the true praxeological methodology forged by Mises.

Mises' contribution to economics cannot be understated. In basing economics on the axiomatic status of action, Mises established the ultimate foundation for economic science. The fact that humans act -- that is, human beings *act* purposively to reach subjectively chosen ends -- is, of course, irrefutable (to argue against the axiom of action is itself an action). This, however, may seem like a trivial observation. Humans act, big deal? Why is it so important? Its importance is in praxeological economics' methodology deductive chains of reasoning to realize the implications. In understanding what is implied by action - values, ends, means, choice, cost, preference, profit, and loss - economic science can be deduced logically, so it is a purely an a priori science where economic laws tell describe apodictically true relationships in the real world. In this way, key economic principles follow from the action axiom (as well as a few general, explicit assumptions about the empirical reality in which the action occurs), such as the law of diminishing marginal utility, how taxation changes time-preference schedules, the counterproductive nature of interventionism, involuntary unemployment, and so on. So long as the logic deriving the principles is correct, then economic laws are a priori-valid, and empirical testing has no bearing on them.

This book initially appeared in a difficult time, when positivist methodology and the Keynesian paradigm were dominant. Thus, upon _Human Action_'s release it was mostly derided and ignored by the mainstream, rather than studied and criticized. It did, however, gain notoriety among academic circles for rebuilding economic science from the ground up, all the while plowing through the epistemological shortcomings of previous standards.

Mises has provided considerable ammunition for institutional critique. He uncovered the socialist calculation problem -- a central planning authority has no rational way to allocate resources for production without market prices -- and this is an insurmountable hurdle for any state-run economy. In fact, when analyzed fully, it shows that _any_ government intervention in the economy results in market distortion and inefficiency. In essence, nothing can ever be provided more efficiently by the government nor can the government do anything to make the market more efficient. Murray Rothbard, who was of course Mises' student, explored this thoroughly in his critique of interventionism, _Power and Market_ (now available with the Scholar's Edition of _Man, Economy_ and State_).

Lee Carlson's shamefully inane review can be wholly disregarded. Although he appeals to authorities it does not change the fact that the search for mathematical parameters for economic analysis is utterly impossible because of the existence of human choice. But would finding such parameters be possible even if one could isolate all the factors involved that affect decision-making? Again, no, simply because of the fact of human choice. You cannot quantify economic laws mathematically. All parameters quantifying human choice are historical data and nothing more.

In regards to the reviews criticizing Mises extreme rationalism, they would do well to better understand Mises' methodology and the epistemological nature of economic science. To Mises, ultimately, all economic laws were derived from the incontestable axiom that, trivially enough, humans act, choosing between alternatives in a finite universe. In understanding the effects of different forms of economic activity, the economist must determine correct theory by relying on human choice as the guiding factor. To consider the effects of a change brought about by action, we need recognize that by taking certain choices, the opportunities for other choices are destroyed. And because the relationship between these universes resulting from different choices are a priori related to the others, there is no need to rely on empirical confirmation for correct theory. The corpus of economic science is essentially a system of counterfactual laws where empirical testing is completely useless. For example, it would be foolish to argue that consumption need not be preceded by production, just as it would be foolish to argue that money inflation does not raise prices higher than otherwise, just as it would be foolish to argue that 1+1=3. Like a mathematical proof, all economic laws must be refuted by identifying errors in the axiomatic-deductive chain. This is also the only truly valuable way to understand complex economic phenomena. For example, were rising real incomes in Canada 1950-1990 a result of increased taxes, or despite of more taxes? Would they have been higher still with higher or lower taxes? Counterfactual laws of case-probability are greatly more valuable than any mathematical model because of their counterfactual method. They require no qualifying considerations and are always true.

Finally, on the Scholar's Edition itself: This is a BEAUTIFUL book. From the Mises Institute:

"The Scholar's Edition is printed on stunning, pure white, acid-free Finch Fine 50 lb. paper; carefully set in the readable and beautiful Janson typeface, including the 1954 index, the most comprehensive ever done; covered in spectacular dark azure Odyssey cloth from Prague, the finest natural-finish, moisture-resistance book fabric in the world; secured by the finest caliper Binders board; protected by an impressive slipcase from the famous Old Dominion company; graced with antique-soapstone endpapers from Ecologic Fibers; casebound with the strongest Smyth-sewn signatures; fitted at head and foot with silken endbands, thick wrapped for durability; complemented with a double-faced, satin-finish ribbon marker; stamped with brilliant, non-tarnishing gold foil from Japan's Nakai International; and produced at R.R. Donnelly's famed Crawfordsville Bindery, where's America's finest books are assembled." Pretty delicious, actually!

The Scholar's Edition also features an exhaustively compiled index and -- most importantly -- restores all the ambiguities and deleted material from the third and fourth editions.

UTTERLY ESSENTIAL FOR ALL CIVILIZED HUMAN BEINGS.

Von Mises, Hayek and Menger (among others) were diametrically opposed to a "middle way" between statism (socialism/fascism) and capitalism for one simple reason: Statism, once introduced, becomes the dominant force and eventually wins the contest since in a centrally-run economy all economic decisions become political ones.

Von Mises struggled his whole life to develop general rules for economic activity. There was (and is) a gray area in which economic theory and economic reality coexist in an uneasy relationship. Despite von Mises assertion that economics was basically a theoretical science - as opposed to physics or chemistry where axioms could be physically proven - he continued to maintain that economics was a rational science based upon human needs.

It is this latter point that exalts his work. For perhaps the first time since Adam Smith he set about demonstrating that Capitalism is the economic system most conducive to human nature, how it makes the most sense from a "human" point of view of wants and needs and rewards and - most important - how it delivers the goods and affects material life. Both von Mises and Hayek were convinced that when the state attempts to lead economic activity, failure and misery are sure to follow since it would eventually become a contest among competing interest groups, each vying for their turn at the trough (which it has).

Von Mises's work on economic swings was another example of brilliant logic that has held true ever since. Hayek, because he was convinced of the evolutionary nature of the economic system, also believed in cycles. HUMAN ACTION does its part in demonstrating the correlation between increasing State control of the economy and decreasing individual freedom. After having heard yet another of the Presidential campaign "debates" it is apparent that the "debaters" get their economic schooling from the editorial page. Let us pray this is a farce for the uneducated and they really don't believe what they say. If they do, the Viennese Classical School was correct in its predictions.