Human Action
“From the
point of view of eternity and the infinite universe man is an infinitesimal
speck. But for man human action and its vicissitudes are the real thing. Action
is the essence of his nature and existence, his means of preserving his life
and raising himself above the level of animals and plants. However perishable
and evanescent all human efforts might be, for man and for human science they
are of primary importance.”
Introduction
“Economics opened to human science a domain previously inaccessible and never thought of the discovery of a regularity in the sequence and interdependence of market phenomena went beyond the limits of the traditional system of learning.”
Transition from classical theory of value to the subjective theory of value: the general theory of choice.
“Choosing determines all human decisions… In making his choice man chooses not only between various material things and services. All human values are offered for option. All ends and all means, both material and ideal issues, the sublime and the base, the noble and ignoble, are ranged in a single row subjected to a decision which picks out one thing and sets aside another.”
“A scientific system is but one station in an endless progressing search for knowledge.” “Economics is a living thing – and to live implies both imperfection and change.”
“Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends.” (This relates to the Way of discovery)
Transition from classical theory of value to the subjective theory of value: the general theory of choice.
“Choosing determines all human decisions… In making his choice man chooses not only between various material things and services. All human values are offered for option. All ends and all means, both material and ideal issues, the sublime and the base, the noble and ignoble, are ranged in a single row subjected to a decision which picks out one thing and sets aside another.”
“A scientific system is but one station in an endless progressing search for knowledge.” “Economics is a living thing – and to live implies both imperfection and change.”
“Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends.” (This relates to the Way of discovery)
Chapter 1
Acting Man
1. Purposeful Action and Animal Reaction
“Human action is purposeful behavior.”
“Action is will put into operation and transformed into an agency, is aiming at ends and goals, is the ego’s meaningful response to stimuli and to the conditions of its environment, is a person’s conscious adjustment to the state of the universe that determines his life.”
1. Purposeful Action and Animal Reaction
“Human action is purposeful behavior.”
“Action is will put into operation and transformed into an agency, is aiming at ends and goals, is the ego’s meaningful response to stimuli and to the conditions of its environment, is a person’s conscious adjustment to the state of the universe that determines his life.”
In this chapter Mises compares praxeology with psychology and psychoanalysis. He makes the distinction that human action is not ‘simply giving preference’. “But acting man chooses, determines, and tries to reach an end. Of two things both of which he cannot have together he selects one and gives up the other. Action therefore always involves both taking and renunciation.”
+ “What counts is a man’s total behavior, and not his talk about planned but not realized acts.”
“Acting means the employment of means for the attainment of ends.” “For to do nothing and to be ide are also action, they too determine the course of events.” “Action is not only doing but no less omitting to do what possibly could be done.” It doesn't matter if it is passive or active, it is still an action.
2. The Prerequisites of Human Action
“We call contentment or satisfaction that state of human being which does not and cannot result in any action.”
“Acting man is eager to substitute a more satisfactory state of affairs for a less satisfactory.” A content man has no wishes nor desires and doesn't want to change things.
What conditions make a man act?
-Human action as the striving for happiness.
“The ultimate goal of human action is always the satisfaction of the acting man’s desire.”
The standard of satisfaction is one’s one personal judgment. “Nobody is in a position to decree what should make a fellow man happier.”
“Praxeology is indifferent to the ultimate goals of action… it is a science of means, not ends.” (Like Gelwick, what matters is the way you do things, regardless of the results.” “The means which man chooses for its satisfaction are determined by a rational consideration of expense and success.”
Emotional impulse is also acting, but the valuation changes. Passion makes a goal more desirable and the price less burdensome.
This is what differentiates us from animals, which cant control their impulses. “Man is a being capable of subduing his instincts, emotions, and impulses; he can rationalize his behavior.” “He arranges his wishes, and desires into a scale, he chooses; in short, he acts.”
3. Human Action as an Ultimate Given
The ultimate given: an irreducible and unanalyzable phenomena. For example when in science, an investigation cannot continue to go any longer because we have reaches a wall of things we dot understand.
“Science is more modest, it is aware of the limits of the human mind and of the human search for knowledge.”
What is not open to further analysis?
Concrete value of judgments and definite human action.
Mises says that the physical, chemical and physiological phenomena are different or are not connected to the world of thought, feeling, valuation and purposeful action. This is what is called Methodological Dualism.
Human action must be considered an ultimate given because it cannot be traced back to its causes.
“From the point of view of eternity and the infinite universe man is an infinitesimal speck. But for man human action and its vicissitudes are the real thing. Action is the essence of his nature and existence, his means of preserving his life and raising himself above the level of animals and plants. However perishable and evanescent all human efforts might be, for man and for human science they are of primary importance.”
4. Rationality and Irrationality: Subjectivism and Objectivity of Praxeological Research.
Human action is always rational.
Going after ‘higher’ or ‘ideal’ satisfactions is no less rational than going after regular satisfactions (religious, freedom of nature).
Even to live is a choice. “To live is for man the outcome of a choice, of a judgment of value.”
Human action is subjective because it takes no parts. It takes the value judgments of the acting man as ultimate data and doesn't analyze it further. It is indifferent to ethical doctrines, religions, etctera.
5. Causality as a Requirement of Action
“Man is in a position to act because he has the ability to discover causal relations which determine change and becoming in the universe… only a man who sees the world in the light of causality is fitted to act.”
Means and ends = cause and effect.
“We must establish the fact that in order to act, man must know the casual relationships between events, processes, or states of affairs.”
6. The Alter Ego
thinking and acting are the characteristic mark of man as man.
“It is purposeful behavior – action – that is the subject matter in our science.”
Another ultimate given: animal instinct.
“Praxeology, like the historical sciences of human action, deals with purposeful human action. If it mentions ends, what it has in view is the ends at which acting men aim. If it speaks of meaning, it refers to the meaning which acting men attach to their actions.”
Prerequisite of human action:
All human actions are teleological.
Teleology: that theory that the cause and direction of changes in phenomena are determined by a previously existing plan or purpose.
+ “What counts is a man’s total behavior, and not his talk about planned but not realized acts.”
“Acting means the employment of means for the attainment of ends.” “For to do nothing and to be ide are also action, they too determine the course of events.” “Action is not only doing but no less omitting to do what possibly could be done.” It doesn't matter if it is passive or active, it is still an action.
2. The Prerequisites of Human Action
“We call contentment or satisfaction that state of human being which does not and cannot result in any action.”
“Acting man is eager to substitute a more satisfactory state of affairs for a less satisfactory.” A content man has no wishes nor desires and doesn't want to change things.
What conditions make a man act?
- Uneasiness
- The image of a more satisfactory state
- Expectation that purposeful behavior has the power to remove or alleviate the felt uneasiness.
-Human action as the striving for happiness.
“The ultimate goal of human action is always the satisfaction of the acting man’s desire.”
The standard of satisfaction is one’s one personal judgment. “Nobody is in a position to decree what should make a fellow man happier.”
“Praxeology is indifferent to the ultimate goals of action… it is a science of means, not ends.” (Like Gelwick, what matters is the way you do things, regardless of the results.” “The means which man chooses for its satisfaction are determined by a rational consideration of expense and success.”
Emotional impulse is also acting, but the valuation changes. Passion makes a goal more desirable and the price less burdensome.
This is what differentiates us from animals, which cant control their impulses. “Man is a being capable of subduing his instincts, emotions, and impulses; he can rationalize his behavior.” “He arranges his wishes, and desires into a scale, he chooses; in short, he acts.”
3. Human Action as an Ultimate Given
The ultimate given: an irreducible and unanalyzable phenomena. For example when in science, an investigation cannot continue to go any longer because we have reaches a wall of things we dot understand.
“Science is more modest, it is aware of the limits of the human mind and of the human search for knowledge.”
What is not open to further analysis?
Concrete value of judgments and definite human action.
Mises says that the physical, chemical and physiological phenomena are different or are not connected to the world of thought, feeling, valuation and purposeful action. This is what is called Methodological Dualism.
Human action must be considered an ultimate given because it cannot be traced back to its causes.
“From the point of view of eternity and the infinite universe man is an infinitesimal speck. But for man human action and its vicissitudes are the real thing. Action is the essence of his nature and existence, his means of preserving his life and raising himself above the level of animals and plants. However perishable and evanescent all human efforts might be, for man and for human science they are of primary importance.”
4. Rationality and Irrationality: Subjectivism and Objectivity of Praxeological Research.
Human action is always rational.
Going after ‘higher’ or ‘ideal’ satisfactions is no less rational than going after regular satisfactions (religious, freedom of nature).
Even to live is a choice. “To live is for man the outcome of a choice, of a judgment of value.”
Human action is subjective because it takes no parts. It takes the value judgments of the acting man as ultimate data and doesn't analyze it further. It is indifferent to ethical doctrines, religions, etctera.
5. Causality as a Requirement of Action
“Man is in a position to act because he has the ability to discover causal relations which determine change and becoming in the universe… only a man who sees the world in the light of causality is fitted to act.”
Means and ends = cause and effect.
“We must establish the fact that in order to act, man must know the casual relationships between events, processes, or states of affairs.”
6. The Alter Ego
thinking and acting are the characteristic mark of man as man.
“It is purposeful behavior – action – that is the subject matter in our science.”
Another ultimate given: animal instinct.
“Praxeology, like the historical sciences of human action, deals with purposeful human action. If it mentions ends, what it has in view is the ends at which acting men aim. If it speaks of meaning, it refers to the meaning which acting men attach to their actions.”
Prerequisite of human action:
All human actions are teleological.
Teleology: that theory that the cause and direction of changes in phenomena are determined by a previously existing plan or purpose.
Chapter 2
The Epistemological Problems of the Sciences of Human Action
1. Praxeology and History
1. Praxeology and History
“The study of history makes a man wise and judicious. But it does not by itself provide any knowledge and skill which could be utilized for handling concrete tasks.”
Comparing Natural Sciences to history:
2. The Formal and Aprioristic Character of Praxeology
Tendency in contemporary philosophy: no a priori knowledge. All of our knowledge comes from experience.
Errors in praxeology:
Necessary and ineluctable intellectual conditions of thinking, anterior to any actual instance of conception and experience. (tacit knowledge?)
Man descends from non-human ancestors who lacked mental ability.
According to empiricism: the fundamental principles of reasoning are an outcome of experience and represent an adaptation of man to the conditions of his environment
“Reason and mind, the human beings most efficacious equipment in their struggle for survival, are embedded in the continuous flow of zoological events. They are neither eternal nor unchangeable. They are transitory.”
Comparing Natural Sciences to history:
- They also deal with past events, with experiences.
- These experiences are if the experiment in which the individual elements of change are observed in isolation. No lab experiments can be performed with human action.
- While lab experiments have a concrete answer. Historical experience can be interpreted in many ways.
- History can’t prove nor disprove any statement. Natural sciences can accept or reject hypothesis based on lab experiments.
2. The Formal and Aprioristic Character of Praxeology
Tendency in contemporary philosophy: no a priori knowledge. All of our knowledge comes from experience.
Errors in praxeology:
- Ignorance of economics
- Insufficient knowledge of history
Necessary and ineluctable intellectual conditions of thinking, anterior to any actual instance of conception and experience. (tacit knowledge?)
Man descends from non-human ancestors who lacked mental ability.
According to empiricism: the fundamental principles of reasoning are an outcome of experience and represent an adaptation of man to the conditions of his environment
“Reason and mind, the human beings most efficacious equipment in their struggle for survival, are embedded in the continuous flow of zoological events. They are neither eternal nor unchangeable. They are transitory.”
We divine that forces are desperately struggling in animals toward the light and comprehension?
“But the problem of the a priori is a different character. It does not deal with the problem of how consciousness and reason have emerged. It refers to the essential and necessary character of the logical structure of the human mind.”
“Every living organism conserves the effect of earlier situations, and the present state of inorganic matter is shaped by the effects of all the influences to which it was exposed in the past.” “The present state of the universe is the product of the past.”
Memory: a phenomenon of consciousness and conditioned by the logical a priori.
Extra: “The truth is that there is nothing to be remembered of unconscious states.” Freud, we font remember because we weren’t conscious. We only remember conscious states.
“The human mind is not a tabula rasa on which the external events can write their own history. It is equipped with a set of tools for grasping reality. Man acquired these tools, i.e. the logical structure of his mind, in the course of his evolution from an amoeba to his present state. But these tools are logically prior to any experience.”
Methodological apriorism: we cannot really think of a world without causality and teleology. This is something common to all men, a logical structure of human reason, just as we cant believe that A is the same as non A.
“The fact that man does not have the creative power to imagine categories at variance with the fundamental logical relations and whith the principles of causality and teleology enjoins.”
The logical structure (the way of thought) from our ancestors or primitive man is the same as ours today; the only difference is the content. St Augustine or St. Thomas have the same logical structure as ours.
“But the concept of action does not imply that the action is guided by a correct theory and a technology promising success and that it attains the end aimed at. It only implies that the performer of the action believes that the means applied will produce the desired effect.” When we act it doesn’t mean that we are doing the correct thing or by the correct means. It only means that we believe that we have applied the correct means.
3. The A Priori and Reality
Aprioristic reasoning:
“Without theory, the general aprioristic science of human action, there is no comprehension of the reality of human action.”
“But the problem of the a priori is a different character. It does not deal with the problem of how consciousness and reason have emerged. It refers to the essential and necessary character of the logical structure of the human mind.”
“Every living organism conserves the effect of earlier situations, and the present state of inorganic matter is shaped by the effects of all the influences to which it was exposed in the past.” “The present state of the universe is the product of the past.”
Memory: a phenomenon of consciousness and conditioned by the logical a priori.
Extra: “The truth is that there is nothing to be remembered of unconscious states.” Freud, we font remember because we weren’t conscious. We only remember conscious states.
“The human mind is not a tabula rasa on which the external events can write their own history. It is equipped with a set of tools for grasping reality. Man acquired these tools, i.e. the logical structure of his mind, in the course of his evolution from an amoeba to his present state. But these tools are logically prior to any experience.”
Methodological apriorism: we cannot really think of a world without causality and teleology. This is something common to all men, a logical structure of human reason, just as we cant believe that A is the same as non A.
“The fact that man does not have the creative power to imagine categories at variance with the fundamental logical relations and whith the principles of causality and teleology enjoins.”
The logical structure (the way of thought) from our ancestors or primitive man is the same as ours today; the only difference is the content. St Augustine or St. Thomas have the same logical structure as ours.
“But the concept of action does not imply that the action is guided by a correct theory and a technology promising success and that it attains the end aimed at. It only implies that the performer of the action believes that the means applied will produce the desired effect.” When we act it doesn’t mean that we are doing the correct thing or by the correct means. It only means that we believe that we have applied the correct means.
3. The A Priori and Reality
Aprioristic reasoning:
- Conceptual
- Deductive
“Without theory, the general aprioristic science of human action, there is no comprehension of the reality of human action.”
“Action and reason are congeneric and homogeneous.”
“If we had not in our mind the schemes provided by praxeological reasoning, we should never be in a position to discern and to grasp any action.” Through the scheme, we are able to buy and sell, to make exchange. If unaided by the praxeological knowledge we would only see coins as round pieces of metal.
“Experience concerning money requires familiarity with the praxeological categories of medium of exchange.”
- Starting point of praxeology: reflection about the essence of action
“If we had not in our mind the schemes provided by praxeological reasoning, we should never be in a position to discern and to grasp any action.” Through the scheme, we are able to buy and sell, to make exchange. If unaided by the praxeological knowledge we would only see coins as round pieces of metal.
“Experience concerning money requires familiarity with the praxeological categories of medium of exchange.”
4. The Principal of Methodological Individualism
Praxeology: actions of individual men
Methodological individualism:
Considers as one of its main tasks to describe and to analyze their (nations, states, municipalities, parties or religious communities) becoming and their disappearing, their changing structures and their operation.
Method:
Praxeology: actions of individual men
Methodological individualism:
Considers as one of its main tasks to describe and to analyze their (nations, states, municipalities, parties or religious communities) becoming and their disappearing, their changing structures and their operation.
Method:
- All actions performed by individuals. “ A collective operates always through the intermediary of one or several individuals whose actions are related to the collective as the secondary source.”
- “The life of a collective is lived in the actions of the individuals constituting its body.” “Thus the way to a cognition of collective wholes is though an analysis of the individuals’ actions.”
- There is no holism. Everything is reductionism. A social collective comes into being through the actions of individuals. “A collective whole is a particular aspect of the actions of various individuals and as such a real thing determining the course of events.”
- Collective wholes aren’t visible.
- An individual can belong to many collective entities at the same time.
“In the very act of choosing and acting he is an ego.”
5. The Principle of Methodological Singularism
Praxeology: “It does not deal in vague terms with human action in general, but with a concrete action which a definite man has performed at a definite date and a definite place.”
“Universalism, collectivism and conceptual realism sees only wholes and universals.” “They never find solutions, but antinomies and paradoxes only.”
“Praxeology asks: what happens in acting? What does it mean to say that an individual then and there, today and here, at any time and at any place, acts? What results if he chooses one thing and rejects another?”
The act of choosing involves making a decision from various opportunities. We can choose between one thing and another, but every action is limited in its immediate consequences.
“Human life is an unceasing sequence of single actions.” But no single actions are isolated, they are links in a chain of actions.
5. The Principle of Methodological Singularism
Praxeology: “It does not deal in vague terms with human action in general, but with a concrete action which a definite man has performed at a definite date and a definite place.”
“Universalism, collectivism and conceptual realism sees only wholes and universals.” “They never find solutions, but antinomies and paradoxes only.”
“Praxeology asks: what happens in acting? What does it mean to say that an individual then and there, today and here, at any time and at any place, acts? What results if he chooses one thing and rejects another?”
The act of choosing involves making a decision from various opportunities. We can choose between one thing and another, but every action is limited in its immediate consequences.
“Human life is an unceasing sequence of single actions.” But no single actions are isolated, they are links in a chain of actions.
6. The Individual and Changing Features of Human Action
“The content of human action, i.e., the ends aimed at and the means chosen and applied for the attainment of these ends, is determined by the personal qualities of every acting man.” He grows up and lived in a definite environment.Our will is not “free”, in the metaphysical sense, it is determined by our background and all of the influences to which we were exposed. Where/how we are born makes a lot of difference. If I were born with different parents, or in a different country, I probably wouldn’t be the same as today. We are determined by where we are born, that is why we don’t have free will, we can’t choose this.It is like if we become trained. We do certain things because since our childhood we have learned that they are correct; they are customary in our environment. But, “As soon as he discovers that the pursuit of the habitual way may hinder the attainment of ends considered as more desirable, he changes his attitude.” If man notices that his customs won’t help him get where he wants, he changes them.
7. The Scope and Specific Method of History
History’s task is to show how events actually happened, in a neutral stance (without imposing presuppositions and values). It is the representation of the past in conceptual terms; only reports relevant facts.
“Those writers who consider historical events as an arsenal of weapons for the conducts of their party feuds are not historians but propagandists and apologists. They are not eager to acquire knowledge bit to justify the program of their parties.” but at the end a real historian also relates preconceived conditions, because from all of the relevant facts, he chooses the ones that catch his attention.
“The content of human action, i.e., the ends aimed at and the means chosen and applied for the attainment of these ends, is determined by the personal qualities of every acting man.” He grows up and lived in a definite environment.Our will is not “free”, in the metaphysical sense, it is determined by our background and all of the influences to which we were exposed. Where/how we are born makes a lot of difference. If I were born with different parents, or in a different country, I probably wouldn’t be the same as today. We are determined by where we are born, that is why we don’t have free will, we can’t choose this.It is like if we become trained. We do certain things because since our childhood we have learned that they are correct; they are customary in our environment. But, “As soon as he discovers that the pursuit of the habitual way may hinder the attainment of ends considered as more desirable, he changes his attitude.” If man notices that his customs won’t help him get where he wants, he changes them.
7. The Scope and Specific Method of History
History’s task is to show how events actually happened, in a neutral stance (without imposing presuppositions and values). It is the representation of the past in conceptual terms; only reports relevant facts.
“Those writers who consider historical events as an arsenal of weapons for the conducts of their party feuds are not historians but propagandists and apologists. They are not eager to acquire knowledge bit to justify the program of their parties.” but at the end a real historian also relates preconceived conditions, because from all of the relevant facts, he chooses the ones that catch his attention.
“The historian’s genuine problem is always to interpret things as they happened.”
“To understand an individual case does not mean to justify or to excuse it.” Economics couldn’t be understood without economic theory, just as history couldn’t be understood without praxeological knowledge, theory gives sense and context for understanding events.
8. Conception and Understanding
“To understand an individual case does not mean to justify or to excuse it.” Economics couldn’t be understood without economic theory, just as history couldn’t be understood without praxeological knowledge, theory gives sense and context for understanding events.
8. Conception and Understanding
History can’t
be scientific because it depends on subjective value judgments. History can’t
be studied without presuppositions.These
presuppositions change depending on the times. Many historians might have
believed in the witch’s evil eye and make that the cause for something; now
historians don’t even take things like that into consideration as causes. So no
historical study is complete. No matter what view point the historian prefers
he should remain neutral to the event when writing. “But in
order to understand their actions the historians must try to see things as they
really appeared to the acting men at the critical time, not only as we see them
now from the point of view of our present-day knowledge.”
“As far as the task of understanding is to establish the facts that people were motivated by a definite value judgment and aimed at definite ends, there cannot be any disagreement among the historians.”
“As far as the task of understanding is to establish the facts that people were motivated by a definite value judgment and aimed at definite ends, there cannot be any disagreement among the historians.”
“Different
individuals value the same things in a different way, and valuations change
with the same individuals with changing conditions.”
In history there is a lack of constant relations, so you can’t measure. Economics is one of them, i.e., you cannot explain with assurance why Roosevelt defeated Governor Dewey in the election of 1944.
“The understanding of the historian is always tinged with the marks of his personality. It reflects the mind of its author.” This is why historical understanding can never produce results accepted by all men.
Understanding is everybody’s business, not just historians.
“Everybody uses understanding in dealing with the uncertainty of future events to which he must adjust his own actions.”
9. On Ideal Types
“A historical event cannot be described without reference to the persons involved and to the place and date of its occurrence.
All historical events have one common feature: they are human actions.
History counts the meaning that men attach to their actions, to the effects of the actions and by the state of affairs that they want to change.
In history there is a lack of constant relations, so you can’t measure. Economics is one of them, i.e., you cannot explain with assurance why Roosevelt defeated Governor Dewey in the election of 1944.
“The understanding of the historian is always tinged with the marks of his personality. It reflects the mind of its author.” This is why historical understanding can never produce results accepted by all men.
Understanding is everybody’s business, not just historians.
“Everybody uses understanding in dealing with the uncertainty of future events to which he must adjust his own actions.”
9. On Ideal Types
“A historical event cannot be described without reference to the persons involved and to the place and date of its occurrence.
All historical events have one common feature: they are human actions.
History counts the meaning that men attach to their actions, to the effects of the actions and by the state of affairs that they want to change.
But ideal
concepts are not praxeological concepts. They don’t refer to unique and
individual events which are the subject matter of history.
Classical economists weren’t able to find a solution for a satisfactory theory of value. They couldn’t trace the phenomenon of market exchange and of production to its sources, the behavior of the consumer. They lacked the choices of the consumers, a theory of demand. This is why they didn’t develop a theory of human action. They described man driven only by economic motives, even if they knew that man is also driven by non-economic motives.
10. The Procedure of Economics
“The scope of praxeology is the explication of the category of human action, all that is needed for the deduction of all praxeological theorems is a knowledge of the essence of human action.”
“Like logic and mathematics, praxeological knowledge is in us; it does not come from without.”
“Experience merely directs our curiosity toward certain problems and diverts it from other problems. It tells us what we should explore, but it does not tell us how we could proceed in our search for knowledge.”
“Man is not infallible. He searches for truth – that is, for the most adequate comprehension of reality as far as the structure of his mind and reason makes it accessible to him. Man can never become omniscient. He can never be absolutely certain that his inquiries were not misled and that what he considers as certain truth is not error. All that man can do is submit all his theories again and again to the most critical reexamination.”
11. The Limitations on Praxeological Concepts
“For an all-powerful being there is no pressure to choose between various states if uneasiness.”
“Action is a display of the potency and control that are limited. It is a manifestation of man who is restrained by the circumscribed powers of his mind, the physiological nature of his body, the vicissitudes of his environment, and the scarcity of external factors on which his welfare depends.” “The living being is not perfect because it is liable to change.”
Example: The state “is an institution to cope with human imperfection and its essential function is to inflict punishment upon minorities in order to protect majorities against the detrimental consequences of certain actions.”
Classical economists weren’t able to find a solution for a satisfactory theory of value. They couldn’t trace the phenomenon of market exchange and of production to its sources, the behavior of the consumer. They lacked the choices of the consumers, a theory of demand. This is why they didn’t develop a theory of human action. They described man driven only by economic motives, even if they knew that man is also driven by non-economic motives.
10. The Procedure of Economics
“The scope of praxeology is the explication of the category of human action, all that is needed for the deduction of all praxeological theorems is a knowledge of the essence of human action.”
“Like logic and mathematics, praxeological knowledge is in us; it does not come from without.”
“Experience merely directs our curiosity toward certain problems and diverts it from other problems. It tells us what we should explore, but it does not tell us how we could proceed in our search for knowledge.”
“Man is not infallible. He searches for truth – that is, for the most adequate comprehension of reality as far as the structure of his mind and reason makes it accessible to him. Man can never become omniscient. He can never be absolutely certain that his inquiries were not misled and that what he considers as certain truth is not error. All that man can do is submit all his theories again and again to the most critical reexamination.”
11. The Limitations on Praxeological Concepts
“For an all-powerful being there is no pressure to choose between various states if uneasiness.”
“Action is a display of the potency and control that are limited. It is a manifestation of man who is restrained by the circumscribed powers of his mind, the physiological nature of his body, the vicissitudes of his environment, and the scarcity of external factors on which his welfare depends.” “The living being is not perfect because it is liable to change.”
Example: The state “is an institution to cope with human imperfection and its essential function is to inflict punishment upon minorities in order to protect majorities against the detrimental consequences of certain actions.”
Chapter 3
Economics and the Revolt Against Reason
1. The Revolt Against Reason
“The revolt against reason, the characteristic mental attitude of our age.”
What didn’t cause this attack:
The revolt against reason was aimed at economics. “The attack against the natural sciences was only the logically necessary outcome of the attack against economics.”
Why?
Economists demolished the delusions of socialist utopians. “They knew enough to demonstrate the futility of all socialist schemes produced up to their time.”
The only way out for a socialist then was to attack logic and reason and substitute mystical intuition for ratiocination (Karl Marx)
Marx’s assertions:
“It is the task of history to describe the historical conditions which made such a crude doctrine popular. Economics has another task. It must analyze both the Marxian polylogism and other brands of polylogism formed after its pattern, and expose their fallacies and contradictions.”
2. The Logical Aspect of Polylogism
1. The Revolt Against Reason
“The revolt against reason, the characteristic mental attitude of our age.”
What didn’t cause this attack:
- Lack of modesty, caution, and self-examination on the part of the philosophers.
- Failures in the evolution of modern natural science.
The revolt against reason was aimed at economics. “The attack against the natural sciences was only the logically necessary outcome of the attack against economics.”
Why?
Economists demolished the delusions of socialist utopians. “They knew enough to demonstrate the futility of all socialist schemes produced up to their time.”
The only way out for a socialist then was to attack logic and reason and substitute mystical intuition for ratiocination (Karl Marx)
Marx’s assertions:
- Human reason is constitutionally unfitted to find truth.
- Logical structure of the mind is different with various social classes.
- No such thing as a universally valid logic.
- Mind produces a set of ideas distinguishing the selfish interests of the thinkers own class.
“It is the task of history to describe the historical conditions which made such a crude doctrine popular. Economics has another task. It must analyze both the Marxian polylogism and other brands of polylogism formed after its pattern, and expose their fallacies and contradictions.”
2. The Logical Aspect of Polylogism
“Polylogism
followers never demonstrated how they came to believe this; they only declared
it to be true.”
3. The Praxeological Aspect of Polylogism
Ideology (in the Marxian sense):
“is a doctrine which, although erroneous form the point of view of the correct logic of proletarians, is beneficial to selfish interests of the class which has developed it.” It is a false doctrine that precisely on account of its falsity serves the interest of the class that developed it.
“No matter whether such ‘ideological’ doctrines are the product of a ‘false consciousness’, forcing a man to think unwittingly in a manner that serves the interests of his class, or whether they are the product of a purposeful distortion of truth, they must encounter the ideologies of other classes and try to supplant them.”
Marx: “Men fool themselves in believing that they are free to choose between various ideas and between what they call truth and error. They themselves do not think; it is historical providence that manifests in their thoughts.”
“For science the only relevant question is whether or not these theorems can stand the test of rational examination.”
“It is ideas that make history, and not history that makes ideas.”
“It is useless to argue with the mystics and seers.” They base their assertions on intuitions and are not prepared to submit them to rational examination. “The Marxian’s pretend that what their inner voice proclaims is history’s self-revelation.”
“Of course, the Marxian’s consider a doctrine vicious is its author’s background is not proletarian. But who is proletarian? Doctor Marx, the manufacturer and ‘exploiter’ Engels, and Lenin, the scion of the Russian gentry, were certainly not of proletarian background.”
“The essence of Marxian philosophy is this: We are right because we are the spokesmen of the rising proletarian class. Discursive reasoning cannot invalidate our teachings, for they are inspired by the supreme power that determined the destiny of mankind. Our adversaries are wrong because they lack the intuition that gives our minds.”
4. Racial Polylogism
Mankind is divided into races, which differ in bodily features.
“The categories of human thought and action are neither arbitrary products of the human mind nor conventions. They are not outside of the universe and of the course of cosmic events. They are biological facts and have a definite function in life and reality. They are instruments in a man’s struggle for existence and in his endeavors to adjust himself as much as possible to the real state of the universe and to remove uneasiness as much as it is in his power to do so. They are therefore appropriate to the structure of the external world and reflect properties of the world and of reality. They work, and are in this sense true and valid.”
5. Polylogism and Understanding
What did Marxism and racism really wanted to say through polylogism: that historical understanding, aesthetic empathy and value judgments are conditioned by a man’s background.
But people want things and have values that are not determined by race, class or nationality.
Example: monks. Rich people, as well as poor people, have been monks. Also different nationalities have had monks.
“The serious discrepancies to be found in historical studies are an outcome of differences in the field of the non-historical sciences and not in various modes of understanding.”
6. The Case for Reason
“Judicious rationalists do not pretend that human reason can ever make man omniscient. They are fully aware of the fact that, however knowledge may increase, there will always remain things ultimately given and not liable to any further elucidation.”
But as far as man is able to attain cognition, he must rely on reason.
“We do not know what causes the inborn differences in human abilities. Science is at loss to explain why Newton and Mozart were full of creative genius and why most people are not.”
“if somebody were eager to distill at any cost a grain of truth out of the Marxian teachings, he could say that emotions influence a man’s reasoning very much. Nobody ever ventured to deny this obvious fact, and Marxism cannot be credited with its discovery.”
“Reason is an ultimate given and cannot be analyzed or questioned by itself. The very existence of human reason is a nonrational fact. The only statement that can be predicated with regard to reason is that it is the mark that distinguishes man from animals and has brought about everything that is specifically human.”
“If man reconsiders freeing himself from the supremacy of reason, he must know what he will have to forsake.” He will become an animal if he gives up reason, and give up all knowledge available to us.
3. The Praxeological Aspect of Polylogism
Ideology (in the Marxian sense):
“is a doctrine which, although erroneous form the point of view of the correct logic of proletarians, is beneficial to selfish interests of the class which has developed it.” It is a false doctrine that precisely on account of its falsity serves the interest of the class that developed it.
“No matter whether such ‘ideological’ doctrines are the product of a ‘false consciousness’, forcing a man to think unwittingly in a manner that serves the interests of his class, or whether they are the product of a purposeful distortion of truth, they must encounter the ideologies of other classes and try to supplant them.”
Marx: “Men fool themselves in believing that they are free to choose between various ideas and between what they call truth and error. They themselves do not think; it is historical providence that manifests in their thoughts.”
“For science the only relevant question is whether or not these theorems can stand the test of rational examination.”
“It is ideas that make history, and not history that makes ideas.”
“It is useless to argue with the mystics and seers.” They base their assertions on intuitions and are not prepared to submit them to rational examination. “The Marxian’s pretend that what their inner voice proclaims is history’s self-revelation.”
“Of course, the Marxian’s consider a doctrine vicious is its author’s background is not proletarian. But who is proletarian? Doctor Marx, the manufacturer and ‘exploiter’ Engels, and Lenin, the scion of the Russian gentry, were certainly not of proletarian background.”
“The essence of Marxian philosophy is this: We are right because we are the spokesmen of the rising proletarian class. Discursive reasoning cannot invalidate our teachings, for they are inspired by the supreme power that determined the destiny of mankind. Our adversaries are wrong because they lack the intuition that gives our minds.”
4. Racial Polylogism
Mankind is divided into races, which differ in bodily features.
“The categories of human thought and action are neither arbitrary products of the human mind nor conventions. They are not outside of the universe and of the course of cosmic events. They are biological facts and have a definite function in life and reality. They are instruments in a man’s struggle for existence and in his endeavors to adjust himself as much as possible to the real state of the universe and to remove uneasiness as much as it is in his power to do so. They are therefore appropriate to the structure of the external world and reflect properties of the world and of reality. They work, and are in this sense true and valid.”
5. Polylogism and Understanding
What did Marxism and racism really wanted to say through polylogism: that historical understanding, aesthetic empathy and value judgments are conditioned by a man’s background.
But people want things and have values that are not determined by race, class or nationality.
Example: monks. Rich people, as well as poor people, have been monks. Also different nationalities have had monks.
“The serious discrepancies to be found in historical studies are an outcome of differences in the field of the non-historical sciences and not in various modes of understanding.”
6. The Case for Reason
“Judicious rationalists do not pretend that human reason can ever make man omniscient. They are fully aware of the fact that, however knowledge may increase, there will always remain things ultimately given and not liable to any further elucidation.”
But as far as man is able to attain cognition, he must rely on reason.
“We do not know what causes the inborn differences in human abilities. Science is at loss to explain why Newton and Mozart were full of creative genius and why most people are not.”
“if somebody were eager to distill at any cost a grain of truth out of the Marxian teachings, he could say that emotions influence a man’s reasoning very much. Nobody ever ventured to deny this obvious fact, and Marxism cannot be credited with its discovery.”
“Reason is an ultimate given and cannot be analyzed or questioned by itself. The very existence of human reason is a nonrational fact. The only statement that can be predicated with regard to reason is that it is the mark that distinguishes man from animals and has brought about everything that is specifically human.”
“If man reconsiders freeing himself from the supremacy of reason, he must know what he will have to forsake.” He will become an animal if he gives up reason, and give up all knowledge available to us.
Chapter 4
A First Analysis of the Category of Action
1. Ends and Means
Ends: “The result sought by an action is called its end, goal or aim.” i.e., the relief of uneasiness.
Means: “A means is whatever serves to the attainment of any end, goal or aim. Means are not given in the universe; in this universe there exists only things. A thing becomes a means when human reason plans to employ it for the attainment of some end and human action really employs it for this purpose.”
“Praxeology foes not deal with the external world, but with man’s conduct with regard to it.”
“Means are necessarily always limited, i.e, source with regard to the services for which man wants to use them.”
“If this were not the case, there would not be any action with regard to them. Where man is not restrained by the insufficient qualities of things available, there is no need for any action.”
2. The Scale of Value
“Acting man chooses between various opportunities offered for choice. He prefers one alternative to others.”
Scale of values or wants are only manifest in the reality of action.
“Every action is always in perfect agreement with the scale of values or wants because these scales are nothing but an instrument for the interpretation of man’s acting.”
Praxeology and economics differ on the value of things with ethical doctrines. Ethical doctrines are not neutral and aim at what ought to be for everyone. Praxeology and economics on the other hand know that ultimate givens are subjective and differ with various people. They deal with the means chosen by the individual and whether or not these ends are suitable to attain the end.
“Value is the importance that acting man attaches to ultimate ends.” “Means are valued derivatively according to their serviceableness in contributing to the attainment of ultimate ends… They are important for man only as far as they make it possible for him to attain some ends.”
“It (value) is within us; it is the way which man reacts to the conditions of his environment.”
3. The Scale of Needs
“Not what a man should do, but what he does, counts for praxeology and economics.”
“Economics deals with real men, weak and subject to error as he is, not with ideal being, omniscient and perfect as only gods could be.”
4. Action as an Exchange
“Action is an attempt to substitute a more satisfactory state of affairs for a less satisfactory one.”
We barter for better conditions.
“That which is abandoned is called the price paid for the attainment of the end sought.”
Value of the price = cost
Cost = value attached to the satisfaction which one must forego in order to attain the ends aimed at.
Difference between value of the price paid and that of the goal attained = gain, profit or net yield.
Loss = if the state of affairs after the exchange isn’t satisfactory or less desirable than the state you were in before the exchange.
1. Ends and Means
Ends: “The result sought by an action is called its end, goal or aim.” i.e., the relief of uneasiness.
Means: “A means is whatever serves to the attainment of any end, goal or aim. Means are not given in the universe; in this universe there exists only things. A thing becomes a means when human reason plans to employ it for the attainment of some end and human action really employs it for this purpose.”
“Praxeology foes not deal with the external world, but with man’s conduct with regard to it.”
“Means are necessarily always limited, i.e, source with regard to the services for which man wants to use them.”
“If this were not the case, there would not be any action with regard to them. Where man is not restrained by the insufficient qualities of things available, there is no need for any action.”
2. The Scale of Value
“Acting man chooses between various opportunities offered for choice. He prefers one alternative to others.”
Scale of values or wants are only manifest in the reality of action.
“Every action is always in perfect agreement with the scale of values or wants because these scales are nothing but an instrument for the interpretation of man’s acting.”
Praxeology and economics differ on the value of things with ethical doctrines. Ethical doctrines are not neutral and aim at what ought to be for everyone. Praxeology and economics on the other hand know that ultimate givens are subjective and differ with various people. They deal with the means chosen by the individual and whether or not these ends are suitable to attain the end.
“Value is the importance that acting man attaches to ultimate ends.” “Means are valued derivatively according to their serviceableness in contributing to the attainment of ultimate ends… They are important for man only as far as they make it possible for him to attain some ends.”
“It (value) is within us; it is the way which man reacts to the conditions of his environment.”
3. The Scale of Needs
“Not what a man should do, but what he does, counts for praxeology and economics.”
“Economics deals with real men, weak and subject to error as he is, not with ideal being, omniscient and perfect as only gods could be.”
4. Action as an Exchange
“Action is an attempt to substitute a more satisfactory state of affairs for a less satisfactory one.”
We barter for better conditions.
“That which is abandoned is called the price paid for the attainment of the end sought.”
Value of the price = cost
Cost = value attached to the satisfaction which one must forego in order to attain the ends aimed at.
Difference between value of the price paid and that of the goal attained = gain, profit or net yield.
Loss = if the state of affairs after the exchange isn’t satisfactory or less desirable than the state you were in before the exchange.
Chapter 5
Time
1. Time as a Praxeological Factor
“The concepts of change and of time are inseparably linked together. Action aims at change and is therefore in the temporal order.”
“Human reason is even incapable of conceiving the ideas of timeless existence and timeless action.”
1. Time as a Praxeological Factor
“The concepts of change and of time are inseparably linked together. Action aims at change and is therefore in the temporal order.”
“Human reason is even incapable of conceiving the ideas of timeless existence and timeless action.”
Praxeological
system:
2. Past, Present and Future“It is acting that provides man with the notion of time and makes him aware of the flux of time.”
The idea of time is a praxeological category.
Action is directed towards the future, aiming at changing less satisfactory condition for more satisfactory ones.
“The ‘now’ of the present is continuously shifted to the past and is retained in the memory only.”
“As the future is uncertain it always remains undecided and vague how much of it we can consider as now and present.”
“Man becomes conscious of the time when he plans to convert a less satisfactory present state into a more satisfactory future state.” The will to improve gives us measure of time, not of memory.
3. The Economization of Time
Economizing time = prioritizing
“Man is subject to the passing of time. He comes into existence, grows, becomes old and passes away. His time is scarce. He must economize it as he economizes other scarce factors.”
Time is unique and irreversible. You can’t do everything now, this instant, so we have to choose to do things one at a time according to our value of things; we choose how to use our time.
4. The Temporal Relation Between Actions
“Synchronism is a praxeological notion only with regard to the concerted efforts of various acting men.”
Man’s actions can’t be effected at the same instant. One action follows the other.
Consistency in praxeology:
Constancy or clinging to the same principles.
The only aspect of acting that in constant: in preferring the more valuable to the less valuable.
- Implies categories
of time and causality
- Is aprioristic
and deductive
- It's irreversible
2. Past, Present and Future“It is acting that provides man with the notion of time and makes him aware of the flux of time.”
The idea of time is a praxeological category.
Action is directed towards the future, aiming at changing less satisfactory condition for more satisfactory ones.
“The ‘now’ of the present is continuously shifted to the past and is retained in the memory only.”
“As the future is uncertain it always remains undecided and vague how much of it we can consider as now and present.”
“Man becomes conscious of the time when he plans to convert a less satisfactory present state into a more satisfactory future state.” The will to improve gives us measure of time, not of memory.
3. The Economization of Time
Economizing time = prioritizing
“Man is subject to the passing of time. He comes into existence, grows, becomes old and passes away. His time is scarce. He must economize it as he economizes other scarce factors.”
Time is unique and irreversible. You can’t do everything now, this instant, so we have to choose to do things one at a time according to our value of things; we choose how to use our time.
4. The Temporal Relation Between Actions
“Synchronism is a praxeological notion only with regard to the concerted efforts of various acting men.”
Man’s actions can’t be effected at the same instant. One action follows the other.
Consistency in praxeology:
Constancy or clinging to the same principles.
The only aspect of acting that in constant: in preferring the more valuable to the less valuable.
Chapter 6
Uncertainty
1. Uncertainty and Acting
“The uncertainty of the future is already implied in the very notion of action. That man acts and that the future is uncertain are by no means two independent matters. They are only two different modes of establishing one thing.”
If we knew the future we wouldn’t have to choose or act. We would be more or less programmed. There would be no reason to act if we know what were to happen in the future.
“Every action refers to an unknown future.” This is why probability concerns praxeology.
2. The Meaning of Probability
1. Uncertainty and Acting
“The uncertainty of the future is already implied in the very notion of action. That man acts and that the future is uncertain are by no means two independent matters. They are only two different modes of establishing one thing.”
If we knew the future we wouldn’t have to choose or act. We would be more or less programmed. There would be no reason to act if we know what were to happen in the future.
“Every action refers to an unknown future.” This is why probability concerns praxeology.
2. The Meaning of Probability
3. Class Probability
“Class probability means: we know or assume to know, with regard to the problem concerned, everything about the behavior of a whole class of events of phenomena; but about the actual singular event or phenomena we know nothing but that they are elements of this class.”
Example: lottery tickets. We know that there are 90 tickets and that 5 will be drawn, but about each singular ticket we don’t know anything except that they are a part of this round of lottery. We know the behavior of the events, but we don’t know the elements of that event.
4. Case Probability
“Case probability means: we know with regard to a particular event, some of the factors which determine its outcome; but there are other determining factors about which we know nothing.”
Case probability helps us deal with problems of human action; it deals with unique events.
“Understanding is always based on incomplete knowledge. We may believe we know the motives of the acting men, the ends they are aiming at, and the means they plan to apply for the attainment of these ends. We have a definite opinion with regard to the effects to be expected from the operation of these factors. But this knowledge is defective. We cannot exclude beforehand the possibility that we have erred in the appraisal of their influence or have failed to take into consideration some factors whose interference we did not foresee at all, or no in a correct way.”
“Class probability means: we know or assume to know, with regard to the problem concerned, everything about the behavior of a whole class of events of phenomena; but about the actual singular event or phenomena we know nothing but that they are elements of this class.”
Example: lottery tickets. We know that there are 90 tickets and that 5 will be drawn, but about each singular ticket we don’t know anything except that they are a part of this round of lottery. We know the behavior of the events, but we don’t know the elements of that event.
4. Case Probability
“Case probability means: we know with regard to a particular event, some of the factors which determine its outcome; but there are other determining factors about which we know nothing.”
Case probability helps us deal with problems of human action; it deals with unique events.
“Understanding is always based on incomplete knowledge. We may believe we know the motives of the acting men, the ends they are aiming at, and the means they plan to apply for the attainment of these ends. We have a definite opinion with regard to the effects to be expected from the operation of these factors. But this knowledge is defective. We cannot exclude beforehand the possibility that we have erred in the appraisal of their influence or have failed to take into consideration some factors whose interference we did not foresee at all, or no in a correct way.”
"In the real world acting man is faced with the fact that there are fellow men acting on their behalf as he himself acts."
5. Numerical Evaluation of Case Probability
“Case probability is not open to any kind of numerical evaluation.”
6. Betting, Gambling and Playing Games
Bet: engagement to risk money or other things against another man on the result of an event about the outcome of which we know only so much as can be known on the ground of understanding. We think we know the result.
Gambling: engagement to risk money or other things on the result of an event about which we do not know anything more than is known of the ground of knowledge concerning the behavior of the whole class. We have no idea of what the result will be.
Game: can either be ends or means. Ends, when people who play them want the stimulation or excitement by playing or to show off their skills. Means, when people want to make money by winning. Playing a game can be called an action.
7. Praxeological Prediction
We can’t predict the future, but understanding will help us see events better, but it still doesn’t help predict.
“Praxeological knowledge makes it possible to predict with apodictic certainty the outcome of various modes of action.”
5. Numerical Evaluation of Case Probability
“Case probability is not open to any kind of numerical evaluation.”
6. Betting, Gambling and Playing Games
Bet: engagement to risk money or other things against another man on the result of an event about the outcome of which we know only so much as can be known on the ground of understanding. We think we know the result.
Gambling: engagement to risk money or other things on the result of an event about which we do not know anything more than is known of the ground of knowledge concerning the behavior of the whole class. We have no idea of what the result will be.
Game: can either be ends or means. Ends, when people who play them want the stimulation or excitement by playing or to show off their skills. Means, when people want to make money by winning. Playing a game can be called an action.
7. Praxeological Prediction
We can’t predict the future, but understanding will help us see events better, but it still doesn’t help predict.
“Praxeological knowledge makes it possible to predict with apodictic certainty the outcome of various modes of action.”
Chapter 7
Action Within the World
The Law of Marginal Utility
“The external world to which acting man adjusts his conduct is a world of quantitative determinateness.” There is a certain quantity of things in the world, that is why the world is of quantitative determinateness, if not nothing would be scarce.
Acting man values things as means for the removal of his uneasiness.
Quality and quantity, which are categories of the external world, only acquire importance to human action indirectly. Why? Because everything produces a limited effect, so scarce things are treated as means, and acting man distinguishes various classes of means.
But… “If acting man has to decide between two or more means of different classes, he grades the individual portions of each of them.” This ranking depends on the individual and unique conditions under which man acts in every case. This choice is always made between definite quantities of means.
Unit: the smallest quantity which can be the object of such a decision.
“What counts always and alone in valuing a compound of several units is the utility of this compound as a whole – i.e., the increment of well-being dependent on it.”
Utility: importance attached to a thing on account of the belief that it can remove uneasiness. In other words, subjective use value; people believe they have the power to bring about a desired effect. “Acting man believes that the services a thing can render are apt to improve his own well-being, and calls this the utility of things concerned.”
Objective use value: different from subjective use value in that it is the relation between a thing and the effect it has the capacity to bring about.
Problem with the theory of value: economists observed that the things who’s ‘utility’ is greater are valued less than other things of smaller utility; iron is less appreciated than gold.
But lately economics discovered that man does not have to choose between all the iron and all the gold. “He chooses at a definite time and place under definite conditions between a strictly limited quantity of gold and strictly limited quantity of iron.” “He is simply choosing between two satisfactions both of which he cannot have together.”
But there is no calculation of values or utility. “Action does not measure utility of value; it chooses between alternatives.”
“The concepts of total utility and total value are meaningless if not applied to a situation in which people must choose between total supplies.” This is why one can’t compare the value of iron to that of gold.
Then value refers to:
“The judgment of value refers to the supply with which the concrete act of choice is concerned.”
Supply: composed of homogeneous parts, each of the parts gives the same service and can be substituted for one another.
When having to choose between one unit of a homogeneous supply, man chooses on the basis of marginal utility. By the value of the least important use man makes of one of the units of the supply. The things you appreciate less in an order of things you appreciate.
Law of marginal utility: refers to subjective use value; to the value of the services a man expects to get from things.
Example: “If a man is faced with the alternative of giving up one unit of his supply A or one unit of his supply B, he does not compare the total value of his stock A with the total value of his stock B. He compares the marginal values of both A and B. Although he may value the total supply of A higher than the total supply of B, the marginal value of B might be higher than the marginal value of A.”
Another example is that if a farmer has to choose between one cow or one horse, he might give up the cow. But if he has to choose between all of his horses and all of his cow, he might give up all of his horses.
“In valuing, choosing and acting there is no measurement and no establishment of equivalence, but grading, i.e., preferring and putting aside.”
“What counts for praxeology is only the fact that acting man chooses between alternatives, that man is placed at a crossroads, that he must and does choose, is – apart from their conditions – due to the fact that we live in a quantitative world and not in a world without quantity. Which is even unimaginable for the human mind.”
2. The Law of Returns
“The law of return asserts that for the combination of economic goods of higher orders (factors of production) there exists an optimum. If one deviated from this optimum by increasing the input of only one of the factors, the physical output either does not increase at all or at least does not in the ratio of the increased input.”
The law of returns teaches that there is such an optimum combination.
The law of returns is apriori, and it refers to all branches of production equally.
3. Human Labor as Means
Labor: the employment of the physiological functions and manifestations of human life as means.
“Man worlds in using his forces and abilities as means for the removal of uneasiness and in substituting purposeful exploitation of his vital energy for the spontaneous and carefree discharge of his faculties and nerve tensions.” Labor is a means, not an end.
Labor is scarce:
“Every individual has only a limited quantity of energy to expend, and every unit of labor can only bring about a limited effect.” If it were in abundance we wouldn’t consider it a means.
In our world:
For praxeology:
“It is datum that men are eager to enjoy leisure and therefore look upon their own capacity to bring about effects with feeling different from those which they look upon the capacity of material factors of production.” Attainment of leisure is an end, so work is a means.
Disutility: the discomfort, uneasiness, inconvenience or pain inherent in human effort. (this is why people see labor as a burden)
When man sees that the disutility is not enough compensation or enough reward he stops working. This is why it doesn’t matter to praxeology whether the disutility of labor is proportional to the expenditure of labor.
“The disutility attached to labor explains why in the course of human history, concomitantly with the progressive increase in the physical productivity of labor brought about by technological improvement and a more abundant supply of capital, by and large a tendency towards shortening the hours of work developed.” That way we have more leisure time. Economists now acknowledge, not that we are happier, but that men are in a position to provide themselves better with what they consider they need.
“The work of a certain individual can perform is more suitable for some ends, less suitable for other ends, and altogether unsuitable for still other ends.” “Men do not economize labor in general, but the particular kinds of ends available.”
People have some innate skills. Mena are born unequal and acquire experience as they live, so all men have different work at which they are better at.
“Every product is the result of the employment both of labor and of material factors. Man economizes both labor and material factors.”
Workers give up leisure and endure the disutility of labor in order to enjoy the product or what other people give him for the product.
Expenditure of labor: means to get to an end; a price paid and a cost incurred.
Labor gratifies immediately:
Instances of genuine-immediate gratification labor:
Under special conditions and small quantities bring immediate gratification. These don’t play a role in human action and production for the satisfaction of wants.
“Our world is characterized by the phenomenon of the disutility of labor. People trade the disutility bringing labor for the products of labor; labor is for them a source of mediate gratification.”
“For above the millions that come and pass away tower the pioneers, the men whose deeds and ideas cut out new paths for mankind. For the pioneering genius to create is the essence of life. To live means for him to create.”
“The pioneer clears a road through land hitherto inaccessible and may not care whether or not anybody wants to go the new way.”
They don’t do labor. The activities of the genius are not means but ends in themselves. “His incentive is not the desire to bring about a result, but the act of producing it.”
“The genius wants to accomplish what he considers his mission, even if he knows that he moves toward his own disaster.”
His work doesn’t gratify him mediately because:
4. Production
Action: attains ends sought; produces the product.
Production: not an act of creation, it doesn’t make something that didn’t exist before.
“It is a transformation of given elements through arrangement and combination. “
“Man is creative only in thinking and in the realm of imagination.”
Man is only a transformer. “All that he can accomplish is to combine the means available in such a way that according to the laws of nature the results aimed at is bound to emerge.”
“Production is not something physical, material, and external; it is a spiritual and intellectual phenomenon. Its essential requisites are not human labor and external natural forces and things, but the decision of the mind to use these factors for the attainment of ends.” The creative act is the decision. Everything else that we normally call production comes from that decision.
“What produces the product are not toil and trouble in themselves, but the fact that the toiling is guided by reason.”
“The human mind alone has the power to remove uneasiness… It (production) is the method that man, directed by reason, employs for the best possible removal of uneasiness.” Through reason man chooses ends and employs means to attain those ends.
“Mind is simply the word to signify the unknown factor that has enabled men to achieve all that they have accomplished: the theories and the poems, the cathedrals and the symphonies, the motorcars and airplanes.”
The Law of Marginal Utility
“The external world to which acting man adjusts his conduct is a world of quantitative determinateness.” There is a certain quantity of things in the world, that is why the world is of quantitative determinateness, if not nothing would be scarce.
Acting man values things as means for the removal of his uneasiness.
Quality and quantity, which are categories of the external world, only acquire importance to human action indirectly. Why? Because everything produces a limited effect, so scarce things are treated as means, and acting man distinguishes various classes of means.
But… “If acting man has to decide between two or more means of different classes, he grades the individual portions of each of them.” This ranking depends on the individual and unique conditions under which man acts in every case. This choice is always made between definite quantities of means.
Unit: the smallest quantity which can be the object of such a decision.
“What counts always and alone in valuing a compound of several units is the utility of this compound as a whole – i.e., the increment of well-being dependent on it.”
Utility: importance attached to a thing on account of the belief that it can remove uneasiness. In other words, subjective use value; people believe they have the power to bring about a desired effect. “Acting man believes that the services a thing can render are apt to improve his own well-being, and calls this the utility of things concerned.”
Objective use value: different from subjective use value in that it is the relation between a thing and the effect it has the capacity to bring about.
Problem with the theory of value: economists observed that the things who’s ‘utility’ is greater are valued less than other things of smaller utility; iron is less appreciated than gold.
But lately economics discovered that man does not have to choose between all the iron and all the gold. “He chooses at a definite time and place under definite conditions between a strictly limited quantity of gold and strictly limited quantity of iron.” “He is simply choosing between two satisfactions both of which he cannot have together.”
But there is no calculation of values or utility. “Action does not measure utility of value; it chooses between alternatives.”
“The concepts of total utility and total value are meaningless if not applied to a situation in which people must choose between total supplies.” This is why one can’t compare the value of iron to that of gold.
Then value refers to:
“The judgment of value refers to the supply with which the concrete act of choice is concerned.”
Supply: composed of homogeneous parts, each of the parts gives the same service and can be substituted for one another.
When having to choose between one unit of a homogeneous supply, man chooses on the basis of marginal utility. By the value of the least important use man makes of one of the units of the supply. The things you appreciate less in an order of things you appreciate.
Law of marginal utility: refers to subjective use value; to the value of the services a man expects to get from things.
Example: “If a man is faced with the alternative of giving up one unit of his supply A or one unit of his supply B, he does not compare the total value of his stock A with the total value of his stock B. He compares the marginal values of both A and B. Although he may value the total supply of A higher than the total supply of B, the marginal value of B might be higher than the marginal value of A.”
Another example is that if a farmer has to choose between one cow or one horse, he might give up the cow. But if he has to choose between all of his horses and all of his cow, he might give up all of his horses.
“In valuing, choosing and acting there is no measurement and no establishment of equivalence, but grading, i.e., preferring and putting aside.”
“What counts for praxeology is only the fact that acting man chooses between alternatives, that man is placed at a crossroads, that he must and does choose, is – apart from their conditions – due to the fact that we live in a quantitative world and not in a world without quantity. Which is even unimaginable for the human mind.”
2. The Law of Returns
“The law of return asserts that for the combination of economic goods of higher orders (factors of production) there exists an optimum. If one deviated from this optimum by increasing the input of only one of the factors, the physical output either does not increase at all or at least does not in the ratio of the increased input.”
The law of returns teaches that there is such an optimum combination.
The law of returns is apriori, and it refers to all branches of production equally.
3. Human Labor as Means
Labor: the employment of the physiological functions and manifestations of human life as means.
“Man worlds in using his forces and abilities as means for the removal of uneasiness and in substituting purposeful exploitation of his vital energy for the spontaneous and carefree discharge of his faculties and nerve tensions.” Labor is a means, not an end.
Labor is scarce:
“Every individual has only a limited quantity of energy to expend, and every unit of labor can only bring about a limited effect.” If it were in abundance we wouldn’t consider it a means.
In our world:
- Labor is deemed painful
- Not to work is considered more satisfactory than working
- People work because they value the return higher
- Work involves disutility
For praxeology:
“It is datum that men are eager to enjoy leisure and therefore look upon their own capacity to bring about effects with feeling different from those which they look upon the capacity of material factors of production.” Attainment of leisure is an end, so work is a means.
Disutility: the discomfort, uneasiness, inconvenience or pain inherent in human effort. (this is why people see labor as a burden)
When man sees that the disutility is not enough compensation or enough reward he stops working. This is why it doesn’t matter to praxeology whether the disutility of labor is proportional to the expenditure of labor.
“The disutility attached to labor explains why in the course of human history, concomitantly with the progressive increase in the physical productivity of labor brought about by technological improvement and a more abundant supply of capital, by and large a tendency towards shortening the hours of work developed.” That way we have more leisure time. Economists now acknowledge, not that we are happier, but that men are in a position to provide themselves better with what they consider they need.
“The work of a certain individual can perform is more suitable for some ends, less suitable for other ends, and altogether unsuitable for still other ends.” “Men do not economize labor in general, but the particular kinds of ends available.”
People have some innate skills. Mena are born unequal and acquire experience as they live, so all men have different work at which they are better at.
“Every product is the result of the employment both of labor and of material factors. Man economizes both labor and material factors.”
- Immediately Gratifying Labor and Mediately Gratifying Labor
Workers give up leisure and endure the disutility of labor in order to enjoy the product or what other people give him for the product.
Expenditure of labor: means to get to an end; a price paid and a cost incurred.
Labor gratifies immediately:
- Attainment of product
- Satisfaction of working
Instances of genuine-immediate gratification labor:
Under special conditions and small quantities bring immediate gratification. These don’t play a role in human action and production for the satisfaction of wants.
“Our world is characterized by the phenomenon of the disutility of labor. People trade the disutility bringing labor for the products of labor; labor is for them a source of mediate gratification.”
- Creative Genius
“For above the millions that come and pass away tower the pioneers, the men whose deeds and ideas cut out new paths for mankind. For the pioneering genius to create is the essence of life. To live means for him to create.”
“The pioneer clears a road through land hitherto inaccessible and may not care whether or not anybody wants to go the new way.”
They don’t do labor. The activities of the genius are not means but ends in themselves. “His incentive is not the desire to bring about a result, but the act of producing it.”
“The genius wants to accomplish what he considers his mission, even if he knows that he moves toward his own disaster.”
His work doesn’t gratify him mediately because:
- Fellow men are unconcerned about it
- Creating for him is agony and torment.
4. Production
Action: attains ends sought; produces the product.
Production: not an act of creation, it doesn’t make something that didn’t exist before.
“It is a transformation of given elements through arrangement and combination. “
“Man is creative only in thinking and in the realm of imagination.”
Man is only a transformer. “All that he can accomplish is to combine the means available in such a way that according to the laws of nature the results aimed at is bound to emerge.”
“Production is not something physical, material, and external; it is a spiritual and intellectual phenomenon. Its essential requisites are not human labor and external natural forces and things, but the decision of the mind to use these factors for the attainment of ends.” The creative act is the decision. Everything else that we normally call production comes from that decision.
“What produces the product are not toil and trouble in themselves, but the fact that the toiling is guided by reason.”
“The human mind alone has the power to remove uneasiness… It (production) is the method that man, directed by reason, employs for the best possible removal of uneasiness.” Through reason man chooses ends and employs means to attain those ends.
“Mind is simply the word to signify the unknown factor that has enabled men to achieve all that they have accomplished: the theories and the poems, the cathedrals and the symphonies, the motorcars and airplanes.”
Part 2: Action Within the Network of Society
“Society is
joint action and cooperation in which each participant sees the other partner’s
success as a means for the attainment of his own.”
Chapter 8
Human Society
1. Human Cooperation
"Society is the outcome of conscious and purposeful behavior"
It is:
Society only exists within the actions of individuals; it is not antecedent to the individual.
Society does not have ends: it only orients the actions of individual men.
Fundamental facts that brought cooperation:
The characteristic feature of society is purposeful cooperation, an outcome of human action; a conscious aiming at the attainment of ends.
“Human society is an outcome of intellectual and spiritual phenomenon.”
2. A Critique of the Holistic and Metaphysical View of Society
There are doctrines that state:
This means:
“In striving after his own interests the individual works towards an intensification of social cooperation.” In this sense society is a product of human action, of people removing their uneasiness.
The problem for all universalistic, collectivistic and holistic social philosophy:
For them their beliefs are the one true doctrine. There is no doubt but then this produces them to discard and not accept all other doctrines, which causes disputes and wars.
But the liberal doctrine and utilitarian philosophy came and brought:
But there will always be people who won’t grasp the benefits of social cooperation, because:
Anarchism:
Realizes that:
Democracy: peaceful adjustment of government to the will of the majority.
Here comes the misinterpretation of individualism, which actually means social cooperation.
“Liberalism aims at a political constitution which safeguards the smooth working of a social cooperation and the progressive intensification of mutual social relations. Its main objective is the avoidance of violent conflicts, of wars and revolutions that must disintegrate the social collaboration of men and throw people back into primitive conditions of barbarism where all tribes and political bodies endlessly fight one another. Because the division of labor requires undisturbed peace, liberalism aims at the establishment of a system of government that is likely to preserve peace, viz., democracy.”
Liberalism as a political doctrine:
Liberalism assumes:
Society provides the environment for liberalism:
For liberalism, knowledge does not refer to:
Theocracy:
A social system that is legitimized by a superhuman; i.e., when religions become a government.
3. The Division of LaborFundamental social phenomenon: division of labor
Cooperation is more effective than isolated action:
4. The Ricardian Law of Association
Demonstrates:
What happens if, in division of labor, one part (group or individual) is more efficient in everything than the other party it is cooperating with.
If this happens, division of labor still matters and it turns out to be advantageous for both. As long as the better one concentrates one what it does best (out of the two it already does best) and leave the part in which it is least best to the other party.
As long as the division of labor is more productive, human action will turn towards cooperation and association.
5. The Effects of the Division of Labor
Effects:
6. The Individual Within SocietySociety is the means for the attainment of all ends.
Their claim:
Society comes from somewhere difficult/impossible to understand, from an urge of mans nature.
Mises says that these things can be felt. But the error is in believing that these are primary effects and that they don’t depend on rationality, when they do. In reality all of these feelings are backed up by rational considerations.
Examples:
7. The Great Society
“Society is joint action and cooperation in which each participant sees the other partner’s success as a means for the attainment of his own.”
After the time of wars people began to realize that their enemies could be considered as potential partners for future cooperation; seeing peace as the best way for biological survival.
This cause the emergence of the great society: societal relationships above all nations.
8. The Instinct of Aggresion and Destruction
Civilization viewed as a benefit:
It is true that men used to be violent but these don’t fit into society anymore, they are not useful. Now we have other talents and skills, and man has survived all of these years because he has used reason.
“Rational conduct means that man, in face of the fact that he cannot satisfy all his impulses, desires and appetites, forgoes the satisfaction of those which he considers less urgent.” Man has chosen to leave his violent side in order to satisfy his other desires (clothes, health, life) with the help of society.
Antiliberals base their teaching on misinterpretations of modern day biology.
1. Human Cooperation
"Society is the outcome of conscious and purposeful behavior"
It is:
- Cooperation for the attainment of definite singular ends
- Division of labor and combination of labor
Society only exists within the actions of individuals; it is not antecedent to the individual.
Society does not have ends: it only orients the actions of individual men.
Fundamental facts that brought cooperation:
- Division of labor is more productive than isolated work
- Man recognizes this fact
The characteristic feature of society is purposeful cooperation, an outcome of human action; a conscious aiming at the attainment of ends.
“Human society is an outcome of intellectual and spiritual phenomenon.”
2. A Critique of the Holistic and Metaphysical View of Society
There are doctrines that state:
- That society is a living entity with its own life
- It acts on its own behalf
- It aims at its own ends, different form the individuals ends
This means:
- Sometimes antagonism can arise between society’s aims and its members aims
- People would have to sacrifice their aims for those of society
“In striving after his own interests the individual works towards an intensification of social cooperation.” In this sense society is a product of human action, of people removing their uneasiness.
The problem for all universalistic, collectivistic and holistic social philosophy:
For them their beliefs are the one true doctrine. There is no doubt but then this produces them to discard and not accept all other doctrines, which causes disputes and wars.
But the liberal doctrine and utilitarian philosophy came and brought:
- Tolerance
- A society and state that are the means for all people to achieve their aim of their own accord.
- And these are created by human effort.
But there will always be people who won’t grasp the benefits of social cooperation, because:
- Their intellect is to narrow
- They won’t sacrifice something temporarily for social cooperation and don’t realize the benefits.
Anarchism:
- Education can
make people comprehend what their interests require them to do.
- No one enjoys privileges at expense of others.
- There is no cohesion or compulsion (state or government)
- People who are narrow minded
- The weak
- Infants, aged and the insane.
Realizes that:
- Rulers can’t remain in office without the majority of those ruled.
- People look for a government that serves their own interests.
Democracy: peaceful adjustment of government to the will of the majority.
- But this still doesn’t mean that the best candidate is chosen all the time.
- This also doesn’t mean that we can treat government as a superhuman entity – omnipotence, omniscience, infinite goodness, etc. – which is what universalisms and collectivisms do.
Here comes the misinterpretation of individualism, which actually means social cooperation.
“Liberalism aims at a political constitution which safeguards the smooth working of a social cooperation and the progressive intensification of mutual social relations. Its main objective is the avoidance of violent conflicts, of wars and revolutions that must disintegrate the social collaboration of men and throw people back into primitive conditions of barbarism where all tribes and political bodies endlessly fight one another. Because the division of labor requires undisturbed peace, liberalism aims at the establishment of a system of government that is likely to preserve peace, viz., democracy.”
- Praxeology and Liberalism
Liberalism as a political doctrine:
- Application of theories of praxeology and economics to definite problems of human action in society.
Liberalism assumes:
- People are intent upon attaining certain goals.
- People prefer life, health, nourishment and abundance, over their opposites.
Society provides the environment for liberalism:
- No obstacles
- Makes common man free enough from material concerns to become interested in other things.
- Liberalism and Religion
For liberalism, knowledge does not refer to:
- Sentiments
- Intuitions
- Mystical experiences
- Superhuman phenomena
Theocracy:
A social system that is legitimized by a superhuman; i.e., when religions become a government.
- Can’t be demonstrated by reasoning.
- Their leaders are the only ones ‘blessed’ with knowledge; everyone else is blind.
3. The Division of LaborFundamental social phenomenon: division of labor
Cooperation is more effective than isolated action:
- Men are unequal at performing tasks
- Men have unequal nature-given opportunities of production
- Sometimes the requires labor is too much for one man, and joint effort is necessary
4. The Ricardian Law of Association
Demonstrates:
What happens if, in division of labor, one part (group or individual) is more efficient in everything than the other party it is cooperating with.
If this happens, division of labor still matters and it turns out to be advantageous for both. As long as the better one concentrates one what it does best (out of the two it already does best) and leave the part in which it is least best to the other party.
As long as the division of labor is more productive, human action will turn towards cooperation and association.
- Current Errors Concerning the Law of Association
5. The Effects of the Division of Labor
Effects:
- Brings about differentiation: assigns geographic areas to some specific function (making some urban and some rural)
- Intensifies the innate inequality of men: by exercising and developing more their inborn faculties and stunting the development of others.
6. The Individual Within SocietySociety is the means for the attainment of all ends.
- Advantages of society:
- Multiplication (more reproduction)
- Higher standard of living
- Living in spite of sickness of physical disability
- The Fable of the Mystic Communion
Their claim:
Society comes from somewhere difficult/impossible to understand, from an urge of mans nature.
- We participate in god’s power and spirit
- As a biological phenomenon: the voice of the blood (the bounding between offspring of a common ancestor with the ancestors and with one another.
Mises says that these things can be felt. But the error is in believing that these are primary effects and that they don’t depend on rationality, when they do. In reality all of these feelings are backed up by rational considerations.
Examples:
- Finding your baby by marks and calling this the voice of the blood.
- Mysticism of the soil caused by ideologies.
- Families are caused by thinking, planning and acting.
7. The Great Society
“Society is joint action and cooperation in which each participant sees the other partner’s success as a means for the attainment of his own.”
After the time of wars people began to realize that their enemies could be considered as potential partners for future cooperation; seeing peace as the best way for biological survival.
This cause the emergence of the great society: societal relationships above all nations.
8. The Instinct of Aggresion and Destruction
Civilization viewed as a benefit:
- Enabled man to hold his struggle against other living beings
- Multiplied man’s means of sustenance
- Made average man taller, more agile and versatile
- Stretched man’s average life
- Mastery of earth
- Raised the standard of living
It is true that men used to be violent but these don’t fit into society anymore, they are not useful. Now we have other talents and skills, and man has survived all of these years because he has used reason.
“Rational conduct means that man, in face of the fact that he cannot satisfy all his impulses, desires and appetites, forgoes the satisfaction of those which he considers less urgent.” Man has chosen to leave his violent side in order to satisfy his other desires (clothes, health, life) with the help of society.
- Curren Misinterpretations of Modern Natural Science, Especially of Darwinism
Antiliberals base their teaching on misinterpretations of modern day biology.
- Men are unequal, so there can’t be an equal law.
- Social Darwinism: there is no such thing as peace and respect for the lives and welfare for others. There is always annihilation of the weak.
- Reason is unnatural and is below animal instincts.
Chapter 9
The Role of Ideas
1. Human Reason
“Reason is man’s particular and characteristic feature.”
Thinking precedes action:
Thinking: to deliberate beforehand over future action and to reflect afterwards upon past action.
Thinking and acting are inseparable.
Only individuals think, you can’t think with other people.
“Thinking is linked up with language and vice versa. Concepts are embodied in terms. Language is a tool of thinking as it is a tool of social action.”
We can inherit ideas, thoughts, theories and technologies to which own thinking owes its productivity. But thinking still is a manifestation of individuals.
2. World View and Ideology
"The theories directing action are often imperfect and unsatisfactory. They may be contradictory and unfit to be arranged into a comprehensive and coherent system."
1. Human Reason
“Reason is man’s particular and characteristic feature.”
- Man is the only one that turns sensuous stimuli into observation and experience
- Man is the only one that arranges this observation and experience into a coherent system.
Thinking precedes action:
Thinking: to deliberate beforehand over future action and to reflect afterwards upon past action.
Thinking and acting are inseparable.
Only individuals think, you can’t think with other people.
“Thinking is linked up with language and vice versa. Concepts are embodied in terms. Language is a tool of thinking as it is a tool of social action.”
We can inherit ideas, thoughts, theories and technologies to which own thinking owes its productivity. But thinking still is a manifestation of individuals.
2. World View and Ideology
"The theories directing action are often imperfect and unsatisfactory. They may be contradictory and unfit to be arranged into a comprehensive and coherent system."
“They are
not only scientific theories, but also doctrines about the ought, i.e., about
the ultimate ends which man should aim at in his earthy concerns.”
“The higher productivity of cooperation under division of labor makes society the foremost means of every individual for the attainment of his own ends, whatever they may be.” Society is the means for attaining earthly ends.
Asceticism: the only means for man to remove pain, for attaining quietude, contentment and happiness, without bothering about them.
“However various ideologies may conflict with one another, they harmonize in one point, in the acknowledgement of life in society.” Many people don’t see this because they focus more on the transcendental and unknowable things of these philosophies and ideologies than about what they say about action in the world.
Party: a body which combines all those eager to employ the same means for common action.
What differentiates men and integrates parties is the choice of ideas.
For people: parties only recommend what means to use.
In the field of society’s economic organization (parties)
They also tell people that their program will raise the standard of living higher than any of the other parties. They say that their plans and utility are the best. At the end all of these parties are after the same thing. They don’t differ in the ends, only in the means. They all aim (or pretend to) at the highest material welfare for the majority of citizens.
“Because man is a social animal that can thrive only with society, all ideologies are forced to acknowledge the preeminent importance of social cooperation. They must aim at the most satisfactory organization of society and must approve of man’s concern for an improvement of his material well-being. Thus they all place themselves on common ground. They are separated from one another not by world views and transcendent issues subject to reasonable discussion, but by problems of means and ways.”
The most flawed ideologies are those accepted by the public opinion. Most of the time they are an ‘eccentric juxtaposition of ideas’ which are incompatible.
“Logical thinking and real life are not two separate orbits. Logic is for man the only means to master the problems of reality.”
Contradictory ideologies conceal real problems and prevent people from solving them. The objective of praxeology is to substitute these popular ideologies with the correct ones.
“(Men) must always question anew every theory and every theorem, they must never relax in their endeavors to brush away fallacies and to find the best possible cognition. They must fight error by unmasking spurious doctrines and by expanding the truth.”
Fighting with intellectuality not with morality.
“Man has only one tool to fight error: reason.”
3. Might
Society: product of human action
Human action: directed by ideologies
Society: outcome of ideologies
“A man can advance in thinking only because his efforts are aided by those of older generations who have formed the tools of thinking, the concepts and terminologies, and not have raised the problems.”
Social orders are thought out and designed before realized. The actions of individuals with regard to their fellow men and other groups must be thought out in advance.
“Any existing state of affairs is the product of ideologies previously thought of.”
If we make ideologies concrete, we can say that they have power over us.
Might= power of directing actions (other peoples actions)
Ideologies can convey to man the power to influence other people’s choices and conduct. So might is a moral and spiritual phenomenon.
In government:
The system must be based on an ideology acknowledged by the majority.
“The power of an ideology consists precisely in the fact that people submit to it without any wavering and scuples.”
It tries to justify its tenets by referring to their success in the past.
It doesn’t matter if the facts of the past are mistaken, because what is important is the opinion they have of these facts and the will to believe.
4. Meliorism and the Idea of Progress
Notions of progress and retrogression only make sense within a teleological system of thought.
Approach toward goal: progress
Away from the goal: retrogression
For these to make sense we need reference to someone’s action and goal.
Progress cannot be applied to cosmic events or world views (ex: evolution).
“Democracy guarantees a system of government in accordance with the wishes and plans of the majority. But it cannot prevent majorities from falling victim to erroneous ideas and from adopting inappropriate policies which not only fail to realize the ends aimed at but result in disasters.”
“Man is free in the sense that he must daily choose between policies that lead to success and those that lead to disaster, social disintegration and barbarism.”
“The higher productivity of cooperation under division of labor makes society the foremost means of every individual for the attainment of his own ends, whatever they may be.” Society is the means for attaining earthly ends.
Asceticism: the only means for man to remove pain, for attaining quietude, contentment and happiness, without bothering about them.
“However various ideologies may conflict with one another, they harmonize in one point, in the acknowledgement of life in society.” Many people don’t see this because they focus more on the transcendental and unknowable things of these philosophies and ideologies than about what they say about action in the world.
Party: a body which combines all those eager to employ the same means for common action.
What differentiates men and integrates parties is the choice of ideas.
For people: parties only recommend what means to use.
In the field of society’s economic organization (parties)
- Liberals advocating private ownership of the means of production.
- Socialists advocating public ownership of means of production.
- Interventionists advocating a system which is far from socialism as it is from capitalism.
They also tell people that their program will raise the standard of living higher than any of the other parties. They say that their plans and utility are the best. At the end all of these parties are after the same thing. They don’t differ in the ends, only in the means. They all aim (or pretend to) at the highest material welfare for the majority of citizens.
“Because man is a social animal that can thrive only with society, all ideologies are forced to acknowledge the preeminent importance of social cooperation. They must aim at the most satisfactory organization of society and must approve of man’s concern for an improvement of his material well-being. Thus they all place themselves on common ground. They are separated from one another not by world views and transcendent issues subject to reasonable discussion, but by problems of means and ways.”
- The Fight Against Error
The most flawed ideologies are those accepted by the public opinion. Most of the time they are an ‘eccentric juxtaposition of ideas’ which are incompatible.
“Logical thinking and real life are not two separate orbits. Logic is for man the only means to master the problems of reality.”
Contradictory ideologies conceal real problems and prevent people from solving them. The objective of praxeology is to substitute these popular ideologies with the correct ones.
“(Men) must always question anew every theory and every theorem, they must never relax in their endeavors to brush away fallacies and to find the best possible cognition. They must fight error by unmasking spurious doctrines and by expanding the truth.”
Fighting with intellectuality not with morality.
“Man has only one tool to fight error: reason.”
3. Might
Society: product of human action
Human action: directed by ideologies
Society: outcome of ideologies
“A man can advance in thinking only because his efforts are aided by those of older generations who have formed the tools of thinking, the concepts and terminologies, and not have raised the problems.”
Social orders are thought out and designed before realized. The actions of individuals with regard to their fellow men and other groups must be thought out in advance.
“Any existing state of affairs is the product of ideologies previously thought of.”
If we make ideologies concrete, we can say that they have power over us.
Might= power of directing actions (other peoples actions)
Ideologies can convey to man the power to influence other people’s choices and conduct. So might is a moral and spiritual phenomenon.
In government:
The system must be based on an ideology acknowledged by the majority.
“The power of an ideology consists precisely in the fact that people submit to it without any wavering and scuples.”
- Traditionalism as an Ideolgy
It tries to justify its tenets by referring to their success in the past.
It doesn’t matter if the facts of the past are mistaken, because what is important is the opinion they have of these facts and the will to believe.
4. Meliorism and the Idea of Progress
Notions of progress and retrogression only make sense within a teleological system of thought.
Approach toward goal: progress
Away from the goal: retrogression
For these to make sense we need reference to someone’s action and goal.
Progress cannot be applied to cosmic events or world views (ex: evolution).
“Democracy guarantees a system of government in accordance with the wishes and plans of the majority. But it cannot prevent majorities from falling victim to erroneous ideas and from adopting inappropriate policies which not only fail to realize the ends aimed at but result in disasters.”
“Man is free in the sense that he must daily choose between policies that lead to success and those that lead to disaster, social disintegration and barbarism.”
Chapter 10
Exchange within Society
1. Autistic Exchange and Interpersinal Exchange
“Action always is essentially the exchange of one state of affairs for another state of affairs.”
Autistic exchange:
If action is performed by an individual without reference to cooperation with other individuals. Example: a hunter who hunts for his consumption.
In autistic exchange: other people don’t matter. Whether the action is beneficial or detrimental to others is doesn’t matter.
In society cooperation substitutes interpersonal and social exchange for autistic exchange. Man gives to others in order to receive from them.
“The exchange relation if the fundamental social relation. Interpersonal exchange of goods and services weaves the bond which united men into society."
1. Autistic Exchange and Interpersinal Exchange
“Action always is essentially the exchange of one state of affairs for another state of affairs.”
Autistic exchange:
If action is performed by an individual without reference to cooperation with other individuals. Example: a hunter who hunts for his consumption.
In autistic exchange: other people don’t matter. Whether the action is beneficial or detrimental to others is doesn’t matter.
In society cooperation substitutes interpersonal and social exchange for autistic exchange. Man gives to others in order to receive from them.
“The exchange relation if the fundamental social relation. Interpersonal exchange of goods and services weaves the bond which united men into society."
2. Contractual Bonds and Hegemonic Bonds
“The power
that calls into life and animates any social body is always ideological might,
and the fact that makes an individual a member of any social compound is always
his own compound.”
People are always born into hegemonic bonds: family and state
Even in hegemonic bonds, the individual members choose to be there. By using their reason they choose to stay in the hegemonic bonds, because they prefer subjection rather that the consequences or rebellion. So they themselves contribute to the existence of hegemonic bonds.
Difference between hegemonic bond and contractual bond?
Scope in which the individual’s choice determines the course of events.
In hegemonic, wards act for the directors and not for themselves. They act only in choosing subordination.
Western civilization and more advanced eastern ones are achievements of contractual coordination.
“Human civilization as it has been hitherto known to historical experience is preponderantly a product of contractual relations.”
Both in hegemonic and contractual bonds there must be peace.
“Where there are violent conflicts and as far as there are such conflicts, there in neither cooperation nor societal bonds.”
Right or law: complex of rules determining the orbit in which individuals are free to act.
3. Calculative Action
“All the praxeological categories are eternal and unchangeable as they are uniquely determined by the logical structure of the human mind and by the natural conditions of man0s existence. Both in acting and in theorizing about acting, man can neither free himself from these categories nor go beyond them.”
We can’t comprehend anything else that is not action or not action; there are no transitory stages.
There is either exchange or no exchange.
Action can make use of ordinal numbers.
We have a scale on thing we want (first, second, third…). But we cant ude cardinal numbers, because we can say that the value of something is 10.5 (or any number).
For cardinal numbers and arithmetic computation (also eternal and immutable categories of the mind) special conditions are requires.
Which conditions?
People are always born into hegemonic bonds: family and state
Even in hegemonic bonds, the individual members choose to be there. By using their reason they choose to stay in the hegemonic bonds, because they prefer subjection rather that the consequences or rebellion. So they themselves contribute to the existence of hegemonic bonds.
Difference between hegemonic bond and contractual bond?
Scope in which the individual’s choice determines the course of events.
In hegemonic, wards act for the directors and not for themselves. They act only in choosing subordination.
Western civilization and more advanced eastern ones are achievements of contractual coordination.
“Human civilization as it has been hitherto known to historical experience is preponderantly a product of contractual relations.”
Both in hegemonic and contractual bonds there must be peace.
“Where there are violent conflicts and as far as there are such conflicts, there in neither cooperation nor societal bonds.”
Right or law: complex of rules determining the orbit in which individuals are free to act.
3. Calculative Action
“All the praxeological categories are eternal and unchangeable as they are uniquely determined by the logical structure of the human mind and by the natural conditions of man0s existence. Both in acting and in theorizing about acting, man can neither free himself from these categories nor go beyond them.”
We can’t comprehend anything else that is not action or not action; there are no transitory stages.
There is either exchange or no exchange.
Action can make use of ordinal numbers.
We have a scale on thing we want (first, second, third…). But we cant ude cardinal numbers, because we can say that the value of something is 10.5 (or any number).
For cardinal numbers and arithmetic computation (also eternal and immutable categories of the mind) special conditions are requires.
Which conditions?
- Conditions where there is a medium of exchange; Money.
- Contractual society; because we can know certain quantities and qualities.
Part 3: Economic Calculation
Chapter 11
Valuation without Calculation
1. The Gradation of the Means
“Acting man transfers the valuation of ends he aims at to the means.”
He attaches the value of the ends to the means; we value means because we value ends.
The gradation of means:
Preferring a to b; preferring and putting aside.
Just as with ends, you value and choose between means.
Means can also have an application of ordinal numbers.
2. The Barter-Fiction of the Elementary Theory of Value and Prices
Economists failed to realize the problems of economic calculation:
Modern theory of value and prices:
Shows how the choices of individuals result in the sphere of interpersonal exchange.
“The use of imaginary constructions to which nothing corresponds in reality is an indispensable tool of thinking.”
But these constructions raise an amount of fallacies around them.
We have to imagine that all transactions are performed in direct exchange; that there is no money. Money is only the intermediate role.
Delusions/errors which this construction can bring (careless uses of imaginary construction):
1. The medium of exchange is a neutral factor.
Implies that changes in purchasing power occur with regard to all goods and services at the same time.
The treatment of monetary problems was superficial and barely connected with the marked process. Thought that everything revolved around direct exchange.
“Only later economists realized that some of the most important and most intricate problems of catallactics are to be found in the field of indirect exchange and that economic theory which does not pay full regard to them is lamentably defective.”
2. Things and services exchanged are of equal value; value as objective (inherent in things)
Value was measured, but later debunked because values are subjective.
“The basis of modern economics is the cognition that it is precisely the disparity in the value attached to the objects exchanged that results in their being exchanged. People buy and sell only because they appraise the things given up less than those received.” Measurement of value doesn’t exist.
“Valuing means to prefer a to b.”
At the instant of transaction and under the conditions of the instant, we prefer one thing to another. We have grades of intensity to attain goals. These grades are personal.
Labor theory of value:
Value is determined by the amount of labor required for their production.
“The illusion that a rational order of economic management is possible in a society based on public ownership of the means of production owed its origin to the value theory of the classical economists and its tenacity to the failure of many modern economists to think through consistently to its ultimate conclusions the fundamental theorem of the subjectivist theory.”
3. The Problem of Economic Calculation“Acting man uses knowledge provided by the natural sciences for the elaboration of technology, the applied science of action possible in the field of external events.”
Technology: what could be achieved and how.
Information of technology could only perform calculation:
-things would only have one end
"Technology operates with countable and measurable quantities of external things and effects; it knows causal relations between them, but it is foreign to their relevance to human wants and desires."
Technology is a neutral observer.
"Technology tells how a given end could be attained by the employment of various means which can be used together i n various combinations, or how various available means could be employed for certain purposes." But it doesn’t tell man which one he should choose.
Technology only establishes relations.
Money = vehicle of economic calculation. It is the only medium of exchange.
4. Economic Calculation and the Market
Economic calculation is not based upon or related to anything that is known as measurement.
Measurement is the establishment of the numerical relation of an object with regard to another.
Exchange Ratios:
"The task which acting man wants to achieve by each economic calculation is to establish the outcome of acting by contrasting input and output."
Economic calculation:
1. The Gradation of the Means
“Acting man transfers the valuation of ends he aims at to the means.”
He attaches the value of the ends to the means; we value means because we value ends.
The gradation of means:
Preferring a to b; preferring and putting aside.
Just as with ends, you value and choose between means.
Means can also have an application of ordinal numbers.
2. The Barter-Fiction of the Elementary Theory of Value and Prices
Economists failed to realize the problems of economic calculation:
- They wanted to take economic calculation as a matter or course
- They didn’t see that it wasn’t an ultimate given
- They took calculation as a category of all human action; but it actually is inherent under special conditions, because manly prices are the only vehicle of economic calculation.
Modern theory of value and prices:
Shows how the choices of individuals result in the sphere of interpersonal exchange.
“The use of imaginary constructions to which nothing corresponds in reality is an indispensable tool of thinking.”
But these constructions raise an amount of fallacies around them.
We have to imagine that all transactions are performed in direct exchange; that there is no money. Money is only the intermediate role.
Delusions/errors which this construction can bring (careless uses of imaginary construction):
1. The medium of exchange is a neutral factor.
Implies that changes in purchasing power occur with regard to all goods and services at the same time.
The treatment of monetary problems was superficial and barely connected with the marked process. Thought that everything revolved around direct exchange.
“Only later economists realized that some of the most important and most intricate problems of catallactics are to be found in the field of indirect exchange and that economic theory which does not pay full regard to them is lamentably defective.”
2. Things and services exchanged are of equal value; value as objective (inherent in things)
Value was measured, but later debunked because values are subjective.
“The basis of modern economics is the cognition that it is precisely the disparity in the value attached to the objects exchanged that results in their being exchanged. People buy and sell only because they appraise the things given up less than those received.” Measurement of value doesn’t exist.
“Valuing means to prefer a to b.”
At the instant of transaction and under the conditions of the instant, we prefer one thing to another. We have grades of intensity to attain goals. These grades are personal.
- The Theory of Value and Socialism
Labor theory of value:
Value is determined by the amount of labor required for their production.
“The illusion that a rational order of economic management is possible in a society based on public ownership of the means of production owed its origin to the value theory of the classical economists and its tenacity to the failure of many modern economists to think through consistently to its ultimate conclusions the fundamental theorem of the subjectivist theory.”
3. The Problem of Economic Calculation“Acting man uses knowledge provided by the natural sciences for the elaboration of technology, the applied science of action possible in the field of external events.”
Technology: what could be achieved and how.
Information of technology could only perform calculation:
- If the means of production could be substituted for another in order to arrange
- If they were all absolutely specific
-things would only have one end
"Technology operates with countable and measurable quantities of external things and effects; it knows causal relations between them, but it is foreign to their relevance to human wants and desires."
Technology is a neutral observer.
"Technology tells how a given end could be attained by the employment of various means which can be used together i n various combinations, or how various available means could be employed for certain purposes." But it doesn’t tell man which one he should choose.
Technology only establishes relations.
Money = vehicle of economic calculation. It is the only medium of exchange.
4. Economic Calculation and the Market
Economic calculation is not based upon or related to anything that is known as measurement.
Measurement is the establishment of the numerical relation of an object with regard to another.
Exchange Ratios:
- They vary; so they can’t be measured.
- They are historical events, expressing what happened under definite circumstances.
"The task which acting man wants to achieve by each economic calculation is to establish the outcome of acting by contrasting input and output."
Economic calculation:
- Estimates the expected outcome of a future action
- Establishment of the outcome of past action
Chapter 12
The Sphere of Economic Calculation
1. The Character of Monetary Entries
“Economic calculations can comprehend anything that is exchanged against money.”
Prices:
Main task of economic calculation: deal with change
Practical man only looks for the process of the future. Prices of the past are only a help in identifying the future ones.
1. The Character of Monetary Entries
“Economic calculations can comprehend anything that is exchanged against money.”
Prices:
- Historical data
- Anticipations of probable future events
Main task of economic calculation: deal with change
- Anticipating change occurring without his interference and adjust to his actions
- Embark on projects that will change conditions
Practical man only looks for the process of the future. Prices of the past are only a help in identifying the future ones.
Balances and
statements describe the state of affairs at a chosen instant while life and
action go on.
“Economic computation… it is not a means of knowing future conditions with certainty, and it does not deprive action of its speculative character.”
“It is not the task of economic calculation to expand man’s information about future conditions. Its task is to adjust his actions as well as possible to his present opinion concerning want-satisfaction in the future.”
For this man need a method of computation: money
2. The Limits of Economic Calculation
“Economic calculation cannot comprehend things which are not sold and bought against money.”
There are something that are included in action as means and ends but are not purchasable, so they don’t enter economic calculation. This means that they are other ends or goods of the first order.
Economic calculation is a method available only to people acting in the economic system of division of labor in a social order based upon private ownership of the means of production. It is a calculation of private profits.
Prices of the market = ultimate fact for economic calculation.
“Economic calculation in terms of money prices is the calculation of entrepreneurs producing for the consumers of a market society.”
If you want economic calculation you can’t have a despotic mind. Only entrepeneurs, capitalists, landowners and wage earners of a capitalist society.
“In a society of free men the preservation of life and health are ends, not means. They do not enter into any process of accounting means.”
Economic calculation only applies to people, not to nations or anything of the sort.
Money used in acting and economic calculation.
Money prices.
Prices are not measured in money, they consist in money.
Prices: are of the past or of the future.
Price: historical fact
Price: are not measurement of physical of chemical phenomena.
3. The Changeability of PricesExchange ratios are subject to change because the conditions are subject to change.
Value of money and goods and services: is the outcome of a moment’s choice. Later we can prefer other things.
Exchange ratios are mutable. But we all think that production, consumption, marketing and prices are rigid.
“For the failures of present-day economic policies are to some extent due to the lamentable confusion brought about by the idea that there is something fixed and therefore measurable in interhuman relations.”
4. Stabilization
One of the errors is stabilization
How did it start?
Man, his values, volitions and acts change constantly from moment to moment.
Stabilization’s goal: preservation of immutability of money expenditure
“If all human conditions were unchangeable, if all people were always to repeat the same actions because their uneasiness and their ideas about its removal were constant, or if it were in a position to assume that changes in these factors occurring with some individuals or groups are always outweighed by opposite changes with other individuals or groups and therefore do not affect total demand or total supple we would live in a world of stability.”
In actual world: there are no fixed points, dimensions or relations.
“Where there is action, there is change. Action is always a lever of change.”
“As far as there is human action there is no stability.”
Measurement:
5. The Root of the Stabilization Idea
Requirements of economic calculation:
A monetary system that I s not sabotaged by government interference.
“The first aim of monetary policy must be to prevent governments from embarking upon inflation and from creating conditions which encourage credit expansion on the part of banks.”
“Economic computation… it is not a means of knowing future conditions with certainty, and it does not deprive action of its speculative character.”
- Life is not
rigid
- All things
fluctuate
- Men can’t
have certain knowledge about the future
“It is not the task of economic calculation to expand man’s information about future conditions. Its task is to adjust his actions as well as possible to his present opinion concerning want-satisfaction in the future.”
For this man need a method of computation: money
2. The Limits of Economic Calculation
“Economic calculation cannot comprehend things which are not sold and bought against money.”
There are something that are included in action as means and ends but are not purchasable, so they don’t enter economic calculation. This means that they are other ends or goods of the first order.
Economic calculation is a method available only to people acting in the economic system of division of labor in a social order based upon private ownership of the means of production. It is a calculation of private profits.
Prices of the market = ultimate fact for economic calculation.
“Economic calculation in terms of money prices is the calculation of entrepreneurs producing for the consumers of a market society.”
If you want economic calculation you can’t have a despotic mind. Only entrepeneurs, capitalists, landowners and wage earners of a capitalist society.
“In a society of free men the preservation of life and health are ends, not means. They do not enter into any process of accounting means.”
Economic calculation only applies to people, not to nations or anything of the sort.
Money used in acting and economic calculation.
Money prices.
Prices are not measured in money, they consist in money.
Prices: are of the past or of the future.
Price: historical fact
Price: are not measurement of physical of chemical phenomena.
3. The Changeability of PricesExchange ratios are subject to change because the conditions are subject to change.
Value of money and goods and services: is the outcome of a moment’s choice. Later we can prefer other things.
Exchange ratios are mutable. But we all think that production, consumption, marketing and prices are rigid.
“For the failures of present-day economic policies are to some extent due to the lamentable confusion brought about by the idea that there is something fixed and therefore measurable in interhuman relations.”
4. Stabilization
One of the errors is stabilization
How did it start?
- Shortcoming in the government’s handling of monetary matters
- Consequences of policies aiming at lowering interest
- Encouraging business ideas through credit expansion
Man, his values, volitions and acts change constantly from moment to moment.
Stabilization’s goal: preservation of immutability of money expenditure
“If all human conditions were unchangeable, if all people were always to repeat the same actions because their uneasiness and their ideas about its removal were constant, or if it were in a position to assume that changes in these factors occurring with some individuals or groups are always outweighed by opposite changes with other individuals or groups and therefore do not affect total demand or total supple we would live in a world of stability.”
In actual world: there are no fixed points, dimensions or relations.
“Where there is action, there is change. Action is always a lever of change.”
“As far as there is human action there is no stability.”
Measurement:
- Doesn’t make sense in praxeology
- Doesn’t make sense in stability (there is nothing to measure)
5. The Root of the Stabilization Idea
Requirements of economic calculation:
A monetary system that I s not sabotaged by government interference.
“The first aim of monetary policy must be to prevent governments from embarking upon inflation and from creating conditions which encourage credit expansion on the part of banks.”
Part 4: Catallactics or Economics of the Market Society
Chapter 14
The Scope and Methos of Catallactics
1. The Delimitation of Catallactic Problems
1. The Delimitation of Catallactic Problems
Chapter 15
The Market
1. The Characteristics of the Market Economy
Market economy: social systems of the division of labor under private ownership of the means of production.
“The market directs the individual’s activities into those channels in which he best serves the want of his fellow men.”
There is no compulsion or coercion.
"The state, the social apparatus of coercion and compulsion, does not interfere with the market and with the citizens activities directed by the market."
“Each man id free; nobody is subject to a despot. Of his own accord the individual integrates himself into a cooperative system.”
The market directs people and guides them to the best way they can promote their own welfare and other peoples. It provides order and sense to the social system.
“The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of the actions of the various individuals cooperating under the division of labor.”
Forces that determine the state of the market:
“The market process is entirely a resultant of human actions. Every market phenomenon can be traced back to definite choices of the members of the market society.”
Market prices tell producers:
Socialism, communism, planned economy or state capitalism: the system of social or governmental ownership of the means of production.
“There is no mixture of the two systems possible or thinkable; there is no such thing as a mixed economy.”Even if in a capitalistic market, the government owns some enterprises, this doesn’t mean that there is a mixed economy. The government operations are still subject to the market.
All socialism is against the market.
2. Capital Goods and Capital
“There is an impulse inwrought in all living beings that direct them toward the assimilation of matter that preserves, renews, and strengthens their vital energy.”
Acting man consciously and purposefully aims at maintain and enhancing his vitality:
Saving – the provisionment of products that makes it possible to prolong the average period of time elapsing between the beginning of the production process and its turning out of a product ready for use and consumption.
Saving and accumulation of capital goods are the foundation of human civilization.
“Without saving and capital accumulation there could not be any striving towards non-material ends.”
Capital is the fundamental concept of economic calculation. It is the starting point.
Income = the amount that can be consumed without lowering the capital.
Capital consumption: when consumption exceeds the income available.
Saving: when the income available is larger than the amount consumed.
Capital: the sum of money equivalent to all assets (land, building, etc.) minus the sum of the money equivalent to all liabilities. It is what something is worth in monetary terms.
Real capital: an inventory; the totality of factors of production available (but this is an empty concept; because it is an inventory of physical quantities that is no good to acting.)
Factor of production: a thing that is able to contribute to the success of a process of production.
Capital cannot be separated from the context of monetary calculation or from the social structure of a market economy in which economic calculation is possible. Capital makes no sense outside a market economy.
“In a socialist economy there are capital goods, but no capital.”
“The notion of capital makes sense only in the market economy. It serves the deliberations and calculations of individuals or groups of individuals operating on their own account. In such an economy it is a device of capitalists, entrepreneurs, and farmers eager to make profits and to avoid losses.”
3. Capitalism
“All civilizations have up to now been based on private ownership of the means of production.” Civilization and private property were linked together.
“There is no experience to the effect that socialism could provide a standard of living as high as that provided by capitalism.”
Socialism and communism look at capitalism as if it were an accident that can be eliminating without altering man’s acting and thinking. They don't think of the consequences which the abolition of monetary calculus can bring.
Others think that although capitalism worked in the past, it is not for our times and is of no use for our times and is of no use to us. “Capitalism is a passing phenomenon, an ephemeral stage of historical evolution, just the transition from precapitalistic ages to a post capitalistic future.”
“Economics… it is the theory of all human actions, the general science of the immutable categories of action and of operation under all thinkable special conditions under which man acts.”
The word capitalism and bourgeois now signify in all languages something that is shameful, degrading and infamous. Now socialists are being looked at as the heroes.
“Today it is deemed a legitimate task of government to prevent efficient man from competing with the less efficient.”
“The concept of capitalism is as an economic concept immutable; it if means anything, it means the market economy.”
4. The Sovereignty of the Consumer
People often think that the direction of economic affairs is a task of entrepreneurs. But this is false because they have to obey the consumers.
“Neither the entrepreneurs nor the farmers nor the capitalists determine what has to be produced. The consumers do that.”
Businessmen have to aim at satisfying the demand of the consumers. Consumers determine what should be produced and in what quantity and in what quality.
Capitalists and landowners only persevere and increase their wealth by filling best the orders of the consumers.
Consumers determine the prices of the consumer goods and the prices of the factors of production.
All of this and many other things they determine by spending money.
The only time when the consumers are not in charge is when there is a monopoly
Part of the errors if the metaphor of calling the capitalists kings and their enterprises kingdoms. This is wrong because it makes us thing that they have the power when really they are just satisfying the consumers wants efficiently.
5. Competition
1. The Characteristics of the Market Economy
Market economy: social systems of the division of labor under private ownership of the means of production.
- Everyone acts on his own behalf (but actions aim at the satisfaction of others needs as well as their own).
- By acting you serve your fellow citizens (everybody is also served).
- Everyone is a means and an end in himself (ultimate end for himself, means for other people).
“The market directs the individual’s activities into those channels in which he best serves the want of his fellow men.”
There is no compulsion or coercion.
"The state, the social apparatus of coercion and compulsion, does not interfere with the market and with the citizens activities directed by the market."
- It only uses its power for the prevention of actions destructive to the preservation and operation of the market economy.
- It protects the individual’s life, health, and property against aggression.
- It creates and preserves the environment for the market economy to operate.
“Each man id free; nobody is subject to a despot. Of his own accord the individual integrates himself into a cooperative system.”
The market directs people and guides them to the best way they can promote their own welfare and other peoples. It provides order and sense to the social system.
“The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of the actions of the various individuals cooperating under the division of labor.”
Forces that determine the state of the market:
- Value judgments of individuals.
- Actions.
“The market process is entirely a resultant of human actions. Every market phenomenon can be traced back to definite choices of the members of the market society.”
Market prices tell producers:
- What to produce
- How to produce
- What quantity to produce
Socialism, communism, planned economy or state capitalism: the system of social or governmental ownership of the means of production.
“There is no mixture of the two systems possible or thinkable; there is no such thing as a mixed economy.”Even if in a capitalistic market, the government owns some enterprises, this doesn’t mean that there is a mixed economy. The government operations are still subject to the market.
All socialism is against the market.
2. Capital Goods and Capital
“There is an impulse inwrought in all living beings that direct them toward the assimilation of matter that preserves, renews, and strengthens their vital energy.”
Acting man consciously and purposefully aims at maintain and enhancing his vitality:
- He secures
food.
- He finds
methods to increase the quantity of food.
- Provides himself
satisfaction of urgent desires.
Saving – the provisionment of products that makes it possible to prolong the average period of time elapsing between the beginning of the production process and its turning out of a product ready for use and consumption.
Saving and accumulation of capital goods are the foundation of human civilization.
“Without saving and capital accumulation there could not be any striving towards non-material ends.”
Capital is the fundamental concept of economic calculation. It is the starting point.
Income = the amount that can be consumed without lowering the capital.
Capital consumption: when consumption exceeds the income available.
Saving: when the income available is larger than the amount consumed.
Capital: the sum of money equivalent to all assets (land, building, etc.) minus the sum of the money equivalent to all liabilities. It is what something is worth in monetary terms.
Real capital: an inventory; the totality of factors of production available (but this is an empty concept; because it is an inventory of physical quantities that is no good to acting.)
Factor of production: a thing that is able to contribute to the success of a process of production.
Capital cannot be separated from the context of monetary calculation or from the social structure of a market economy in which economic calculation is possible. Capital makes no sense outside a market economy.
“In a socialist economy there are capital goods, but no capital.”
“The notion of capital makes sense only in the market economy. It serves the deliberations and calculations of individuals or groups of individuals operating on their own account. In such an economy it is a device of capitalists, entrepreneurs, and farmers eager to make profits and to avoid losses.”
3. Capitalism
“All civilizations have up to now been based on private ownership of the means of production.” Civilization and private property were linked together.
“There is no experience to the effect that socialism could provide a standard of living as high as that provided by capitalism.”
Socialism and communism look at capitalism as if it were an accident that can be eliminating without altering man’s acting and thinking. They don't think of the consequences which the abolition of monetary calculus can bring.
Others think that although capitalism worked in the past, it is not for our times and is of no use for our times and is of no use to us. “Capitalism is a passing phenomenon, an ephemeral stage of historical evolution, just the transition from precapitalistic ages to a post capitalistic future.”
“Economics… it is the theory of all human actions, the general science of the immutable categories of action and of operation under all thinkable special conditions under which man acts.”
The word capitalism and bourgeois now signify in all languages something that is shameful, degrading and infamous. Now socialists are being looked at as the heroes.
“Today it is deemed a legitimate task of government to prevent efficient man from competing with the less efficient.”
“The concept of capitalism is as an economic concept immutable; it if means anything, it means the market economy.”
4. The Sovereignty of the Consumer
People often think that the direction of economic affairs is a task of entrepreneurs. But this is false because they have to obey the consumers.
“Neither the entrepreneurs nor the farmers nor the capitalists determine what has to be produced. The consumers do that.”
Businessmen have to aim at satisfying the demand of the consumers. Consumers determine what should be produced and in what quantity and in what quality.
Capitalists and landowners only persevere and increase their wealth by filling best the orders of the consumers.
Consumers determine the prices of the consumer goods and the prices of the factors of production.
All of this and many other things they determine by spending money.
The only time when the consumers are not in charge is when there is a monopoly
- The Metaphorical Employment of the Terminology of Political Rule
Part of the errors if the metaphor of calling the capitalists kings and their enterprises kingdoms. This is wrong because it makes us thing that they have the power when really they are just satisfying the consumers wants efficiently.
5. Competition
Social competition can be seen in every mode of social cooperation.
Catallactic competition = emulation between people who want to surpass one another.
In market economy, competition is manifest when:
Competition, in the catallactic field , is always restricted by inexorable scarcity of the economic goods and services.
Catallactic competition is a social phenomenon. It is not a right guaranteed by the state and laws.
“Competition does not mean that anybody can prosper by simply imitating what other people do. It means the opportunity to serve consumers in a better or cheaper way without being restrained by privileges granted to those whose vested interests the innovation hurts. What a new-comer who wants to defy the vested interests of the old established firms need the most is brains and ideas.”
The main function of catallactic competition is to safeguard the best satisfaction of the consumers attainable under the given state of economic data.
Catallactic competition is not open to everyone in the same way. Starting is harder for the poor than the rich. But consumers don't care from whom they get the product they want, they only want to secure the best possible satisfaction for their needs.
“On the market every commodity competes with all over commodities.”
6. Freedom
Freedom makes sense only when it refers to human relations; only in a frame of a social system.
“Primitive man was certainly not born free.”
In praxeology, freedom is the sphere within which an acting individual is in a position to choose between alternative modes of action.
“A man is free in so far as he is permitted to choose ends and the means to be used for the attainment of those ends.”
“Peace – the absence of perpetual fighting by everyone against everyone – can be attained only by the establishment of a system in which the power to resort to violent action is monopolized by a social apparatus of compulsion and coercion and the application of this power in only individual cases is regulated by a set of rules – the man made laws.” This apparatus is government.
Freedom and bondage only make sense when referring to the way in which government operates. As long as the government suppresses violence there is still what we call liberty.
Government should prevent people from destroying society.
“If the government does more than protect people against violence or fraudulent aggression on the part of antisocial individuals, it reduces the sphere of the individual’s freedom to act beyond the degree to which it is restricted by praxeological laws.”
We can define freedom as:
“A free nation is continually threatened by the aggressive schemes of totalitarian autocracies. If it wants to preserve freedom, it must be prepared to defend its independence.” But for this everyone must fight together, isolated attempts are doomed to failure.
“He who want to remain free, must fight unto death those who are intent upon depriving his freedom.”
Government’s task is the defense of the social system against domestic and external enemies.
But what if the foe is the government?
The taxes that are compatible with freedom are those of the maintenance of the government’s apparatus of courts, police officers, prisons, and armed forces.
“Every step a government takes beyond the fulfillment of its essential functions of protecting the smooth operation of the market economy against aggression, whether on the part of domestic or foreign disturbers, is a step forward on the road that directly leads into the totalitarian system where there is no freedom at all.”
Conditions of man within contractual society:
The market does not directly prevent anybody to cause harm, but it does penalize such conducts. People who cause harm must be prepared to assume the consequences.
“In a totalitarian hegemonic society the only freedom that is left to the individual, because it cannot be denied to him, is the freedom to commit suicide.”
The government is by necessity a hegemonic bond, but in order to prevent it from becoming a totalitarian regime, it is necessary to curb its power through constitutions, bills of rights, and laws.
Totalitarians reversed the meaning of liberty, by stating that the true condition of liberty is that in which they have no other right than to obey.
“Socialism means the emancipation of the common man, means freedom for al. It means moreover, riches for all.”
These ideas triumphed because they didn't meet an effective rational criticism (even if the economists did, the public didn't).
“The freedom of man under capitalism is an effect of competition.” We are free to choose employers and suppliers. If we were under economic planning, we wouldn't be able to choose where to work or what to consume. We would only obey. We wouldn't have value judgments.
“A man is free as far as he shapes his life according to his own plans.”
7. Inequality of Wealth and IncomeInequality is essential for market economy in order for society to persevere the freedom of occupation.
8. Entrepreneurial Profit and Loss
Profit = gain derived from action (it is the aim of action)
In market = all of the things bought ad sold against money are market with money prices.
In monetary calculus:
Profit = surplus of money received over money expended.
Loss = surplus of money expended over money received.
But this does not state anything about individual profit or loss. Just his fellow’s men evaluation of his social contribution.
“We cannot even think of a state of affairs in which people act without the intention of attaining psychic profit and in which their actions result neither in physic nor psychic loss.”
“Like every acting man, the entrepreneur is always a speculator. He deals with the uncertain conditions of the future.”
The entrepreneur cannot evade the law of the market. “He succeeds only by best serving his customers.”
The entrepreneur’s profit depends on his consumers product.
“Entrepreneurial profit and loss shouldn't be mistaken by other factors that also affect the entrepreneur’s proceeds.”
“If some entrepreneurs go out of business, others will take their place – new or old entrepreneurs expanding the size of their enterprises. Policies hostile to capitalism may deprive the consumers of the great part of the benefits they would have reaped from unhampered entrepreneurial activities. But they cannot eliminate the entrepreneurs as such if they do not entirely destroy the market economy.”
“The ultimate source from which entrepreneurial profit and loss are derived is the uncertainty of the future constellation of supply and demand.”
9. Entrepreneurial Profits and Losses in a Progressing Economy
Progressing economy: an economy in which the per capita quota of capital invested is increased.
The entrepreneurial surplus can never exhaust the total increase in wealth brought about by economic progress.
Entrepreneurial profits are temporary.
Progress hurts some labor in the short run. Because their old jobs become obsolete and have to go into lower paying jobs as a replacement.
“What happens in the short run is precisely the first stages of the chain of successive transformations which then to bring about the long run effects.” (Economics in one lesson)
“The vehicle of economic progress is the accumulation of additional capital by means of saving and improvement in technological methods of production the execution of which is almost always conditioned by the availability of such new capital.”
Agents of progress = entrepreneurs
Profit is not dependent on the amount of capital employed by the entrepreneur.
“An excess of the total amount of profits over that of losses is proof of the tact that there is economic progress and an improvement in the standard of living of all strata of the population. The greater this excess is. The greater is the increment in general prosperity.”
Economics is indifferent with the value judgments about profits, or whether they should be approved on according to natural law or morality. Economics only says that profits and losses are essential for market phenomena.
These people don’t realize that economic improvement are caused by entrepreneurs and that people benefit from it (they don’t actually contribute)
Entrepreneurs act as individuals. They don’t bother about the fate of the totality of entrepreneurs. He trusts his own ability to understand future market conditions.
“The entrepreneurial function, the striving of entrepreneurs after profits, is the driving power in the market economy.”
“Profit seeking business is subject to the sovereignty of the consumers, while nonprofit institutions are sovereign unto themselves and not responsible to the public.”
He proved with the things consumers ask for. They are not good or bad things (more liquor than bibles). It is up to the philosophers to change people’s ideals, not entrepreneurs.
“Profit is earned by the adjustment of the utilization of the human and material factors of production to changes in conditions.”
Socialists and interventionists see profits as unearned incomes, brought about by toil.
“What brings forth usable goods is not physical effort as such, but physical effort aptly directed by the human mind toward a definite goal.”
You also need:
People think that it describes the state of affairs when people can’t buy parts of the goods produced because they are poor.
And they believe people are poor because of greedy capitalists.
Purchasing Power Argument:
Rise in wage rates is a prerequisite for the expansion of production.
Error: considering wage rates as the force that brings economic improvement.
10. Promoters, Managers, Technicians and Bureaucrats
Technician: people who have the ability and the skill to perform definite kinds and quantities of work. (inventors, constructors, designers). The entrepreneurs hire them.
The entrepreneur is also a technician when he is in the technical execution of his plans.
The entrepreneur also has to take a lot of last minute decisions and must choose the most economical one, since his profit is at stake.
He can reject those choices made by the technician.
But the entrepreneur doesn’t have to be involved in every minute detail. He can devote himself to the greater tasks by appointing assistants; by creating a managerial hierarchy.
Manager: junior partner of the entrepreneur. His financial interests also make him attend with the best of his abilities.
The entrepreneur only directs those assistants to make as much profit as possible. Each manager or submanager is responsible for his subsection.
“It is to his credit if the accounts show a profit and to his disadvantage if they show a loss. His own interests impel him towards the utmost care and exertion in the conduct of his section’s affairs.”
Managerial function: “It can relieve the entrepreneur of a part of his minor duties; it can never evolve into a substitute for entrepreneurship.”
The losses in general cannot be answered by the manager, only by the owners of the capital. Managers risk other people’s money.
Directors: the elected mandatories and stockholders who control the general direction of a corporation’s conduct of business.
“A successful corporation is ultimately never controlled by hired managers.”
The entrepreneur determines alone:
Bureaucratic management:
Method applied in the conduct of administrative affairs. It has no cash value on the market. It is bound to comply with rules and regulations.
Public Administration:
Goal: to establish whether or not the funds allocated have been expended in strict compliance with the provisions of the budget.
“Thus the major and the chiefs of the city’s various departments are restricted by the budget. They are not free to act upon what they themselves consider the most beneficial solution of the various problems of citizenry has to face. They are bound to spend the funds allocated for the purposes the budget has assigned them.”
“No business, whatever its size or specific task, can never become bureaucratic so long as it is entirely and solely operated on a profit basis
11. The Selective Process
The selective process of the market is the effort of all members of the market economy, which are driven by the urge to remove their uneasiness as much as possible, and by contributing the most to others satisfactions and taking advantages of the services that others offer.
He tries to sell on the dearest market and buy in the cheapest.
“The selective process never stops. It goes on adjusting the social apparatus of production to the changes in demand and supply.”
“Nobody is exempt from the law of the market, the consumers’ sovereignty.”
Ownership of the means of production is a liability; meaning that you have to satisfy your customers in the most efficient way.
The selective function of the market also works with regard to labor:
The market selection does not establish social orders, castes or classes.
“Each individual is free to become a promoter if he relies upon his own ability to anticipate future market conditions better than his fellow citizens and if he attempts to act at his own peril and on his on responsibility are approved by the consumers.”
“A new comer does not need to wait for an invitation or encouragement from anyone. He must leap forward on his own account and must himself know how to provide the means needed.”
“So far as the operation of the market is not sabotaged by the interference of the governments and other factors of coercion, success in business is the proof of services rendered to the consumers.”
Poor man’s failure caused by the lack of education:
12. The Individual and the Market
“The only factors directing the market and the determination of prices are purposive acts of men. These is no automatism; there are only men consciously and deliberately aiming at ends chosen. There are no mysterious forces; there is only the human will to remove uneasiness. There is no anonymity; there are you and I and Bill and Joe and all the rest. And each of us is both a producer and a consumer.”
“He does not always see that he himself is a part, although a small part, of the complex elements determining each momentary state of the market.”
One doesn’t realize this because we feel free to condemn a mode of conduct which we consider right with regards to ourselves.
Protecting the less efficient producers against the competition:
“Many people simply do not realize that the only effect of protection is to divert production form those places in which it could produce more per unit of capital and labor expended to places in which it produces less. It makes people poorer, not more prosperous.”
People have been able to sell protectionism by convincing people that protection raises their standard of living. Leaders instill in people the idea that his program best serves the attainment of his goal.
There are sellers who want to protect themselves against buyers, and as buyers they want to protect themselves against sellers. It is as if buyers and sellers had nothing in common, when every man is both.
“it is the outcome of a narrow-mindedness which fails to conceive the operation of the market economy and to anticipate the ultimate effects of one’s own actions.”
13. Business Propaganda
The task of business propaganda: to convey to the consumer information about the actual state of the market.
Must be obtrusive and blatant and suited to the mentality of the people courted.
Aim:
But there are people who would like to ban propaganda:
“The restriction of the right of businessmen to advertise their products would restrict the freedom of the consumers to spend their income according to their own wants and desires. “
Consumers wouldn’t learn market conditions.
They wouldn’t be able to decide with their own opinion, but with others recommendation.
But advertising doesn’t make people buy a product.
That is derived from the better quality of the product.
“The effects of advertising commodities are determined by the fact that as a rule the buyer is in a position tt form a correct opinion about the usefulness of an article bought.
If we judge wrong, experience tells us to choose something else for next time.
But in those cases where experience can’t tell us anything, it is different. These cases can be religious, metaphysical or political propaganda.
The costs of advertising can be seen as all other costs of production.
14. The "Volkswirtschaft"
“The market economy as such does not respect political frontiers. Its field is the world.”
Volkswitschaft: a sovereign’s nations total complex of economic activities controlled by the government. (Socialism within the political frontiers of each nation).
The interests of the volkswitschaft are more important than those of the individuals and the volkswirtschaft any other nation.
Most desirable state of a volkswirtschaft:
They believe that the world of economy is a plan devised for the destruction of civilization. But just by stopping foreign trade, it doesn’t make a volkswirtschaft, there is still a market economy that is autarky, happening in trade between the locals.
“As far as there is still some room left for the actions of individuals, as fas as there is private ownership and exchange of goods and services between individuals, there is no volkswirtschaft. Only if full government control is substituted for the choices of the individuals foes the volkswitschaft emerge as a real entity.”
“Princes, governors and generals are never spontaneously liberal. They became liberal only when forced to by the citizens.”
Catallactic competition = emulation between people who want to surpass one another.
In market economy, competition is manifest when:
- Sellers outdo one another by offering better or cheaper products.
- Buyers outdo one another by offering higher prices.
Competition, in the catallactic field , is always restricted by inexorable scarcity of the economic goods and services.
Catallactic competition is a social phenomenon. It is not a right guaranteed by the state and laws.
“Competition does not mean that anybody can prosper by simply imitating what other people do. It means the opportunity to serve consumers in a better or cheaper way without being restrained by privileges granted to those whose vested interests the innovation hurts. What a new-comer who wants to defy the vested interests of the old established firms need the most is brains and ideas.”
The main function of catallactic competition is to safeguard the best satisfaction of the consumers attainable under the given state of economic data.
Catallactic competition is not open to everyone in the same way. Starting is harder for the poor than the rich. But consumers don't care from whom they get the product they want, they only want to secure the best possible satisfaction for their needs.
“On the market every commodity competes with all over commodities.”
6. Freedom
Freedom makes sense only when it refers to human relations; only in a frame of a social system.
“Primitive man was certainly not born free.”
In praxeology, freedom is the sphere within which an acting individual is in a position to choose between alternative modes of action.
“A man is free in so far as he is permitted to choose ends and the means to be used for the attainment of those ends.”
“Peace – the absence of perpetual fighting by everyone against everyone – can be attained only by the establishment of a system in which the power to resort to violent action is monopolized by a social apparatus of compulsion and coercion and the application of this power in only individual cases is regulated by a set of rules – the man made laws.” This apparatus is government.
Freedom and bondage only make sense when referring to the way in which government operates. As long as the government suppresses violence there is still what we call liberty.
Government should prevent people from destroying society.
“If the government does more than protect people against violence or fraudulent aggression on the part of antisocial individuals, it reduces the sphere of the individual’s freedom to act beyond the degree to which it is restricted by praxeological laws.”
We can define freedom as:
- The state of affairs in which the individuals’ discretion to choose is not constrained by governmental violence beyond the margin within which the praxeological law restricts it anyway.
“A free nation is continually threatened by the aggressive schemes of totalitarian autocracies. If it wants to preserve freedom, it must be prepared to defend its independence.” But for this everyone must fight together, isolated attempts are doomed to failure.
“He who want to remain free, must fight unto death those who are intent upon depriving his freedom.”
Government’s task is the defense of the social system against domestic and external enemies.
But what if the foe is the government?
The taxes that are compatible with freedom are those of the maintenance of the government’s apparatus of courts, police officers, prisons, and armed forces.
“Every step a government takes beyond the fulfillment of its essential functions of protecting the smooth operation of the market economy against aggression, whether on the part of domestic or foreign disturbers, is a step forward on the road that directly leads into the totalitarian system where there is no freedom at all.”
Conditions of man within contractual society:
- Liberty
- Freedom
The market does not directly prevent anybody to cause harm, but it does penalize such conducts. People who cause harm must be prepared to assume the consequences.
“In a totalitarian hegemonic society the only freedom that is left to the individual, because it cannot be denied to him, is the freedom to commit suicide.”
The government is by necessity a hegemonic bond, but in order to prevent it from becoming a totalitarian regime, it is necessary to curb its power through constitutions, bills of rights, and laws.
Totalitarians reversed the meaning of liberty, by stating that the true condition of liberty is that in which they have no other right than to obey.
“Socialism means the emancipation of the common man, means freedom for al. It means moreover, riches for all.”
These ideas triumphed because they didn't meet an effective rational criticism (even if the economists did, the public didn't).
“The freedom of man under capitalism is an effect of competition.” We are free to choose employers and suppliers. If we were under economic planning, we wouldn't be able to choose where to work or what to consume. We would only obey. We wouldn't have value judgments.
“A man is free as far as he shapes his life according to his own plans.”
7. Inequality of Wealth and IncomeInequality is essential for market economy in order for society to persevere the freedom of occupation.
8. Entrepreneurial Profit and Loss
Profit = gain derived from action (it is the aim of action)
In market = all of the things bought ad sold against money are market with money prices.
In monetary calculus:
Profit = surplus of money received over money expended.
Loss = surplus of money expended over money received.
But this does not state anything about individual profit or loss. Just his fellow’s men evaluation of his social contribution.
“We cannot even think of a state of affairs in which people act without the intention of attaining psychic profit and in which their actions result neither in physic nor psychic loss.”
“Like every acting man, the entrepreneur is always a speculator. He deals with the uncertain conditions of the future.”
The entrepreneur cannot evade the law of the market. “He succeeds only by best serving his customers.”
The entrepreneur’s profit depends on his consumers product.
“Entrepreneurial profit and loss shouldn't be mistaken by other factors that also affect the entrepreneur’s proceeds.”
- Accidents affecting the process of production.
- Efficiency of the entrepreneurs
- Political dangers
“If some entrepreneurs go out of business, others will take their place – new or old entrepreneurs expanding the size of their enterprises. Policies hostile to capitalism may deprive the consumers of the great part of the benefits they would have reaped from unhampered entrepreneurial activities. But they cannot eliminate the entrepreneurs as such if they do not entirely destroy the market economy.”
“The ultimate source from which entrepreneurial profit and loss are derived is the uncertainty of the future constellation of supply and demand.”
9. Entrepreneurial Profits and Losses in a Progressing Economy
Progressing economy: an economy in which the per capita quota of capital invested is increased.
The entrepreneurial surplus can never exhaust the total increase in wealth brought about by economic progress.
Entrepreneurial profits are temporary.
Progress hurts some labor in the short run. Because their old jobs become obsolete and have to go into lower paying jobs as a replacement.
“What happens in the short run is precisely the first stages of the chain of successive transformations which then to bring about the long run effects.” (Economics in one lesson)
“The vehicle of economic progress is the accumulation of additional capital by means of saving and improvement in technological methods of production the execution of which is almost always conditioned by the availability of such new capital.”
Agents of progress = entrepreneurs
Profit is not dependent on the amount of capital employed by the entrepreneur.
“An excess of the total amount of profits over that of losses is proof of the tact that there is economic progress and an improvement in the standard of living of all strata of the population. The greater this excess is. The greater is the increment in general prosperity.”
Economics is indifferent with the value judgments about profits, or whether they should be approved on according to natural law or morality. Economics only says that profits and losses are essential for market phenomena.
These people don’t realize that economic improvement are caused by entrepreneurs and that people benefit from it (they don’t actually contribute)
Entrepreneurs act as individuals. They don’t bother about the fate of the totality of entrepreneurs. He trusts his own ability to understand future market conditions.
“The entrepreneurial function, the striving of entrepreneurs after profits, is the driving power in the market economy.”
“Profit seeking business is subject to the sovereignty of the consumers, while nonprofit institutions are sovereign unto themselves and not responsible to the public.”
He proved with the things consumers ask for. They are not good or bad things (more liquor than bibles). It is up to the philosophers to change people’s ideals, not entrepreneurs.
- The Moral Condemnation for Profit
“Profit is earned by the adjustment of the utilization of the human and material factors of production to changes in conditions.”
Socialists and interventionists see profits as unearned incomes, brought about by toil.
“What brings forth usable goods is not physical effort as such, but physical effort aptly directed by the human mind toward a definite goal.”
You also need:
- A plan
- Capital goods required.
- Some Observations of Underconsumption Bogey and on the Purchasing Power Argument
People think that it describes the state of affairs when people can’t buy parts of the goods produced because they are poor.
And they believe people are poor because of greedy capitalists.
Purchasing Power Argument:
Rise in wage rates is a prerequisite for the expansion of production.
Error: considering wage rates as the force that brings economic improvement.
10. Promoters, Managers, Technicians and Bureaucrats
Technician: people who have the ability and the skill to perform definite kinds and quantities of work. (inventors, constructors, designers). The entrepreneurs hire them.
The entrepreneur is also a technician when he is in the technical execution of his plans.
The entrepreneur also has to take a lot of last minute decisions and must choose the most economical one, since his profit is at stake.
He can reject those choices made by the technician.
But the entrepreneur doesn’t have to be involved in every minute detail. He can devote himself to the greater tasks by appointing assistants; by creating a managerial hierarchy.
Manager: junior partner of the entrepreneur. His financial interests also make him attend with the best of his abilities.
The entrepreneur only directs those assistants to make as much profit as possible. Each manager or submanager is responsible for his subsection.
“It is to his credit if the accounts show a profit and to his disadvantage if they show a loss. His own interests impel him towards the utmost care and exertion in the conduct of his section’s affairs.”
Managerial function: “It can relieve the entrepreneur of a part of his minor duties; it can never evolve into a substitute for entrepreneurship.”
The losses in general cannot be answered by the manager, only by the owners of the capital. Managers risk other people’s money.
Directors: the elected mandatories and stockholders who control the general direction of a corporation’s conduct of business.
“A successful corporation is ultimately never controlled by hired managers.”
The entrepreneur determines alone:
- In what lines of business to employ capital and how much.
- Expansion and contraction of the size of the business.
- Enterprises financial structure.
Bureaucratic management:
Method applied in the conduct of administrative affairs. It has no cash value on the market. It is bound to comply with rules and regulations.
Public Administration:
Goal: to establish whether or not the funds allocated have been expended in strict compliance with the provisions of the budget.
“Thus the major and the chiefs of the city’s various departments are restricted by the budget. They are not free to act upon what they themselves consider the most beneficial solution of the various problems of citizenry has to face. They are bound to spend the funds allocated for the purposes the budget has assigned them.”
“No business, whatever its size or specific task, can never become bureaucratic so long as it is entirely and solely operated on a profit basis
11. The Selective Process
The selective process of the market is the effort of all members of the market economy, which are driven by the urge to remove their uneasiness as much as possible, and by contributing the most to others satisfactions and taking advantages of the services that others offer.
He tries to sell on the dearest market and buy in the cheapest.
“The selective process never stops. It goes on adjusting the social apparatus of production to the changes in demand and supply.”
“Nobody is exempt from the law of the market, the consumers’ sovereignty.”
Ownership of the means of production is a liability; meaning that you have to satisfy your customers in the most efficient way.
The selective function of the market also works with regard to labor:
- The worker is attracted by the work in which he can earn the most
- The worker is also subject to the supremacy of the consumers.
The market selection does not establish social orders, castes or classes.
“Each individual is free to become a promoter if he relies upon his own ability to anticipate future market conditions better than his fellow citizens and if he attempts to act at his own peril and on his on responsibility are approved by the consumers.”
“A new comer does not need to wait for an invitation or encouragement from anyone. He must leap forward on his own account and must himself know how to provide the means needed.”
“So far as the operation of the market is not sabotaged by the interference of the governments and other factors of coercion, success in business is the proof of services rendered to the consumers.”
Poor man’s failure caused by the lack of education:
- Equality of opportunity does not come by education.
- There are inborn qualities in intellect, will power and character.
- Education is an indoctrination with theories and ideas that are already developed.
- To succeed in business, man doesn’t need a degree.
- “A man becomes an entrepreneur in seizing the opportunity and filing the gap.”
12. The Individual and the Market
“The only factors directing the market and the determination of prices are purposive acts of men. These is no automatism; there are only men consciously and deliberately aiming at ends chosen. There are no mysterious forces; there is only the human will to remove uneasiness. There is no anonymity; there are you and I and Bill and Joe and all the rest. And each of us is both a producer and a consumer.”
“He does not always see that he himself is a part, although a small part, of the complex elements determining each momentary state of the market.”
One doesn’t realize this because we feel free to condemn a mode of conduct which we consider right with regards to ourselves.
Protecting the less efficient producers against the competition:
- Is a small group is privileged, these enjoy advantages over everyone else.
- If all producers are privileged, everyone loses in his capacity as consumer as much as he gains in his capacity of producer.
“Many people simply do not realize that the only effect of protection is to divert production form those places in which it could produce more per unit of capital and labor expended to places in which it produces less. It makes people poorer, not more prosperous.”
People have been able to sell protectionism by convincing people that protection raises their standard of living. Leaders instill in people the idea that his program best serves the attainment of his goal.
There are sellers who want to protect themselves against buyers, and as buyers they want to protect themselves against sellers. It is as if buyers and sellers had nothing in common, when every man is both.
“it is the outcome of a narrow-mindedness which fails to conceive the operation of the market economy and to anticipate the ultimate effects of one’s own actions.”
13. Business Propaganda
The task of business propaganda: to convey to the consumer information about the actual state of the market.
Must be obtrusive and blatant and suited to the mentality of the people courted.
Aim:
- Attract the attention of slow people.
- Rouse latent wishes.
- Entice men to substitute innovation for inert clinging to traditional routine.
But there are people who would like to ban propaganda:
“The restriction of the right of businessmen to advertise their products would restrict the freedom of the consumers to spend their income according to their own wants and desires. “
Consumers wouldn’t learn market conditions.
They wouldn’t be able to decide with their own opinion, but with others recommendation.
But advertising doesn’t make people buy a product.
That is derived from the better quality of the product.
“The effects of advertising commodities are determined by the fact that as a rule the buyer is in a position tt form a correct opinion about the usefulness of an article bought.
If we judge wrong, experience tells us to choose something else for next time.
But in those cases where experience can’t tell us anything, it is different. These cases can be religious, metaphysical or political propaganda.
The costs of advertising can be seen as all other costs of production.
14. The "Volkswirtschaft"
“The market economy as such does not respect political frontiers. Its field is the world.”
Volkswitschaft: a sovereign’s nations total complex of economic activities controlled by the government. (Socialism within the political frontiers of each nation).
The interests of the volkswitschaft are more important than those of the individuals and the volkswirtschaft any other nation.
Most desirable state of a volkswirtschaft:
- Complete economic sufficiency.
They believe that the world of economy is a plan devised for the destruction of civilization. But just by stopping foreign trade, it doesn’t make a volkswirtschaft, there is still a market economy that is autarky, happening in trade between the locals.
“As far as there is still some room left for the actions of individuals, as fas as there is private ownership and exchange of goods and services between individuals, there is no volkswirtschaft. Only if full government control is substituted for the choices of the individuals foes the volkswitschaft emerge as a real entity.”
“Princes, governors and generals are never spontaneously liberal. They became liberal only when forced to by the citizens.”