Human Action and Economics
After completing two book reviews and reflections, my next reading target is supposed to be about the Eurodollar market. But due to the difficulty of the subject, I think I need one more week for me to write my first post about this very important field for me to better understand the background of cryptocurrency.
For now, let me introduce Human Action, Ludwig von Mises' magnum opus, and a chapter in his book. The specific chapter I am referring to is chapter 38. This chapter talks about The Place of Economics in Learning.
I cannot deal with all the topics covered in the chapter. I will just select some interesting insights that I think remain relevant for our time. As such, among seven sub-topics, I will only choose three.
Together with the introduction of the book itself and the chosen subjects in the chapter I mentioned, I intend to answer the following questions:
- Why does Human Action remain a closed book to mainstream economists?
- Why is the study of economics very important?
- What is the relationship between the study of economics and responsible citizenship?
- Why is the study of economics essential to protect freedom?
Introducing Human Action
I am not sure if my current assessment is accurate. But after participating in an economic forum among students at one of our top universities here in the Philippines, I observed that the students were clueless about Ludwig von Mises. I suspect that a library will be very fortunate if you stumble even with one book authored by Mises in the entire collection.
The question remains. Why despite the brilliance of Human Action the book was not widely received in mainstream economics?
Reading the Introduction to the Scholar’s Edition, you will observe at least four reasons:
The first reason is the popularity of The General Theory of Employment, Interest, and Money. This book by John Maynard Keynes was published four years earlier than Mises’s book. The book provided an attractive but superficial interpretation of The Great Depression in the 1930s. Consequently, Mises’s monetary and business cycle theory exceptionally expounded in the book had been buried.
Another reason was the misinformed consensus that the “market socialists” won the economic calculation debate. The most recent article I know about that debate was published nine years ago on forbes.com by Art Carden.
Carden agrees that Mises "ended the debate over whether an economic system based on common or social ownership of the means of production could function" with the essay Economic Calculation in the Socialist Commonwealth.
The third reason is more technical. This one is not easy to understand for it has something to do with price theory. During that time, there were two dominant price theories, the Mengerian-Bawerkian price theory, and the Walrasian-Marshallian price theory. We were told that Mises, a disciple of Carl Menger followed the first price theory. Unfortunately, it was well-accepted at that time that the Walrasian-Marshallian price theory had already displaced the Mengerian-Bawerkian price theory.
The final reason was political and intellectual hostility. The mainstream scholarship at that time didn’t like what Mises wrote. In fact, in My Years with Ludwig von Mises, Margit narrated the fate of her husband's magnum opus. In it, we learn how a coward and an invisible enemy hid behind the impersonality of Yale University Press to sabotage the spread of Mises' ideas, and yet at the same time, his enemy refused to reject the publication of Mises' book due to anticipated profit. Such an attack happened during the second revised edition of the book. Margit quoted Henry Hazlitt's explanation of that attack "in 'Mangling a Masterpiece,' an article in the May 5, 1964, National Review."
The Brilliance of Human Action
Human Action is described as a book “that both embodies and dramatically extends centuries of accumulated wisdom in” economics “and, at the same time, radically challenges the intellectual and political consensus of the day” (Human Action, p. v). It is further claimed that the book is “a comprehensive treatise on economic science that would lay the foundation for a massive shift in intellectual opinion that is still working itself out fifty years after publication” (ibid.). In its “enduring significance” and “persuasive power,” it is even portrayed as greater than the considered landmark books in economics such as Adam Smith’s Wealth of Nations, Alfred Marshall’s Principles, Karl Marx’s Capital, and John Maynard Keynes’s General Theory. If the above comparison is really true, a reader cannot avoid but wonder why Mises’s most important book remains closed for many?
The Study of Economics
Human Action is an ideal textbook to study economics. According to Mises, the study of the subject is a very important duty for every citizen. However, studying it is not easy due to several obstacles I mentioned in this article.
Intellectually, such hostility is done by sowing confusion into the minds of the people as to the real nature of economics. This is achieved through the removal of the distinction between natural sciences and the science of human action. A concrete example of this is the introduction of economic history to destroy the academic prestige of economics.
Ludwig von Mises refused to categorize economics under empirical and scientific investigations. To him, empirical studies are only appropriate for natural sciences and not for the study of the science of human action. Since economics is under the science of human action, the methodology appropriate for natural sciences is not suitable for it. It is therefore erroneous to believe that the progress in economics could only be achieved once it is subjected to experimental studies.
Nevertheless, the study of economic history has its proper place provided that it will not be used as a substitute for the study of economics itself. It must be clarified in the first place that the value of economic history could neither be found in providing facts that could be tested in laboratories nor in supplying data to formulate a posteriori theorem. The appropriate place of economic history is inseparable from the specific theory that develops it in the first place. As such, economic history simply provides an interpretation of the economic phenomenon.
The reason why economics could not be subjected to experimentation applicable to natural sciences is due to its unique quality that can only be appreciated through abstract reasoning. What is necessary for the study of economics is not an expensive laboratory for its research but the ability to reason and to distinguish the essential from the incidental.
Respecting the boundary between economics and economic history, one can therefore find no conflict between these two branches of knowledge. Any conflict between these two academic disciplines emerged not from the scope of the study, but from the intention of the interventionists to use the latter to displace the former.
Economics and Citizenship
Based on the foregoing argument, the study of economics is essential to responsible and informed citizenship. Citizens cannot withdraw from this field without serious negative consequences. We cannot trust the interventionists to teach us economics. It is the solemn duty of each citizen to learn this science of human action.
It is high time that the study of economics must go beyond the confines of the academe and the control of the specialists. The burning issues of today both political and social are all economic issues. No wonder, philosophers and theologians are now leaving the old problems dealt with by earlier generations and are becoming more interested to participate in economic issues. Even the common man, whether he is conscious or not, is actually involved in economic affairs in his day-to-day activities. Civic activities like taking the side of a specific political party and casting a ballot are inescapably economic realities. The relevance of economics for today is captured by Mises in summarizing the concerns of the last five centuries:
In the sixteenth and seventeenth centuries religion was the main issue in European political controversies. In the eighteenth and nineteenth centuries in Europe as well as in America the paramount question was representative government versus royal absolutism. Today it is the market economy versus socialism(p. 878).
With the challenges we are facing today, the study of economics is the primary civic duty of a responsible citizen. By fulfilling this duty, you demonstrate that you care not only about your future but the future of your children as well.
Economics and Freedom
Returning to My Years with Ludwig von Mises, the economist’s wife shared her special dream, and that is to see a complete set of her husband’s books placed in the Oval Office in the White House. She believes that if every president of the United States would just study her husband’s books, it will do a lot of good to preserve freedom in the country.
Her second wish is that she wants to see educational institutions in America add a course on freedom of the market in their curriculum.
Interventionists know that the study of economics could enlighten the citizens about their civic responsibilities. This will frustrate the expansion of the interventionists’ dream and that is why all attempts are made to restrict the freedom of economic thought.
“Subversive” ideas are suppressed and only interventionist “truth” is allowed to reach public consciousness. In order to have a secure position for this truth, coercion is a necessary tool at the disposal of those who control the centers of power. Even religion is used to justify the promotion of interventionists’ agenda resulting in the gradual loss of human freedom.
Interventionists’ policy is most evident in restraining the activity of the free market. Economic issues like cutting down profits, lowering prices, lowering interest rates, and raising salary rates appear commendable in the eyes of the uninformed public. Only a few are able to penetrate behind the appearances of things and fewer still are able to connect the economic disaster brought about by the widespread influence of those interventionists’ doctrines. The continued search for truth is the only weapon freedom lovers have in their arsenal to reverse the trend and provide the intellectual climate for the growth of the market economy.
I hope despite the difficulty of the topic, the rigidity and tightness of reasoning, you still find reading this article worth your time.
Grace and peace!
In this article, I actually gleaned important insights from four separate articles I published between 2013 and 2020:
- Unacceptable Greatness in an Interventionist Age
- The Study of Economics
- Economics, Citizenship, and Freedom
- Why Does Human Action Remain a Closed Book to Mainstream Economists?