By Robert Murphy • Monday September 15, 2014 10:24 AM PDT •
September 14 marked the 65th anniversary of the publication of Ludwig von Mises’s masterpiece Human Action. I have been studying Mises’s classic text very carefully the past two years, as I’ve completed the manuscript for a forthcoming Independent Institute book, Cooperation and Enterprise: The Economics of Choice, that crystallizes the essence of Human Action for an undergraduate reader. Fresh off of this journey, I wanted to summarize two of the main themes in Human Action.
Let’s begin with the title itself, which I remember struck me as an odd choice for a book on economics. Yet Mises explains in the opening of his treatise that the narrow subject matter of technical economics is not a self-contained discipline. Instead, Mises argued that the subjectivist revolution ushered in by Carl Menger (as well as Léon Walras and William Stanley Jevons) required placing the study of market phenomena within the broader context of a study of purposeful human behavior, or what Mises simply called action. Here is how Mises explains this development in the social sciences:
[T]he transition from the classical theory of value to the subjective theory of value was much more than the substitution of a more satisfactory theory of market exchange for a less satisfactory one. The general theory of choice and preference goes far beyond the horizon which encompassed the scope of economic problems as circumscribed by the [classical] economists.... It is much more than merely a theory of the “economic side” of human endeavors.... It is the science of every kind of human action. Choosing determines all human decisions.... The modern theory of value widens the scientific horizon and enlarges the field of economic studies. Out of the political economy of the classical school emerges the general theory of human action, praxeology. [Human Action, p.3]
For the present post, I can’t do justice to Mises’s strategy outlined in the quotation above. Instead, let me summarize one of the arguments I made in defense of Mises’s methodology in my 2013 debate with David Friedman: Most economists would consider themselves very strong proponents of “free trade,” but how did they arrive at this conviction? Was it because they made falsifiable predictions about GDP after a trade deal was signed, then ran regressions after the fact to see if the observed outcome was close enough?
Of course not. Rather, people turn into “free traders” by thinking through the logical consequences of thought experiments. In this respect, Bastiat’s famous satire “Petition of the Candlemakers” is worth a thousand regressions. Notice that my remark doesn’t indicate that economics is really “ideological and not scientific.” Rather, my remark indicates that when it comes to economics, the truly scientific approach differs from what works in the hard natural sciences, like physics or chemistry. Those who criticize Mises’s views as being unscientific, dogmatic, or anti-empirical are clinging to a crude notion of how “science” must operate.
The other theme I want to highlight is the importance Mises placed on economic calculation. Other economists of his day recognized that the use of resources carried opportunity costs, and that decisionmakers—whether entrepreneurs in a market or central planners in a socialist commonwealth—had to reckon with these costs when forming production plans.
Yet Mises described the institutional prerequisites for accurate cost accounting: namely, private property in the means of production, and the use of money. (For this reason, I use the term monetary calculation rather than the shorter term calculation that Mises and his followers often employ.) The mental operations of double-entry bookkeeping are only a useful guide to action when the numbers emerge from a genuine market process. This insight is the starting point for Mises’s pioneering work on the problems with socialism, the function of entrepreneurship, and the driving force of money.
Now in its 65th year, Ludwig von Mises’s classic, Human Action, remains as relevant and insightful as ever. All serious students of economics should read this admittedly lengthy volume for a fuller appreciation of the market economy.