Mises Daily – February 22, 2011

February 22, 2011

Mises Daily

Empirical Evidence That Brad DeLong Is Completely Obtuse by Robert P. Murphy Commodity Money in Colonial America by Murray N. Rothbard

Misesifying the Wiki
by Daniel James Sanchez on February 22, 2011

I wrote the following three Mises Wiki “stubs” (incomplete articles) by taking every paragraph from the first section of the introduction to Human Action, asking myself “What topic would this paragraph best apply to?” and then plumbing my memory and doing a bit of research. The resulting three articles are “German Idealism,” “Utopia,” and “History of Economic Thought.”

I think this is a good approach to take, because to be true to its name the Mises Wiki really ought to use the thought of Ludwig von Mises as a starting ground.

Once I got used to the “Wikimedia” markup and developed a workflow, it was very fun and addictive! Every time I’d look at one of my stubs, I’d find something else that made me think, “Okay, now that really calls for a footnote citation, too! I know I read something somewhere that would back that up …” I invite every Misesian scholar (amateur or otherwise) to help me flesh out these (and other) articles, and to start new ones of your own. Just set up an account and use any of the great resources at the Mises Wiki help page to get started!

German Idealism

Ludwig von Mises was, to a large extent, discussing German Idealism when he wrote,

Philosophers had long since been eager to ascertain the ends which God or Nature was trying to realize in the course of human history. They searched for the law of mankind’s destiny and evolution. But even those thinkers whose inquiry was free from any theological tendency failed utterly in these endeavors because they were committed to a faulty method. They dealt with humanity as a whole or with other holistic concepts like nation, race, or church. They set up quite arbitrarily the ends to which the behavior of such wholes is bound to lead. But they could not satisfactorily answer the question regarding what factors compelled the various acting individuals to behave in such a way that the goal aimed at by the whole’s inexorable evolution was attained. They had recourse to desperate shifts: miraculous interference of the Deity either by revelation or by the delegation of God-sent prophets and consecrated leaders, preestablished harmony, predestination, or the operation of a mystic and fabulous “world soul” or “national soul.” Others spoke of a “cunning of nature” which implanted in man impulses driving him unwittingly along precisely the path Nature wanted him to take.”[1]

“Cunning of nature” is a Hegelian interpretation of Immanuel Kant’s “plan of nature” doctrine.[2] “World soul” and “national soul” refer, respectively, to the concepts of weltgeist and volksgeist, both of which are associated with the philosophical system of G.W.F. Hegel.[3] According to Mises, Hegel purported to be a kind of prophet of Geist.[4]

Mises was highly critical of these holistic doctrines, because they posited that “society is an entity living its own life, independent of and separate from the lives of the various individuals, acting on its own behalf and aiming at its own ends which are different from the ends sought by the individuals.” Mises argued that only individuals act, and therefore starting “the study of human action from the collective units” is unsound.[5] Instead, Mises adhered to the principle of methodological individualism.[6]

Utopia

A utopia is a prospective ideal society. Sociopolitical schemes are considered particularly “utopian” when they are perceived to fail to give due regard to human nature, economic law, or any other primary consideration.

Ludwig von Mises, in discussing social philosophy before the advent of economic science, wrote,

Other philosophers were more realistic. They did not try to guess the designs of Nature or God. They looked at human things from the viewpoint of government. They were intent upon establishing rules of political action, a technique, as it were, of government and statesmanship. Speculative minds drew ambitious plans for a thorough reform and reconstruction of society. The more modest were satisfied with a collection and systematization of the data of historical experience. But all were fully convinced that there was in the course of social events no such regularity and invariance of phenomena as had already been found in the operation of human reasoning and in the sequence of natural phenomena. They did not search for the laws of social cooperation because they thought that man could organize society as he pleased. If social conditions did not fulfill the wishes of the reformers, if their utopias proved unrealizable, the fault was seen in the moral failure of man. Social problems were considered ethical problems. What was needed in order to construct the ideal society, they thought, were good princes and virtuous citizens. With righteous men any utopia might be realized.[7]

The tradition that Mises discusses above goes as far back as Plato’s sociopolitical scheme in The Republic.[8] The roster of notable utopian-reform theorists who predated the development of economic science also includes Sir Thomas More and Sir Francis Bacon.[9]

History of Economic Thought

The history of economic thought is the history of theories concerning human action, and especially concerning the market process.

To quote Ludwig von Mises,

Economics is the youngest of all sciences. In the last two hundred years, it is true, many new sciences have emerged from the disciplines familiar to the ancient Greeks. However, what happened here was merely that parts of knowledge which had already found their place in the complex of the old system of learning now became autonomous. The field of study was more nicely subdivided and treated with new methods; hitherto unnoticed provinces were discovered in it, and people began to see things from aspects different from those of their precursors. The field itself was not expanded. But economics opened to human science a domain previously inaccessible and never thought of. The discovery of a regularity in the sequence and interdependence of market phenomena went beyond the limits of the traditional system of learning. It conveyed knowledge which could be regarded neither as logic, mathematics, psychology, physics, nor biology.[10]

Systematic treatments of logic, psychology, and biology were given as early as the 4th century BC.[11] The sciences of mathematics and physics are even older.[12] Since ancient times, writers have made fragmentary insights into praxeological and economic considerations. However, economics as a science did not emerge until Richard Cantillon’s Essay on Economic Theory (written in 1730, and published in 1755), which was the first unitary and systematic treatment of the market process.[13]

Wertfreiheit and the Advent of Economic Science

The approach taken with social philosophy before the advent of economic science was largely normative and utopian. Yet, according to Mises,

The discovery of the inescapable interdependence of market phenomena overthrew this opinion. Bewildered, people had to face a new view of society. They learned with stupefaction that there is another aspect from which human action might be viewed than that of good and bad, of fair and unfair, of just and unjust. In the course of social events there prevails a regularity of phenomena to which man must adjust his actions if he wishes to succeed. It is futile to approach social facts with the attitude of a censor who approves or disapproves from the point of view of quite arbitrary standards and subjective judgments of value. One must study the laws of human action and social cooperation as the physicist studies the laws of nature. Human action and social cooperation seen as the object of a science of given relations, no longer as a normative discipline of things that ought to be — this was a revolution of tremendous consequences for knowledge and philosophy as well as for social action.[14]

This “value-free” approach to the social sciences is known as “wertfreiheit.”

The Limitations of Classical Political Economy

The classical political-economy tradition of Adam Smith and David Ricardo failed to formulate a sound theory of value and prices. They were unable to make the theoretical connection between market prices and consumer preferences. For this reason, consumers were left largely out of the picture. This limited the new method introduced by economic science to the treatment of people in their roles as producers. Thus economics was scorned as a useless science that dealt only with a fictional “homo economicus” (a man concerned only with monetary profit). As Mises explains,

For more than a hundred years, however, the effects of this radical change in the methods of reasoning were greatly restricted because people believed that they referred only to a narrow segment of the total field of human action, namely, to market phenomena. The classical economists met in the pursuit of their investigations an obstacle which they failed to remove, the apparent antinomy of value. Their theory of value was defective, and forced them to restrict the scope of their science. Until the late nineteenth century political economy remained a science of the “economic” aspects of human action, a theory of wealth and selfishness. It dealt with human action only to the extent that it is actuated by what was — very unsatisfactorily — described as the profit motive, and it asserted that there is in addition other human action whose treatment is the task of other disciplines. The transformation of thought which the classical economists had initiated was brought to its consummation only by modern subjectivist economics, which converted the theory of market prices into a general theory of human choice.[15]

By “modern subjectivist economics,” Mises is referring to economics after the formulation of the marginal theory of value, which, by explaining the link between market prices and consumer preferences, finally permitted the application of the methods introduced by economic science to the “whole man”: man as consumer as well as producer.

Praxeology

Mises goes on to write,

For a long time men failed to realize that the transition from the classical theory of value to the subjective theory of value was much more than the substitution of a more satisfactory theory of market exchange for a less satisfactory one. The general theory of choice and preference goes far beyond the horizon which encompassed the scope of economic problems as circumscribed by the economists from Cantillon, Hume, and Adam Smith down to John Stuart Mill. It is much more than merely a theory of the “economic side” of human endeavors and of man’s striving for commodities and an improvement in his material well-being. It is the science of every kind of human action. Choosing determines all human decisions. In making his choice man chooses not only between various material things and services. All human values are offered for option. All ends and all means, both material and ideal issues, the sublime and the base, the noble and the ignoble, are ranged in a single row and subjected to a decision which picks out one thing and sets aside another. Nothing that men aim at or want to avoid remains outside of this arrangement into a unique scale of gradation and preference. The modern theory of value widens the scientific horizon and enlarges the field of economic studies. Out of the political economy of the classical school emerges the general theory of human action, praxeology.

The economic or catallactic problems are embedded in a more general science, and can no longer be severed from this connection. No treatment of economic problems proper can avoid starting from acts of choice; economics becomes a part, although the hitherto best elaborated part, of a more universal science, praxeology.[16]

Mises himself was the first economist to explicitly delineate the “general theory of human choice” that subjective-value theory made possible. He first began to do so in his Epistemological Problems in Economic Science (1933), in which he referred to the general theory of human choice as “sociology.” He further advanced the theory in Human Action (1940), in which he referred to it as “praxeology.”