Saturday, May 30, 2009

Human Action: Chapters 3-7

Summaries for chapters 3, 4, 5, 6, and 7 are available from the Mises Institute.

I really enjoyed the discussion following last weeks post, so let me attempt to get the ball rolling again by offering a few quotes. As before, feel free to make comments on these quotes or any others you found interesting. Questions, particularly since this section deals with the choice-theoretic foundations of the Austrian school, would be great as well.

From pages 82-83:
The rich, the owners of the already operating plants, have no particular class interest in the maintenance of free competition. They are opposed to confiscation and expropriation of their fortunes, but their vested interests are rather in favor of measures preventing newcomers from challenging their position. Those fighting for free enterprise and free competition do not defend the interests of those rich today. They want a free hand left to unknown men who will be the entrepreneurs of tomorrow and whose ingenuity will make the life of coming generations more agreeable. They want the way left open to further economic improvements. They are the spokesmen of material progress.
It amazes me that people still believe only the rich and powerful benefit from free markets (and, as a result, that free-market economists are puppets for the wealthy). As Mises points out, these are often the very individuals interested in deviating from free markets!

From page 89:
Judicious rationalists do not pretend that human reason can ever make man omniscient. They are fully aware of the fact that, however knowledge may increase, there will always remain things ultimately given and not liable to any further elucidation. But, they say, as far as man is able to attain cognition, he must rely upon reason.
Is this true? Or are there in fact hyper-rationalists in economics? Maybe, of course, Mises is qualifying his statement by referring only to "judicious rationalists."

From page 103:
The attempt has been made to attain the notion of a nonrational action by this reasoning: If a is preferred to b and b to c, logically a should be preferred to c. But if actually c is preferred to a, we are faced with a mode of acting to which we cannot ascribe consistency and rationality. This reasoning disregards the fact that two acts of an individual can never be synchronous. If in one action a is preferred to b and in another action b to c, it is, however short the interval between the two actions may be, not permissible to construct a uniform scale of value in which a precedes b and b precedes c. Nor is it permissible to consider a later third action as coincident with the two previous actions. All that the example proves is that value judgments are not immutable and that therefore a scale of value, which is abstracted from various, necessarily nonsynchronous actions of an individual, may be self-contradictory.
I take this to mean that, in accordance with neoclassical choice theory, preferences must be logically consistent (a>b and b>c implies a>c). However, temporality renders testing this claim in the real world impossible.

I have a few more quotes I'd like to discuss but will save them for the comments if conversation doesn't take off. I have deliberately avoided quotes from the uncertainty chapter since we discussed subjective probability at length last week. Feel free to bring it up if you have questions or comments though.

Next week, we will cover chapters 8-11 (again, roughly 70 pages). Happy reading!


Justin M Ross said...

For brevity and letting others speak, for now I just want to make some observations regarding Chapter 3:I found two great ironies in this chapter, the first of which is the writing style (with which Mises finally hits his stride in Chapter 3) with his attack on Marxism…it is remarkably similar to that of Karl Marx! Both Mises and Marx have this way of drawing the reader in like a fellow journeyman on a stroll through the intellectual failings of others. Both writers are entrancing with this approach, it somehow makes you a privileged insider because you and the writer are so much smarter than everyone else.

The second irony is comparing the thesis of Mises guided tour through the Marxist attack on reason and science to attacks on economics today. First, I want to remind others that this was not just a philosophers squabble, but a true bloody attack under Marxist regimes. Biologists, chemists, and many other scientists were hunted and exterminated in the Soviet Union because of their propagating bourgeoisie theories like evolution! Of course, they were okay with nuclear physicists for some reason.

The irony comes to my mind because, as Mises points out, the Marxists/Socialists had no choice but to attack all sciences if they were to attack economics. Yet, today it is the other sciences that are often the tools employed by socialists today to attack economics! Socialists and their ilk principally see modern problems as engineering or computing problems. Economists, on the other hand, view these as problems as inherently unsolvable by any single entity regardless of “computing power.” How many environmentalists continue to assert that we will run out of oil, despite demonstrations like the Simon-Ehlrich bet? Economics and the natural sciences are not natural enemies, but they are certainly pitted against each other now, rather than sharing a common defense.

jb said...

Will, the passage you have chosen from pp 82-83 is quite timely. Those that are "too big to fail" certainly want governmental regulation, and when that doesn't work, they give in to government partnership and takeover. All of these scenarios result in the same thing...the stifling of competition, ingenuity, and economic liberty.

As I read "Human Action", with news reports of the GM bankruptcy and government partnership in the background, I am prone to weeping.


Justin M Ross said...

It is a serious mistake to believe that the calculus of probability provides the gambler with any information which could remove or lessen the risk of gambling. It is, contrary to popular fallacies, quite useless for the gambler, as is any other mode of logical or mathematical reasoning.I found the chapter on uncertainty to be interesting, but Mises has not convinced me that statistics has nothing to offer. I know this from playing board games.

People have a tendency to conflate independent events with joint events and make big gambles accordingly. When I taught statistics, I recall putting the following question on a exam:
A coin will be flipped 4 times. It has already been flipped 3 times and each time it has come up heads. What is the probability that the 4th flip will be tails?My students usually got the correct answer (50%), but when I play board games I often see people behaving as if the 4th coin flip would be much more likely to be tails...after all, what is the probability that you will get 4 heads in a row (is the faulty logic)?

Similarly, in surveys, doctors fail to understand Bayes Theorem, and frequently seem to misunderstand the accuracy of various medical tests (treating medical conditions is a form of gambling).

In both cases, with students and with doctors, I see a better understanding of statistics as resulting in more accurate human action.