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Human Action: A Treatise on Economics (Scholars Edition)

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Human Action is a rare type of book. It is a system of ideas, not just in economics, but in philosophy, sociology, scientific methodology, psychology, ideology, and politics. It is also a controversial book. Its divisive nature reflects not only profound disagreements over the subjects that it inquires into, but also the authors confrontational style of argumentation.

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.

There is no way I can say all that I want to say in this review. Murray Rothbard has aptly said: "Every once in a while the human race pauses in the job of botching its affairs and redeems itself by producing a noble work of the intellect. . . . To state that _Human Action_ is a 'must' book is a greater understatement. This is the economic Bible of the civilized man."

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.

This work towers above the mediocore garbage that currently passes for economic writing. (As late as 1989, Samuelson could say with a straight face that the Soviet economy was more productive than ours!) This book can be traced directly to the Austrian School of Classical Liberalism that attempts to define economic activity in terms of human activity, wants and needs. This is in direct contradiction to modern "economic speak" in which it is a given that the State play a vital if not pervasive role in individual human economic activity.

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.

This is one of the great texts in Economics, philosophy, or any field for that matter.

However, there are some serious flaws that need to be dealt with.

The first is Mises' dealing with time preference. Mises presents a terrible argument justifying the universality of a positive rate of time preference.

Mises States: " The very act of gratifying a desire implies that gratification at the present instant is preferred to that at a later instant. He who consumes a nonperishable good instead of postponing consumption for an indefinite later moment thereby reveals a higher valuation of present satisfaction as compared with later satisfaction. If he were not to prefer satisfaction in a nearer period of the future to that in a remoter period, he would never consume and so satisfy wants. He would always accumulate, he would never consume and enjoy."

There is a huge problem with this reasoning. It would hold true only if there were an identity between periods. Like all constructs, time preference only operates in cases of "all else being equal".

Lets say I had a neutral rate of time preference, and had the opportunity to eat a hamburger now or in an hour. If I don't eat it now, if all else is equal, I would not be able to eat it an hour from now. Hence, given that fact that people DO act, doesn't this show that people have a positive rate of time preference?

Not at all. Everything is NOT equal from time to time. Lets say that in the hour, my tastes change to be more favorable towards pizza,or I sense that something will happen in the future to prevent me from eating it, then I would be able to eat it.

Since we can't observe a state in which all else is equal from time to time, we can't use the fact that we observe humans acting as a basis for proving we all have a positive rate of time preference.

Mises even admits that peoples preferences and reasons for action do change over time, and this affects their actions (see section entitled "The Temporal Relation Between Actions ").

I will now deflect some criticisms of this book.

On page 314, Mises does say the successful entrepreneur can't learn their craft on the job, and that business schools only train people for "routine jobs". However, Mises concept of entrepreneurship differs from that of the common usage.

To Mises, an entrepreneur is not an innovator (a function he mentioned in a fairly unrelated previous paragraph), but one who buys goods that have been undercapitalized or over-discounted. Harvard Business school can't teach one to do that particular job.

Also, Mises doesn't really argue that a ban on the advertising of quack medicine will actually lead to a ban on religion. He argues that once an intellectual argues for a ban on quack medicine, and then someone launched an anti religion crusade, it would be difficult for the intellectual to resist their argument and remain consistent. Despite some linguistic ambiguities, he is not talking about the "slippery slope" in the more pragmatic realm of politics.

The classic work by Mises. At a little over a thousand pages, the series of 4 books (including one which is only a glossary and an index) the work covers all the subjects of austrian economy. I found Mises' writing crisp and clear, Mises without a doubt had a very clear and lucid thinking style.
He shows in his book a perfect understanding of the socialist and protectionist's thought and proceed carefully to dismantle it and expose its flaws right after having told the socialist's basic (and simplistic) arguments.
Some words and word usage dates a bit or comes from foreign languages but we can find what Mises meant in the accompanying glossary. To conclude this book can answer almost any questions you might have about economy in general and austrian economy.

The Wall Street Jounral said it best with "-ought be on the shelf of every thinking man".

That is surely where Von Mises is - conversing amiably with the gods in his masterful, rational, clear and refined manner. The man was a wonder himself. From the classically liberal European tradition of the turn of the century, he fought valiantly to establish economics on a rational basis with rules, laws, and theorems - all based on "human action". He builds an elaborate system from axioms to dizzying heights of eloquent logic.

He is important not because he championed material wealth - Marx did that - but for his recognition that this wealth rested on an edifice composed by people acting in their own self interest. Despite his dry style and subject matter, his writings were paeans of praise for humanity's soul. His theories (naturally) involved a synthesis with other arenas, notably philosophy, politics, morality, government, and aesthetics.

It is on the subject of human freedom that he made an indelible mark by demonstrating that laissez-faire capitalism is not only the best in terms of economics but also by far the one that bequeaths the greatest freedom to the individual. It has been stated before - and was repeated in "Human Action" - there is a direct correlation between a nation's economic freedom and its political freedom. It is no accident that the US, Europe and some Southeast Asian nations are not only the richest in terms of material wealth but also in terms of human potential. What astonishes one are the public pronouncements from those who willingly choose systems that limit both wealth and freedom.

While professional nitwits continue to blast Western culture, millions risk life and limb just to reach our shore. Am I the only one noticing the one-way flow of traffic from such vacation paradises as Cuba, Vietnam, China, Sudan and Syria? This book should be required reading in all high school - but then that would be a coercive action that the author would disdain.

A masterful volume. The breadth and scope of this work leaves one breathless. Oh, if only the world would read and understand this - we'd all be better off...

I find Ludwig von Mises to be a tragic figure. Why?

1. He expresses himself in direct and to the point language; when speaking of syndicalism, "in short, it is nonsense."

2. He writes about things that are terribly important, today and always, yet not so easy to understand.

3. He can't help but judge nonsensical ideas on the merits. No half-measures here. Don't expect him to go easy on your favorite ideology.

4. He expresses himself in old-fashioned language ("men" instead of "persons" or "people" or...) and uses expressions that no sane author would use today ("the white man") And he says what he thinks: Western society is superior to Eastern society because...

5. He sneaks in little quotations in Latin and Greek here and there and uses words not in some dictionaries. (Look up at least 'autarky,' 'praxeology,' 'catallactics,' 'epigone,' 'apodictic' before reading this book.)

In short, very few people today will ever read "Human Action." I am sure there are people that will refuse to read it because von Mises calls homosexuality a "perversion" (why he says that, I don't know, but it has no effect on the economic arguments) And that's too bad. Very much too bad.

Mises clearly strongly believes he's right. It certainly colors his writing. But try as you may, you won't find it coloring his reasoning. His personal opinions on economic matters are clearly the *product* of his reasoning, not the other way around.

There are a lot of people that believe that government intervention is necessary for a healthy economy. If you are one of them, you have to read this book. Once you have read and understood Mises's arguments, if you still believe that the government has any constructive role to play by "fixing" things wrong in the economy, I want to hear about it. (F. A. Hayek, of all people, once believed in socialism, too. Until he read Mises's "Socialism.")

Mises's argument goes like this:

First, capitalism clearly works. The more capitalistic a country is, the wealthier it is---you could even say, the more capitalistic a country is, the wealthier its *poor* are.

Secondly, socialism worked in small, self-sufficient medieval households, but it can't possibly work in a large industrial society. Why? Because the planners can't plan adequately without the help of a marketplace to set prices.

Thirdly and lastly---and this is the nail in the coffin for the wannabe socialists that get their opinions splattered all over the newspapers---any "in between" attempt at combining socialistic ideals with a capitalistic society must inevitably fail. Why? Because any interference with the market has the opposite effects to what the interferers themselves wanted!
(Fiasco policies that fall into this category are rent control, minimum wages, overtime rules, compulsory insurances of different kinds, Keynesian printing of money, etc. etc.---in short, almost every measure that "progressive" politicians use to "help" us.)

Mises is famous for having started the "socialist calculation debate," and there's even a book about it out there now. Critics of Mises's position in the calculation debate *must* read "Human Action." The basic point that Mises makes here---and he never makes it entirely explicitly---is that prices are ephemeral one-time phenomena that are controlled by buyers and sellers (their "human action"); prices are historical data, past information; prices do not control people, they are controlled by people. It's utterly impossible to predict the future price of any good better than that of any other good. The reason is that we don't know today what people will want tomorrow. The idea of a "demand curve" is just an abstraction useful for teaching the simplest principles of supply and demand to college students. Once you understand this simple but subtle point, Mises's position becomes clear. The planners can't plan, not because they can't calculate today's prices in order to satisfy today's demands, but because they can't figure out how to rig the prices so as to meet the consumers of today and those of ten years from now and everybody inbetween! The same idea of the unpredictability of prices applies to Mises's argument that macroeconomic indicators (such as the CPI) are totally useless: either they tell you nothing at all, or else they tell you what's completely obvious. Using the CPI to answer the question "has Sam's purchasing power increased over the last year" is a bit like trying to answer the question "is it hot in Los Angeles" by referring to the average temperature in the United States.

In short, this book collects a remarkable set of truly amazing insights. Everyone that can handle it should---must!---read it, and read it carefully. I hope history remembers this book, because yes, it may one day, when everyone understands its contents, be considered one of the most important of the 20th century. If civilization survives that long, that is.

That much can be said of this great work. I will now address Walt Byars' criticisms of the Positive Theory of Time Preference (PTTP).

Byars' first argument seems to be that since external factors affect utility, they "override" time preference. His second is that since external factors change from time to time, this supposedly negates the PTTP. Or to use his words, "Since we can't observe a state in which all else is equal from time to time, we can't use the fact that we observe humans acting as a basis for proving we all have a positive rate of time preference."

First, the contention that external factors "override" time preference can be easily dealt away with when we consider that both external factors and time preference are part of utility. If you were aware that something in the future will prevent your enjoying the hamburger now, say an arrangement, the negative effect of that "external factor" would take away from the utility of present consumption and what positive benefits were gained by the virtue of it being a present satisfaction. Time preference would therefore be a deciding factor in utility only if it outweighs the external factors. Regardless, this justifies rather than negates the actual *structure* of the PTTP (and preferences in general) as "external" factors are part of utility and should be counted as such. In any case it's all curtains for the external-factors-override-time-preference argument (since they are *part* of utility, and therefore time preference).

His second notion that "we can't observe a state in which all else is equal from time to time" is equivalent to (since 'all else' is part of utility) "we can't observe a state where *utility* is equal from time to time." Ignoring the fact that this would prove nothing insofar as it also entails a rejection of *all* value scales (external and time factors counting as part of utility after all, and all value scales being composed of comparable utilities), it is still just as patently absurd. The first question that comes to mind is, well, observed by whom? "We" apparently include people who may be acting out of uncertainty, indifference to "all else," unawareness of "all else," or even those who are delusional and "aware" of non-existent external factors! By "observe," Byars seems to be suggesting an objective observer. But this is also absurd -- people's value scales are not omniscient, and are often unaffected by "objective" external changes. Man judges and acts by a priori contentions of his own -- faulty or no. An example of this would be a person choosing to buy an item now while being unaware of a sale next week.

(Byars then gives the hypothetical scenario that if you were given the choice of either eating a hamburger now or in an hour your tastes might change to be more favorable towards pizza in an hour. This alleged 'refutation' is invalid mainly because it is impossible to know for certain what the future would be, thus creating a state of uncertainty. If you had to choose between eating a hamburger now or in an hour, the fact that you don't know what your tastes will be in an hour will compel you to eat the hamburger now while it can be enjoyed. If in an hour your tastes change, this future occurrence would not have affected your decision when you were unaware of the outcome, and therefore would not have affected the PTTP, a factor shaping *current* decisions based on current knowledge. What is significant here is therefore not the alleged "objective" consequence of a future event, but your *subjective* ignorance of its potential existence.)