WEBVTT NOTE XIV. The Scope and Method of Catallactics 1 00:00:00.000 --> 00:00:06.000 Part 4. Catallactics or Economics of the Market Society 2 00:00:06.000 --> 00:00:11.000 Chapter 14. The Scope and Method of Catallactics 3 00:00:11.000 --> 00:00:16.000 1. The Delimitation of Catallactic Problems 4 00:00:16.000 --> 00:00:22.000 There have never been any doubts and uncertainties about the scope of economic science. 5 00:00:22.000 --> 00:00:28.000 Ever since people have been eager for a systematic study of economics or political economy, 6 00:00:28.000 --> 00:00:33.280 All have agreed that it is the task of this branch of knowledge to investigate the market 7 00:00:33.280 --> 00:00:40.280 phenomena, that is, the determination of the mutual exchange ratios of the goods and services 8 00:00:40.280 --> 00:00:48.160 negotiated on markets, their origin in human action, and their effects upon later action. 9 00:00:48.160 --> 00:00:54.220 The intricacy of a precise definition of the scope of economics does not stem from uncertainty 10 00:00:54.220 --> 00:00:58.740 with regard to the orbit of the phenomena to be investigated. 11 00:00:58.740 --> 00:01:03.700 It is due to the fact that the attempts to elucidate the phenomena concerned must go 12 00:01:03.700 --> 00:01:09.100 beyond the range of the market and of market transactions. 13 00:01:09.100 --> 00:01:15.100 In order to conceive the market fully, one is forced to study the action of hypothetical 14 00:01:15.100 --> 00:01:22.140 isolated individuals on one hand, and to contrast the market system with an imaginary socialist 15 00:01:22.140 --> 00:01:25.120 First Commonwealth, on the other hand. 16 00:01:25.120 --> 00:01:32.140 In studying interpersonal exchange, one cannot avoid dealing with autistic exchange. 17 00:01:32.140 --> 00:01:37.320 But then it is no longer possible to define neatly the boundaries between the kind of 18 00:01:37.320 --> 00:01:45.140 action which is the proper field of economic science in the narrower sense, and other action. 19 00:01:45.140 --> 00:01:52.260 This widens its horizon and turns into a general science of all and every human action, into 20 00:01:52.260 --> 00:01:54.700 praxeology. 21 00:01:54.700 --> 00:02:00.620 The question emerges of how to distinguish precisely, within the broader field of general 22 00:02:00.620 --> 00:02:06.380 praxeology, a narrower orbit of specifically economic problems. 23 00:02:06.380 --> 00:02:11.540 The abortive attempts to solve this problem of a precise delimitation of the scope of 24 00:02:11.540 --> 00:02:18.340 of Catallactics have chosen as a criterion either the motives causing action or the goals 25 00:02:18.340 --> 00:02:20.920 which action aims at. 26 00:02:20.920 --> 00:02:27.000 But the variety and manifoldness of the motives instigating a man's action is without relevance 27 00:02:27.000 --> 00:02:30.860 for a comprehensive study of acting. 28 00:02:30.860 --> 00:02:36.260 Every action is motivated by the urge to remove a felt uneasiness. 29 00:02:36.260 --> 00:02:42.020 It does not matter for the science of action how people qualify this uneasiness from a 30 00:02:42.020 --> 00:02:46.820 physiological, psychological or ethical point of view. 31 00:02:46.820 --> 00:02:52.740 It is the task of economics to deal with all commodity prices as they are really asked 32 00:02:52.740 --> 00:02:56.560 and paid in market transactions. 33 00:02:56.560 --> 00:03:01.980 It must not restrict its investigations to the study of those prices which result, or 34 00:03:01.980 --> 00:03:09.020 are likely to result from a conduct displaying attitudes to which psychology, ethics or any 35 00:03:09.020 --> 00:03:14.140 other way of looking at human behavior would attach a definite label. 36 00:03:14.140 --> 00:03:19.340 The classification of actions according to their various motives may be momentous for 37 00:03:19.340 --> 00:03:24.860 psychology and may provide a yardstick for a moral evaluation. 38 00:03:24.860 --> 00:03:28.500 For economics, it is inconsequential. 39 00:03:28.500 --> 00:03:33.700 Only the same is valid with regard to the endeavors to restrict the scope of economics 40 00:03:33.700 --> 00:03:40.220 to those actions which aim at supplying people with tangible material things of the external 41 00:03:40.220 --> 00:03:42.340 universe. 42 00:03:42.340 --> 00:03:48.460 Strictly speaking, people do not long for tangible goods as such, but for the services 43 00:03:48.460 --> 00:03:51.820 which these goods are fitted to render them. 44 00:03:51.820 --> 00:03:58.080 They want to attain the increment in well-being which these services are able to convey. 45 00:03:58.080 --> 00:04:04.500 But if this is so, it is not permissible to accept from the orbit of economic action those 46 00:04:04.500 --> 00:04:11.020 actions which remove uneasiness directly without the interposition of any tangible and visible 47 00:04:11.020 --> 00:04:12.560 things. 48 00:04:12.560 --> 00:04:18.100 The advice of a doctor, the instruction of a teacher, the recital of an artist, and other 49 00:04:18.100 --> 00:04:24.060 personal services are no less an object of economic studies than the architect's plans 50 00:04:24.060 --> 00:04:26.340 for the construction of a building. 51 00:04:26.340 --> 00:04:32.060 The Scientist's Formula for the Production of a Chemical Compound and the Author's Contribution 52 00:04:32.060 --> 00:04:34.340 to the Publishing of a Book. 53 00:04:34.340 --> 00:04:41.300 The subject matter of catallactics is all market phenomena, with all their roots, ramifications 54 00:04:41.300 --> 00:04:43.620 and consequences. 55 00:04:43.620 --> 00:04:49.080 It is a fact that people in dealing on the market are motivated not only by the desire 56 00:04:49.080 --> 00:05:02.840 Man is always concerned both with material and ideal things. 57 00:05:02.840 --> 00:05:07.880 He chooses between various alternatives, no matter whether they are to be classified as 58 00:05:07.880 --> 00:05:10.440 material or ideal. 59 00:05:10.440 --> 00:05:17.400 In the actual scales of value, material and ideal things are jumbled together. 60 00:05:17.400 --> 00:05:23.640 Even if it were feasible to draw a sharp line between material and ideal concerns, one must 61 00:05:23.640 --> 00:05:30.640 realize that every concrete action either aims at the realization both of material and 62 00:05:30.640 --> 00:05:38.880 ideal ends, or is the outcome of a choice between something material and something ideal. 63 00:05:38.880 --> 00:05:43.820 Whether it is possible to separate neatly those actions which aim at the satisfaction 64 00:05:43.820 --> 00:05:50.220 of Needs exclusively conditioned by man's physiological constitution from other, higher 65 00:05:50.220 --> 00:05:53.660 needs can be left undecided. 66 00:05:53.660 --> 00:05:59.700 But we must not overlook the fact that in reality, no food is valued solely for its 67 00:05:59.700 --> 00:06:06.260 nutritive power, and no garment or house solely for the protection it affords against cold 68 00:06:06.260 --> 00:06:08.420 weather and rain. 69 00:06:08.420 --> 00:06:14.980 It cannot be denied that the demand for goods is widely influenced by metaphysical, religious 70 00:06:14.980 --> 00:06:22.300 and ethical considerations, by aesthetic value judgments, by customs, habits, prejudices, 71 00:06:22.300 --> 00:06:26.540 tradition, changing fashions and many other things. 72 00:06:26.540 --> 00:06:33.000 To an economist who would try to restrict his investigations to material aspects only, 73 00:06:33.000 --> 00:06:37.940 the subject matter of inquiry vanishes as soon as he wants to catch it. 74 00:06:37.940 --> 00:06:41.940 All that can be contended is this. 75 00:06:41.940 --> 00:06:47.460 Economics is mainly concerned with the analysis of the determination of money prices of goods 76 00:06:47.460 --> 00:06:51.180 and services exchanged on the market. 77 00:06:51.180 --> 00:06:56.540 In order to accomplish this task, it must start from a comprehensive theory of human 78 00:06:56.540 --> 00:06:57.540 action. 79 00:06:57.540 --> 00:07:04.740 Moreover, it must study not only the market phenomena, but no less the hypothetical conduct 80 00:07:04.740 --> 00:07:12.400 of an Isolated Man and of a Socialist Community. Finally, it must not restrict its investigations 81 00:07:12.400 --> 00:07:19.100 to those modes of action which, in mundane speech, are called economic actions, but must 82 00:07:19.100 --> 00:07:25.900 deal also with actions which are, in a loose manner of speech, called uneconomic. 83 00:07:25.900 --> 00:07:32.500 The scope of praxeology, the general theory of human action, can be precisely defined 84 00:07:32.500 --> 00:07:34.640 and Circumscribed. 85 00:07:34.640 --> 00:07:41.120 The specifically economic problems, the problems of economic action in the narrower sense, 86 00:07:41.120 --> 00:07:49.060 can only by and large be disengaged from the comprehensive body of praxeological theory. 87 00:07:49.060 --> 00:07:54.320 Accidental facts of the history of science and conventions play a role in all attempts 88 00:07:54.320 --> 00:07:59.580 to provide a definition of the scope of genuine economics. 89 00:07:59.580 --> 00:08:05.620 Not logical or epistemological rigor, but considerations of expediency and traditional 90 00:08:05.620 --> 00:08:11.460 convention make us declare that the field of catallactics or of economics in the narrower 91 00:08:11.460 --> 00:08:15.860 sense is the analysis of the market phenomena. 92 00:08:15.860 --> 00:08:21.380 This is tantamount to the statement, catallactics is the analysis of those actions which are 93 00:08:21.380 --> 00:08:26.100 conducted on the basis of monetary calculation. 94 00:08:26.100 --> 00:08:31.780 Direct exchange and monetary calculation are inseparably linked together. 95 00:08:31.780 --> 00:08:38.540 A market in which there is direct exchange only is merely an imaginary construction. 96 00:08:38.540 --> 00:08:45.460 On the other hand, money and monetary calculation are conditioned by the existence of the market. 97 00:08:45.460 --> 00:08:51.380 It is certainly one of the tasks of economics to analyze the working of an imaginary socialist 98 00:08:51.380 --> 00:08:53.700 system of production. 99 00:08:53.700 --> 00:09:00.720 But access to this study too is possible only through the study of catallactics, the elucidation 100 00:09:00.720 --> 00:09:06.340 of a system in which there are money prices and economic calculation. 101 00:09:06.340 --> 00:09:09.020 The Denial of Economics 102 00:09:09.020 --> 00:09:14.700 There are doctrines flatly denying that there can be a science of economics. 103 00:09:14.700 --> 00:09:20.300 What is taught nowadays at most of the universities under the label of economics is practically 104 00:09:20.300 --> 00:09:22.420 a denial of it. 105 00:09:22.420 --> 00:09:28.480 He who contests the existence of economics virtually denies that man's well-being is 106 00:09:28.480 --> 00:09:32.500 disturbed by any scarcity of external factors. 107 00:09:32.500 --> 00:09:39.280 Everybody, he implies, could enjoy the perfect satisfaction of all his wishes, provided a 108 00:09:39.280 --> 00:09:47.940 reform succeeds in overcoming certain obstacles brought about by inappropriate man-made institutions. 109 00:09:47.940 --> 00:10:13.540 In the doctrine of Karl Marx and his followers, scarcity is a historical category only. 110 00:10:13.540 --> 00:10:18.980 It is the feature of the primeval history of mankind which will be forever liquidated 111 00:10:18.980 --> 00:10:22.380 by the abolition of private property. 112 00:10:22.380 --> 00:10:28.460 Once mankind has effected the leap from the realm of necessity into the realm of freedom, 113 00:10:28.460 --> 00:10:34.620 and thereby reached the higher phase of communist society, there will be abundance, and consequently 114 00:10:34.620 --> 00:10:39.540 it will be feasible to give to each according to his needs. 115 00:10:39.540 --> 00:10:45.620 There is in the vast flood of Marxian writings not the slightest allusion to the possibility 116 00:10:45.620 --> 00:10:52.540 that a Communist society in its higher phase might have to face a scarcity of natural factors 117 00:10:52.540 --> 00:10:54.580 of production. 118 00:10:54.580 --> 00:11:00.780 The fact of the disutility of labor is spirited away by the assertion that to work, under 119 00:11:00.780 --> 00:11:08.500 Communism of course, will no longer be pain, but pleasure, the primary necessity of life. 120 00:11:08.500 --> 00:11:13.940 The unpleasant experiences of the Russian experiment are interpreted as caused by the 121 00:11:13.940 --> 00:11:20.940 capitalists' hostility, by the fact that socialism in one country only is not yet perfect 122 00:11:20.940 --> 00:11:27.460 and therefore has not yet been able to bring about the higher phase, and, more recently, 123 00:11:27.460 --> 00:11:29.180 by the war. 124 00:11:29.180 --> 00:11:34.500 Then there are the radical inflationists, as represented, for example, by Proudhon, 125 00:11:34.500 --> 00:11:41.820 Ernest Solvay, and, in present-day America, by the doctrine of functional finance. 126 00:11:41.820 --> 00:11:47.900 In their opinion, scarcity is created by the artificial checks upon credit expansion and 127 00:11:47.900 --> 00:11:53.700 other methods of increasing the quantity of money in circulation, enjoined upon the gullible 128 00:11:53.700 --> 00:11:59.360 public by the selfish class interests of bankers and other exploiters. 129 00:11:59.360 --> 00:12:04.560 They recommend unlimited public spending as the panacea. 130 00:12:04.560 --> 00:12:10.360 The foremost American champion of the substitution of an economy of abundance for the allegedly 131 00:12:10.360 --> 00:12:16.100 artificial economy of scarcity is the former Vice President of the United States, Henry 132 00:12:16.100 --> 00:12:18.060 A. Wallace. 133 00:12:18.060 --> 00:12:23.460 Mr. Wallace will be remembered in history as the originator of the vastest scheme ever 134 00:12:23.460 --> 00:12:29.340 are carried out to restrict, by government decree, the supply of essential foodstuffs 135 00:12:29.340 --> 00:12:31.140 and raw materials. 136 00:12:31.140 --> 00:12:37.660 However, this record in no way impairs the popularity of his teachings. 137 00:12:37.660 --> 00:12:42.340 Such is the myth of potential plenty and abundance. 138 00:12:42.340 --> 00:12:47.460 Economics may leave it to the historians and psychologists to explain the popularity of 139 00:12:47.460 --> 00:12:52.780 this kind of wishful thinking and indulgence in daydreams. 140 00:12:52.780 --> 00:12:58.980 All that economics has to say about such idle talk is that economics deals with the problems 141 00:12:58.980 --> 00:13:06.220 man has to face on account of the fact that his life is conditioned by natural factors. 142 00:13:06.220 --> 00:13:13.540 It deals with action, that is, with the conscious endeavors to remove, as far as possible, felt 143 00:13:13.540 --> 00:13:15.420 uneasiness. 144 00:13:15.420 --> 00:13:21.500 It has nothing to assert with regard to the state of affairs in an unrealizable, and for 145 00:13:21.500 --> 00:13:27.540 or Human Reason, even inconceivable universe of unlimited opportunities. 146 00:13:27.540 --> 00:13:33.500 In such a world, it may be admitted, there will be no law of value, no scarcity and no 147 00:13:33.500 --> 00:13:35.880 economic problems. 148 00:13:35.880 --> 00:13:41.540 These things will be absent because there will be no choices to be made, no action and 149 00:13:41.540 --> 00:13:44.580 no tasks to be solved by reason. 150 00:13:44.580 --> 00:13:49.660 Beings, which would have thrived in such a world, would never have developed reasoning 151 00:13:49.660 --> 00:13:51.220 and thinking. 152 00:13:51.220 --> 00:13:56.120 If ever such a world were to be given to the descendants of the human race, these blessed 153 00:13:56.120 --> 00:14:02.220 beings would see their power to think wither away, and would cease to be human. 154 00:14:02.220 --> 00:14:08.260 For the primary task of reason is to cope consciously with the limitations imposed upon 155 00:14:08.260 --> 00:14:13.680 man by nature, to fight against scarcity. 156 00:14:13.680 --> 00:14:19.180 Acting and thinking man is the product of a universe of scarcity, in which whatever 157 00:14:19.180 --> 00:14:26.300 Whatever well-being can be attained is the prize of toil and trouble, of conduct popularly 158 00:14:26.300 --> 00:14:28.420 called economic. 159 00:14:28.420 --> 00:14:29.800 2. 160 00:14:29.800 --> 00:14:33.060 The Method of Imaginary Constructions. 161 00:14:33.060 --> 00:14:38.760 The specific method of economics is the method of imaginary constructions. 162 00:14:38.760 --> 00:14:42.240 This method is the method of praxeology. 163 00:14:42.240 --> 00:14:47.040 That it has been carefully elaborated and perfected in the field of economic studies 164 00:14:47.040 --> 00:14:52.920 in the narrower sense is due to the fact that economics, at least until now, has been the 165 00:14:52.920 --> 00:14:56.760 best developed part of praxeology. 166 00:14:56.760 --> 00:15:02.480 Everyone who wants to express an opinion about the problems commonly called economic takes 167 00:15:02.480 --> 00:15:05.120 recourse to this method. 168 00:15:05.120 --> 00:15:11.240 The employment of these imaginary constructions is, to be sure, not a procedure peculiar to 169 00:15:11.240 --> 00:15:14.800 the scientific analysis of these problems. 170 00:15:14.800 --> 00:15:18.920 The layman, in dealing with them, resorts to the same method. 171 00:15:18.920 --> 00:15:24.560 But while the layman's constructions are more or less confused and muddled, economics is 172 00:15:24.560 --> 00:15:31.240 intent upon elaborating them with the utmost care, scrupulousness and precision, and upon 173 00:15:31.240 --> 00:15:35.640 examining their conditions and assumptions critically. 174 00:15:35.640 --> 00:15:41.880 An imaginary construction is a conceptual image of a sequence of events logically evolved 175 00:15:41.880 --> 00:15:46.320 from the elements of action employed in its formation. 176 00:15:46.320 --> 00:15:52.800 It is a product of deduction, ultimately derived from the fundamental category of action, the 177 00:15:52.800 --> 00:15:56.620 act of preferring and setting aside. 178 00:15:56.620 --> 00:16:02.240 In designing such an imaginary construction, the economist is not concerned with the question 179 00:16:02.240 --> 00:16:08.640 of whether or not it depicts the conditions of reality which he wants to analyze, nor 180 00:16:08.640 --> 00:16:14.240 Or does he bother about the question of whether or not such a system as his imaginary construction 181 00:16:14.240 --> 00:16:20.520 posits could be conceived as really existent and in operation? 182 00:16:20.520 --> 00:16:27.840 Even imaginary constructions which are inconceivable, self-contradictory or unrealizable can render 183 00:16:27.840 --> 00:16:34.840 useful even indispensable services in the comprehension of reality, provided the economist 184 00:16:34.840 --> 00:16:37.860 knows how to use them properly. 185 00:16:37.860 --> 00:16:43.980 The method of imaginary constructions is justified by its success. 186 00:16:43.980 --> 00:16:50.020 Praxeology cannot, like the natural sciences, base its teachings upon laboratory experiments 187 00:16:50.020 --> 00:16:53.780 and sensory perception of external objects. 188 00:16:53.780 --> 00:16:59.680 It had to develop methods entirely different from those of physics and biology. 189 00:16:59.680 --> 00:17:04.740 It would be a serious blunder to look for analogies to the imaginary constructions in 190 00:17:04.740 --> 00:17:07.640 the field of the natural sciences. 191 00:17:07.640 --> 00:17:13.500 The imaginary constructions of praxeology can never be confronted with any experience 192 00:17:13.500 --> 00:17:20.300 of things external, and can never be appraised from the point of view of such experience. 193 00:17:20.300 --> 00:17:26.880 Their function is to serve man in a scrutiny which cannot rely upon his senses. 194 00:17:26.880 --> 00:17:32.440 In confronting the imaginary constructions with reality, we cannot raise the question 195 00:17:32.440 --> 00:17:44.480 We must ask whether the assumptions of our construction are identical with the conditions 196 00:17:44.480 --> 00:17:48.340 of those actions which we want to conceive. 197 00:17:48.340 --> 00:17:54.420 The main formula for designing of imaginary constructions is to abstract from the operation 198 00:17:54.420 --> 00:17:58.800 of some conditions present in actual action. 199 00:17:58.800 --> 00:18:05.680 Then we are in a position to grasp the hypothetical consequences of the absence of these conditions, 200 00:18:05.680 --> 00:18:09.440 and to conceive the effects of their existence. 201 00:18:09.440 --> 00:18:14.660 Thus we conceive the category of action by constructing the image of a state in which 202 00:18:14.660 --> 00:18:22.920 there is no action, either because the individual is fully contented and does not feel any uneasiness, 203 00:18:22.920 --> 00:18:28.760 or because he does not know any procedure from which an improvement in his well-being, 204 00:18:28.760 --> 00:18:32.360 state of satisfaction, could be expected. 205 00:18:32.360 --> 00:18:38.480 Thus we conceive the notion of originary interest from an imaginary construction in which no 206 00:18:38.480 --> 00:18:45.800 distinction is made between satisfactions in periods of time equal in length, but unequal 207 00:18:45.800 --> 00:18:50.060 with regard to their distance from the instant of action. 208 00:18:50.060 --> 00:18:55.500 The method of imaginary constructions is indispensable for praxeology. 209 00:18:55.500 --> 00:19:00.700 It is the only method of praxeological and economic inquiry. 210 00:19:00.700 --> 00:19:06.220 It is, to be sure, a method very difficult to handle because it can easily result in 211 00:19:06.220 --> 00:19:08.580 fallacious syllogisms. 212 00:19:08.580 --> 00:19:11.300 It leads along a sharp edge. 213 00:19:11.300 --> 00:19:16.820 On both sides yawns the chasm of absurdity and nonsense. 214 00:19:16.820 --> 00:19:23.160 Only merciless self-criticism can prevent a man from falling headlong into these abysmal 215 00:19:23.160 --> 00:19:24.160 depths. 216 00:19:24.160 --> 00:19:25.160 3. 217 00:19:25.160 --> 00:19:28.300 The Pure Market Economy 218 00:19:28.300 --> 00:19:34.820 The imaginary construction of a pure or unhampered market economy assumes that there is a division 219 00:19:34.820 --> 00:19:42.020 of labor and private ownership, control, of the means of production, and that, consequently, 220 00:19:42.020 --> 00:19:46.060 there is market exchange of goods and services. 221 00:19:46.060 --> 00:19:52.500 It assumes that the operation of the market is not obstructed by institutional factors. 222 00:19:52.500 --> 00:19:58.320 It assumes that the government, the social apparatus of compulsion and coercion, is intent 223 00:19:58.320 --> 00:20:04.980 upon preserving the operation of the market system, abstains from hindering its functioning, 224 00:20:04.980 --> 00:20:09.380 and protects it against encroachments on the part of other people. 225 00:20:09.380 --> 00:20:11.440 The market is free. 226 00:20:11.440 --> 00:20:17.360 There is no interference of factors foreign to the market with prices, wage rates and 227 00:20:17.360 --> 00:20:19.600 interest rates. 228 00:20:19.600 --> 00:20:24.880 Starting from these assumptions, economics tries to elucidate the operation of a pure 229 00:20:24.880 --> 00:20:27.440 market economy. 230 00:20:27.440 --> 00:20:33.320 Only at a later stage, having exhausted everything which can be learned from the study of this 231 00:20:33.320 --> 00:20:39.740 imaginary construction, does it turn to the study of the various problems raised by interference 232 00:20:39.740 --> 00:20:52.780 It is amazing that this logically incontestable procedure, the only one that is fitted to 233 00:20:52.780 --> 00:20:57.740 solve the problems involved, has been passionately attacked. 234 00:20:57.740 --> 00:21:03.340 People have branded it as a pre-possession in favor of a liberal economic policy, which 235 00:21:03.340 --> 00:21:11.140 They Stigmatize as Reactionary Economic Royalism, Manchesterism, Negativism and so on. 236 00:21:11.140 --> 00:21:16.620 They deny that anything can be gained for the knowledge of reality from occupation with 237 00:21:16.620 --> 00:21:18.860 this imaginary construction. 238 00:21:18.860 --> 00:21:24.960 However, these turbulent critics contradict themselves as they take recourse to the same 239 00:21:24.960 --> 00:21:28.500 method in advancing their own assertions. 240 00:21:28.500 --> 00:21:34.260 In asking for minimum wage rates, they depict the alleged unsatisfactory conditions of 241 00:21:34.260 --> 00:21:40.720 a free labor market, and in asking for tariffs, they describe the alleged disasters brought 242 00:21:40.720 --> 00:21:43.260 about by free trade. 243 00:21:43.260 --> 00:21:48.920 There is, of course, no other way available for the elucidation of a measure limiting 244 00:21:48.920 --> 00:21:55.400 the free play of the factors operating on an unhampered market, than to study first 245 00:21:55.400 --> 00:21:59.780 the state of affairs prevailing under economic freedom. 246 00:21:59.780 --> 00:22:04.820 It is true that economists have drawn from their investigations the conclusion that the 247 00:22:04.820 --> 00:22:11.420 goals which most people, practically even all people, are intent on attaining by toiling 248 00:22:11.420 --> 00:22:18.220 and working and by economic policy, can best be realized where the free market system is 249 00:22:18.220 --> 00:22:21.800 not impeded by government decrees. 250 00:22:21.800 --> 00:22:27.720 But this is not a preconceived judgment stemming from an insufficient occupation with the 251 00:22:27.720 --> 00:22:31.600 operation of government interference with business. 252 00:22:31.600 --> 00:22:39.800 It is, on the contrary, the result of a careful, unbiased scrutiny of all aspects of interventionism. 253 00:22:39.800 --> 00:22:45.260 It is also true that the classical economists and their epigones used to call the system 254 00:22:45.260 --> 00:22:50.780 Interventionism of unhampered market economy, natural, and government meddling with market 255 00:22:50.780 --> 00:22:54.540 phenomena, artificial and disturbing. 256 00:22:54.540 --> 00:22:59.860 But this terminology also was the product of their careful scrutiny of the problems 257 00:22:59.860 --> 00:23:01.900 of interventionism. 258 00:23:01.900 --> 00:23:07.660 They were in conformity with the semantic practice of their age in calling an undesirable 259 00:23:07.660 --> 00:23:12.460 state of social affairs contrary to nature. 260 00:23:12.460 --> 00:23:18.620 M and Dism of the Age of Enlightenment viewed the regularity of natural phenomena as an 261 00:23:18.620 --> 00:23:22.100 emanation of the decrees of Providence. 262 00:23:22.100 --> 00:23:26.540 When the philosophers of the Enlightenment discovered that there prevails a regularity 263 00:23:26.540 --> 00:23:33.200 of phenomena also in human action and in social evolution, they were prepared to interpret 264 00:23:33.200 --> 00:23:39.380 it likewise as evidence of the paternal care of the Creator of the universe. 265 00:23:39.380 --> 00:23:44.960 This was the true meaning of the doctrine of the predetermined harmony as expounded by 266 00:23:44.960 --> 00:23:47.340 some economists. 267 00:23:47.340 --> 00:23:52.740 The doctrine of the predetermined harmony in the operation of an unhampered market system 268 00:23:52.740 --> 00:23:58.200 must not be confused with the theorem of the harmony of the rightly understood interests 269 00:23:58.200 --> 00:24:04.240 within a market system, although there is a certain congeniality between them. 270 00:24:04.240 --> 00:24:10.320 The social philosophy of paternal despotism laid stress upon the divine mission of kings 271 00:24:10.320 --> 00:24:14.720 and autocrats predestined to rule the peoples. 272 00:24:14.720 --> 00:24:20.960 The liberals retorted that the operation of an unhampered market, on which the consumer, 273 00:24:20.960 --> 00:24:27.520 that is, every citizen, is sovereign, brings about more satisfactory results than the decrees 274 00:24:27.520 --> 00:24:29.320 of anointed rulers. 275 00:24:29.320 --> 00:24:36.320 Observe the functioning of the market system, they said, and you will discover in it the finger of God. 276 00:24:36.320 --> 00:24:45.320 Along with the imaginary construction of a pure market economy, the classical economists elaborated its logical counterpart, 277 00:24:45.320 --> 00:24:49.320 the imaginary construction of a socialist Commonwealth. 278 00:24:49.320 --> 00:24:56.320 In the heuristic process which finally led to the discovery of the operation of a market economy, 279 00:24:56.320 --> 00:25:01.320 This image of a socialist order even had logical priority. 280 00:25:01.320 --> 00:25:08.320 The question which preoccupied the economists was whether a tailor could be supplied with bread and shoes 281 00:25:08.320 --> 00:25:15.320 if there was no government decree compelling the baker and the shoemaker to provide for his needs. 282 00:25:15.320 --> 00:25:24.320 The first thought was that authoritarian interference is required to make every specialist serve his fellow citizens. 283 00:25:24.320 --> 00:25:30.320 The economists were taken aback when they discovered that no such compulsion is needed. 284 00:25:30.320 --> 00:25:39.320 In contrasting productivity and profitability, self-interest and public welfare, selfishness and altruism, 285 00:25:39.320 --> 00:25:44.320 the economists implicitly referred to the image of a socialist system. 286 00:25:44.320 --> 00:25:50.320 Their astonishment at the automatic, as it were, steering of the market system 287 00:25:50.320 --> 00:25:56.600 was precisely due to the fact that they realized that an anarchic state of production results 288 00:25:56.600 --> 00:26:03.100 in supplying people better than the orders of a centralized, omnipotent government. 289 00:26:03.100 --> 00:26:09.740 The idea of socialism, a system of the division of labor entirely controlled and managed by 290 00:26:09.740 --> 00:26:16.020 a planning authority, did not originate in the heads of utopian reformers. 291 00:26:16.020 --> 00:26:23.580 These utopians aimed rather at the autarkic coexistence of small, self-sufficient bodies. 292 00:26:23.580 --> 00:26:26.940 Take for instance Fourier's Falange. 293 00:26:26.940 --> 00:26:33.000 The radicalism of the reformers turned toward socialism when they took the image of an economy 294 00:26:33.000 --> 00:26:38.940 managed by a national government or a world authority, implied in the theories of the 295 00:26:38.940 --> 00:26:43.020 economists as a model for their new order. 296 00:26:43.020 --> 00:26:48.580 The Maximization of Profits It is generally believed that economists in 297 00:26:48.580 --> 00:26:54.180 dealing with the problems of a market economy are quite unrealistic in assuming that all 298 00:26:54.180 --> 00:26:59.580 men are always eager to gain the highest attainable advantage. 299 00:26:59.580 --> 00:27:05.460 They construct, it is said, the image of a perfectly selfish and rationalistic being 300 00:27:05.460 --> 00:27:08.900 for whom nothing counts but profit. 301 00:27:08.900 --> 00:27:15.140 Such a homo economicus may be a likeness of stock-jobbers and speculators, but the immense 302 00:27:15.140 --> 00:27:17.860 majority are very different. 303 00:27:17.860 --> 00:27:22.420 Nothing for the cognition of reality can be learned from the study of the conduct of 304 00:27:22.420 --> 00:27:24.780 this delusive image. 305 00:27:24.780 --> 00:27:30.380 It is not necessary to enter again into a refutation of all the confusion, error and 306 00:27:30.380 --> 00:27:33.780 distortion inherent in this contention. 307 00:27:33.780 --> 00:27:38.740 The first two parts of this book have unmasked the fallacies implied. 308 00:27:38.740 --> 00:27:44.900 At this point it is enough to deal with the problem of the maximization of profits. 309 00:27:44.900 --> 00:27:50.500 Praxeology in general and economics in its special field assume with regard to the springs 310 00:27:50.500 --> 00:27:58.140 of human action nothing other than that acting man wants to remove uneasiness. 311 00:27:58.140 --> 00:28:05.240 Under the particular conditions of dealing on the market, action means buying and selling. 312 00:28:05.240 --> 00:28:11.800 Asserting that economics asserts about demand and supply refers to every instance of demand 313 00:28:11.800 --> 00:28:18.760 and supply, and not only to demand and supply brought about by some special circumstances 314 00:28:18.760 --> 00:28:23.120 requiring a particular description or definition. 315 00:28:23.120 --> 00:28:28.720 To assert that a man faced with the alternative of getting more or less for a commodity he 316 00:28:28.720 --> 00:28:35.800 He wants to sell, Ceteris Paribus chooses the high price, does not require any further 317 00:28:35.800 --> 00:28:36.800 assumption. 318 00:28:36.800 --> 00:28:42.880 A higher price means for the seller a better satisfaction of his wants. 319 00:28:42.880 --> 00:28:47.340 The same applies mutatus mutundus to the buyer. 320 00:28:47.340 --> 00:28:53.400 The amount saved in buying the commodity concerned enables him to spend more for the satisfaction 321 00:28:53.400 --> 00:28:55.300 of other needs. 322 00:28:55.300 --> 00:29:00.860 To buy in the cheapest market and to sell in the dearest market is, other things being 323 00:29:00.860 --> 00:29:06.940 equal, not conduct which would presuppose any special assumptions concerning the actor's 324 00:29:06.940 --> 00:29:09.420 motives and morality. 325 00:29:09.420 --> 00:29:16.380 It is merely the necessary offshoot of any action under the conditions of market exchange. 326 00:29:16.380 --> 00:29:22.540 In his capacity as a businessman, a man is a servant of the consumers, bound to comply 327 00:29:22.540 --> 00:29:24.480 with their wishes. 328 00:29:24.480 --> 00:29:31.100 He cannot indulge in his own whims and fancies, but his customers' whims and fancies are, 329 00:29:31.100 --> 00:29:37.000 for him, ultimate law, provided these customers are ready to pay for them. 330 00:29:37.000 --> 00:29:43.040 He is under the necessity of adjusting his conduct to the demand of the consumers. 331 00:29:43.040 --> 00:29:48.720 If the consumers, without a taste for the beautiful, prefer things ugly and vulgar, 332 00:29:48.720 --> 00:29:53.560 he must, contrary to his own convictions, supply them with such things. 333 00:29:53.560 --> 00:29:58.800 A painter is a businessman if he is intent upon making paintings which could be sold 334 00:29:58.800 --> 00:30:00.880 at the highest price. 335 00:30:00.880 --> 00:30:06.460 A painter who does not compromise with the taste of the buying public and, disdaining 336 00:30:06.460 --> 00:30:13.620 all unpleasant consequences, lets himself be guided solely by his own ideals is an artist, 337 00:30:13.620 --> 00:30:15.900 a creative genius. 338 00:30:15.900 --> 00:30:21.960 If consumers do not want to pay a higher price for domestic products than for those produced 339 00:30:21.960 --> 00:30:27.480 Abroad, he must buy the foreign product, provided it is cheaper. 340 00:30:27.480 --> 00:30:32.080 An employer cannot grant favors at the expense of his customers. 341 00:30:32.080 --> 00:30:37.200 He cannot pay wage rates higher than those determined by the market if the buyers are 342 00:30:37.200 --> 00:30:43.400 not ready to pay proportionately higher prices for commodities produced in plants in which 343 00:30:43.400 --> 00:30:47.040 wage rates are higher than in other plants. 344 00:30:47.040 --> 00:30:52.000 It is different with man in his capacity as spender of his income. 345 00:30:52.000 --> 00:30:54.580 He is free to do what he likes best. 346 00:30:54.580 --> 00:30:56.480 He can bestow alms. 347 00:30:56.480 --> 00:31:02.000 He can, motivated by various doctrines and prejudices, discriminate against goods of 348 00:31:02.000 --> 00:31:09.040 a certain origin or source, and prefer the worse or more expensive product to the technologically 349 00:31:09.040 --> 00:31:11.640 better and cheaper one. 350 00:31:11.640 --> 00:31:16.640 As a rule, people in buying do not make gifts to the seller. 351 00:31:16.640 --> 00:31:19.340 But nonetheless that happens. 352 00:31:19.340 --> 00:31:25.540 The boundaries between buying goods and services needed and giving alms are sometimes difficult 353 00:31:25.540 --> 00:31:27.300 to discern. 354 00:31:27.300 --> 00:31:33.340 He who buys at a charity sale usually combines a purchase with a donation for a charitable 355 00:31:33.340 --> 00:31:34.760 purpose. 356 00:31:34.760 --> 00:31:40.680 He who gives a dime to a blind street musician certainly does not pay for the questionable 357 00:31:40.680 --> 00:31:44.580 performance, he simply gives alms. 358 00:31:44.580 --> 00:31:47.420 Man in acting is a unity. 359 00:31:47.420 --> 00:31:53.160 The businessman who owns the whole firm may sometimes efface the boundaries between business 360 00:31:53.160 --> 00:31:54.940 and charity. 361 00:31:54.940 --> 00:32:00.660 If he wants to relieve a distressed friend, delicacy of feeling may prompt him to resort 362 00:32:00.660 --> 00:32:06.220 to a procedure which spares the latter the embarrassment of living on alms. 363 00:32:06.220 --> 00:32:11.780 He gives the friend a job in his office, although he does not need his help, or could hire 364 00:32:11.780 --> 00:32:16.780 The Federal Reserve and the Federal Reserve are an equivalent helper at a lower salary. 365 00:32:16.780 --> 00:32:21.780 Then the salary granted appears formally as a part of business outlays. 366 00:32:21.780 --> 00:32:26.780 In fact, it is the spending of a fraction of the businessman's income. 367 00:32:26.780 --> 00:32:35.780 It is, from a correct point of view, consumption and not an expenditure designed to increase the firm's profits. 368 00:32:35.780 --> 00:32:43.780 The boundaries between business outlays and consumptive spending is often encouraged by institutional conditions. 369 00:32:43.780 --> 00:32:52.780 An expenditure debited to the account of trading expenses reduces net profits and thereby the amount of taxes due. 370 00:32:52.780 --> 00:33:01.780 If taxes absorb 50% of profits, the charitable businessman spends only 50% of the gift out of his own pocket. 371 00:33:01.780 --> 00:33:05.620 Rest burdens the Department of Internal Revenue. 372 00:33:05.620 --> 00:33:11.900 Awkward mistakes are due to the tendency to look only upon things tangible, visible and 373 00:33:11.900 --> 00:33:15.860 measurable, and to neglect everything else. 374 00:33:15.860 --> 00:33:20.640 What the consumer buys is not simply food or calories. 375 00:33:20.640 --> 00:33:23.160 He does not want to feed like a wolf. 376 00:33:23.160 --> 00:33:26.260 He wants to eat like a man. 377 00:33:26.260 --> 00:33:31.860 Food satisfies the appetite of many people the better, the more appetizingly and tastefully 378 00:33:31.860 --> 00:33:33.400 it is prepared. 379 00:33:33.400 --> 00:33:40.440 The finer the table is set, and the more agreeable the environment is in which the food is consumed. 380 00:33:40.440 --> 00:33:46.420 Such things are regarded as of no consequence by a consideration exclusively occupied with 381 00:33:46.420 --> 00:33:50.600 the chemical aspects of the process of digestion. 382 00:33:50.600 --> 00:33:55.800 To be sure, a consideration from the point of view of the physiology of nutrition will 383 00:33:55.800 --> 00:33:59.480 will not regard such things as negligible. 384 00:33:59.480 --> 00:34:05.320 But the fact that they play an important role in the determination of food prices is perfectly 385 00:34:05.320 --> 00:34:11.920 compatible with the assertion that people prefer satyrus paribus to buy in the cheapest 386 00:34:11.920 --> 00:34:13.480 market. 387 00:34:13.480 --> 00:34:19.200 Whenever a buyer, in choosing between two things which chemists and technologists deem 388 00:34:19.200 --> 00:34:24.600 perfectly equal, prefers the more expensive, he has a reason. 389 00:34:24.600 --> 00:34:31.280 If he does not err, he pays for services which chemistry and technology cannot comprehend 390 00:34:31.280 --> 00:34:35.040 with their specific methods of investigation. 391 00:34:35.040 --> 00:34:40.820 If a man prefers an expensive place to a cheaper one because he likes to sip his cocktails 392 00:34:40.820 --> 00:34:47.840 in the neighborhood of a duke or of café society, we may remark on his ridiculous vanity. 393 00:34:47.840 --> 00:34:53.280 But we must not say that the man's conduct does not aim at an improvement of his own 394 00:34:53.280 --> 00:35:02.440 What a man does is always aimed at an improvement of his own state of satisfaction. 395 00:35:02.440 --> 00:35:08.640 In this sense, and in no other, we are free to use the term selfishness and to emphasize 396 00:35:08.640 --> 00:35:13.780 that action is necessarily always selfish. 397 00:35:13.780 --> 00:35:20.580 Even an action directly aiming at the improvement of other people's conditions is selfish. 398 00:35:20.580 --> 00:35:26.900 The actor considers it as more satisfactory for himself to make other people eat than 399 00:35:26.900 --> 00:35:29.120 to eat himself. 400 00:35:29.120 --> 00:35:35.800 His uneasiness is caused by the awareness of the fact that other people are in want. 401 00:35:35.800 --> 00:35:42.080 It is a fact that many people behave in another way and prefer to fill their own stomach and 402 00:35:42.080 --> 00:35:44.800 not that of their fellow citizens. 403 00:35:44.800 --> 00:35:47.480 But this has nothing to do with economics. 404 00:35:47.480 --> 00:35:50.700 It is a datum of historical experience. 405 00:35:50.700 --> 00:35:56.800 At any rate, economics refers to every kind of action, no matter whether motivated by 406 00:35:56.800 --> 00:36:02.000 the urge of a man to eat or to make other people eat. 407 00:36:02.000 --> 00:36:08.300 If maximizing profits means that a man in all market transactions aims at increasing 408 00:36:08.300 --> 00:36:15.980 to the utmost the advantage derived, it is a pleonastic and periphrastic circumlocution. 409 00:36:15.980 --> 00:36:20.980 It only asserts what is implied in the very category of action. 410 00:36:20.980 --> 00:36:26.380 If it means anything else, it is the expression of an erroneous idea. 411 00:36:26.380 --> 00:36:31.540 Some economists believe that it is the task of economics to establish how in the whole 412 00:36:31.540 --> 00:36:38.300 of society the greatest possible satisfaction of all people, or of the greatest number, 413 00:36:38.300 --> 00:36:40.160 could be attained. 414 00:36:40.160 --> 00:36:45.100 They do not realize that there is no method which would allow us to measure the state 415 00:36:45.100 --> 00:36:49.160 of Satisfaction attained by various individuals. 416 00:36:49.160 --> 00:36:54.380 They misconstrue the character of judgments which are based on the comparison between 417 00:36:54.380 --> 00:36:57.220 various people's happiness. 418 00:36:57.220 --> 00:37:02.220 While expressing arbitrary value judgments, they believe themselves to be establishing 419 00:37:02.220 --> 00:37:03.940 facts. 420 00:37:03.940 --> 00:37:09.020 One may call it just to rob the rich in order to make presents to the poor. 421 00:37:09.020 --> 00:37:15.660 However, to call something fair or unfair is always a subjective value judgment, and 422 00:37:15.660 --> 00:37:23.020 as such purely personal and not liable to any verification or falsification. 423 00:37:23.020 --> 00:37:27.020 Economics is not intent upon pronouncing value judgments. 424 00:37:27.020 --> 00:37:32.860 It aims at a cognition of the consequences of certain modes of acting. 425 00:37:32.860 --> 00:37:38.500 It has been asserted that the physiological needs of all men are of the same kind, and 426 00:37:38.500 --> 00:37:44.500 and that this equality provides a standard for the measurement of the degree of their objective satisfaction. 427 00:37:44.500 --> 00:37:52.500 In expressing such opinions and in recommending the use of such criteria to guide the government's policy, 428 00:37:52.500 --> 00:37:57.500 one proposes to deal with men as the breeder deals with his cattle. 429 00:37:57.500 --> 00:38:05.500 But the reformers fail to realize that there is no universal principle of alimentation valid for all men. 430 00:38:05.500 --> 00:38:13.500 Which one of the various principles one chooses depends entirely on the aims one wants to attain. 431 00:38:13.500 --> 00:38:23.500 The cattle breeder does not feed his cows in order to make them happy, but in order to attain the ends which he has assigned to them in his own plans. 432 00:38:23.500 --> 00:38:28.500 He may prefer more milk or more meat or something else. 433 00:38:28.500 --> 00:38:32.500 What type of man do the man breeders want to rear? 434 00:38:32.500 --> 00:38:38.020 Athletes or mathematicians? Warriors or factory hands? 435 00:38:38.020 --> 00:38:44.180 He who would make man the material of a purposeful system of breeding and feeding, would arrogate 436 00:38:44.180 --> 00:38:50.540 to himself despotic powers, and would use his fellow citizens as means for the attainment 437 00:38:50.540 --> 00:38:56.340 of his own ends, which differ from those they themselves are aiming at. 438 00:38:56.340 --> 00:39:02.420 The value judgments of an individual differentiate between what makes him more satisfied and 439 00:39:02.420 --> 00:39:04.260 What Less? 440 00:39:04.260 --> 00:39:09.740 The value judgments a man pronounces about another man's satisfaction do not assert 441 00:39:09.740 --> 00:39:13.380 anything about this other man's satisfaction. 442 00:39:13.380 --> 00:39:19.420 They only assert what condition of this other man better satisfies the man who pronounces 443 00:39:19.420 --> 00:39:21.320 the judgment. 444 00:39:21.320 --> 00:39:27.180 The reformers searching for the maximum of general satisfaction have told us merely what 445 00:39:27.180 --> 00:39:32.180 State of Other People's Affairs would best suit themselves. 446 00:39:32.180 --> 00:39:35.580 4. The Autistic Economy 447 00:39:35.580 --> 00:39:41.500 No other imaginary construction has caused more offense than that of an isolated economic 448 00:39:41.500 --> 00:39:49.460 actor entirely dependent on himself. However, economics cannot do without it. In order to 449 00:39:49.460 --> 00:39:56.640 study interpersonal exchange, it must compare it with conditions under which it is absent. 450 00:39:56.640 --> 00:40:02.420 It constructs two varieties of the image of an autistic economy in which there is only 451 00:40:02.420 --> 00:40:09.420 autistic exchange, the economy of an isolated individual and the economy of a socialist 452 00:40:09.420 --> 00:40:11.240 society. 453 00:40:11.240 --> 00:40:16.760 In employing this imaginary construction, the economists do not bother about the problem 454 00:40:16.760 --> 00:40:20.960 of whether or not such a system could really work. 455 00:40:20.960 --> 00:40:25.340 We are dealing here with problems of theory, not of history. 456 00:40:25.340 --> 00:40:30.540 We can therefore abstain from refuting the objections raised against the concept of an 457 00:40:30.540 --> 00:40:38.000 isolated actor by referring to the historical role of the self-sufficient household economy. 458 00:40:38.000 --> 00:40:43.740 They are fully aware of the fact that their imaginary construction is fictitious. 459 00:40:43.740 --> 00:40:49.840 Robinson Crusoe, who for all that may have existed, and the general manager of a perfectly 460 00:40:49.840 --> 00:40:55.280 isolated socialist commonwealth that never existed would not have been in a position 461 00:40:55.280 --> 00:41:02.400 to plan and to act as people can only when taking recourse to economic calculation. 462 00:41:02.400 --> 00:41:09.520 However, in the frame of our imaginary construction, we are free to pretend that they could calculate 463 00:41:09.520 --> 00:41:14.480 whenever such a fiction may be useful for the discussion of the specific problem to 464 00:41:14.480 --> 00:41:16.180 be dealt with. 465 00:41:16.180 --> 00:41:22.200 The imaginary construction of an autistic economy is at the bottom of the popular distinction 466 00:41:22.200 --> 00:41:29.520 between productivity and profitability as it developed as a yardstick of value judgments. 467 00:41:29.520 --> 00:41:35.180 Those resorting to this distinction consider the autistic economy, especially that of the 468 00:41:35.180 --> 00:41:41.740 socialist type, the most desirable and most perfect system of economic management. 469 00:41:41.740 --> 00:41:47.060 Every phenomenon of the market economy is judged with regard to whether or not it could 470 00:41:47.060 --> 00:41:51.740 be justified from the viewpoint of a socialist system. 471 00:41:51.740 --> 00:41:57.420 Only to acting that would be purposeful in the plans of such a systems manager are positive 472 00:41:57.420 --> 00:42:02.220 value and the epithet productive attached. 473 00:42:02.220 --> 00:42:07.820 All other activities performed in the market economy are called unproductive, in spite 474 00:42:07.820 --> 00:42:11.820 of the fact that they may be profitable to those who perform them. 475 00:42:11.820 --> 00:42:19.500 Thus, for example, sales promotion, advertising and banking are considered as activities profitable 476 00:42:19.500 --> 00:42:22.500 but non-productive. 477 00:42:22.500 --> 00:42:27.060 Ludwig's, of course, has nothing to say about such arbitrary value judgments.