Human Action for Beginners

The Austrian Economist Ludwig von Mises (1881-1973) authored his Magnum Opus Human Action (1949) in which he laid out his case for laissez-faire capitalism based on  a rational investigation of human decision-making. Mises, and the work by extension, is often maligned for "rejecting the scientific method" but this criticism is based on a lack of understanding of Mises' arguments. Admittedly, while few of his critics have read the man himself, Human Action was not exactly written with a lay audience in mind and so the basis of his ideas cannot be easily grasped at a glance. In the interests of clarity, allow me to make his case for him in my own words.

Mises did indeed attest that  the empirical method (positivism, or the scientific method) is not the correct methodology for reaching reliable conclusions on matters of economics. However, he did not reject the scientific method. He merely pointed out that the empirical method is ideal for matters of the natural sciences because when it comes to inanimate objects results are predictable. This is because the natural world is deterministic. Copper always melts at 1,085 °C. That which does not melt at 1,085 °C is not copper. Human beings, however, have differing values, tastes and information all of which strongly influence their decision making. Will a person buy a hamburger at half price? Certainly many more will than at full price, but for example I will not because I am a vegetarian, whereas some others may buy several times as many. It all depends on their individual ideas, expectations and preferences.

When it comes to matters of economics there is no way to set up an experiment and control for all factors as we can in a laboratory. We cannot, say, increase the minimum wage in one region to measure the effects on overall employment and compare it to the effects in another region where it is not increased, firstly because the implementation (or lack of it) in one region will also affect the behaviour of individuals in the other (some may move to take advantage of higher wages, others may stay to take advantage of cheaper labour costs.) Secondly because an economy is complicated, and thousands of other factors would also be at play in both regions which cannot possibly be controlled for. We cannot say (for example) that just because employment rose in one region after a minimum wage increase that this change was due to the minimum wage increase, only that it happened. Because we have no counter-factual there is no way to tell if employment would have increased even more if the minimum wage increase had not been enacted.

In light of this, Mises attested, a more suitable method of approaching economic questions would be necessary than the empirical one, based upon the foundation of certain axioms about human nature which could be reached by introspection (or thymology as Mises labelled it to distinguish from different uses of the term introspection.) In the interest of brevity and simplicity we only need to consider three of these; and I will explain why each should be uncontroversial.

The first is that humans act. This claim is hard to argue against because the very act of doing so would be to make a performative contradiction. The second is that when people act, they do so in order to substitute a state of affairs which they consider preferable for one they consider less preferable according to their own values. Again, I see no argument against it; if one is completely satisfied with their situation as it is they do not act but stop. Even the attempt at meditation or mindful acceptance of the present moment is based on the impulse to substitute a pleasant state of surrender to circumstances outside of ones control for a less pleasant state of resisting them. Finally, I add, that people respond to incentives. This axiomatically true because what people do not respond to can hardly be considered an incentive by the very definition of the word.

(To anticipate a potential objection I draw an analogy; a person might scold a dog for poor behaviour in the hope of stopping that behaviour, without realising they are reinforcing it because their dog enjoys negative attention better than no attention whatsoever. This does not mean that the master is failing to incentivise the dog; it just so happens that he is not incentivising the dog to do what he thinks he is.)

An acceptance of these three axioms (for which their is unlikely to be any disproof) reveals that it is incentives which guide economic decision making among individuals. This we all accept, if not in our conscious philosophy then by our actions. To illustrate with our earlier example of the half-price hamburger, the business owner offers this deal in the hope of selling more burgers by creating knowledge of his product. A person buying the burger at the lower price incentivises burger joints to offer burgers at a lower rate. (One might argue that not everyone will respond to incentives, illustrated by the fact that I will not buy the burger because I'm a vegetarian - but in fact in my case the incentive is simply not great enough to suit my values; were the price of the burger was -$10 [minus ten dollars] I might take the money and give the burger away to a homeless person.) Our policy-makers are often led by their unconscious acceptance of these axioms, for example, they may put a tax on alcohol do discourage its consumption, while placing a subsidy on a solar panel to encourage its use. These are not policies guided by the empirical method which is better suited to the natural sciences, but by the aprioristic understanding that humans act, and in their actions they respond to incentives. That is the method, named praxeology, which Ludwig von Mises advocated.

Three Psychological Stages of Political History

I have a wacky theory about the history of ideas (or history proper as Mises would consider it.) When a child is born as far as s/he is concerned the parents are God. They are the authority on what is correct and what is false, they are also morally absolute. Their defining attitude towards their parents is a big "yes." Even if the parents are cruel or abusive, it must be me at fault not them - since they are the authority. At some point between 2 and 7, then later again in the teens, the youngster begins to assert their individuality by rebelling against the parent, the more the parent tries to apply authority and demand certain behaviours, the more the child will rebel against this authority with a resounding "no!" The child feels empowered by making the parents feel out of control emotionally, s/he asserts their dominance over them because the parents want compliance, and the child has the power to mete it out or not - causing the parents an easy time or grief. If the response to this "no!" is overly authoritarian or permissive and lacks engaging with reason and appropriate boundaries bad patterns can be set for life. The child can become compliant and later susceptible to peer pressure as he gets stuck in "Yes" or overly rebellious (even to his/her own detriment) and stuck in "No." From this point on any instructions or even mere advice from others - sometimes even from oneself - result in the involuntary impulse to rebel, stick heels in, and refuse to comply even if the request is in the child-now-adult's interests. This can create tremendous problems including a lack of self-discipline and relationship tumults. A wise parent manages to avoids unwittingly molding this kind of character by creating opportunities for his children to say no and rebel to safe and relatively trivial things. For example s/he does might not tell them not to smoke, know that if s/he does they will smoke. Perhaps they will be told not to climb that tree or to play in the muck instead, something relatively innocuous.

A mature person is able to say "yes" or "no". Without the ability to say "no" a "yes" is utterly meaningless because it does not come from the person's individuality. A "no" without consideration is also a counterfeit individuality, it makes one feel like they are having a say but actually they are purely governed by involuntary impulses as sure as those of the "yes man" or people-pleaser. The new man says "yes" to life; and in that he in many ways seems similar to the primordial man, but there is a critical difference - his yes to life is out of fully integrating all previous stages of development rather than an arrested development.

It's my assertion that maybe we have seen a similar evolution in the political sphere. Classic Liberalism arose as a response to a form of conservatism that was very much a "yes" to authority; the authority of the state, aristocracy, church, powers that be. The authorities of the time were very puritanical and their morals and social norms severely restricted the freedoms of people in terms of whom they could marry (usually whom their parents decided) what they could do for a living (what their parents did) what they could own (most of it belonged to their lord, many could not own land) what they could put in their body (moralizations about alcohol) what they should learn and read (mostly the bible) how they could pray (no pagan gods, no Judaism, etc.) and so forth. Now the arrival of liberalism was a resounding "No!" to authority. In a Hegelian fashion it formed an antithesis to the prevailing mores of the time. It continued to develop into other rebellious schools of thought that claimed to rebel against the prevailing authorities: socialism, marxism, communist, progressivism, &c. and reached its hedonistic peak in the 60s with the free love movement and all the big government and welfare programs - but it went to far too fast for a first attempt and soon there was a reaction against it which turned the tide back for a while. After the 80s it came back swinging though and has reached its second crescendo today with the social justice warrior movement. This has become the new thesis and it required an antithesis to counteract it. Clearly I believe that is libertarianism. It is the new man who integrates all previous stages of development in his evolution. In many ways it seems to harken back to certain "conservative" concepts which liberalism reacted against, but in reality the context of the acceptance of certain aspects of authority and tradition is now based on reason ("they have been shown empirically to work better than all that libertinism") rather than authority alone.

What do you think of my thesis? Are you the new wo/man?