WEBVTT NOTE What Makes 'Human Action' Different? 1 00:00:00.000 --> 00:00:19.000 The title of my talk this morning is What Makes Human Action Different, but I must begin by saying that that particular question would not have occurred to me the first time I read Mises' treatise, if only because Human Action was one of the first books I read in getting into the subject of economics. 2 00:00:19.000 --> 00:00:41.400 Like a number of other economists my age, I found Human Action and Mises writings by reading Ayn Rand. Rand published in 1966 a book entitled Capitalism, the Unknown Ideal, and in the back of that book he provided a list of suggested readings. 3 00:00:41.400 --> 00:00:47.000 One of the readings in that list was Mises' Human Action. 4 00:00:47.000 --> 00:00:55.240 I remember at the time looking around in a few used bookstores for a copy of Human Action. 5 00:00:55.240 --> 00:00:57.240 To no avail, of course. 6 00:00:57.240 --> 00:01:01.680 I discovered later there were at least two reasons I couldn't find a copy. 7 00:01:01.680 --> 00:01:06.840 First, people who buy new copies of that book tend to keep them. 8 00:01:06.840 --> 00:01:15.840 This fact alone makes Human Action stand apart from many, many other books on economics. 9 00:01:15.840 --> 00:01:23.840 Second, when a used bookstore manager does get his hands on a copy, he's likely to miscategorize it. 10 00:01:23.840 --> 00:01:32.840 With a title like Human Action, the book might find itself in the anthropology section, the sociology section, or worse. 11 00:01:32.840 --> 00:01:41.840 I'm going to leave to another speaker the discussion of alternative titles to Human Action suggested by Mises himself. 12 00:01:41.840 --> 00:01:48.840 The most appropriate section in the bookstore for Mises' book would be one labeled praxeology. 13 00:01:48.840 --> 00:01:53.840 It would be a small section. 14 00:01:53.840 --> 00:01:58.840 But praxeology is a term that makes his title understandable. 15 00:01:58.840 --> 00:02:15.840 Praxeology translates readily into action logic. In Mises own words, he says what distinguishes the praxeological system from the logical system is that the former implies the categories of time and causality. 16 00:02:15.840 --> 00:02:20.840 Praxeology is the logic of action in the passage of time. 17 00:02:20.840 --> 00:02:42.840 Human actors perceive cause and effect relationships. Their actions are purposeful. They employ means to achieve ends. Interacting with one another, the individual human actors attempt to carry out plans, plans that have time horizons measured in both days and in decades. 18 00:02:42.840 --> 00:02:55.840 Mises factors in this critical time element from the very beginning. That's one of the things, by the way, that makes human action different. The time element comes in on the ground floor. 19 00:02:55.840 --> 00:03:08.840 Under the right institutional arrangements, private property and sound money, the separate plans of the individual human actors can each be carried out despite the absence of an overall plan. 20 00:03:08.840 --> 00:03:38.840 Mises takes a step back from the interplay of acting humanity and identifies from cause and effect relationships of his own. What are the consequences of the fact that a multitude of individuals are each employing means to achieve their own separate 21 00:03:38.840 --> 00:03:54.840 Notice he doesn't ask if the various ends individually chosen are worth pursuing. He doesn't ask why the individual chose those particular ends and not others. It's their choice. 22 00:03:54.840 --> 00:04:02.840 He doesn't ask if the actual means employed in each particular case are the appropriate ones. They'll find out. 23 00:04:02.840 --> 00:04:12.840 He only asks about the consequences of human action. He answers variously depending on the nature of the society's institutional framework. 24 00:04:12.840 --> 00:04:19.840 The consequences are one thing, for instance, if property rights are respected, another if they are not. 25 00:04:19.840 --> 00:04:27.840 The consequences are one thing if money is sound, another if it is not. 26 00:04:27.840 --> 00:04:43.840 Human action falls short of their full potential if monopolies are established and protected by government, if proxies are fixed or manipulated by government, if profits are heavily taxed or confiscated by government. 27 00:04:43.840 --> 00:04:58.840 In sum, the consequences of human action are coordination and prosperity under a system of laissez-faire, but chaos and hardship under a system of socialism or interventionism. 28 00:04:58.840 --> 00:05:05.840 And by the way, interventionism was seen by Mises as simply an early stage of socialism. 29 00:05:05.840 --> 00:05:13.840 Mises' book gives us plenty of ammunition to defend the system of laissez-faire over alternative systems. 30 00:05:13.840 --> 00:05:22.840 Praxeology imbues Mises' economics with a unity that is nowhere else to be found in other schools of thought. 31 00:05:22.840 --> 00:05:27.840 His system is resistant to the compartmentalization of topics. 32 00:05:27.840 --> 00:05:36.440 in an article titled The Why of Human Action published in the same year that his book was 33 00:05:36.440 --> 00:05:40.600 published in 1949. 34 00:05:40.600 --> 00:05:47.240 Mises remarked rather glibly, actually, that economics does not allow any breaking up into 35 00:05:47.240 --> 00:05:49.860 spatial branches. 36 00:05:49.860 --> 00:05:55.120 This statement may be seen as, well, let's say, less than prescient to the modern students 37 00:05:55.120 --> 00:06:10.120 The actual splitting up of economics into micro-economics and macro-economics, and the further breaking 38 00:06:10.120 --> 00:06:16.640 up of these halves into separate fields and sub-fields together with the insular nature 39 00:06:16.640 --> 00:06:26.200 of the Highly Spatialized Areas of Concentration are by mocking contrast testimony to the essential 40 00:06:26.200 --> 00:06:31.640 unity of Mises' praxeology. 41 00:06:31.640 --> 00:06:33.280 So what makes human action different? 42 00:06:33.280 --> 00:06:40.040 I want to argue this morning that his economics is a seamless web, and it's seamless in at 43 00:06:40.040 --> 00:06:42.880 least three other dimensions. 44 00:06:42.880 --> 00:06:53.880 The first dimension I've already mentioned, no breaking up into fields and subfields, 45 00:06:53.880 --> 00:06:59.480 its whole praxeology is a seamless web in that sense. 46 00:06:59.480 --> 00:07:05.480 A second sense, an important one that I'll spend some time on this morning, is that there's 47 00:07:05.480 --> 00:07:13.140 There is no visible seam in human action between the short run and the long run. 48 00:07:13.140 --> 00:07:18.980 Two years ago, a small group of prominent economists, mainstream economists, serving 49 00:07:18.980 --> 00:07:24.080 as panelists in a session of the American Economic Association meetings, addressed themselves 50 00:07:24.080 --> 00:07:31.960 to the question, is there a core of practical macroeconomics that we should all believe? 51 00:07:31.960 --> 00:07:37.020 We can hardly imagine that gathered across the hall was a similar panel asking the same 52 00:07:37.020 --> 00:07:43.160 question about microeconomics. But the Keynesian revolution that began in the 1930s had ushered 53 00:07:43.160 --> 00:07:50.640 in a phony macroeconomics that was essentially coreless. Let me quote from one of those papers 54 00:07:50.640 --> 00:07:57.640 of the ADA panel. This was by Robert Solow. One major weakness in the core of macroeconomics 55 00:07:57.640 --> 00:08:04.120 The core of macroeconomics identified by panelists Solo and Nobel Prize winner Solo is the lack 56 00:08:04.120 --> 00:08:09.520 of any real coupling between the short-run picture and the long-run picture. 57 00:08:09.520 --> 00:08:21.880 He goes on to say, since the long-run and the short-run merge into one another, one 58 00:08:21.880 --> 00:08:50.880 The two runs together with not a few intermediate runs are wholly interdependent. They are in fact but different perspectives on the self-same market process. Modern macroeconomic theory must deal with a very visible and problematic scene. In truth, a disconnect between the short-run picture and the long-run picture. 59 00:08:50.880 --> 00:08:55.940 And here I might mention that Solow would be the one to know, 60 00:08:55.940 --> 00:09:00.280 whose specialty is growth theory, neoclassical growth theory. 61 00:09:00.280 --> 00:09:06.440 If you contrast Keynesian macroeconomics with classical growth theory, 62 00:09:06.440 --> 00:09:08.080 you see the disconnect. 63 00:09:08.080 --> 00:09:13.720 In Keynesian theory, the whole capital structure is put on ice. 64 00:09:13.720 --> 00:09:18.520 It's assumed to be fixed, while Keynes deals with disequilibrium 65 00:09:18.520 --> 00:09:27.040 that always affects the economy. In Solow's Growth Economics, disequilibrium is assumed 66 00:09:27.040 --> 00:09:33.520 not to exist. The economy is forever in equilibrium, and he deals with the variation in the economy's 67 00:09:33.520 --> 00:09:40.200 capital stock. Those two theories don't mesh well. Students figure that out as they take 68 00:09:40.200 --> 00:09:46.080 their courses, and Solow, who is the architect of the neoclassical growth theory, knows it 69 00:09:46.080 --> 00:10:16.080 In contrast, Mises Economics features the economy's capital structure, providing a natural link between the runs of various horizons. More specifically, the means-ends framework found in Human Action allow the means to take the form of capital, including goods in process, as well as capital goods of various degrees of specificity, durability, and related to one another in various degrees of complementarity. 70 00:10:16.080 --> 00:10:21.400 and Substitutability is a very rich theory that allows us to take different perspectives 71 00:10:21.400 --> 00:10:27.840 of the economy as it proceeds from short-run to long-run issues. Capital Theory not only 72 00:10:27.840 --> 00:10:32.640 establishes the link between the short-run and the long-run, but also serves as that 73 00:10:32.640 --> 00:10:38.880 core relationship in the macroeconomics developed by the Austrian School. It was no part of 74 00:10:38.880 --> 00:10:44.320 Keynesian Theory, however, but no alternative core was brought in to fill the void, hence 75 00:10:44.320 --> 00:10:49.120 is the phony macroeconomics of Keynes. 76 00:10:49.120 --> 00:10:56.040 If Keynes focused on the short-run picture, and the classicists, including growth theories 77 00:10:56.040 --> 00:11:03.440 by Robert Soto, focused on the long-run picture, then Mises, in following him, F.A. Hayek and 78 00:11:03.440 --> 00:11:09.940 Murray Rothbard, focused on that real coupling between the two pictures, under a system of 79 00:11:09.940 --> 00:11:18.300 The calculation of profit and loss made in each successive short run allows the market 80 00:11:18.300 --> 00:11:24.380 process to play itself out in the long run as economic growth. 81 00:11:24.380 --> 00:11:28.700 Under a system of unsound money, in which the central bank can flood credit markets 82 00:11:28.700 --> 00:11:35.380 with newly created funds, the market process does not play itself out, but rather does 83 00:11:35.380 --> 00:11:37.820 itself in. 84 00:11:37.820 --> 00:11:43.540 Artificially cheap credit leads to an economic crisis. Mises's capital-based macroeconomics 85 00:11:43.540 --> 00:11:49.000 allowed him to identify monitoring of his management as a source of economy-wide distortions 86 00:11:49.000 --> 00:11:54.220 in the allocation of resources and hence as a cause of business cycles. This Austrian 87 00:11:54.220 --> 00:11:59.660 theory of the business cycle, together with related issues of economic growth, are precisely 88 00:11:59.660 --> 00:12:02.900 what are lacking in so-called lament. 89 00:12:02.900 --> 00:12:08.700 Let me consider now a little more briefly still two other dimensions in which I argue that 90 00:12:08.700 --> 00:12:14.780 Mises' human action is seamless. There is no visible seam in human action between economics 91 00:12:14.780 --> 00:12:21.660 and its sister disciplines such as political science and especially history. Though economics 92 00:12:21.660 --> 00:12:28.260 is based on logic while history requires much observation and interpretation, the two disciplines 93 00:12:28.260 --> 00:12:33.780 in the hands of Mises blend together well at the margin. Mises' use of both theory and 94 00:12:33.780 --> 00:12:39.700 history in linking the value of money to the value of the monetary commodity and so-called 95 00:12:39.700 --> 00:12:46.700 regression theorem found in Human Action and also in his earlier book on money and credit 96 00:12:46.700 --> 00:12:52.700 come readily to mind. I might say here that I know a lot of professional 97 00:12:52.700 --> 00:13:17.460 I've never met an Austrian-oriented economist who wasn't interested in history. If you get 98 00:13:17.460 --> 00:13:23.420 In short, economics from Mises, you get an appreciation for history along with it. Human 99 00:13:23.420 --> 00:13:30.580 Action has a substantial historical, should I say, empirical content, as does his earliest 100 00:13:30.580 --> 00:13:37.740 book, The Theory of Money and Credit. I might even mention in this regard that in 1969 Mises 101 00:13:37.740 --> 00:13:42.100 published his book, Theory and History, in which he argued that the two disciplines are 102 00:13:42.100 --> 00:13:55.100 The Austrian has very much taken a bum rap over the issue of the empirical content of Austrian economics as applied to historical episodes. 103 00:13:55.100 --> 00:14:06.100 Mises pointed, of course, that it takes both theory and history to understand what's going on in the world around us. 104 00:14:06.100 --> 00:14:12.100 I would like to consider still another seamless web in Mises. 105 00:14:12.100 --> 00:14:18.100 There's no visible seam separating the various audiences for whom Mises wrote. 106 00:14:18.100 --> 00:14:31.100 As an academic economist, I've become accustomed to thinking in terms of elementary this and intermediate that and advanced something else. 107 00:14:31.100 --> 00:14:43.020 And don't try to make sense out of the advanced stuff, which usually means more math, until you've mastered the earlier levels. 108 00:14:43.020 --> 00:14:55.500 In fact, I like to say in this connection, since so many professional economists have gotten the reputation of being math nerds, a term that has become popular in recent years, I love the term. 109 00:14:55.500 --> 00:15:01.340 I was amused to read critical remarks by Paul Krugman, who in recent times has turned his 110 00:15:01.340 --> 00:15:08.620 attention to the Austrian theory and hasn't yet been able to make sense out of it. Krugman, 111 00:15:08.620 --> 00:15:14.620 who actually has a pretty good understanding of the limits of math, insists that professional 112 00:15:14.620 --> 00:15:20.820 economists should use it only to communicate amongst themselves. Of course, that's what 113 00:15:20.820 --> 00:15:32.940 But when he turned his attention to the Austrians to find out what they were saying, he discovered 114 00:15:32.940 --> 00:15:33.940 no math. 115 00:15:33.940 --> 00:15:41.540 What he found and said, using his own description, was that the Austrian works contained a blizzard 116 00:15:41.540 --> 00:16:10.540 In the professional sphere of economics we deal with the elementary, the intermediate and the advanced, and so I'm here to ask you this morning, how would we describe human action? Is it elementary, intermediate or advanced? 117 00:16:10.540 --> 00:16:23.900 Many people in this room have read Human Action and have gained much understanding from it. 118 00:16:23.900 --> 00:16:27.980 Many professional economists could read it to their own great benefit. 119 00:16:27.980 --> 00:16:34.540 As I mentioned at the beginning of my talk, my first reading of this book came early. 120 00:16:34.540 --> 00:16:56.540 In fact, I read Mises' Human Action, then Keynes' General Theory, then Hazlitt's Failure of the New Economics, and then Sandwich's Principles of Economics. 121 00:16:56.540 --> 00:17:00.540 Then I began to wonder why I decided to go into economics. 122 00:17:03.540 --> 00:17:20.540 I approached economics on a two-track basis. One was starting with the Sandelssohn and moving up. The other was continuing to read in the Austrian literature, following my nose from Mises to Hayek to Rothbard and the rest of the Austrians. 123 00:17:20.540 --> 00:17:28.540 Looking back now, I realize that Mises helped me to understand, or should I say to see through Samuelson. 124 00:17:28.540 --> 00:17:34.540 Though advanced in every relevant respect, human action has no prerequisites. 125 00:17:34.540 --> 00:17:42.540 If you're interested in economics and history, or are willing to become interested in these subjects, then human action is for you. 126 00:17:42.540 --> 00:17:52.020 And finally, let me conclude by saying that it's not only a seamless web, that Human Action 127 00:17:52.020 --> 00:18:00.580 is also a monumental work. Though his book has no prerequisites, it does have important 128 00:18:00.580 --> 00:18:11.500 forerunners, including a book of similar weight, both literally and figuratively, by Eugen Boehm-Bawerk. 129 00:18:11.500 --> 00:18:15.800 This was critical of many of the particulars in Boehm-Bawerk's three-volume Capital and 130 00:18:15.800 --> 00:18:23.100 Interest, but when he came to review the 1959 translation of it, he chose to praise it. 131 00:18:23.100 --> 00:18:27.120 When one author seeks to praise another's book, he tends to say things that he would 132 00:18:27.120 --> 00:18:31.640 please to hear said about his own. 133 00:18:31.640 --> 00:18:39.540 Or so it seems to me to be the case when Mises wrote favorably of Capital and Interest. 134 00:18:39.540 --> 00:18:45.940 This is a monumental work, he wrote, the most imminent contribution to modern economic theory. 135 00:18:45.940 --> 00:18:50.260 He indicated that no one could claim to be an economist unless he was perfectly familiar 136 00:18:50.260 --> 00:18:53.620 with the ideas advanced in this book. 137 00:18:53.620 --> 00:19:00.540 And he even went on to suggest, as only Mises could, that no citizen who takes his civic 138 00:19:00.540 --> 00:19:07.540 do these seriously, should exercise his right to vote until he has read... Boehm-Bawerk. 139 00:19:11.980 --> 00:19:17.300 If you've ever tried to read Boehm-Bawerk, that imperative may strike you as a bit odd, 140 00:19:17.300 --> 00:19:24.300 but substitute Mises for Boehm-Bawerk and it makes perfect sense. Thank you.