WEBVTT NOTE Appendix A: Praxeology and Economics 1 00:00:00.000 --> 00:00:05.000 Appendix A, Praxeology and Economics 2 00:00:05.000 --> 00:00:15.000 This chapter has been an exposition of part of praxeological analysis, the analysis that forms the body of economic theory. 3 00:00:15.000 --> 00:00:21.000 This analysis takes as its fundamental premise the existence of human action. 4 00:00:21.000 --> 00:00:28.000 Once it is demonstrated that human action is a necessary attribute of the existence of human beings, 5 00:00:28.000 --> 00:00:34.440 The rest of praxeology and its subdivision, economic theory, consists of the elaboration 6 00:00:34.440 --> 00:00:39.640 of the logical implications of the concept of action. 7 00:00:39.640 --> 00:00:50.920 Economic analysis is of the form, 1, assert A, action axiom, 2, if A, then B, if B, then 8 00:00:50.920 --> 00:00:56.440 C, if C, then D, etc. by rules of logic. 9 00:00:56.440 --> 00:01:03.940 3. Therefore, we assert the truth of B, C, D, etc. 10 00:01:03.940 --> 00:01:10.320 It is important to realize that economics does not propound any laws about the content 11 00:01:10.320 --> 00:01:17.320 of man's ends. The examples that we have given, such as ham sandwich, berries, etc., 12 00:01:17.320 --> 00:01:23.180 are simply illustrative instances, and are not meant to assert anything about the content 13 00:01:23.180 --> 00:01:26.480 of a Man's Goals at Any Given Time. 14 00:01:26.480 --> 00:01:32.500 The concept of action involves the use of scarce means for satisfying the most urgent 15 00:01:32.500 --> 00:01:38.780 wants at some point in the future, and the truths of economic theory involve the formal 16 00:01:38.780 --> 00:01:44.900 relations between ends and means and not their specific contents. 17 00:01:44.900 --> 00:01:50.540 A man's ends may be egoistic or altruistic, refined or vulgar. 18 00:01:50.540 --> 00:01:55.940 They may emphasize the enjoyment of material goods and comforts, or they may stress the 19 00:01:55.940 --> 00:01:58.260 ascetic life. 20 00:01:58.260 --> 00:02:04.740 Economics is not concerned with their content, and its laws apply regardless of the nature 21 00:02:04.740 --> 00:02:07.900 of these ends. 22 00:02:07.900 --> 00:02:13.880 Praxeology therefore differs from psychology or from the philosophy of ethics. 23 00:02:13.880 --> 00:02:20.020 Since all these disciplines deal with the subjective decisions of individual human minds, 24 00:02:20.020 --> 00:02:24.300 Many observers have believed that they are fundamentally identical. 25 00:02:24.300 --> 00:02:26.900 This is not the case at all. 26 00:02:26.900 --> 00:02:31.480 Psychology and ethics deal with the content of human ends. 27 00:02:31.480 --> 00:02:40.340 They ask, why does the man choose such and such ends, or what ends should man value? 28 00:02:40.340 --> 00:02:46.380 Praxeology and economics deal with any given ends, and with the formal implications of 29 00:02:46.380 --> 00:03:05.540 Thus, all explanations of the law of marginal utility on psychological or physiological 30 00:03:05.540 --> 00:03:07.980 grounds are erroneous. 31 00:03:07.980 --> 00:03:14.220 For example, many writers have based the law of marginal utility on an alleged law of the 32 00:03:14.220 --> 00:03:20.220 The Satiation of Wants, according to which a man can eat so many scoops of ice cream 33 00:03:20.220 --> 00:03:25.020 at one time, etc., and then become satiated. 34 00:03:25.020 --> 00:03:31.040 Whether or not this is true in psychology is completely irrelevant to economics. 35 00:03:31.040 --> 00:03:36.980 These writers erroneously concluded that at the beginning of the supply, a second unit 36 00:03:36.980 --> 00:03:43.280 may be more enjoyable than the first, and therefore that marginal utility may increase 37 00:03:43.280 --> 00:04:07.280 The law of marginal utility depends on no physiological or psychological assumptions, but is based on the praxeological truth that the first unit of a good will be used to satisfy the most urgent want, the second unit, the next most urgent want, etc. 38 00:04:07.280 --> 00:04:14.280 It must be remembered that these units must be of equal potential serviceability. 39 00:04:14.280 --> 00:04:18.280 For example, it is erroneous to argue as follows. 40 00:04:18.280 --> 00:04:25.280 Eggs are the good in question. It is possible that a man needs four eggs to bake a cake. 41 00:04:25.280 --> 00:04:31.280 In that case, the second egg may be used for a less urgent use than the first egg, 42 00:04:31.280 --> 00:04:35.280 and the third egg for a less urgent use than the second. 43 00:04:35.280 --> 00:04:40.640 However, since the fourth egg allows a cake to be produced that would not otherwise be 44 00:04:40.640 --> 00:04:48.000 available, the marginal utility of the fourth egg is greater than that of the third egg. 45 00:04:48.000 --> 00:04:54.880 This argument neglects the fact that a good is not the physical material, but any material 46 00:04:54.880 --> 00:05:01.340 whatever of which the units will constitute an equally serviceable supply. 47 00:05:01.340 --> 00:05:07.340 Since the fourth egg is not equally serviceable and interchangeable with the first egg, the 48 00:05:07.340 --> 00:05:13.740 two eggs are not units of the same supply, and therefore the law of marginal utility 49 00:05:13.740 --> 00:05:17.020 does not apply to this case at all. 50 00:05:17.020 --> 00:05:23.300 To treat eggs in this case as homogeneous units of one good, it would be necessary to 51 00:05:23.300 --> 00:05:28.140 consider each set of four eggs as a unit. 52 00:05:28.140 --> 00:05:34.880 To sum up the relationship and the distinctions between praxeology and each of the other disciplines, 53 00:05:34.880 --> 00:05:37.680 we may describe them as follows. 54 00:05:37.680 --> 00:05:40.880 Why man chooses various ends. 55 00:05:40.880 --> 00:05:42.320 Psychology. 56 00:05:42.320 --> 00:05:45.160 What man's ends should be. 57 00:05:45.160 --> 00:05:46.640 Philosophy of ethics. 58 00:05:46.640 --> 00:05:49.400 Also philosophy of aesthetics. 59 00:05:49.400 --> 00:05:53.080 How to use means to arrive at ends. 60 00:05:53.080 --> 00:05:54.700 Technology. 61 00:05:54.700 --> 00:06:01.980 What man's ends are and have been and how man has used means in order to attain them. 62 00:06:01.980 --> 00:06:03.500 History. 63 00:06:03.500 --> 00:06:11.540 The formal implications of the fact that men use means to attain various chosen ends. 64 00:06:11.540 --> 00:06:13.220 Praxeology. 65 00:06:13.220 --> 00:06:18.740 What is the relationship between praxeology and economic analysis? 66 00:06:18.740 --> 00:06:21.960 Economics is a subdivision of praxeology. 67 00:06:21.960 --> 00:06:25.960 So far, the only fully elaborated subdivision. 68 00:06:25.960 --> 00:06:32.880 With praxeology as the general formal theory of human action, economics includes the analysis 69 00:06:32.880 --> 00:06:40.980 of the action of an isolated individual, crusoeconomics, and, especially elaborate, the analysis of 70 00:06:40.980 --> 00:06:44.680 interpersonal exchange, catallactics. 71 00:06:44.680 --> 00:06:49.120 The rest of praxeology is an unexplored area. 72 00:06:49.120 --> 00:06:55.280 Games have been made to formulate a logical theory of war and violent action, and violence 73 00:06:55.280 --> 00:07:01.100 in the form of government has been treated by political philosophy and by praxeology 74 00:07:01.100 --> 00:07:05.660 in tracing the effects of violent intervention in the free market. 75 00:07:05.660 --> 00:07:10.920 A theory of games has been elaborated, and interesting beginnings have been made in a 76 00:07:10.920 --> 00:07:14.080 logical analysis of voting. 77 00:07:14.080 --> 00:07:21.200 The suggestion has been made that since praxeology and economics are logical chains of reasoning 78 00:07:21.200 --> 00:07:28.040 based on a few universally known premises, to be really scientific it should be elaborated 79 00:07:28.040 --> 00:07:32.760 according to the symbolic notations of mathematical logic. 80 00:07:32.760 --> 00:07:39.620 This represents a curious misconception of the role of mathematical logic or logistics. 81 00:07:39.620 --> 00:07:46.620 In the first place, it is the great quality of verbal propositions that each one is meaningful. 82 00:07:46.620 --> 00:07:52.900 On the other hand, algebraic and logical symbols as used in logistics are not in themselves 83 00:07:52.900 --> 00:07:54.900 meaningful. 84 00:07:54.900 --> 00:08:02.020 Praxeology asserts the action axiom as true, and from this, together with a few empirical 85 00:08:02.020 --> 00:08:07.940 axioms, such as the existence of a variety of resources and individuals, are deduced 86 00:08:07.940 --> 00:08:14.420 by the Rules of Logical Inference, all the propositions of economics, each one of which 87 00:08:14.420 --> 00:08:17.220 is verbal and meaningful. 88 00:08:17.220 --> 00:08:23.420 If the logistic array of symbols were used, each proposition would not be meaningful. 89 00:08:23.420 --> 00:08:29.520 Logistics, therefore, is far more suited to the physical sciences, where, in contrast 90 00:08:29.520 --> 00:08:35.800 to the science of human action, the conclusions, rather than the axioms, are known. 91 00:08:35.800 --> 00:08:41.520 In the physical sciences, the premises are only hypothetical, and logical deductions 92 00:08:41.520 --> 00:08:43.200 are made from them. 93 00:08:43.200 --> 00:08:48.960 In these cases, there is no purpose in having meaningful propositions at each step of the 94 00:08:48.960 --> 00:08:55.160 way, and therefore symbolic and mathematical language is more useful. 95 00:08:55.160 --> 00:09:01.880 Simply to develop economics verbally, then to translate into logistic symbols, and finally 96 00:09:01.880 --> 00:09:08.600 to retranslate the propositions back into English makes no sense and violates the fundamental 97 00:09:08.600 --> 00:09:15.720 scientific principle of Occam's razor, which calls for the greatest possible simplicity in science 98 00:09:15.720 --> 00:09:23.400 and the avoidance of unnecessary multiplication of entities or processes. Contrary to what might 99 00:09:23.400 --> 00:09:31.800 be believed, the use of verbal logic is not inferior to logistics. On the contrary, the latter is merely 100 00:09:31.800 --> 00:10:01.800 The Theory of Money and Credit 101 00:10:01.800 --> 00:10:05.800 Theoretical logic and meaningful at each step of the route.