Human Action: Chapters 12-15

Summaries for chapters 12, 13, 14, and 15 are available from the Mises Institute.

As usual, I will post some quotes in hopes of sparking conversation in the comment section.

Page 216:

The “materialism” of the stock exchange and of business accountancy does not hinder anybody from living up to the standards of Thomas a Kempis or from dying for a noble cause. The fact that the masses prefer detective stories to poetry and that it therefore pays better to write the former than the latter, is not caused by the use of money and monetary accounting. It is not the fault of money that there are gangsters, thieves, murderers, prostitutes, corruptible officials and judges. It is not true that honesty does not “pay.” It pays for those who prefer fidelity to what they consider to be right to the advantages which they could derive from a different attitude.

Page 219:

Shortcomings in the governments’ handling of monetary matters and the disastrous consequences of policies aimed at lowering the rate of interest and at encouraging business activities through credit expansion gave birth to the ideas which finally generated the slogan “stabilization.” One can explain its emergence and its popular appeal, one can understand it as the fruit of the last hundred and fifty years’ history of currency and banking, one can, as it were, plead extenuating circumstances for the error involved. But no such sympathetic appreciation can render its fallacies any more tenable.

Page 224:

The endeavors to expand the quantity of money in circulation either in order to increase the government’s capacity to spend or in order to bring about a temporary lowering of the rate of interest disintegrate all currency matters and derange economic calculation. The first aim of monetary policy must be to prevent governments from embarking upon inflation and from creating conditions which encourage credit expansion on the part of banks. But this program is very different from the confused and self-contradictory program of stabilizing purchasing power.

Page 240:

In his capacity as a businessman a man is a servant of the consumers, bound to comply with their wishes. He cannot indulge in his own whims and fancies. But his customers’ whims and fancies are for him ultimate law, provided these customers are ready to pay for them. He is under the necessity of adjusting his conduct to the demand of the consumers. If the consumers, without a taste for the beautiful, prefer things ugly and vulgar, he must, contrary to his own convictions, supply them with such things.

Page 258:

The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of the actions of the various individuals cooperating under the division of labor.

Page 279:

Yet such mentally and economically self-sufficient individuals or families, roaming about the country, were only free as long as they did not run into a stronger fellow’s way. In the pitiless biological competition the stronger was always right, and the weaker was left no choice except unconditional surrender. Primitive man was certainly not born free.

Page 282:

The essential task of government is defense of the social system not only against domestic gangsters but also against external foes. He who in our age opposes armaments and conscription is, perhaps unbeknown to himself, an abettor of those aiming at the enslavement of all.

Next Friday, we will cover chapter 16.

Human Action: Chapters 8-11

Summaries for chapters 8, 9, 10, and 11 are available from the Mises Institute.
From page 182:

It is true that these programs are often recommended by reference to divine institutions, to the eternal laws of the universe, to the natural order, to the inevitable trend of historical evolution, and to other objects of transcendent knowledge. But such statements are merely incidental adornment.

From page 193 (and one of my favorite quotes thus far):

In calling a rise in the masses’ standard of living progress and improvement, economists do not espouse a mean materialism. They simply establish the fact that people are motivated by the urge to improve the material conditions of their existence. They judge policies from the point of view of the aims men want to attain. He who disdains the fall in infant mortality and the gradual disappearance of famines and plagues may cast the first stone upon the materialism of the economists. (emphasis added)

From page 202:

A serious blunder that owes its origin and its tenacity to a misinterpretation of this imaginary construction was the assumption that the medium of exchange is a neutral factor only. According to this opinion the only difference between direct and indirect exchange was that only in the latter was a medium of exchange used. The interpolation of money into the transaction, it was asserted, did not affect the main features of the business. One did not ignore the fact that in the course of history tremendous alterations in the purchasing power of money have occurred and that these fluctuations often convulsed the whole system of exchange. But it was believed that such events were exceptional facts caused by inappropriate policies. Only “bad” money, it was said, can bring about such disarrangements. In addition people misunderstood the causes and effects of these disturbances. They tacitly assumed that changes in purchasing power occur with regard to all goods and services at the same time and to the same extent. This is, of course, what the fable of money’s neutrality implies. The whole theory of catallactics, it was held, can be elaborated under the assumption that there is direct exchange only. If this is once achieved, the only thing to be added is the “simple” insertion of money terms into the complex of theorems concerning direct exchange. However, this final completion of the catallactic system was considered of minor importance only. It was not believed that it could alter anything essential in the structure of economic teachings. The main task of economics was conceived as the study of direct exchange. What remained to be done besides this was at best only a scrutiny of the problems of “bad” money.

I really like how Mises sets this up. In my opinion, the Austrian Business Cycle Theory is one of the strongest contributions made by Austrian scholars. Here, Mises explains why what the Austrians find so obvious has been largely overlooked by economists. I wonder if this is a bit of a straw man, however. Mises, writing in 1949, knows that money matters to a whole host of economists. In the traditional Keynesian framework, for example, monetary policy has a real effect on the economy. Of course, it might be fair to read Mises as saying money has been overlooked for so long and only recently--as in the last few decades--have economists started to question the real effects of money.

Maybe the more important question, though, is whether economists TODAY believe money matters. Money certainly mattered in the original Lucas Island model, where individuals (dubbed island dwellers) only observe nominal changes. However, Lucas eventually rejected this idea when rational expectations were incorporated. Similarly, money matters for New Keynesians who point to menu costs. I am sure we will talk more about the ABCT in the future. My question for now is this: If a random sample of economists were surveyed, what percent would say that money is neutral?

Human Action: Chapters 1-2

Summaries for chapter 1 and chapter 2 are available from the Mises Institute. If you were constantly looking up words (or trying to figure out what that latin phrase meant), check out Mises Made Easier.

Rather than summarizing these chapters yet again, I thought it would be more fruitful to discuss some of the questions I had while reading. Feel free to add your own questions and comments; hopefully we can get a good discussion going.

The biggest question I had while reading these two chapters concerned subjective probability. On page 23, Mises makes it clear that individuals are capable of acting in accordance with (objective) probabilities.

Sometimes we succeed in acquiring a partial knowledge so that we are able to say: in 70 per cent of all cases A results in B, in the remaining cases in C, or even in D, E, F, and so on. In order to substitute for this fragmentary information more precise information it would be necessary to break up A into its elements. As long as this is not achieved, we must acquiesce in what is called a statistical law. But this does not affect the praxeological meaning of causality. Total or partial ignorance in some areas does not demolish the category of causality.

Then, on page 37, he explains that an individual's beliefs about reality matter.

A peasant eager to get a rich crop may—according to the content of his ideas—choose various methods. He may perform some magical rites, he may embark upon a pilgrimage, he may offer a candle to the image of his patron saint, or he may employ more and better fertilizer. But whatever he does, it is always action, i.e., the employment of means for the attainment of ends. Magic is in a broader sense a variety of technology. Exorcism is a deliberate purposeful action based on a world view which most of our contemporaries condemn as superstitious and therefore as inappropriate. But the concept of action does not imply that the action is guided by a correct theory and a technology promising success and that it attains the end aimed at. It only implies that the performer of the action believes that the means applied will produce the desired effect.

If individuals are capable of using probabilities and their perception of reality (which is not necessarily equivalent to reality) is the driving force behind purposeful action, why doesn't it follow that their perception of the probability of a given event is more important than the actual probability that the event occurs? Or, put differently, if individuals can be systematically biased about "theory" and "technology," why can't they be systematically biased with respect to the outcomes they anticipate?

Bryan Caplan makes a strong case for subjective probability. Walter Block counters; as does Jorg Guido Hulsmann. Caplan responds.

Next week, we will cover chapters 3-7 (again, roughly 70 pages). Happy reading!

TPS Book Club: Human Action

Over the next 12 weeks, I will be blogging my way through Human Action. If any of you are interested in reading along, we can discuss chapters in the comments section each week. I plan to post on Fridays and cover around 70 pages per week. The first post will be on May 22; it will cover chapters 1 and 2.

If you do not own the book already, the Mises Institute has a PDF of the 4th edition available for free. The Library of Economics and Liberty also offers an online version. Additionally, you can purchase a copy from FEE or Amazon.

I really hope some of you join me, especially if you've never read anything by Mises.