Chapter 23 The Data of the Market
1. The Theory and the Data
Catallactics, the theory of the market economy, is not a system of theorems valid only under ideal and unrealizable conditions, and applicable to reality merely with essential restrictions and modifications.
All the theorems of catallactics are rigidly and without any exception valid for all phenomena of the market economy, provided the particular conditions which they presuppose are present.
It is, for instance, a simple question of fact, whether there is direct or indirect exchange.
Exchange.
But where there is indirect exchange, all the general laws of the theory of indirect
exchange are valid with regard to the acts of exchange and the media of exchange.
As has been pointed out, praxeological knowledge is precise or exact knowledge of reality.
All references to the epistemological issues of the natural sciences and all analogies
These derived from comparing these two radically different realms of reality and cognition
are misleading.
There is, apart from formal logic, no such thing as a set of methodological rules applicable
both to cognition by means of the category of causality and to that by means of the category
of finality.
Praxeology deals with human action as such in a general and universal way.
It deals neither with the particular conditions of the environment in which man acts, nor
with the concrete content of the valuations which direct his actions.
For praxeology, data are the bodily and psychological features of the acting men, their desires
and Value Judgments and the theories, doctrines and ideologies they develop in order to adjust
themselves purposively to the conditions of their environment, and thus to attain the
ends they are aiming at.
These data, although permanent in their structure and strictly determined by the laws controlling
the order of the universe, are perpetually fluctuating and varying.
They change from instant to instant.
The fullness of reality can be mentally mastered only by a mind resorting both to the conception
of praxeology and to the understanding of history, and the latter requires command of
the teachings of the natural sciences.
Cognition and prediction are provided by the totality of knowledge.
What the various single branches of science offer is always fragmentary.
It must be complemented by the results of all the other branches.
From the point of view of acting man, the specialization of knowledge and its breaking
up into the various sciences is merely a device of the division of labor.
In the same way in which the consumer utilizes the products of various branches of production,
The actor must base his decisions on knowledge brought about by various branches of thought
and investigation.
It is not permissible to disregard any of these branches in dealing with reality.
The historical school and the institutionalists want to outlaw the study of praxeology and
economics and to occupy themselves merely with the registration of the data or, as they
They call them nowadays the institutions, but no statement concerning these data can
be made without reference to a definite set of economic theorems.
When an institutionalist ascribes a definite event to a definite cause, for example, mass
unemployment to the alleged deficiencies of the capitalist mode of production, he resorts
to an economic theorem.
In objecting to the closer examination of the theorem tacitly implied in his conclusions,
he merely wants to avoid the exposure of the fallacies of his argument.
There is no such thing as a mere recording of unadulterated facts apart from any reference
to theories.
As soon as two events are recorded together or integrated into a class of events, a theory
is operative.
The question whether there is any connection between them can only be answered by a theory,
that is, in the case of human action, by praxeology.
It is vain to search for coefficients of correlation if one does not start from a theoretical insight
acquired beforehand.
The coefficient may have a high numerical value without indicating any significant and
and Relevant Connection between the two groups 2.
THE ROLE OF POWER
The historical school and institutionalism condemn economics for disregarding the role
which power plays in real life.
The basic notion of economics, namely the choosing and acting individual, is, they say,
an unrealistic concept.
The individual man is not free to choose and to act.
He is subject to social pressure, to the sway of irresistible power.
It is not the individual's value judgments, but the interactions of the forces of power
that determine the market phenomena.
These objections are no less spurious than all other statements of the critics of economics.
Strategy in general, and economics and catallactics in particular, do not contend or assume that
man is free in any metaphysical sense attached to the term freedom.
Man is unconditionally subject to the natural conditions of his environment.
In acting, he must adjust himself to the inexorable regularity of natural phenomena.
It is precisely the scarcity of the nature-given conditions of his welfare that enjoins upon
man the necessity to act.
Most social reformers, foremost among them Fourier and Marx, pass over in silence the
fact that the nature-given means of removing human uneasiness are scarce.
As they see it, the fact that there is not an abundance of all useful things is merely
caused by the inadequacy of the capitalist mode of production and will therefore disappear
in the higher phase of communism.
An eminent Menshevik author who could not help referring to the nature-given barriers
to human well-being, in genuinely Marxian style, calls nature the most relentless exploiter.
In acting, man is directed by ideologies.
He chooses ends and means under the influence of ideologies.
The might of an ideology is either direct or indirect.
It is direct when the actor is convinced that the content of the ideology is correct and
that he serves his own interests directly in complying with it.
It is indirect when the actor rejects the content of the ideology as false but is under
under the necessity of adjusting his actions to the fact that this ideology is endorsed
by other people.
The mores of their social environment are a power which people are forced to consider.
Those recognizing the spuriousness of the generally accepted opinions and habits must
in each instance choose between the advantages to be derived from resorting to a more efficient
Mode of Acting, and the disadvantages resulting from the contempt of popular prejudices, superstitions,
and folkways.
The same is true with regard to violence.
In choosing, man must take into account the fact that there is a factor ready to exercise
violent compulsion upon him.
All the theorems of catallactics are valid also with regard to actions influenced by
by such social or physical pressure.
The direct or indirect might of an ideology and the threat of physical compulsion are
merely data of the market situation.
It does not matter, for instance, what kind of considerations motivate a man not to offer
a higher bid for the purchase of a commodity than the one he really makes, without obtaining
the good concerned.
Through the determination of the market price, it is immaterial whether he spontaneously
prefers to spend his money for other purposes, or whether he is afraid of being looked upon
by his fellow men as an upstart or as a spin-thrift, afraid of violating a government-decreed
ceiling price, or of defying a competitor ready to resort to violent revenge.
In any case, his abstention from bidding a higher price contributes to the same extent
to the emergence of the market price.
It is customary nowadays to signify the position which the owners of property occupy on the
market as economic power.
The expediency of this terminology is questionable.
The term is at any rate inappropriate, as far as it is intended to imply that under
Under the impact of economic power, the determination of the market phenomena is controlled by laws
other than those dealt with by catallactics.
The Historical Role of War and Conquest
Many authors glorify war and revolution, bloodshed and conquest.
Carlyle and Ruskin, Nietzsche, Georges Sorel and Spengler were harbingers of the ideas
The course of history, say these philosophies, is not determined by the mean activities of materialistic peddlers and merchants, but by the heroic deeds of warriors and conquerors.
The economists err in abstracting from the experience of the short-lived liberal episode a theory to which they ascribe universal validity.
This epoch of liberalism, individualism and capitalism, of democracy, tolerance and freedom, of the disregard of all true and eternal values, and of the supremacy of the rabble, is now vanishing and will never return.
The dawning age of manliness requires a new theory of human action.
However, no economist ever ventured to deny that war and conquest were of utmost importance
in the past, and that Huns and Tartars, Vandals and Vikings, Normans and Conquistadors played
an enormous part in history.
One of the determinants of the present state of mankind is the fact that there were thousands
of years of armed conflicts.
Yet, what remains and is the essence of human civilization is not the legacy inherited from
the warriors.
Civilization is an achievement of the bourgeois spirit, not of the spirit of conquest.
Those barbarian peoples who did not substitute working for plundering disappeared from the
historical scene.
If there is still any trace left of their existence, it is in the achievements they
They Accomplished Under the Influence of the Civilization of the Subdued Peoples
Latin civilization survived in Italy, France and the Iberian Peninsula in defiance of all
barbarian invasions.
If capitalist entrepreneurs had not succeeded Lord Clive and Warren Hastings, British rule
in India might one day become such an insignificant historical reminiscence as are the 150 years
It is not the task of economics to enter into an examination of the endeavors to revive
the ideals of the Vikings.
It has merely to refute the statements that the fact that there are armed conflicts reduces
its teachings to naught.
With regard to this problem, there is need to emphasize again the following.
First, the teachings of catallactics do not refer to a definite epoch of history, but
to all actions characterized by the two conditions, private ownership of the means of production,
and division of labor.
Whenever and wherever, in a society in which there is private ownership of the means of
production, people not only produce for the direct satisfaction of their own wants, but
and also consume goods produced by other people, the theorems of catallactics are strictly valid.
Second, if apart from the market and outside of the market there is robbing and plundering,
these facts are a datum for the market.
The actors must take into account the fact that they are threatened by murderers and robbers.
If killing and robbing become so prevalent that any production appears useless,
3.
In order to seize booty, something to be plundered must be available.
The heroes can only live if there are enough bourgeois to be expropriated.
The existence of producers is a condition for the survival of conquerors.
4. There are, of course, other imaginable systems of a society based on the division of labor, besides the capitalist system of private ownership of the means of production. Champions of militarism are consistent in asking for the establishment of socialism. The whole nation should be organized as a community of warriors, in which the non-combatants have no other task
4.
Real Man as a Datum
Economics deals with the real actions of real men.
Its theorems refer neither to ideal nor to perfect men, neither to the phantom of a fabulous
to economic man, homo economicus, nor to the statistical notion of an average man, ammoyant.
Man with all his weaknesses and limitations, every man as he lives and acts, is the subject
matter of catallactics.
Every human action is a theme of praxeology.
The subject matter of praxeology is not only the study of society, societal relations and
and Mass Phenomena, but the study of all human actions.
The term the social sciences and all its connotations are in this regard misleading.
There is no yardstick that a scientific investigation can apply to human action other than that
of the ultimate goals the acting individual wants to realize in embarking upon a definite
action.
The ultimate goals themselves are beyond and above any criticism.
Nobody is called upon to establish what could make another man happy.
What an unaffected observer can question is merely whether or not the means chosen for
the attainment of these ultimate goals are fit to bring about the results sought by the
actor.
Only in answering this question is economics free to express an opinion about the actions
of Individuals and Groups of Individuals, or of the Policies of Parties, Pressure Groups
and Governments.
It is customary to disguise the arbitrariness of the attacks launched against the value
judgments of other people by converting them into a critique of the capitalist system or
of the conduct of entrepreneurs.
Economics is neutral with regard to all such statements.
To the arbitrary statement that the balance between the production of different goods
is admittedly faulty under capitalism, the economist does not oppose the statement that
this balance is faultless.
What the economist asserts is that in the unhampered market economy, this balance is
in agreement with the conduct of the consumers, as displayed in the spending of their incomes.
This is the general feature of democracy, whether political or economic.
Democratic elections do not provide the guarantee that the man elected is free from faults,
but merely that the majority of the voters prefer him to other candidates.
It is not the task of the economist to censure his fellow men and to call the result of their
actions faulty.
The alternative to the system in which the individual's value judgments are paramount
in the conduct of production processes is autocratic dictatorship. Then the value judgments
of the dictators alone decide, although they are not less arbitrary than those of other
people.
Man is certainly not a perfect being. His human weakness taints all human institutions
and thus, also, the market economy 5. The period of adjustment
Every change in the market data has its definite effects upon the market. It takes a definite
length of time before all these effects are consummated, that is, before the market is
completely adjusted to the new state of affairs.
The ethics has to deal with all the various individuals' conscious and purposive reactions to the changes in the data, and not, of course, merely with the final result brought about in the market structure by the interplay of these actions.
It may happen that the effects of one change in the data are counteracted by the effects of another change occurring by and large at the same time and to the same extent.
No considerable change in the market prices finally results.
The statistician, exclusively preoccupied with the observation of mass phenomena
and the outgrowth of the totality of market transactions as manifested in market prices,
ignores the fact that the non-emergence of changes in the height of prices is merely accidental
and not the outcome of a continuance in the data and the absence of specific adjustment activities.
He fails to see any movement and the social consequences of such movements.
Yet each change in the data has its own course, generates certain reactive responses on the part of the individuals affected
and disturbs the relation between the various members of the market system
Even if, eventually, no considerable changes in the prices of the various goods, and no
changes at all in the figures concerning the total amount of capital in the whole market
system result, economic history can give vague information ex post factum about the length
of adjustment periods.
The method of attaining such information is, of course, not measurement, but historical
and Social Understanding.
The various adjustment processes are in reality not isolated.
Synchronously, an indefinite number of them take their course, their paths intersect,
and they mutually influence one another.
To disentangle this intricate tissue and to observe the chain of actions and reactions
set into motion by a definite change in the data is a difficult task for the historian's
Funding, and the results are mostly meager and questionable.
The understanding of the length of adjustment periods is also the most difficult task incumbent
upon those eager to understand the future, the entrepreneurs.
Yet for success in entrepreneurial activities, mere anticipation of the direction in which
the market will react to a certain event is of little significance if it is not supplemented
by an adequate anticipation of the length of the various adjustment periods involved.
Most of the mistakes committed by entrepreneurs in the conduct of affairs, and most of the
blunders vitiating the prognoses of future business trends on the part of expert forecasters,
are caused by errors concerning the length of adjustment periods.
When dealing with effects brought about by changes in the data, it is customary to distinguish
between the temporally nearer and the temporally remoter effects, namely the short-run effects
and the long-run effects.
This distinction is much older than the terminology in which it is expressed nowadays.
In order to discover the immediate, the short-run effects brought about by a change in a datum,
There is, as a rule, no need to resort to a thorough investigation.
The short-run effects are, for the most part, obvious, and seldom escape the notice of a
naive observer unfamiliar with searching investigations.
What started economic studies was precisely the fact that some men of genius began to
suspect that the remoter consequences of an event may differ from the immediate effects
is visible even to the most simple-minded layman.
The main achievement of economics was the disclosure of such long-run effects, hitherto
unnoticed by the unaffected observer and neglected by the statesmen.
From their startling discoveries, the classical economists derived a rule for political practice.
Governments, statesmen and political parties, they argued, in planning and acting, should
should consider not only the short-run consequences, but also the long-run consequences of their measures.
The correctness of this inference is incontestable and indisputable.
Action aims at the substitution of a more satisfactory state of affairs for a less satisfactory.
Whether or not the outcome of a definite action will be considered more or less satisfactory
depends on a correct anticipation of all its consequences, both short-run and long-run.
Some people criticize economics for alleged neglect of the short-run effects, and for
alleged preference given to the study of the long-run effects.
The reproach is nonsensical.
Economics has no means of scrutinizing the results of a change in the data other than
One to start with its immediate consequences and to analyze step by step, proceeding from
the first reaction to the remoter reactions, all the subsequent consequences, until it
finally arrives at its ultimate consequences.
The long-run analysis necessarily always fully includes the short-run analysis.
It is easy to understand why certain individuals, parties and pressure groups are eager to
to Propagate the Exclusive Sway of the Short-Run Principle.
Politics, they say, should never be concerned about the long-run effects of a device and
should never abstain from resorting to a measure from which benefits are expected in the short-run
merely because its long-run effects are detrimental.
What counts is only the short-run effects.
In the long run, we shall all be dead.
All that economics has to answer to these passionate critics is that every decision
should be based on a careful weighing of all its consequences, both those in the short
run and those in the long run.
There are certainly, both in the actions of individuals and in the conduct of public affairs,
situations in which the actors may have good reasons to put up even with very undesirable
to avoid what they consider still more undesirable short-run conditions.
It may sometimes be expedient for a man to heat the stove with his furniture.
But if he does, he should know what the remoter effects will be.
He should not delude himself by believing that he has discovered a wonderful new method
of heating his premises.
That is all that economics need opposed to the frenzy of the short-run apostles.
History, one day, will have to say much more.
It will have to establish the role that the recommendation of the short-run principle,
this revival of Madame de Pompadour's notorious phrase, après nous les déluge, played in
the most serious crisis of Western civilization, it will have to show how welcome this slogan
was to governments and parties whose policies aimed at the consumption of the spiritual
and material capital inherited from earlier generations.