The next three installments of “The Calling” will be the last, as I am ending the column this month. In these final columns I want to focus on three books that are central to the modern Austrian tradition in economics and offer a summary of each one’s contributions. I start this week with Ludwig von Mises’s Human Action.
It is hard to summarize one of the most important, and one of the longest, books in twentieth-century economics in a single column. Its three core insights are its emphasis on the subjective nature of value, knowledge, and human choice; the market as a process; and the role markets play in facilitating broad social cooperation.
For Mises economics studies, as the title suggests, human action. Action, he argues, is fundamental to what makes us human: We are always in a state of “felt uneasiness,” which we wish to remove through action. What actions we take and when we take them are determined by our own subjective judgments about the ends we wish to achieve and the best means to achieve them. The knowledge we have in our heads is uniquely ours, and it informs how we value ends and means. This in turn leads to the choices we make. There is nothing mechanical or automatic about this process. Rather it requires conscious action. This subjective process from knowledge to valuation to choice-in-action is the starting point of all economic analysis for Mises.
Beginning with the subjective nature of knowledge, valuation, and choice, Mises attempted to build up a complete understanding of economics, from the basics of how prices emerge from valuation, choice, and monetary exchange; to the business cycle; to the problems with various forms of government intervention and the impossibility of socialist planning. In all these cases the central insight is that the market is not a “place or a thing” but “a process.” Markets, particularly the exchange of private property for money, are a way in which humans attempt to improve their perceived situations. Markets are not, as they are being more frequently depicted in mainstream economics, simply places where consumers and producers meet to maximize utility and profits respectively based on prices “given” to them. The market is not, for Mises, a maximization machine; the market is a dynamic process of change, learning, growth, and cooperation.
Discovery through Competition
Like his student F. A. Hayek, he saw competition in particular as a “discovery procedure” by which producers figure out what consumers want and how to produce it at the lowest cost. This is the result of conscious entrepreneurship, the active appraisal of the present and possible futures in a world of pervasive, but not debilitating, uncertainty. Economic calculation using money prices is the process by which we are able to peer through that fog of uncertainty and meet the demands of consumers. The market as portrayed in Human Action is part of the broader human struggle to overcome ignorance.
What markets make possible is nothing less than social cooperation–indeed, civilization–as we know it. For Mises the division of labor and the specialization/exchange process is not only the source of economic growth and the improvement of billions of human lives, it is also the source of deeper human bonds. A finer division of labor means more narrow specialization and greater reliance on exchange for what we want to acquire. This means that humans become more deeply interdependent, which in turn removes the incentives for violence and war. Markets induce us to cooperate rather than plunder, and in so doing, help to create peaceful civilizations. Markets, through what Mises termed the “Law of Association,” are the key to social cooperation.
At Odds with the Trends
Mises’s grand vision of economics and its place in society were very much at odds with the trends in economics of his day. In the very same year Human Action was published, Paul Samuelson’s Foundations of Economic Analysis was also published, and it set the tone for the rest of twentieth-century economics. It viewed economics as largely an engineering problem of constrained maximization by all-knowing agents in an equilibrium. For a number of complex reasons, not the least of which was that Samuelson’s vision was more amenable to the interventionist policy preferences of the postwar era, the engineering view won out and Mises’s Austrianism underwent a near-death experience for several decades.
However, the seeds Mises had planted, along with those of the book I will discuss next week, would form the basis for the flowering of Austrian economics in the 1970s, during which the third of my three chosen books was published.
Human Action remains one of the great achievements in the social sciences and perhaps the single most important economic treatise of the twentieth century. The revival of free-market thinking and, at least until recently, the increasing economic freedom across the world both owe a huge debt to Mises and Human Action.