Human Action: A Treatise on Economics is a work by the Austrian economist and philosopher Ludwig von Mises. Widely considered Mises' magnum opus, it presents the case for laissez-faire capitalism based on praxeology, his method to understand the structure of human decision-making. Mises rejected positivism within economics, and defended an a priori foundation for praxeology, as well as methodological individualism and laws of self-evident certainty. Mises argues that the free-market economy not only outdistances any government-planned system, but ultimately serves as the foundation of civilization itself.
Nationalökonomie: Theorie des Handelns und Wirtschaftens is the 1940 German-language predecessor to Human Action.
Mises argues that market-generated money prices are essential to determine the most highly valued uses for resources to satisfy consumer demands. He attempts to demonstrate the inconsistencies of piecemeal political intervention in the market economy and the pernicious effects of political control and manipulation of the monetary system. In Mises's view, government interventions that distort market prices always result in misdirections of resources, including labor, and malinvestments of capital, leading to inflationary upswings followed by inevitable economic downturns. Mises believed that the market economy was the only system that provided freedom and personal choice to all members of society while generating the means for coordinating the actions of billions of people in the most economically rational manner, and that monetary manipulation by central banks was one of the most disruptive distortions to the process of economic calculation.
Summary
In his Introduction, Mises argues that economics emerged as a science when a regularity in the sequence and interdependence of market phenomena was discovered. He notes the challenges faced by economics as a new science, particularly in being accepted as a legitimate branch of knowledge, and discusses various schools of thought that rejected the achievements of economic thought. Mises refutes common criticisms against economics, stating that the ideas of classical economists have improved the general standard of living by promoting liberal policies and technological improvement. He also argues that economic problems cannot be isolated as they are just a segment of a general science of human action.
Part One: Human Action Chapter 1, "Acting Man", explains the concept of human action, which is defined as"purposeful behavior" and distinguished from reflexive behavior in that an observer imputes a goal to the actor. Praxeology is the science of action as such, which studies the results deduced from the fact that people have goals and adopt means to achieve them. For an action to occur, the actor must be in a state of unease, imagine a more satisfactory state, and believe that purposeful behavior can reduce the uneasiness. The text addresses the concept of happiness and instinct, where happiness is defined entirely by the subjective goals of the individual actor, and humans can suppress their biological urges. The study of human action begins with the ultimate given of human action itself, and all studies of human actions must rely on methodological dualism. Praxeology is subjective, as it takes actors' subjective ends as they exist in the minds of each person, but by refraining from passing judgment on these ends, it remains objective. Causality is necessary for action, and the Heisenberg uncertainty principle does not alter this. Finally, the text introduces the concept of the alter ego, where all events must fall in the realm of teleology or causality.
Chapter 2, "The Epistemological Problems of the Sciences of Human Action", is about the sciences of human action, praxeology, and history. "History is the collection and systematic arrangement of all the data of experience concerning human action." Praxeology, on the other hand, starts from the fact of human action and uses logical deduction to arrive at a priori truths that are valid for all action, both in the past and future. The principles of causality and teleology are also necessary prerequisites for the mind to make sense of the world. The text emphasizes that praxeology concerns the actions of individuals and deals with individual actions, not vague action in general. The historian can rely on other disciplines but must use his prior value judgments and theories to determine what is relevant and then present the facts accordingly. The limitations on praxeological concepts are also discussed.
Chapter 3, "Economics and the Revolt Against Reason", discusses the topic of polylogism, which is the belief that different groups of people, such as different races or social classes, have fundamentally different ways of thinking and reasoning. Mises argues that this idea is not supported by evidence and is instead used as a way to discredit opponents' arguments without actually addressing them. He also emphasizes the importance of reason as the primary tool for acting humans and warns against rejecting it in favor of instinct, which would be detrimental to civilization.
Chapter 4, "A First Analysis of the Category of Action", discusses the concept of ends and means, where the end is the result sought by an actor and the means are used to attain the end. Praxeology analyzes an actor's goals and beliefs to explain market phenomena. The distinction between free goods and economic goods is unhelpful, and goods are classified as consumers' goods or producers' goods based on their direct or indirect satisfaction of human wants. Value resides in the minds of actors who rank objects according to their desirability. Economics can be built on the subjective scale of values possessed by actual individuals. All actions are voluntary exchanges where the cost of an action is the value of the price paid and the forgone satisfaction. Profit is a subjective category that is immeasurable, and actors are fallible.
Chapter 5, "Time", discusses the temporal character of praxeology, the study of human action. While praxeology is a logical system, it is intimately related to time, as action is what makes man aware of the flux of time. The present is not defined as a unit of duration but rather as the presence of a ripe opportunity to take potential action. Time is scarce, and must be economized even in a hypothetical paradise where all material needs are met. Actions must occur in succession through time, and it is the action itself that is the brute fact, not an underlying value scale. It is pointless to judge the actions of individuals with reference to their value scales.
Chapter 6, "Uncertainty", discusses uncertainty and probability in human action. Action implies uncertainty because if the future were known, there would be no impetus to act. The problem of probable inference, reaching a decision in the face of incomplete knowledge, is a broad one that cuts across many disciplines. There are two fields of probability, class and case probability, with the former applicable to natural sciences and the latter applicable to social sciences. In class probability, we know everything about the entire class of events or phenomena, but we know nothing particular about the individuals making up the class. Case probability is applicable when we know some factors that will affect a particular event, but we are ignorant of other factors that will also influence the outcome. Betting is when a man risks money on an outcome where he knows some of the factors involved, while gambling is when he risks money on an outcome where he knows only the frequencies of the various elements of the class. Praxeology can make certain qualitative predictions about the future, but quantitative forecasts are not certain.
Chapter 7, "Action Within the World", covers several topics related to economics and human action, including the law of marginal utility, the law of returns, human labor as a means, and production. The law of marginal utility refers to the fact that the utility of successive units of a given good decreases, as the actor will apply the additional units to less and less urgent ends. Marginal utility is always defined according to the subjective framework of the actor in question. The law of returns describes the quantitative causal relations of the world, specifically in relation to producer goods. A given unit of a producer good must always act in combination with at least one other producer good to yield a definite quantity of a consumer good. At some finite point, an "optimum" level will be reached, and the quantity of output per unit of input will be maximized. Human labor as a means carries disutility, meaning that actors will not devote the physiological-maximum amount of labor to achieve attainable ends. The disutility of labor increases as the supply of leisure shrinks. Labor is the ultimate "nonspecific" factor and is required in every production process. Production is not creative but rather combines various inputs to produce a good or service. The creative genius is an exception to this, as they do not labor for immediate or mediate gratification.
Part Two: Action Within the Framework of Society Chapter 8, "Human Society", discusses various aspects of human cooperation, including the benefits of the division of labor, the superiority of social cooperation, the critiques of the metaphysical view of society, and the Ricardian Law of Association. The text also talks about the effects of the division of labor on society, the emergence of man as a social being, and the Great Society. Finally, the text addresses the instinct of aggression and destruction and how it has been overcome by social cooperation.
Chapter 9, "The Role of Ideas", discusses several topics related to human action and ideology. Firstly, human action is distinguished by reasoning, and while reasoning may be faulty, it is always the individual who thinks, and tradition and language allow present actors to incorporate their ancestors' reasoning into their own thinking. Secondly, a worldview serves as both an interpretation of all things and a guide to action, while ideology is more restricted to human interaction over earthly concerns. Despite their incompatibility on the surface, various ideologies champion the same things for their followers, and their disagreements are not over abstract principles. Thirdly, might is the power to direct the actions of others, and society is a product of ideology. Lastly, the notions of progress and retrogression only make sense in the context of an actor's plan, and the fatal flaw of 18th- and 19th-century rationalists and (classical) liberals was their faith in the decency and wisdom of the common man.
Chapter 10, "Exchange Within Society", discusses the concepts of autistic exchange, which concerns only one actor, and interpersonal exchange, which involves cooperation between two or more individuals. People can cooperate in either a contractual or hegemonic relationship, with contractual societies being more peaceful than hegemonic ones. All action involves the use of ordinal numbers to rank possible outcomes, but the use of cardinal numbers requires special conditions and developed in the context of a contractual society. The ability to apply arithmetic to various fields is crucial for modern civilization, and economics itself can be described as a theory of human action that relies on calculation.
Part Three: Economic Calculation