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Essential Books
Ludwig von Mises
Human Action - A Treatise on Economics
There is a fundamental question about the 'dismal science' which has yet to be
convincingly answered by mainstream economists: what exactly is economics,
and why should it be regarded as a genuine social science?
In the first few chapters of his magnum opus, Human Action, Mises provides a
solid philosophical and epistemological basis for the science of economics that
goes some way towards answering the aforementioned question.
His argument combines two major philosophical concepts -
the Kantian 'synthetic a priori' and the rationalist, Cartesian process of
deduction from self-evident axioms - in order to construct an entirely new
'science of human action', which Mises calls 'praxeology'.
The most innovative aspect of this praxeological approach - and the one that
is most difficult to grasp at first - is the idea that
economics is an 'a priori' science like mathematics or logic, rather than an
'a posteriori' science such as physics. This means that economic
theorems must be deducted from established axioms, in much the same manner as
a mathematical
proof. In this respect Mises owes a considerable debt to both Descartes and
Euclid.
An important point to remember about these fundamental axioms is that they
are self-evident and irrefutable, rather than derived from empirical
experience. This is where Kant comes in; his theory of synthetic a priori
concepts - ideas that are conceived without empirical
experience that are nonetheless applicable to reality - underpins the
Misesian system. The most crucial of these a priori axioms states that
'human beings act to achieve certain ends'.
This is an example of a statement which can be neither proven or disproven
via empirical means, but is self-evident and basically impossible to
refute.
Praxeology has a number of important implications for
modern economics. The infamous 'homo economicus' (a fictional person who thinks
only of maximising monetary income), a supposedly necessary assumption for
most economic models, has no place in Mises's system.
Praxeology allows for each individual's subjective value judgements, and
all of the stated theorems hold no matter what particular ends are aimed at.
This blows the traditional argument against economics - 'money isn't
everything' - out of the water.
Another of these implications - and perhaps the most controversial -
is the invalidation of
modern mathematical economics and econometrics. Mises argues that economic
theorems cannot be derived from statistical analysis, since human preferences
are subjective and therefore cannot be measured and predicted using
statistical means. This is an important limitation on the boundaries of
economics - it states that while we can determine that certain trends will
be evident when human beings co-operate to achieve certain ends, it is
impossible to predict the results with any accuracy or certainty.
Mises's philosophical discourse is a fascinating and much underrated
contribution to neo-Kantian thought, and deserves to be investigated
further by students of philosophy who can bear to extricate themselves
from their Marxist, postmodernist mire.
However, Human Action is not just a
philosophical essay but a treatise on economics. It contains all of
Mises's major contributions to economic thought, including time preference
theory and its relation to interest rates, the monetary theory of the
business cycle, the great socialist calculation argument, and the problems
associated with the modern interventionist 'mixed' economy. It is written
in a remarkably clear and lucid style and thoroughly deserves the
Wall Street Journal's accolade of 'the economic bible for the civilised man'.
An indispensible work which comprehensively destroys just about every argument
for socialism that has ever been proposed. Mises carefully steps through all
the major varieties of socialistic thought - from the barking-mad Utopianism of
Saint-Simon
to the poisonous doctrines of Marx - and offers relentlessly
logical explanations of why these schemes are not only impractical,
but impossible.
At the heart of this work lies the most powerful argument against socialist
central planning ever devised - the fact that a socialist economy has no means
of economic calculation, and therefore must fail. Briefly, this means that
of the multitude of capital projects that are available,
with their infinite variety of methods of production and possible
schemes of organisation, the socialist central planning committee would have
no way of (a) deciding which of these projects to embark upon and (b)
determining whether the project has been a success or a failure. The reason
for this is that if there
is no free market, there is no such thing as money (even if the State says
there is); without money, there can be no economic
calculation. The argument is put much more eloquently in the book, but it is
one that has still not been successfully refuted to this day.
The book concludes with the condemnation of the modern 'mixed' economy,
which supposedly 'civilises' capitalism with some elements of socialism, but
inevitably ends up in socialism of the Nazi model in which only the facade
of capitalistic production is preserved, and real control of the means of
production actually lies with the State.
This book is a useful introduction to both Austrian economics and
libertarian thought in general. It is a brief but insightful exploration of why
socialistic thought is so endemic in almost every major Western institution,
including academia, the churches, the media, and even Hollywood. As always,
Mises's writing style is clear and to the point.
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