WEBVTT NOTE Two Theoretical Approaches to Human Behavior and Social Institutions 1 00:00:00.000 --> 00:00:01.840 Good afternoon, ladies and gentlemen. 2 00:00:01.840 --> 00:00:05.680 It's a good pleasure to be here at Mises Institute talking 3 00:00:05.680 --> 00:00:08.280 on Mises, so it's really nice. 4 00:00:08.280 --> 00:00:12.400 What I'm going to present today is the key ideas I have developed 5 00:00:12.400 --> 00:00:14.840 in my book, Liberalism against Legalism. 6 00:00:14.840 --> 00:00:18.200 You can say, OK, have there is a little bite. 7 00:00:18.200 --> 00:00:20.640 The professor's this morning talking about the books, 8 00:00:20.640 --> 00:00:22.240 so here it is. 9 00:00:22.240 --> 00:00:28.840 The first point is to recognize that we 10 00:00:28.840 --> 00:00:36.480 We have a real problem today, and I would like to quote Professor Sumantra Gosal, defined 11 00:00:36.480 --> 00:00:45.320 Sumantra Gosal, that he wrote in 2005 a really famous article, and the title is quite telling. 12 00:00:45.320 --> 00:00:50.560 Bad theories are destroying good practices, and he's talking about neoclassical mainstream 13 00:00:50.560 --> 00:00:51.560 economics. 14 00:00:51.560 --> 00:00:58.080 And I want to quote him, like he said, combined agency theory, quintessential cost economies 15 00:00:58.080 --> 00:01:02.560 act in the standard versions of game theory and negotiation analysis, and the picture of 16 00:01:02.560 --> 00:01:09.280 the manager that emerges is one that is now very familiar in practice. The radically hard 17 00:01:09.280 --> 00:01:16.240 driving, strictly top-down, common and contract-focused shareholder value-obsessed, win-and-any-cause 18 00:01:16.240 --> 00:01:24.000 business leaders on which Scott Papers, Shenzhou, Dunlap, Tykos, Dennis Koslowski are only 19 00:01:24.000 --> 00:01:35.000 These are only the most extreme examples. This is what Salerno implied when he wrote about absurdities in theory leading to the dissemination of practice. 20 00:01:35.000 --> 00:01:51.000 So, in my opinion, the current crisis, not only the financial crisis, the banking crisis, is having a very dangerous effect because it is calling into question the role of the market economy and the importance of the firm as a social institution. 21 00:01:51.000 --> 00:01:58.760 So, I would like to quote, again, Samantha Gozal, who is echoing Herbert Simon, Nobel Prize. 22 00:01:58.760 --> 00:02:03.880 He said, nothing is more fundamental in setting our research agenda and informing our research 23 00:02:03.880 --> 00:02:10.200 methods that our view of the nature of human beings, whose behaviors we are studying, makes 24 00:02:10.200 --> 00:02:15.600 a difference to research, but it also makes a difference of the proper design of institution. 25 00:02:15.600 --> 00:02:22.760 So what I am going to talk now is about human behavior and how to approach human behavior 26 00:02:22.760 --> 00:02:27.240 within two different, absolutely different theoretical approaches. 27 00:02:27.240 --> 00:02:34.440 First one, because our problem is clearly when we are talking about economic behavior, 28 00:02:34.440 --> 00:02:39.820 obviously we are talking about preference, valuation, choice, ends and means. 29 00:02:39.820 --> 00:02:46.580 So we find all these concepts, the real things in all human behavior. 30 00:02:46.580 --> 00:02:51.180 So taking this into account, I think there are three questions very important. 31 00:02:51.180 --> 00:02:56.180 The first question, you want to explain the phenomena of the market, it's necessary to 32 00:02:56.180 --> 00:02:58.000 go to market transactions. 33 00:02:58.000 --> 00:03:01.420 We find preferences in every action. 34 00:03:01.420 --> 00:03:04.580 So what's the scope of economics? 35 00:03:04.580 --> 00:03:08.920 Does economics include mercantile and non-mercantile transactions? 36 00:03:08.920 --> 00:03:13.920 And the second question applies, as you have said, the basic elements of economic hair 37 00:03:13.920 --> 00:03:19.680 work has to be found in every axiom. What's the difference between mercantile and non-mercantile 38 00:03:19.680 --> 00:03:25.560 phenomena? And the third and the most important question, could be any human axiom reduced 39 00:03:25.560 --> 00:03:32.920 to monetary terms? I have chosen two authors, Ludwig von Mises from 40 00:03:32.920 --> 00:03:38.300 Austrian School and Gary Baker. The reason is clear, Mises' Human Axiom. He has a theory 41 00:03:38.300 --> 00:03:43.660 The Theory of Human Action, he thought, was the basis for all social sciences. 42 00:03:43.660 --> 00:03:49.820 So the first point is mis-establishing the categories necessary for the study of any 43 00:03:49.820 --> 00:03:50.820 human action. 44 00:03:50.820 --> 00:03:54.980 His theory of action, praxeology, but fracties, there are a lot of theory of action, from 45 00:03:54.980 --> 00:03:59.800 Aristotle up to Kurt Arbanski, Polish, there are a lot of them. 46 00:03:59.800 --> 00:04:06.040 But the most important thing is that he has a big difference, a clear difference between 47 00:04:06.040 --> 00:04:09.040 in mercantile and non-mercantile actions. 48 00:04:09.040 --> 00:04:14.040 So, if I take Intercom, in praxeology, Human Action, 49 00:04:14.960 --> 00:04:17.360 there is the economist in the broad sense, 50 00:04:17.360 --> 00:04:19.360 with the social interactions. 51 00:04:19.360 --> 00:04:21.560 There are non-money disabled. 52 00:04:21.560 --> 00:04:25.600 This could be doing in other Italian terms, 53 00:04:25.600 --> 00:04:30.320 the protein, the agere in Latin terms. 54 00:04:30.320 --> 00:04:34.540 But there are another very narrow sense, catallactics, 55 00:04:34.540 --> 00:04:39.980 is making policies when it is able. 56 00:04:39.980 --> 00:04:42.940 But from the beginning, it's absolutely different. 57 00:04:42.940 --> 00:04:46.980 They're having the same theoretical basis. 58 00:04:46.980 --> 00:04:50.300 So it's impossible to reduce all human behavior 59 00:04:50.300 --> 00:04:51.980 to monetary terms. 60 00:04:51.980 --> 00:04:55.580 But in the second position, let's take Gary Baker. 61 00:04:55.580 --> 00:04:57.900 Why Gary Baker? 62 00:04:57.900 --> 00:05:03.060 As Hayek said, he was the most witty, the best Chicago School 63 00:05:03.060 --> 00:05:04.340 economist. 64 00:05:04.340 --> 00:05:09.140 And he clearly gave answers to the three questions. 65 00:05:09.140 --> 00:05:11.740 Because in his most important book, 66 00:05:11.740 --> 00:05:14.580 Mrs. Majority, The Economic Approach to Human Behavior, 67 00:05:14.580 --> 00:05:17.540 he says clearly, they combine assumptions 68 00:05:17.540 --> 00:05:20.780 of maximizing behavior, market equilibrium, 69 00:05:20.780 --> 00:05:24.740 and stable preferences used reliance and inflexibility 70 00:05:24.740 --> 00:05:27.100 from the health economic approach. 71 00:05:27.100 --> 00:05:31.060 So clearly for him, the answer to the second and the third 72 00:05:31.060 --> 00:05:34.020 question are yes. 73 00:05:34.020 --> 00:05:39.100 We have just one approach, one method to all human behavior. 74 00:05:39.100 --> 00:05:42.500 So we can explain through prices, or subtle prices, 75 00:05:42.500 --> 00:05:45.620 all human behavior. 76 00:05:45.620 --> 00:05:49.420 So taking us in the cone, have this diagram 77 00:05:49.420 --> 00:05:53.100 with the theoretical differences. 78 00:05:53.100 --> 00:05:56.260 The first point, the comparison, is 79 00:05:56.260 --> 00:05:58.780 what is the economic point of view? 80 00:05:58.780 --> 00:06:00.660 What is human action? 81 00:06:00.660 --> 00:06:04.260 Clearly, for Ludwig von Mises, he's a real man. 82 00:06:04.260 --> 00:06:07.180 He's talking about the logic of action. 83 00:06:07.180 --> 00:06:09.820 For, obviously, as we know, neoclassical model, 84 00:06:09.820 --> 00:06:13.380 he's talking about homo economicus, absolutely different. 85 00:06:13.380 --> 00:06:16.340 It's abstract, theoretical abstract. 86 00:06:16.340 --> 00:06:19.660 The second point was just the definition of means-ends 87 00:06:19.660 --> 00:06:21.860 relationship. 88 00:06:21.860 --> 00:06:25.020 For Austrian School, discovery of means and creation 89 00:06:25.020 --> 00:06:27.340 of police possibilities. 90 00:06:27.340 --> 00:06:32.060 For Becker, means are, and ends, are given. 91 00:06:32.060 --> 00:06:35.820 Third point, quite important, the dynamics of the K-concept. 92 00:06:35.820 --> 00:06:40.660 Mises, the person constructs his structure of means and ends 93 00:06:40.660 --> 00:06:42.620 in the exercise of entrepreneurship. 94 00:06:42.620 --> 00:06:45.380 The core, the driving force of the market 95 00:06:45.380 --> 00:06:48.260 is entrepreneurship. 96 00:06:48.260 --> 00:06:50.460 For Becker, a static and temporal analysis 97 00:06:50.460 --> 00:06:53.180 of choice with facing given alternatives. 98 00:06:53.180 --> 00:06:56.580 Four point, quite important, concept of competition, 99 00:06:56.580 --> 00:07:07.120 Dynamic Process of Discovery for Mises, for Brecker, Second Hypothesis, Model Market Equilibrium, 100 00:07:07.120 --> 00:07:14.140 Five Points to Project, the end is projecting going beyond the statistic given, so for me 101 00:07:14.140 --> 00:07:22.520 quoting Henri Berzon, the future is something to be done, it's nothing to happen to us, 102 00:07:22.520 --> 00:07:31.520 We must do it. It's something creative. For Becker's third hypothesis, stability preferences over time. 103 00:07:31.520 --> 00:07:38.520 In that way, obviously, the stress point for Mises is that there are clear differences between 104 00:07:38.520 --> 00:07:44.520 non-money-disabled social interrelations, institutions, social institutions, family, the law, 105 00:07:44.520 --> 00:07:51.520 and money-disabled market catalactical actions. For Becker, they don't succeed. All is the same. 106 00:07:51.520 --> 00:07:54.880 So, what is the concept of society? 107 00:07:54.880 --> 00:07:56.200 For obviously for our student school, 108 00:07:56.200 --> 00:07:58.840 society is a problem of coordination. 109 00:08:00.740 --> 00:08:05.820 For Brecker, it's just a figure, a data, 110 00:08:05.820 --> 00:08:07.940 in the extended utility function, 111 00:08:07.940 --> 00:08:10.960 where we call about social capital. 112 00:08:10.960 --> 00:08:12.480 And what is culture? 113 00:08:12.480 --> 00:08:15.560 For Mises, culture is cultural transmission 114 00:08:15.560 --> 00:08:17.120 of possibilities of action. 115 00:08:17.120 --> 00:08:26.120 For Becker, it's another data, it's such a new data in the standard utility function. 116 00:08:26.120 --> 00:08:31.120 So, in a nutshell, what is the structure of the model? 117 00:08:31.120 --> 00:08:36.120 Mises' praxeological categories about the logic of human action. 118 00:08:36.120 --> 00:08:40.120 For Becker, the three hypotheses we have said. 119 00:08:40.120 --> 00:08:45.120 So clearly, he is the man, the Beckerian man. 120 00:08:45.120 --> 00:08:48.120 That's it all. I can't recognize me there. 121 00:08:50.620 --> 00:08:54.120 Perhaps here, the structure of human action. 122 00:08:54.120 --> 00:08:59.620 Because clearly, we have, at the core, action of action. 123 00:08:59.620 --> 00:09:03.120 Human is rational. It's the economy principle. 124 00:09:03.120 --> 00:09:07.120 But curiously, the prerequisites of action are 125 00:09:07.120 --> 00:09:13.120 the state of unison, unison is knowledge and willingness to change the situation. 126 00:09:13.120 --> 00:09:21.120 But clearly the three categories that Aristotle in Nicomachean Ethics recognized to voluntary action. 127 00:09:21.120 --> 00:09:32.120 So it's quite easy to link human mises, praxeology, with the theory of human action that Aristotle established in his work. 128 00:09:32.120 --> 00:09:39.120 And you know the category, sorry, the praxeological categories, causality, temporality. 129 00:09:39.120 --> 00:09:47.120 We have, obviously, the subjective cost-benefit evaluation, but that's just what a part of the whole history. 130 00:09:47.120 --> 00:09:59.120 And obviously, we have the action-execution, how that is an interactive process in which social process is established. 131 00:09:59.120 --> 00:10:14.120 And it's not so difficult to go a step ahead in praxeology, Mises praxeology, to overcome a problem in Mises' work, his utilitarianism. 132 00:10:14.120 --> 00:10:24.120 Following words from Hans-Hermann Hoppe, Kirzner and Rothbard, it's not difficult, but that is my own, obviously. Sure, I am wrong. 133 00:10:24.120 --> 00:10:33.680 Just to put the acting person, the individual, with her institutional framework, linking 134 00:10:33.680 --> 00:10:39.040 the individual person with society, with norms, with culture. 135 00:10:39.040 --> 00:10:45.160 So in that way, it's not difficult to recognize that the acting person is forming his character, 136 00:10:45.160 --> 00:10:46.160 his ethics. 137 00:10:46.160 --> 00:10:52.480 Ethics is about character, the second nature that we are acquiring through our actions. 138 00:10:52.480 --> 00:10:59.720 And in that moment, it's possible to apply Aristotelian ethics based in Woods, Bertus, 139 00:10:59.720 --> 00:11:03.120 Estelens, Arete and Norns. 140 00:11:03.120 --> 00:11:05.880 And the rest of the model applies. 141 00:11:05.880 --> 00:11:11.640 We have the praxeological categories, causality, we have cost-benefit subjective evaluation, 142 00:11:11.640 --> 00:11:13.520 but not monetary. 143 00:11:13.520 --> 00:11:18.800 It's the instrument, it's the mean, but it's subjective. 144 00:11:18.800 --> 00:11:23.480 And this subject is not relative, it's relative to the person. 145 00:11:23.480 --> 00:11:28.800 And we have the realization, sorry, the education of the action 146 00:11:28.800 --> 00:11:32.800 who is feedbacking on the system. 147 00:11:32.800 --> 00:11:39.160 So I would like to express on what Lady Thatcher always said. 148 00:11:39.160 --> 00:11:42.400 Society doesn't exist, obviously. 149 00:11:42.400 --> 00:11:44.560 The only what exists is human action. 150 00:11:44.560 --> 00:11:47.200 But human action is social. 151 00:11:47.200 --> 00:11:50.640 and Human Action is cultural. 152 00:11:50.640 --> 00:11:54.120 So let me conclude. 153 00:11:54.120 --> 00:11:56.600 The most important thing now, everybody 154 00:11:56.600 --> 00:11:59.920 is talking about economic imperialism. 155 00:11:59.920 --> 00:12:02.240 We are talking about the economy of the family, 156 00:12:02.240 --> 00:12:05.240 the economy of punishment, and whatever. 157 00:12:05.240 --> 00:12:09.320 I would like to make a difference here, 158 00:12:09.320 --> 00:12:13.760 because it can refer to enlargement economics, 159 00:12:13.760 --> 00:12:17.360 Or it can refer to the definition of economic behavior. 160 00:12:17.360 --> 00:12:21.920 For the first question, my answer, it is that, 161 00:12:21.920 --> 00:12:24.000 if we're talking about the scope economics, 162 00:12:24.000 --> 00:12:26.480 this accusation has no place. 163 00:12:26.480 --> 00:12:31.880 Because in Mises, economics is combated in praxeology 164 00:12:31.880 --> 00:12:33.560 with the two spheres. 165 00:12:33.560 --> 00:12:37.680 But if we adopt Backer's characterization 166 00:12:37.680 --> 00:12:40.560 of economic behavior, the accusation of economic 167 00:12:40.560 --> 00:12:43.400 imperialism is totally appropriate. 168 00:12:43.400 --> 00:12:48.240 Because all behavior, human behavior, is reduced to prices. 169 00:12:48.240 --> 00:12:51.640 And look at things like this. 170 00:12:51.640 --> 00:12:54.520 But Samantha Goldstein, in the same article, 171 00:12:54.520 --> 00:12:56.680 she's talking about Chicago School 172 00:12:56.680 --> 00:13:00.800 as the most powerful example of ministerial economics. 173 00:13:00.800 --> 00:13:03.680 And he said about the gloomy vision about men 174 00:13:03.680 --> 00:13:06.880 that Chicago School has. 175 00:13:06.880 --> 00:13:13.200 And he said, end quote, when Richard Sporner, Judge Posner, 176 00:13:13.200 --> 00:13:18.200 claims that justice is important only because it leads to avoidance of case. 177 00:13:18.200 --> 00:13:21.200 He perpetrates absurdities in theory. 178 00:13:21.200 --> 00:13:28.200 When Gary Baker asserts, this is another book about accounting for taste, this is 93 book, 179 00:13:28.200 --> 00:13:36.200 and in 2000s he wrote with Murphy, Contability of Social Capital, so far it's that book, 180 00:13:36.200 --> 00:13:41.200 that theft is harmful only because it diminishes productivity. 181 00:13:41.200 --> 00:13:46.880 He closes his eyes at the proof's incapable of quantification and false-bitten of the 182 00:13:46.880 --> 00:13:52.680 false consciousness to which Isaiah Berlin refers. 183 00:13:52.680 --> 00:13:59.680 And I would like to conclude quoting Mises in Human Action, because I think that this 184 00:13:59.680 --> 00:14:09.560 paragraph is very, very important today, warning us about social engineering, because I quote 185 00:14:09.560 --> 00:14:21.560 A new sophisticated version of the image of the perfect society has arisen lately out of a crass misinterpretation of the procedures of economics. 186 00:14:21.560 --> 00:14:31.560 In order to deal with the effects of changes in the market situation, the endeavors to adjust production to those changes and the phenomenal profit and loss, 187 00:14:31.560 --> 00:14:39.440 The economist constructs the image of hypothetical, although untenable, state of affairs, in which 188 00:14:39.440 --> 00:14:46.120 production is always fully adjusted to the realized wishes of the consumers and not far 189 00:14:46.120 --> 00:14:51.840 the changes whatever occur. It's not a strange in the neoclassical model. Entrepreneurs, what 190 00:14:51.840 --> 00:14:58.500 is entrepreneurs? What is creativity? It's impossible to explain. It's something giving. 191 00:14:58.500 --> 00:15:04.940 In this imaginary world, tomorrow doesn't differ from today. No maladjustments can arise, 192 00:15:04.940 --> 00:15:09.900 and no need for any entrepreneurial accent emerges. The conduct of business does not 193 00:15:09.900 --> 00:15:16.460 require any initiative. It is a self-acting process and consistently performed by autonomists 194 00:15:16.460 --> 00:15:22.900 impaled by mysterious quasi-institutes. That is for the economists, and for that matter, 195 00:15:22.900 --> 00:15:29.740 Also for layman, discussing economic issues, another way to conceive what is going on the real, 196 00:15:29.740 --> 00:15:39.220 continually changing world, that to contrast it in this way with a fictitious world of stability and absence of change. 197 00:15:39.220 --> 00:15:43.540 Close quotation, and that's all. Thanks for your attention.