Human Action appeared on September 14th in 1949 and some people like Murray Rothbard who are lucky, they got their hands on the book as soon as it came out.
Let me just briefly quote Rothbard regarding this event.
To me, who had the privilege of reading the book on publication, it was an achievement that changed the course of my life and ideas, for here was a system of economic thought that some of us had dreamed of, and never thought could be attained, and economic science whole and rational, and economics that should have been, but never was.
Now, I personally was not as lucky as Murray. I was born just 12 days before Human Action appeared, so I could have read it, of course, but my English at that time was rather weak, and in addition the German predecessor of the book had long been out of print.
So, unfortunately, it would take somewhat longer until I would encounter Human Action and then go through an experience that was somewhat similar to that that Rothbard described.
In fact, it would take me another 25 years or so. I had just finished my PhD in philosophy and had been awarded a travel grant to spend a few months in the United States at the University of Michigan.
in Michigan and it was in the library of the University of Michigan in 1974 where I first discovered Human Action.
Now of course I had been familiar with Mises' name before during my last two years at the gymnasium
and for my first two years at the Goethe University in Frankfurt.
I had become very much interested in leftist, as a matter of fact, in Marxist social theory.
Remember that this was the time of the student rebellion in the late 1960s in the United States as well as in Europe.
And Mises was, of course, a name that was familiar in leftist circles,
but of course only to be dismissed as some bourgeois reactionary and an enemy of the forces of social progress, could not be taken seriously and definitely should not be arrested.
Nonetheless, while his name was mentioned by lefties at the time, if only to be dismissed,
I do not recall that Mises was ever mentioned by any of my more moderate or mainstream teachers.
In fact, when I prepared for this lecture, I looked up the books that were used for the two regular economics classes,
introductory and intermediate economics, which I took during these years,
and found that neither one of these books did mention Mises's name.
By contrast, however, and I think you might find this interesting, my parents were refugees from East Germany and for many years we made regular annual trips to visit relatives in East Germany.
And as a requirement of visiting the workers' and peasants' paradise, as my parents and relatives refer to East Germany,
you were required to exchange and spend a certain minimum sum per day and person in East Germany.
However, except for records, mostly Russian composers, and for books, mostly left-wing literatures such as Berthold Brecht,
or some socialist Marxist classics, there existed hardly anything worth buying and I bought plenty of books and still have on my bookshelves today quite a collection of Marx and the other greats of socialism and interestingly among the books that I bought is one titled,
Bourgeois Economics Without Perspective
It was published in the mid 1970s by the East German Academy of Science
and it was used in universities throughout East Germany at that time
and in this book, in distinct contrast to the mainstream text used in West Germany at that time
there are almost 10 pages devoted to Mises
In fact, he is quoted directly several times, and his famous argument about the impossibility of economic calculation under socialism is correctly summarized.
So, in East Germany, you could learn more about Mises than you could in the West at that time.
But now, let me return to my story about the discovery of human action.
By the early 1970s I had freed myself from my earlier leftist beliefs and began to move increasingly to the right.
And first I read Friedman and then I read Hayek and became increasingly interested in economics and in particular the philosophical foundations of economics.
However, as much enlightened as I felt by Friedman and Hayek, as someone who had spent most of his time up until then studying philosophy,
I was ultimately deeply and fundamentally dissatisfied with both Friedman and Hayek,
Because on the one hand I immediately recognized that their defense of the market and of free market economics was inconsistent and contradictory.
On the one hand they defended the market and private property and yet in the same breath they also found all sorts of mistakes and errors and deficiencies with these institutions.
In addition, as far as their views on the philosophy of positive economics were concerned, I was equally disappointed and unconvinced.
Both Friedman and Hayek championed some variant of the falsificationist or positivist philosophy of science that was propagated by Carl Popper.
Mises in Human Action quotes Albert Einstein as saying, and I quote,
as far as the theorems of mathematics refer to reality, they are not certain.
And as far as they are certain, they do not refer to reality.
And this statement, only in a slightly more generalized version, is essentially also Hopper's view.
His view would be, as far as any proposition refers to reality, it cannot be certain. And as far as it is certain, it does not refer to reality.
This also was by and large the view that Hayek and Friedman held, but what I wondered myself about a proposition like the quantity theory of money, for instance.
If you increase the supply of money, other things being equal, the purchasing power of money will fall.
Now, it seemed to me that this was a statement that was a statement about reality, about real things, about money and purchasing power and so forth.
And yet it was a statement that was certainly true and not open to refutation by experience.
So I had convinced myself that Friedman and Hayek, and by implication also Hoppe, were absolutely wrong, at least as far as economics was concerned.
And I had begun to reconstruct various economic theorems as non-hypothetically true statements about something real.
I couldn't find anyone else who shared this view, which left me somewhat uncomfortable.
But then in reading Hayek, I had come across that name again, Mises, and become aware that
he too had written on the very question that had bothered me for years.
And this is how I finally at long last took up Mises and the first book of his that I concluded I had to take a look at was Human Action.
And what a revelation that was. It took me just a few days to read the whole thing and from then on I was a changed man.
Not only did Mises endorse the same position with regard to economic propositions of which I had already convinced myself
that they are apodictically or aprioristically true, as Mises himself expressed it, and yet that they are also empirical statements, that is, saying something about real things, but far more.
Furthermore, in Human Action, Mises had already done what I had considered to be sheer impossible that is to reconstruct all of economics along these lines and erect a mighty and indeed also beautifully architecture and systematically integrated intellectual building.
He begins with the most simple and yet most fundamental building block, his individual human action, considered in isolation from everything else.
Man acts and he pursues valued goals with scarce means through time, and this, he shows, is not only true and true about something real,
It is also undeniably and hence apodictically true because anyone who wanted to deny or disprove this statement that humans act would of course himself be engaging in pursuing goals with means and would be acting.
And then from this elementary basis, Mises then reconstructs all the laws that hold, even if we were to assume that there were only a single individual alive.
These are the laws of, that he refers to as the laws of action in the world.
There are two of those laws, the law of marginal utility on the one hand and the law of return.
And then, step by step, he complicates and enriches the situation, that is, the conditions under which human action takes place.
More than one individual, that is, human society, exists.
And thus, next, he takes up the laws of exchange and distinguishes between two forms of exchange, voluntary and coercive exchange.
Exchange, initially he restricts his analysis first to that of voluntary or market exchange,
and here in the first step the laws of indirect exchange of consumer goods against other consumer
goods or producer goods are reconstructed, and then under the assumption of uncertainty
he proceeds from direct to indirect exchange as it is the development of money as a special
a medium of exchange, a monetary exchange economy and then with money in existence, action becomes calculating action
and here he constructs the law of calculative action of entrepreneurship, competition, profit, loss
and then the laws of money, prices and costs are developed, followed by the laws of money and money substitutes
Next, the theory of interest, capital and capital accounting are reconstructed and finally he turns to an analysis of compulsory exchanges, interference with market economy and its operation.
First, he turns his eyes to socialism characterized as it is by the absence of monetary calculation.
and then he analyzes the economic laws of taxation, production restrictions, price controls, currency, credit and interest rate manipulations.
Now, let me leave it at this rather superficial account of the entire book, except to repeat that we have in front of us with Human Action is something that is simply mind-boggling as an achievement,
Certainly one of the greatest scholarly books ever read.
What I wish to do in the remaining time, however,
is rather than looking at the great picture,
to pick out a few special marvels from the book,
which might be easily overlooked,
or at least underappreciated upon reading it
for the very first time,
but which are nonetheless indicative
of the Unique Greatness of the book and its author.
What I will present are some tidbits,
brief arguments and insights that are interspersed
in this massive treaties and I will take them up
in some unsystematic order and my selection
is obviously informed by personal idiosyncrasies
We just first give you a passage, quote your passage, where Mises makes a remark about
man and God, that reveals somehow his philosophical mind at work, where he tries to explain something
By contrasting human action with our image that we have of God, Mises writes that scholastic
philosophers and theologians and likewise theists and deists of the age of reason conceived
An absolute and perfect being, unchangeable, omnipotent and omniscient, and yet planning
and acting, aiming at ends and employing means for the attainment of these ends.
But action can only be imputed to a discontented being, and repeated action only to a being
who lacks the power to remove his uneasiness once and for all at one stroke. An acting
being is discontented and therefore not almighty. If he were contented, he would not act, and
if he were almighty, he would have long since radically removed his discontent. For an all-powerful
There is no pressure to choose between various states of uneasiness. He is not under the necessity of acquiescing in the lesser evil. Omnipotence would mean the power to achieve everything and to enjoy full satisfaction without being restrained by any limitations.
But this is incompatible with the very concept of action.
For an almighty being, the categories of ends and means do not exist.
He is above all human comprehension, concepts and understanding.
For the almighty being, every means renders unlimited services.
He can apply every means for the attainment of any ends. He can achieve every end without the employment of any means.
It is beyond the faculties of the human mind to think the concept of almightyness consistently to its ultimate logical consequences.
The paradoxes are insoluble. Has the Almighty being the power to achieve something which is immune to his later interference? If he has this power, then there are limits to his might, and he is no longer Almighty. If he lacks this power, he is by virtue of this fact alone not Almighty.
Are Omnipotence and Omniscience Compatible? Omniscience presupposes that all future happenings are already unalterably determined. If there is omniscience, omnipotence is inconceivable.
Impotence to change anything in the predetermined course of events would restrict the power of any agent.
So this is an indication of how much he is interested in philosophical puzzles.
Now I want to turn to another subject that is the subject of time and the economization of time.
Very interesting insights that he has to relate regarding this talk.
In a section called The Economization of Time, Mises writes,
The economization of time has a peculiar character because of the uniqueness and irreversibility of the temporal order.
The economization of time is independent of the economization of economic goods and services.
Even in the land of cocaine, and I will have to say something about the land of cocaine in a second,
even in the land of cocaine, man would be forced to economize time provided he were not immortal
and not endowed with eternal youth and indestructible health and vigor.
Although all his appetites could be satisfied immediately without any expenditure of labor,
he would have to arrange his time schedule as there are states of satisfaction which are incompatible and cannot be consummated at the same time.
For this man, too, time would be scarce and subject to the aspect of sooner and later.
Now, as I said, I want to say a word about the land of cocaine.
The land of cocaine, according to the dictionary, is an imaginary country prominent in medieval lore where life is a round of luxurious idleness.
There are rivers of wine, houses built of cake and barley sugar, and streets are paved with pastry, and the shops gratuitously give goods to everyone.
Roast geese and fowls wander about inviting people to eat them, and buttered larks fall from the sky like manna.
Now Murray Rothbard told me at some time, after the appearance of Human Action, that Mises was repeatedly told that American readers typically would not know and never had heard of the land of cocaine, and that was in 1949 when the world was still decently in order, so to speak.
and that they may suggest he should simply substitute the Garden of Eden for the land of cocaine.
But Mises was a stubborn man and he never changed it from any addition to the next one.
He always kept the land of cocaine in his books.
Now, some other remarks relating to time and what Mises calls time preference. Mises, along
with his teacher, Boehm-Bawerk, and the American economist Frank Fetter, is a proponent of
of what is called the so-called time preference theory of interest.
In short, this theory states that present goods or present
satisfaction are always preferred over future goods
or future satisfactions of the same kind,
and that the phenomenon of interest
reflects this value premium of present over future goods
If you look at it from the other way, the value discount of future goods as compared with present goods.
Now, how does Mises explain this phenomenon of time preference and what affects the originary rate of interest that is the degree of time preference?
Just two quotes on this issue.
First he says, time preference is a categorical requisite of human action. No mode of action can be thought of in which satisfaction within a nearer period of the future is not, other things being equal, prefer to that in a later period.
The very act of gratifying a desire implies that gratification at the present instant is preferred to that at the later instant.
If he were not to prefer satisfaction in a nearer period of the future to that in a remoter period, he would never consume and so satisfy his wants.
He would always accumulate. He would never consume and enjoy. He would not consume today, but he would not consume tomorrow either, as the morrow would confront him with the very same alternative.
And on interest he writes,
The factors of production would in their eyes become useless and worthless. The discount of future goods as against present goods would not vanish. It would, on the contrary, increase beyond all measure.
That is to say, interest rate would skyrocket. On the other hand, the fading away of originary interest would mean that people do not care at all for one satisfaction in nearer periods of the future.
It would mean that they prefer to an apple available today, tomorrow, in one year, or in ten years, two apples available in a thousand or ten thousand years.
The disappearance of originary interest would be tantamount to the disappearance of consumption.
The increase of originary interest beyond all measure would be tantamount to the disappearance of saving and any provision for the future.
Now, so much about the powers of Alan Greenspan to fix and lower interest rates or to manipulate them,
As we see, these are phenomena that are eternal and unchangeable, nothing, no mortal person can ever do anything about it, certainly not Alan Greenspan.
What he can do, however, is cause financial uncertainty and by causing financial uncertainty he actually contributes to lowering the savings and increasing interest rates.
Another topic of great personal interest to me is what Mises has to say on insurance and insurability.
In a chapter of Human Action on the subject of uncertainty, which does not exist in the book's German predecessor,
as in national economy, in which Mises most likely
added under the influence of his brother Richard von Mises, who
was a world-famous mathematician and probability theorist who
late in his life taught at Harvard,
Mises gives a new and ingenious definition
of randomness, which provides at the same time also
a definition of the conditions which
Mises refers to this condition that must be fulfilled in order to be able to insure oneself against something.
He calls this condition class probability, and he gives the following definition.
Class probability means we know or assume to know with regard to the problem concerned
everything about the behavior of a whole class of events or phenomena.
But about the actual singular events or phenomena we know nothing, but that they are elements of this class.
For instance, he writes, we have a complete table of mortality for a definite period of the past in a definite area.
If we assume that with regard to mortality no changes will occur, we may say that we know everything about the mortality of the whole population in question.
But with regard to the life expectancy of the individual, we do not know anything but that they are members of this class of people.
And then he adds that this definition of probability is the only logically satisfactory one.
It avoids the crude circularity implied in all definitions referring to the every probability of possible events.
In stating that we know nothing about actual singular events except that they are elements of a class,
the behavior of which is fully known, this vicious circle is disposed of.
Moreover, it is superfluous to add a further condition called the absence of any regularity in the sequence of the singular events.
And then he notes with respect to insurance, the characteristic mark of insurance is that it deals with the whole class of events.
As we pretend to know everything about the behaviour of the whole class, there seems to be no specific risk involved in the conduct of business.
Now, unfortunately in Human Action, Mises does not spell out in great detail the implications of this fundamental insight regarding the conditions and limits of insurability,
But he did spell out these implications in his earlier great work on socialism, and let me only say this before I give you a quote from this earlier work.
Now, it is obviously implied in Mises's definition of class probability that those events or phenomena cannot be insured against, or events cannot be insured against, if we do know about any singular event more than that it is a member of a class of events,
This is precisely the case whenever we know, for instance, that an event is the outcome of an individual action or is under the control, fully or partially, of an individual actor.
Now, you will immediately see what I'm driving at, give me a few more minutes here, let me give you the quote from socialism that will make clear what I have in mind.
In socialism he writes, the value of health and accident insurance becomes problematic
by reason of the possibility that the insured person may himself bring about or at least
intensify the condition insured against.
But in the case of unemployment insurance, the condition insured against can never develop
unless the insured person so will. Unemployment is a problem of wages, not of work. It is
just as impossible to insure against unemployment as it would be to insure against, say, the
unsalability of commodities. Unemployment insurance is definitely a misnomer. There can never
There cannot be any statistical foundation for such an insurance.
Now, I do not have to dwell much longer on the impossibility of unemployment insurance,
but the brief comment on the impossibility of health insurance that is implied in this remark
is probably in order, because health risks are by and large,
and increasing number, marginally or fully controllable by individual actions and because of that any pooling of health risks is essentially impossible.
During the debate over Clinton's healthcare reform plan a few years ago, there were also several alternative health insurance plans
And not one of these alleged free market reform proposals, except the one that the Mises Institute proposed,
not one of them seem to have been even faintly aware of Mises' fundamental insight that any risk pooling is completely out of the question
If it is the case that a risk in question can be individually affected and that this is in fact largely and increasingly so, the case with respect to health risks.
Just as a little tidbit here, can you insure yourself against the risk of contracting AIDS?
The answer is of course you cannot insure yourself against this. You have almost complete control over whether you will get it or you won't get it.
A certain lifestyle makes it essentially impossible that you will ever contract it.
So risks such as these are not insurable risks. Those are just welfare policies that are enacted and have nothing whatsoever to do with insurance.
Related to this, Mises principles stand against any form of guaranteed minimum income.
Poverty is also an uninsurable risk, and granting tech support to the poor then is always and necessarily counterproductive and will only produce more poverty.
Hayek, for instance, endorsed the idea of a guaranteed minimum income, and so does Friedman.
Indeed, Friedman, with his proposal of a negative income tax, wants to organize the welfare state more efficiently,
obviously unaware of Rothbard's fundamental insight that one wants efficiency only with regards to the production of goods,
Efficient welfare implies simply more welfare. None of that you will find in Mises. Mises
is consistent and uncompromising. Thus in Human Action he writes with respect to the
idea of a guaranteed minimum income, no civilized community has callously allowed the incapacitated
to Perish, but the substitution of a legally enforceable claim to support or sustenance
for charitable relief does not seem to agree with human nature as it is.
Not metaphysical cryptosessions, but consideration of practical expediency make it inadvisable
to promulgate an actionable right to sustenance.
So there is no compromising whatsoever.
This brings me to the last topic that I want to touch upon, that is, Mises's rationalism
and his drive for a logical consistency which has earned him a reputation as an extremist
or a dogmatist in many circles.
Let me quote from Human Action what Mises himself has to say in reply to these types
of attacks.
There he says, some authors try to justify the contradictions of generally accepted ideologies
by pointing out the alleged advantages of a compromise, however unsatisfactory from a
from a logical point of view for the smooth functioning of inter-human relations.
They refer to the popular fallacy that life and reality are not logical.
They contend that a contradictory system may prove its expediency or even its truth by working satisfactorily,
while a logically consistent system would result in disaster.
There is no need to refute a new such popular errors these days. Logical thinking and real life are not two separate orbits. Logic is for men the only means to master the problems of reality. What is contradictory in theory is no less contradictory in reality.
No ideological inconsistency can provide a satisfactory, that is, working solution for the problems offered by the facts of the world.
The only effect of contradictory ideologies is to conceal the real problems and thus prevent people from finding in time an appropriate policy for solving them.
Inconsistent ideologies may sometimes postpone the emergence of the manifest conflict.
But they certainly aggravate the evils which they mask and render a final solution more difficult.
They multiply the agonies, they intensify the hatreds, and make peaceful settlement impossible.
It is a serious blunder to consider ideological contradictions harmless or even beneficial.
There is no other means of preventing social disintegration and of safeguarding the steady improvement of human conditions than those provided by reason.
Man must try to think through all the problems involved up to the point beyond which a human mind cannot proceed farther.
And neither then, in his insistence on reason, on rational insight as a foundation of human societies, is also poles apart from his famous student Hayek.
Let me briefly illustrate this by giving you a characteristic quote from Hayek and then
contrasting it to what Mises has to say. Hayek says things like this, we have never designed
our economic system. We were not intelligent enough for that. We have tumbled into it.
These traditions resulted not from human design or intention, but spontaneously.
Moral traditions outstrip the capacities of reason.
Mind is not a guide but a product of natural evolution.
This is what Hayek has to say.
Now listen what Mises has to say on these topics.
Mises says,
Man was once a brutal beast, but one must not forget that he was a physical weak animal.
He would not have been a match for the big beasts of prey if he had not been equipped
with a peculiar weapon, reason.
The fact that man is a reasonable being, that he therefore does not yield without inhibitions
to every impulse, but arranges his conduct to reasonable deliberation, must not be called
unnatural from a zoological point of view.
Rational conduct means that men, in the face of the fact that he cannot satisfy all his
impulses, desires and appetites, forgoes the satisfaction of those which he considers less
In order not to endanger the working of social cooperation, man is forced to abstain from satisfying those desires whose satisfaction would hinder establishment of societal institutions.
There is no doubt that such a renunciation is painful.
However, man has made his choice. He has renounced the satisfaction of some desires incompatible with social life and has given priority to the satisfaction of those desires which can be realized only or in a more plentiful way under a system of the division of labor.
He has entered upon the way toward civilization, social cooperation and wealth.
This decision is not irrevocable and final.
The choice of the fathers does not impair the sons' freedom to choose.
They can reverse this resolution.
Every day they can proceed to the transvaluation of values and prefer barbarism to civilization or, as some authors say, the soul to the intellect,
Miss to reason and violence to peace. But they must choose. It is impossible to have things incompatible with each other.
So in Mises' case, we choose reason to employ our reason. We are never stumbling into something.
More specifically, Mises notes, like Etienne de la Boétie before him and also David Hume, that in particular government power, even that of the most despotic government, rests ultimately on ideas and ideologies, false as they might be, but rests on ideas and accordingly,
Their power can also be broken and rendered ineffective by other ideas, by changed and correct ideas.
In this respect, he writes,
Of course it is possible to establish government upon the violent oppression of reluctant people.
It is a characteristic mark of state and government that they apply violent coercion or the threat of it against those not prepared to yield voluntarily.
Yet such violent oppression is no less founded upon ideological might.
He who wants to apply violence needs the voluntary cooperation of some people,
An individual entirely dependent on himself can never rule by means of physical violence only. He needs the ideological support of a group in order to subdue other groups.
The tyrant must have a retinue of partisans who obey his orders out of their own accord.
Their spontaneous obedience provides him with the apparatus he needs for the conquest of other people.
Whether or not he succeeds in making his sway last depends on the numerical relation of the two groups.
Those who support him voluntarily and those whom he beats into submission.
Though a tyrant may temporarily rule through a minority if this minority is armed and the majority is not,
in the long run a minority cannot keep the majority in subservience.
The oppressed will rise in rebellion and cast off the yoke of tyranny. Changes in public opinion can bring down even the most powerful governments.
Now lastly and in conclusion, I cannot do better than quote from the last two paragraphs of Human Action.
Herr Mises says, men's freedom to choose and to act is restricted in a threefold way.
There are first the physical laws to whose unfeeling absoluteness men must adjust his conduct if he wants to live.
There are, second, the individual's innate constitutional characteristics and dispositions and the operation of environmental factors.
We know that they influence both the choice of the ends and that of the means, although our cognizance of the mode of their operation is rather vague.
And there is finally the regularity of phenomena with regard to the interconnectedness of means and ends, that is, the praxeological law as distinct from the physical and physiological law.
The elucidation of the categorical and formal examination of this third class of laws of the universe is a subject matter of praxeology and its hitherto best developed branch economics.
The body of economic knowledge is an essential element in the structure of human civilization.
It is the foundation upon which modern industrialism and all the moral, intellectual and disregard its teachings and warnings,
they will not annul economics, they will stamp out society and the human race.
Now it is Human Action above all and those who will continue to read and study Human Action, which I hope will stand in a way that this prediction will ever come true. Thank you very much.