Human Action!

“The origin of money is…entirely natural and thus displays legislative influence only in the rarest instances. Money is not an invention of the state. It is not the product of a legislative act. Even the sanction of political authority is not necessary for its existence. Certain commodities come to be money quite naturally, as the result of economic relationships that were independent of the power of the state.”

Carl Menger

 

 

Four and a half years ago, a reader of mine commented that I should study praxeology, which is the science of human action. As a skeptical empiricist, facts and evidence are important to me, yet, they cannot tell the entirety of the truth about a particular topic. Sometimes, logical deductions are more valuable than spending large and inordinate amounts of time and effort conducting never-ending research and studies that mostly tell you what is already knowable about the world, not just through hard-won personal experience, but also an extrapolated understanding of humanity through a truthful evaluation of one’s own values and actions.

Much like Ayn Rand’s fictional magnum opus, examining Ludwig von Mises’ non-fiction magnum opus could go in a lot of different directions, and it’s not just due to the sheer length of it. For my purposes of this report, I will focus on those highlights that really illuminated my understanding of economics more so than it already has been. Much like his other work Liberty & Property, Mises never fails to impart to me the dangers of economic illiteracy insofar as it impacts the human condition (such as it is).

Mises’ regression theorem is a further development upon Carl Menger’s logical deductions regarding the origins of money. By combining subjective value theory and the law of diminishing marginal utility, Mises wonderfully explains why money is not some devious tool of special interests, but rather, an expression of the market’s spontaneous order. As such, Mises debunks socialism by plainly illustrating how central planning is a lame attempt to resolve the economic calculation problem, which has only been truly solved through prices, thereby necessitating the use of money in order to calculate the allocation of resources, hence Mises’ particular fondness for double-entry bookkeeping as one of the finest inventions from Western civilization to date.

Austrian business cycle theory masterfully details why and how economic booms and busts are completely artificial, given that they have nothing to do with the market process of creative destruction. Simply put, central banks (like the Federal Reserve) cause malinvestment due to artificially low interest rates and fractional reserve lending, which in turn gives misleading price signals to entrepreneurs and investors. This necessitates a market correction (the “bust”) that many individuals misinterpret as a calamity when the truth of the matter is that it is the “boom” which sows the seeds for its future destruction, and is thus completely avoidable right from the get go, yet the central planners desire business cycles because it gives them a cover for their parasitism of the producers vis-à-vis Frédéric Bastiat’s concept of legal plunder.

Sexuality was the last thing I’d expect in a treatise on economics, yet it’s relevance becomes palpable once you consider its natural consequences. As Mises said:

 

“Man integrates the satisfaction of the purely zoological impulses, common to all animals, into a scale of values, in which a place is also assigned to specifically human ends. Acting man also rationalizes the satisfaction of his sexual appetites. Their satisfaction is the outcome of a weighing of pros and cons. Man does not blindly submit to a sexual stimulation like a bull; he refrains from copulation if he deems the costs – the anticipated disadvantages – too high.”

 

Volitional consciousness, as Rand herself explained, necessitates the use of free will. Attraction may very well not be subject to individual choice, but acting on such impulses is a choice, even if rashly or recklessly done so. Interestingly enough, Mises observed one fascinating result of human sexuality:

 

“The mutual sexual attraction of male and female is inherent in man’s animal nature and independent of any thinking and theorizing…[f]amily life is not merely a product of sexual intercourse. It is by no means natural and necessary that parents and children live together in the way in which they do in the family. The mating relation need not result in a family organization. The human family is the outcome of thinking, planning, and acting…[a]s there are in present-day Europe no pure stocks, we must conclude that between members of the various stocks which once settled in that continent there was sexual attraction and not repulsion. Millions of mulattoes and other half-breeds are living counterevidence to the assertion that there exists a natural repulsion between the various races…racial hatred is not a natural phenomenon innate in man. It is the product of ideologies.”

 

I must admit – this is probably the single best rebuttal of racial bigotry ever. Given the apriori logical deduction here, Mises’s observation clearly debunks racial supremacy forever. Hybrid vigor is a reality that is often ignored by those vested special interests who demonize romances between individuals, which have often been proclaimed by the State as so-called miscegenation. Mises also observed that:

 

“Rationalization of sexual intercourse already involves the rationalization of proliferation. Then later further methods of rationalizing the increase of progeny were adopted which were independent of abstention from copulation. People resorted to the egregious and repulsive practices of exposing or killing infants and of abortion. Finally they learned to perform the sexual act in such a way that no pregnancy results. In the last hundred years the technique of contraceptive devices has been perfected and the frequency of their employment increased considerably. Yet the procedures had long been known and practiced.”

 

He goes onto describe how in civilizations with secured property rights, the birthrate tends to stabilize, given that the private production of contraceptive technologies is only made possible by free markets, so authoritarian “progressives” might herald womens’ rights, but when it comes down to making it practically happen in the real world, they loudly condemn the very mechanism of womens’ “liberation” because they are socialists first who couldn’t centrally plan the manufacturing of pencils, much less condoms or contraceptive pills.

Entrepreneurship is seldom understood by Good Americans who typically imagine themselves as noble “workers” who are, in reality, just biased when you consider the grandiose portraits they paint of themselves, which are largely due to their economic illiteracy. Time preference, in my not-so-humble opinion, was beautifully laid out by Mises. He wrote:

 

“Time preference is a categorical requisite of human action. No mode of action can be thought of in which satisfaction within a nearer period of the future is not – other things being equal – preferred to that in a later period. The very act of gratifying a desire implies that gratification at the present instant is preferred to that at a later instant. He who consumes a nonperishable good instead of postponing consumption for an indefinite later moment thereby reveals a higher valuation of present satisfaction as compared with later satisfaction. If he were not to prefer satisfaction in a nearer period of the future to that in a remoter period, he would never consume and so satisfy wants. He would always accumulate, he would never consume and enjoy. He would not consume today, but he would not consume tomorrow either, as the morrow would confront him with the same alternative.”

 

In other words, individuals who have deferred gratification have a longer time preference, as opposed to those who partake in instant gratification who have a shorter time preference. Elsewhere, Mises details how the profitability of interest is justified because lenders have a longer time preference who take on the risk of nonpayment by borrowers who, in turn, have a shorter time preference; that is, borrowers prefer to use credit in order to acquire something now instead of waiting until later when they would’ve simply used their own capital stock to make said purchases. Mises also said:

 

“It is not the business of the entrepreneurs to make people substitute sound ideologies for unsound. It rests with the philosophers to change people’s ideas and ideals. The entrepreneur serves the consumers as they are today, however wicked and ignorant.”

 

This is a rather bitter pill for many Americans to swallow; however, I believe it to be the truth. Mises’ explanation says why vices will always be profitable to those entrepreneurs who willing to serve particular market demands. It also reveals just how atrocious it was for Edward Bernays and his fellow social engineers to trick consumers through manipulative advertising (such as convincing women to begin smoking cigarettes because they were allegedly “torches of freedom”); no wonder Bernays and company decided to artificially create their own market demand by selling lifestyle imagery to hapless customers who honestly didn’t know what they wanted. Mises also observed that:

 

“Education, whatever benefits it may confer, is transmission of traditional doctrines and valuations; it is by necessity conservative. It produces imitation and routine, not improvement and progress. Innovators and creative geniuses cannot be reared in schools. They are precisely the men who defy what the school has taught them.”

 

So much for the alleged claim that education is always the answer, huh? Mises here, I think, is implying that “education” produces individuals who have a shorter time preference; thus, regardless of whether entrepreneurs are born or made, what is certain is that colleges and universities tend to regurgitate intelligentsia automatons who are just smart enough to shuffle papers around and speak “large” words, but not intelligent enough to reason out how badly they’ve been manipulated into going into debt via student loans that they pay interest on to the fascist Big Banks. Mises further said:

 

“An entrepreneur cannot be trained. A man becomes an entrepreneur in seizing an opportunity and filling the gap. No special education is required for such a display of keen judgment, foresight, and energy. The most successful businessmen were often uneducated when measured by the scholastic standards of the teaching profession. But they were equal to their social function of adjusting production to the most urgent demand.”

 

This is probably the most insightful observation of Mises’ entire book. The big secret of learning about the Austrian school of economics in the first place, I think, is to encourage Americans to become more entrepreneurial. Historical (and even contemporary) examples abound of individuals who were “drop-outs” initially struggling and then eventually succeeding as real entrepreneurs with their start-up businesses, often becoming the nouveau riche with their newly acquired wealth.

Speaking of justly acquired wealth, Mises does not shy away from the evils of taxation. He says:

 

“The ability-to-pay principle has been raised to the dignity of a postulate of social justice. As people see it today, the fiscal and budgetary objectives of taxation are of secondary importance only. The primary function of taxation is to reform social conditions according to justice. Taxation is a method of government interference with business.”

 

Similar to how Frank Chodorov explained the income tax, Mises criticizes the “progressive” leftist notion of the so-called “ability-to-pay,” which was ostensibly a tax the rich scheme, but turned out to be a legal plundering of the productive (for instance, ~ 20% of my own “gross income” is currently subject to withholding). Mises fabulously pointed out that:

 

“The government has no more ability than individuals to create something out of nothing. What the government spends more, the public spends less. Public works are not accomplished by the miraculous power of a magic wand. They are paid for by funds taken away from the citizens. If the government had not interfered, the citizens would have employed them for the realization of profit-promising projects the realization of which they must omit because their means have been curtailed by the government.”

 

I’d think it’s more than fair to say that this debunks the whole repulsive “public goods” argument pretty succinctly. Given the reality of private roads like the Dulles Greenway in Virginia, statist vitriol demonizing the privatization of “public utilities” is more akin to a temper tantrum than any genuine exploration for the truth. Mises continues:

 

“Yet, the true crux of the taxation issue is to be seen in the paradox that the more taxes increase, the more they undermine the market economy and concomitantly the system of taxation itself. Thus the fact becomes manifest that ultimately the preservation of private property and confiscatory measures are incompatible. Every specific tax, as well as a nation’s whole tax system, becomes self-defeating above a certain height of the rates.”

 

This is exactly why libertarians have been screaming bloody murder that all taxation is theft. Outright denials about this form of legal plunder are evocative of those individuals who are not only economically illiterate, but also suffering from Stockholm Syndrome with the State. I’m truly pleased that Mises was unapologetically defending capital accumulation as the material source of personal liberty (not to mention infrastructure development).

Unfortunately, Mises gave an undue amount of credit to the notion of a hypothetically “limited” government, going even so far as to criticize living without rulers. He said:

 

“Anarchism believes that education could make all people comprehend what their own interests require them to do; rightly instructed they would of their accord always comply with the rules of conduct indispensable for the preservation of society. The anarchists contend that a social order in which nobody enjoys privileges at the expense of his fellow-citizens could exist without any compulsion and coercion for the prevention of action detrimental to society…[t]he anarchists overlook the undeniable fact that some people are either too narrow-minded or too weak to adjust themselves spontaneously to the conditions of social life…[a]n anarchistic society would be exposed to the mercy of every individual. Society cannot exist if the majority is not ready to hinder, by the application or threat of violent action, minorities from destroying the social order. This power is vested in the state or government.”

 

This is a rather unfair characterization, and reveals that Mises, as an academic, was unacquainted with the realities of using force. Although there are individuals who are, as Mises put it, too narrow-minded or otherwise weak to adjust themselves to market dynamics, that doesn’t therefore mean that a social institution which enjoys a unique monopoly on the initiation of the use of force must continue to exist (non sequitur fallacy, much?). Mises also said:

 

“State or government is the social apparatus of compulsion and coercion. It has the monopoly of violent action…[f]or the sake of domestic peace liberalism aims at democratic government. Democracy is therefore not a revolutionary institution. On the contrary, it is the very means of preventing revolutions and civil wars. It provides a method for the peaceful adjustment of government to the will of the majority. When the men in office and their policies no longer please the majority of the nation, they will – in the next election – be eliminated and replaced by other men espousing different policies.”

 

Here, Mises admits that government enjoys a monopoly on coercion, and so as an openly avowed liberal, I guess his affectation for democracy shouldn’t be too surprising. He continues:

 

“State and government are not ends, but means. Inflicting evil upon other people is a source of direct pleasure only to sadists. Established authorities resort to coercion and compulsion in order to safeguard the smooth operation of a definite system of social organization. The sphere in which coercion and compulsion is applied and the content of the laws which are to be enforced by the police apparatus are condition by the social order adopted. As state and government are designed to make this social system operate safely, the delimitation of governmental functions must be adjusted to its requirements. The only standard for the appreciation of the laws and the methods for their enforcement is whether or not they are efficient in safeguarding the social order which it is desired to preserve.”

 

So, let me get this straight – Mises seriously wants me to believe that coercive monopolies facilitate orderly market transactions? If anything, I believe that Mises is attempting here to marry democratic governance with free markets, which for me is a bit of a hard sell. This would seem to contradict would Mises said elsewhere regarding government interference in the market, and taxation specifically. Furthermore, Mises said:

 

“The philosophy of law and political science are at a loss to discover any reason why government should not control prices and not punish those defying the price ceilings decreed, in the same way it punishes murderers and thieves…there is need to emphasize once again that the only purpose of the laws and the social apparatus of coercion and compulsion is to safeguard the smooth function of social cooperation. It is obvious that the government has the power to decree maximum prices and to imprison or to execute those selling or buying at a higher price. But the question is whether such a policy can or cannot attain the ends which the government wants to attain by resorting to it. This is a purely praxeological and economic problem. Neither the philosophy of law nor political science can contribute anything to its solution.”

 

Again, I think Mises is playing with fire here. It’s almost as if he completely ignored Belgian economist Gustave de Molinari’s realization that the private production of security services is preferable to those aberrations provided by monopoly or communism. When combined with legal plunder, then the justifications for a hypothetically “limited” government simply vanish into the ether.

Ludwig von Mises’ Human Action: A Treatise on Economics is an awe-inspiring defense of private property and free markets, albeit from a strictly utilitarian perspective. There is also an audiobook narrated by the legendary Jeff Riggenbach, which I highly recommend, because I doubt anybody is going to fully understand Mises’ magnum opus on a first read, and Riggenbach’s audiobook is something you can listen to while you exercise, commute, or lounge around. Also invaluable is Robert Murphy’s study guide, which greatly simplified Mises’ verbose language at times.

I’m truly glad I took the time to read, reread, and listen to Mises’ Human Action, for it truly impressed upon me the imperative for increasing economic literacy (not to mention how he and the Austrian School were heavily referenced in the #agora novella). At this juncture, I would really only disagree with Mises regarding his affectation for democracy as a hypothetically “limited” government, yet given the fact that he was promoting the free market in Austria at the exact same time the German National Socialists marched into Vienna with open arms, I am reluctant to let the perfect be the enemy of the good, so to speak; and as such, I will let Mises have the last word here regarding the study of human action:

 

“Praxeology as a science cannot encroach upon the individual’s right to choose and to act. The final decisions rest with acting men, not with the theorists. Science’s contribution to life and action does not consist in establishing value judgments, but in clarification of the conditions under which man must act and in elucidation of the effects of various modes of action. It puts at the disposal of acting man all the information he needs in order to make his choices in full awareness of their consequences. It prepares an estimate of cost and yield, as it were. It would fail in this task if it were to omit from this statement one of the items which could be of influence in people’s choices and decisions.”

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