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.

Slavery did not advance Western Civilisation.

Every now and then someone will say something like "Despite the fact that slavery was immoral the modern world was build upon slavery and we owe the lifestyle we enjoy to the sacrifice of slaves..." Sounds compelling - except its not true. Slavery held back the advance of civilization because its pointless to innovate, invent or automate when you have (free) slave labour. Absent slavery the agricultural revolution may have begun decades earlier. Slavery was an abomination, and positive ends can never become of corrupt means.

Misanthropic Myths about 3rd World Poverty debunked!

One of the most persistent myths about 3rd World Poverty is that if underdeveloped nations are allowed economic advancement and become wealthy it will be some kind of unmitigated environmental disaster. Is that so?

Wealthy countries can afford to clean up their water supplies after fouling them and treat their sewage properly. They can replant their forests, put recycling infrastructure into place, and farm sustainably. Countries without wealth can’t do that. In places like Bangladesh people must scramble to make a living with no long-term consideration to their surrounding environment, and they have no means of repairing it afterwards. Starving Brazilians have little choice but to cut down the rainforest when they can hardly afford not to. A lack of a just legal system, economic freedom and property rights¹ prevent some of the world’s poorest countries from diversifying their economies, leaving them to rely on the exploitation of natural resources to generate income. As these nations develop they attain the means to establish other sources of revenue that don’t simply involve digging things up and selling them.

As economic growth first sets in environmental degradation can worsen for a time but soon environmental health indicators (such as water and air pollution) tend to reduce.² Environmental pollutants, such as sulfur dioxide, nitrogen oxide, lead, DDT, chlorofluorocarbons, sewage, and other chemicals previously released directly into the air or water are found in far lower levels.³ Once per capita income reaches about $4000 in a nation, people begin to demand a clean-up of their local streams and air. Among countries with a per capita GDP of at least $4,600, net deforestation has ceased to exist.⁴ Europe’s forests have grown by a third over the last 100 years.⁵

According to Hans Rosling, sustainable global development advocate, the richest billion people in the world are responsible for 50% of the world’s consumption of resources, the 2nd billion for the next 25%, and the third billion for the next 12.5%.⁶ This means that the 2 billion poorest people in the world could easily be raised to the standard of living of the 3rd or even 4th poorest with very little environmental impact at all.

Western Nations can help by establishing free trade with the world’s poorest countries and importing their produce in order to help their economies develop faster. Cheaper produce would also mean better living standards for people on low incomes at home. The protectionists argue that this would harm domestic farmers (who are already in receipt of considerable state benefits and government subsidies – some of which have been an environmental disaster⁷) but these farmers would not be starving should they have to migrate into other occupations – people in the third world are! They themselves could benefit from cheaper produce, and are we really expected to put the interests of a small group ahead of everyone else in the country and abroad?

Concerns for the environment regarding “food miles” (how far food has to travel) are also completely misplaced. It is often far more energy efficient to grow foodstuffs in countries with naturally high temperatures which would otherwise have to be artificially raised in colder climates. As Matt Ridley explains, only “4% of the lifetime emissions of food is involved in getting it from the farmer to the shops. Ten times as much carbon is emitted in refrigerating British food as in air-freighting it from abroad, and fifty times as much is emitted by the customer travelling to the shops.”⁸ Economist Johan Norberg also attests that while 83% of the CO2 emissions involved in American food consumption is used in the production phase, less than 11% is caused by transportation and that it's puzzlingly more environmentally friendly to grow apples in New Zealand and ship them all the way to Great Britain than to produce them locally.⁹

Some environmentalists believe that growing populations attaining greater living standards in developing countries is a recipe for ecological disaster, but actually birth rates fall to manageable levels only when countries become developed. The industrial revolution created population booms across the whole planet – but in every single country where a reasonable standard of living has been achieved population growth receded; there is no reason to believe that will be any different when it comes to the developing world. Education has played an increasing role and will continue to do so, while current projections predict that the world’s population will level off between 9 and 11 billion, and may even then start falling.

People who don’t have to scrape out a living can get educated, work less in agriculture, factories and more with their minds. Their occupations are not so polluting, and some of them may even be responsible for the environmental innovations of the future. Inventions such as e-mail and the USB Flash Drive have already saved more trees than all of the environmental activism throughout history combined, and a car today emits less pollution travelling at full speed then a parked car did in 1970 from leaks.¹⁰ It is clear that innovation is set to play an increasing role in the solution of our environmental issues. Intensive farming techniques have helped save countless acres of rainforest by increasing yields over less land, and soon lab-grown meat from cloned tissue may put an end to our factory farming crises by reducing the massive ecological impact of meat production through fossil fuel usage, animal methane, effluent waste, and water and land consumption. Cloned meat will also produce a positive impact on world health by eliminating the heavy use of antibiotics and preventing the fecal contamination which factory farming currently produces.

Countries where the vast majority of people are engaged in subsistence farming are a waste of millions of minds. They do not have the leisure time to enjoy art, become cultured, innovate, creative, and reach the higher potentials of human flourishing which will allow them to contribute to advances which may help everyone on the entire planet. They are too poor. Farming is of course a fine occupation too, but it should be chosen rather than forced upon people by poverty.

If we really believe in prosperity, we have to believe in it for everyone. Not just those lucky enough to be born into affluent nations. Fundamentally, it’s not economic progress but our irresponsible economic systems which are responsible for the environmental damage we have seen over the last 200 years. Governments can externalise the costs of damaging the environment and redistribute it to the taxpayer, rather than allowing producers and consumers who pollute to pay for the full cost of their choices. We can create sustainable economies by holding individuals and organisations personally responsible in proportion to how much they pollute. These very incentives would encourage people to choose sustainable development and ecofriendly habits far more of the time.

1 Where private property is established, logging companies develop the incentives to look after the sustainability and long term value of their land, and charities can even buy up tracts of land for preservation. At present that is rarely possible as those property claims would currently just be ignored by the loggers and the corrupt governments in those countries

2 Tierney, J. (2009). “The Richer-Is-Greener Curve.” New York Times.

3 Ridley, M. (2010). “The Rational Optimist.” Fourth Estate. p106

4 Waggoner, P. E. (2006) “Returning forests analyzed with the forest identity.” Proceedings of the National Academy of Sciences of the United States of America, vol. 103 no. 46.

5 Noack, R. (2014) “How Europe is greener now than 100 years ago.” Washington Post.

6 See BBC Documentary “Overpopulated” (2013) (available on youtube).

7 For example, the EEC – now the EU – tried a policy of buying everything that farmers produced and couldn’t sell which led to mountains of excess grain being produced that then had to be sold off at knock-down prices to third world countries, causing gluts in their markets which put local farmers out of business and had devastating effects on their economies. Before the policy was reverse countless miles of hedgerows well pulled up to make fields bigger uprooting the natural habitat of countless animals and insects giving way to the bleak, soulless prairies that parts of the UK have becoming. Magnificent wetlands were drained and destroyed to plant more land for crops that no one could sell 95% of the flower-rich meadows, 60% of the lowland heath, and 50% of ancient lowland woods were destroyed in little more than forty years in the UK alone.

8 Ridley, M. (2010). p41.

9 https://www.youtube.com/watch?v=_mBgUqqnsyw

10 Ridley, M. (2010). p17

Child Labour

Many people believe that it was the government that put an end to child labour in Western Nations but in fact almost all the children in Britain were already in school when child labour was banned. Likewise, child labor laws in the US were passed only after around 90% of the child labor had been eliminated anyway. A large part of the push for these laws came from labour unions who wanted to increase wages by reducing competition from younger workers, and as the business community was not particularly dependent on child labour any more it had no reason to lead a counter charge.

It actually requires an advanced economy to ban children from working. Children had worked throughout all of history, long before the onset of the industrial revolution had them conspicuously running around factories. It was a given fact of life because every pair of hands was needed to provide for a family, so they worked on the farm. As soon as Western economies were rich enough that parents could provide for their children without sending them to work they sent them to school instead. In the mind-nineteenth century before there was any mandatory education in the UK, 95% of children in Great Britain already had at least 5 and often as many as 7 years of education.

Further empirical evidence was recently provided, all to sadly, in Bangladesh where they tried to ban child labour prematurely only to find (as Oxfam reported) that the results were horrific. The kids went into prostitution, destitution, begging, stealing and starvation.

It appears that every society naturally takes children out the workplace when they are rich enough. It's not that parents, all throughout history, hated their children! They sent them to work because there was no viable alternative.

As world poverty continues to decline, things are going in the right direction. Child labour has declined by one third since 2000, from 246 million to 168 million children. It's not that we can do nothing in western nations to speed along this process either, in fact - with the political will - we can. Charity can help, but the primary necessity is to open up free trade with the poorest countries in the world. Removing trade barriers to buying their products would help lift millions out of poverty abroad and lower the cost of living for families on low incomes at home. The next step would be to use our influence to encourage those countries to open up their economies to foreign investment so that companies from all over the world would flood in, bringing technology, skills, and infrastructure while bidding up the price of wages. As adults are able to earn increasingly more they will be able to take their children out of work and into education where they belong.

A. S. 04-03-17

If you liked this article you may also learn from this related article on workplace safety.