WEBVTT NOTE XIII. Monetary Calculation as a Tool of Action 1 00:00:00.000 --> 00:00:05.000 CHAPTER XIII. MONETARY CALCULATION AS A TOOL OF ACTION 2 00:00:05.000 --> 00:00:12.960 1. MONETARY CALCULATION AS A METHOD OF THINKING 3 00:00:12.960 --> 00:00:17.720 Monetary calculation is the guiding star of action under the social system of division 4 00:00:17.720 --> 00:00:24.980 of labor. It is the compass of the man embarking upon production. He calculates in order to 5 00:00:24.980 --> 00:00:30.520 You distinguish the remunerative lines of production from the unprofitable ones, those 6 00:00:30.520 --> 00:00:35.700 of which the sovereign consumers are likely to approve from those of which they are likely 7 00:00:35.700 --> 00:00:37.880 to disapprove. 8 00:00:37.880 --> 00:00:45.460 Every single step of entrepreneurial activities is subject to scrutiny by monetary calculation. 9 00:00:45.460 --> 00:00:52.340 The premeditation of planned action becomes commercial pre-calculation of expected costs 10 00:00:52.340 --> 00:00:54.900 and expected proceeds. 11 00:00:54.900 --> 00:01:00.900 The retrospective establishment of the outcome of past action becomes a counting of profit 12 00:01:00.900 --> 00:01:03.320 and loss. 13 00:01:03.320 --> 00:01:10.580 The system of economic calculation in monetary terms is conditioned by certain social institutions. 14 00:01:10.580 --> 00:01:16.440 It can operate only in an institutional setting of the division of labor and private ownership 15 00:01:16.440 --> 00:01:21.760 of the means of production, in which goods and services of all orders are bought and 16 00:01:21.760 --> 00:01:29.000 and sold against a generally used medium of exchange, that is, money. 17 00:01:29.000 --> 00:01:34.320 Monetary calculation is the method of calculating employed by people acting within the frame 18 00:01:34.320 --> 00:01:39.820 of society based on private control of the means of production. 19 00:01:39.820 --> 00:01:42.720 It is a device of acting individuals. 20 00:01:42.720 --> 00:01:49.540 It is a mode of computation designed for ascertaining private wealth and income and private profits 21 00:01:49.540 --> 00:01:57.420 Results and Losses of Individuals Acting on Their Own Behalf within a Free Enterprise Society. 22 00:01:57.420 --> 00:02:04.260 In partnerships and corporations, it is always individuals who act, although not only one 23 00:02:04.260 --> 00:02:06.900 individual. 24 00:02:06.900 --> 00:02:11.980 All its results refer to the actions of individuals only. 25 00:02:11.980 --> 00:02:17.660 When statisticians summarize these results, the outcome shows the sum of the autonomous 26 00:02:17.660 --> 00:02:24.620 Man's actions of a plurality of self-directing individuals, but not the effect of the action 27 00:02:24.620 --> 00:02:30.480 of a collective body, of a whole, or of a totality. 28 00:02:30.480 --> 00:02:36.680 Monetary calculation is entirely inapplicable and useless for any consideration which does 29 00:02:36.680 --> 00:02:41.480 not look at things from the point of view of individuals. 30 00:02:41.480 --> 00:02:50.960 It involves calculating the individual's profits, not imaginary social values and social welfare. 31 00:02:50.960 --> 00:02:56.080 Monetary calculation is the main vehicle of planning and acting in the social setting 32 00:02:56.080 --> 00:03:03.440 of a society of free enterprise, directed and controlled by the market and its prices. 33 00:03:03.440 --> 00:03:08.840 It developed in this frame, and was gradually perfected with the improvement of the market 34 00:03:08.840 --> 00:03:14.520 Mechanism and with the expansion of the scope of things which are negotiated on markets 35 00:03:14.520 --> 00:03:16.440 against money. 36 00:03:16.440 --> 00:03:22.360 It was economic calculation that assigned to measurement, number and reckoning the role 37 00:03:22.360 --> 00:03:27.440 they play in our quantitative and computing civilization. 38 00:03:27.440 --> 00:03:32.920 The measurements of physics and chemistry make sense for practical action only because 39 00:03:32.920 --> 00:03:36.400 there is economic calculation. 40 00:03:36.400 --> 00:03:43.360 It is monetary calculation that made arithmetic a tool in the struggle for a better life. 41 00:03:43.360 --> 00:03:49.320 It provides a mode of using the achievements of laboratory experiments for the most efficacious 42 00:03:49.320 --> 00:03:53.280 removal of uneasiness. 43 00:03:53.280 --> 00:03:58.400 Monetary calculation reaches its full perfection in capital accounting. 44 00:03:58.400 --> 00:04:04.440 It establishes the money prices of the available means and confronts this total with the changes 45 00:04:04.440 --> 00:04:09.740 is brought about by action and by the operation of other factors. 46 00:04:09.740 --> 00:04:15.720 This confrontation shows what changes occurred in the state of the acting men's affairs and 47 00:04:15.720 --> 00:04:18.520 the magnitude of those changes. 48 00:04:18.520 --> 00:04:24.080 It makes success and failure, profit and loss ascertainable. 49 00:04:24.080 --> 00:04:30.200 The system of free enterprise has been dubbed capitalism in order to deprecate and to smear 50 00:04:30.200 --> 00:04:31.200 it. 51 00:04:31.200 --> 00:04:46.200 However, this term can be considered very pertinent. It refers to the most characteristic feature of the system, its main eminence, namely, the role the notion of capital plays in its conduct. 52 00:04:46.200 --> 00:04:56.200 There are people to whom monetary calculation is repulsive. They do not want to be roused from their daydreams by the voice of critical reason. 53 00:04:56.200 --> 00:05:03.020 Reality sickens them. They long for a realm of unlimited opportunity. They are disgusted 54 00:05:03.020 --> 00:05:08.280 by the meanness of a social order in which everything is nicely reckoned in dollars and 55 00:05:08.280 --> 00:05:14.480 pennies. They call their grumbling the noble deportment worthy of the friends of the spirit, 56 00:05:14.480 --> 00:05:21.900 of beauty and virtue, as opposed to the ignoble baseness and villainy of babatory. However, 57 00:05:21.900 --> 00:05:27.700 The cult of beauty and virtue, wisdom and the search for truth are not hindered by the 58 00:05:27.700 --> 00:05:31.420 rationality of the calculating and computing mind. 59 00:05:31.420 --> 00:05:38.620 It is only romantic reverie that cannot thrive in a milieu of sober criticism. 60 00:05:38.620 --> 00:05:45.140 The cool-headed reckoner is the stern chastiser of the ecstatic visionary. 61 00:05:45.140 --> 00:05:50.940 Our civilization is inseparably linked with our methods of economic calculation. 62 00:05:50.940 --> 00:05:56.700 It would perish if we were to abandon this most precious intellectual tool of acting. 63 00:05:56.700 --> 00:06:02.580 Goethe was right in calling bookkeeping by double entry one of the finest inventions 64 00:06:02.580 --> 00:06:05.420 of the human mind. 65 00:06:05.420 --> 00:06:07.980 2. 66 00:06:07.980 --> 00:06:12.780 Economic Calculation and the Science of Human Action 67 00:06:12.780 --> 00:06:18.940 The evolution of capitalist economic calculation was the necessary condition for the establishment 68 00:06:18.940 --> 00:06:25.140 of a Systematic and Logically Coherent Science of Human Action. 69 00:06:25.140 --> 00:06:30.240 Praxeology and economics have a definite place in the evolution of human history and in the 70 00:06:30.240 --> 00:06:33.220 process of scientific research. 71 00:06:33.220 --> 00:06:39.060 They could only emerge when acting man had succeeded in creating methods of thinking 72 00:06:39.060 --> 00:06:43.080 that made it possible to calculate his actions. 73 00:06:43.080 --> 00:06:48.920 The science of human action was, at the beginning, merely a discipline dealing with those actions 74 00:06:48.920 --> 00:06:59.240 It dealt exclusively with what we may call the orbit of economics in the narrower sense, 75 00:06:59.240 --> 00:07:05.400 that is, with those actions which, within a market society, are transacted by the intermediary 76 00:07:05.400 --> 00:07:07.520 of money. 77 00:07:07.520 --> 00:07:13.920 The first steps on the way to its elaboration were odd investigations concerning currency, 78 00:07:13.920 --> 00:07:17.380 money lending, and the prices of various goods. 79 00:07:17.380 --> 00:07:23.180 The knowledge conveyed by Gresham's law, the first crude formulations of the quantity theory 80 00:07:23.180 --> 00:07:30.380 of money, such as those of Baudin and Davanzati, and the law of Gregory King, mark the first 81 00:07:30.380 --> 00:07:37.120 dawn of the cognition that regularity of phenomena and inevitable necessity prevail in the field 82 00:07:37.120 --> 00:07:38.920 of action. 83 00:07:38.920 --> 00:07:43.980 The first comprehensive system of economic theory, that brilliant achievement of the 84 00:07:43.980 --> 00:07:49.900 for classical economists was essentially a theory of calculated action. 85 00:07:49.900 --> 00:07:55.540 It drew implicitly the borderline between what is to be considered economic and what 86 00:07:55.540 --> 00:08:02.500 extra-economic, along the line which separates action calculated in monetary terms from other 87 00:08:02.500 --> 00:08:04.740 action. 88 00:08:04.740 --> 00:08:10.620 Starting from this basis, the economists were bound to widen, step by step, the field of 89 00:08:10.620 --> 00:08:17.300 of their Studies, until they finally developed a system dealing with all human choices, a 90 00:08:17.300 --> 00:08:19.300 general theory of action.