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Ludwig von Mises

Feb 15, 202545 min read

Human Action

Introduction

  • It is the science of every kind of human action. (p. 50)
    • I.e., praxeology encompasses economics.
  • It is no longer enough to deal with the economic problems within the traditional framework. It is necessary to build the theory of catallactics upon the solid foundation of a general theory of human action, praxeology. This procedure will not only secure it against many fallacious criticisms but clarify many problems hitherto not even adequately seen, still less satisfactorily solved. There is, especially, the fundamental problem of economic calculation. (p. 55)
  • Omniscience is denied to man. (p. 56)
    • It merely means that economics is a living thing—and to live implies both imperfection and change.
  • What is commonly called the “industrial revolution” was an offspring of the ideological revolution brought about by the doctrines of the economists. (p. 57)
  • It is a science of the means to be applied for the attainment of ends chosen, not, to be sure, a science of the choosing of ends. (p. 59)
  • It seems to many people that this is very little indeed and that a science limited to the investigation of the is and unable to express a judgment of value about the highest and ultimate ends is of no importance for life and action. This too is a mistake. However, the exposure of this mistake is not a task of these introductory remarks. It is one of the ends of the treatise itself. (pp. 59-60)

Part I

Chapter I. ACTING MAN

1. Purposeful Action and Animal Reaction

  • Man can sometimes succeed through the power of his will in overcoming sickness, in compensating for the innate or acquired insufficiency of his physical constitution, or in suppressing reflexes. (p. 63)
  • Action therefore always involves both taking and renunciation. (p. 64)
    • I.e., the opportunity costs.
  • What counts is a man’s total behavior, and not his talk about planned but not realized acts. (p. 64)
    • Because action implies time, and time is finite resource; whereas talk (i.e., ideas) is empty in the sense that it’s not a scarce resource.develop
  • Action is not only doing but no less omitting to do what possibly could be done. (p. 65)

4. Rationality and Irrationality; Subjectivism and Objectivity of Praxeological Research

  • The teachings of praxeology and economics are valid for every human action without regard to its underlying motives, causes, and goals. The ultimate judgments of value and the ultimate ends of human action are given for any kind of scientific inquiry; they are not open to any further analysis. Praxeology deals with the ways and means chosen for the attainment of such ultimate ends. Its object is means, not ends. (p. 76)

5. Causality as a Requirement of Action

6. The Alter Ego

  • Reasoning and scientific inquiry can never bring full ease of mind, apodictic certainty, and perfect cognition of all things. (p. 82)
  • The question we have to deal with is whether it is possible to grasp human action intellectually if one refuses to comprehend it as meaningful and purposeful behavior aiming at the attainment of definite ends. (p. 83)
    • It is this purposeful behavior—viz., action—that is the subject matter of our science.

Part II

Chapter VIII. HUMAN SOCIETY

1. Human Cooperation

  • The fundamental facts that brought about cooperation, society, and civilization and transformed the animal man into a human being are the facts that work performed under the division of labor is more productive than isolated work and that man’s reason is capable of recognizing this truth. (p. 250)
  • One must never forget that the characteristic feature of human society is purposeful cooperation; society is an outcome of human action, i.e., of a conscious aiming at the attainment of ends. (p. 251)DanielEverettrevisit

2. A Critique of the Holistic and Metaphysical View of Society

  • The advantages derived from peaceful cooperation and division of labor are universal. They immediately benefit every generation, and not only later descendants. For what the individual must sacrifice for the sake of society he is amply compensated by greater advantages. His sacrifice is only apparent and temporary; he foregoes a smaller gain in order to reap a greater one later. No reasonable being can fail to see this obvious fact. (pp. 253-254)
    • Viz., positive-sum vs zero-sum.
  • For the adjustment of the individual to the requirements of social cooperation demands sacrifices. These are, it is true, only temporary and apparent sacrifices as they are more than compensated for by the incomparably greater advantages which living within society provides. However, at the instant, in the very act of renouncing an expected enjoyment, they are painful, and it is not for everybody to realize their later benefits and to behave accordingly. (p. 256)
  • The principle of majority rule or government by the people as recommended by liberalism does not aim at the supremacy of the average or common man. (p. 258)
  • If one assumes that there exists above and beyond the individual’s actions an imperishable entity aiming at its own ends, different from those of mortal men, one has already constructed the concept of a superhuman being. (p. 260)
  • If one postulates the existence of an entity which ex definitione is higher, nobler, and better than the individuals, then there cannot be any doubt that the aims of this eminent being must tower above those of the wretched individuals. (p. 260)
    • See my note from p. 394
  • The philosophy commonly called individualism is a philosophy of social cooperation and the progressive intensification of the social nexus. (pp. 261-262)
  • Liberalism aims at a political constitution which safeguards the smooth working of social cooperation and the progressive intensification of mutual social relations. Its main objective is the avoidance of violent conflicts, of wars and revolutions that must disintegrate the social collaboration of men and throw people back into the primitive conditions of barbarism where all tribes and political bodies endlessly fought one another. (p. 263)
    • Because the division of labor requires undisturbed peace, liberalism aims at the establishment of a system of government that is likely to preserve peace, viz., democracy.
Liberalism and Religion
  • Religion, as William James sees it, is a purely personal and individual relation between man and a holy, mysterious, and awe-inspiring divine Reality. It enjoins upon man a certain mode of individual conduct. But it does not assert anything with regard to the problems of social organization. (p. 268)
  • Liberalism is rationalistic. It maintains that it is possible to convince the immense majority that peaceful cooperation within the framework of society better serves their rightly understood interests than mutual battling and social disintegration. (p. 269)
  • It has full confidence in man’s reason. It may be that this optimism is unfounded and that the liberals have erred. But then there is no hope left for mankind’s future. (p. 269)
    • “If you believe that there are bounds on the domain in which reason is the proper arbiter of ideas, then you believe in unreason or the supernatural” – David Deutschdevelop

3. The Division of Labor

4. The Ricardian Law of Association

  • The gains derived from the division of labor are always mutual. (p. 272)

6. The Individual Within Society

  • One of the privileges which society affords to the individual is the privilege of living in spite of sickness or physical disability. Sick animals are doomed. Their weakness handicaps them in their attempts to find food and to repel aggression on the part of other animals. Deaf, nearsighted, or crippled savages must perish. But such defects do not deprive a man of the opportunity to adjust himself to life in society. The majority of our contemporaries are afflicted with some bodily deficiencies which biology considers pathological. Our civilization is to a great extent the achievement of such men. The eliminative forces of natural selection are greatly reduced under social conditions. Hence some people say that civilization tends to deteriorate the hereditary qualities of the members of society. (p. 281)
The Fable of the Mystic Communion
  • The mystical experience of communion or community is not the source of societal relations, but their product. (p. 285)DanielEverettdevelop
  • People do not cooperate under the division of labor because they love or should love one another. They cooperate because this best serves their own interests. (pp. 285-286)
    • Non-human animals cooperate to spread its genes.develop
    • Humans cooperate because each individuals want to pursue their own interests and goals—and these interests and goals are individually created knowledge (via memes).develop

8. The Instinct of Aggression and Destruction

  • Rational conduct means that man, in face of the fact that he cannot satisfy all his impulses, desires, and appetites, foregoes the satisfaction of those which he considers less urgent. (p. 291)
  • He who wants to preserve life and health as well and as long as possible, must realize that respect for other people’s lives and health better serves his aim than the opposite mode of conduct. One may regret that such is the state of affairs. But no such lamentations can alter the hard facts. (p. 292)
  • Praxeology as a science cannot encroach upon the individual’s right to choose and to act. The final decisions rest with acting men, not with the theorists. Science’s contribution to life and action does not consist in establishing value judgments, but in clarification of the conditions under which man must act and in elucidation of the effects of various modes of action. It puts at the disposal of acting man all the information he needs in order to make his choices in full awareness of their consequences. It prepares an estimate of cost and yield, as it were. It would fail in this task if it were to omit from this statement one of the items which could be of influence in people’s choices and decisions. (p. 293)
    • Viz., praxeology does not dictate values (i.e., what people should do) but must present the reality of economic cause-and-effect—if it leaves out any relevant factor, individuals making choices may act on faulty assumptions.

Chapter X. EXCHANGE WITHIN SOCIETY

3. Calculative Action

  • Economics is essentially a theory of that scope of action in which calculation is applied or can be applied if certain conditions are realized. No other distinction is of greater significance, both for human life and for the study of human action, than that between calculable action and noncalculable action. (p. 331)

Part III

Chapter XI. VALUATION WITHOUT CALCULATION

2. The Barter-Fiction of the Elementary Theory of Value and Prices

  • The economists misconstrued economic calculation. They took it for a category of all human action and ignored the fact that it is only a category inherent in acting under special conditions. (p. 335)
  • People tacitly assumed that changes in purchasing power occur with regard to all goods and services at the same time and to the same extent. (p. 337)
  • An inveterate fallacy asserted that things and services exchanged are of equal value. (p. 338)
    • People, it was assumed, first established the magnitude of value proper to goods and services by an act of measurement and then proceeded to barter them against quantities of goods and services of the same amount of value.
  • Values and valuations are intensive quantities and not extensive quantities. (p. 339)
  • Just as there is no standard and no measurement of sexual love, of friendship and sympathy, and of aesthetic enjoyment, so there is no measurement of the value of commodities. (p. 340)
    • If a man exchanges two pounds of butter for a shirt, all that we can assert with regard to this transaction is that he—at the instant of the transaction and under the conditions which this instant offers to him—prefers one shirt to two pounds of butter.
  • Psychic quantities can only be felt. They are entirely personal, and there is no semantic means to express their intensity and to convey information about them to other people. (p. 340)
    • “Manifested only through action”develop
      • See my note from p. 64

3. The Problem of Economic Calculation

  • Technological computation can establish relations between various classes of means only to the extent that they can be substituted for one another in the attempts to attain a definite goal. But action is bound to discover relations among all means, however dissimilar they may be, without any regard to the question whether or not they can replace one another in performing the same services. (p. 345)
    • Because time is scarce.develop
      • “However dissimilar they may be”develop
  • Only because money is the common medium of exchange, because most goods and services can be sold and bought on the market against money, and only as far as this is the case, can men use money prices in reckoning. The exchange ratios between money and the various goods and services as established on the market of the past and as expected to be established on the market of the future are the mental tools of economic planning. (p. 346)
  • Where there are no money prices, there are no such things as economic quantities. There are only various quantitative relations between various causes and effects in the external world. There is no means for man to find out what kind of action would best serve his endeavors to remove uneasiness as far as possible. (p. 346)

4. Economic Calculation and the Market

  • The exchange ratios which we have to deal with are permanently fluctuating. There is nothing constant and invariable in them. (p. 348)
  • They are historical events, expressive of what happened once at a definite instant and under definite circumstances. (p. 348)
  • As action is always directed toward influencing a future state of affairs, economic calculation always deals with the future. (p. 348)

Chapter XII. THE SPHERE OF ECONOMIC CALCULATION

1. The Character of Monetary Entries

  • Economic calculation can comprehend everything that is exchanged against money. (p. 351)
  • The main task of economic calculation is not to deal with the problems of unchanging or only slightly changing market situations and prices, but to deal with change. (p. 351)
  • Economic calculation is as efficient as it can be. No reform could add to its efficiency. It renders to acting man all the services which he can obtain from numerical computation. It is, of course, not a means of knowing future conditions with certainty, and it does not deprive action of its speculative character. (p. 354)
  • It is not the task of economic calculation to expand man’s information about future conditions. Its task is to adjust his actions as well as possible to his present opinion concerning want-satisfaction in the future. (p. 354)
  • For this purpose acting man needs a method of computation, and computation requires a common denominator to which all items entered are to be referable. The common denominator of economic calculation is money. (pp. 354-355)

2. The Limits of Economic Calculation

  • Honor, virtue, glory, and likewise vigor, health, and life itself play a role in action both as means and as ends; but they do not enter into economic calculation. (p. 355)
  • Those things which do not enter into the items of accountancy and calculation are either ends or goods of the first order. (p. 355)
  • No complaint is less justified than the lamentation that the computation methods of the market do not comprehend things not vendible. Moral and aesthetic values do not suffer any damage on account of this fact. (p. 356)
  • Some critics of economic calculation fail to realize that it is a method available only to people acting in the economic system of the division of labor in a social order based upon private ownership of the means of production. It can only serve the considerations of individuals or groups of individuals operating in the institutional setting of this social order. It is consequently a calculation of private profits and not of “social welfare.” (p. 357)
  • Economic calculation in terms of money prices is the calculation of entrepreneurs producing for the consumers of a market society. (p. 357)
    • Viz., there is no “higher-level” entrepreneur.develop
  • In a society of free men the preservation of life and health are ends, not means. They do not enter into any process of accounting means. (p. 358)
  • It is possible to determine in terms of money prices the sum of the income or the wealth of a number of people. (p. 358)
    • But it is nonsensical to reckon national income or national wealth. As soon as we embark upon considerations foreign to the reasoning of a man operating within the pale of a market society, we are no longer helped by monetary calculation methods.
  • The attempts to determine in money the wealth of a nation or of the whole of mankind are as childish as the mystic efforts to solve the riddles of the universe by worrying about the dimensions of the pyramid of Cheops. (p. 358)
  • The prices are not measured in money; they consist in money. (p. 358)revisit
  • There is nothing in prices which permits one to liken them to the measurement of physical and chemical phenomena. (p. 359)

3. The Changeability of Prices

  • On the contrary, it could rather be asserted that the merger of local markets into larger national markets, the final emergence of a world embracing world market, and the evolution of commerce aiming at continuously supplying the consumers have made price changes less frequent and less sharp. (pp. 359-360)
  • It is easy to understand why those whose short-run interests are hurt by a change in prices resent such changes, emphasize that the previous prices were not only fairer but also more normal, and maintain that price stability is in conformity with the laws of nature and of morality. (p. 360)
  • Even the classical economists were slow to free themselves from this error. With them value was something objective, i.e., a phenomenon of the external world and a quality inherent in things and therefore measurable. They utterly failed to comprehend the purely human and voluntaristic character of value judgments. (pp. 360-361)
    • E.g., see Ammous’ Principles of Economics Chapter 2.
  • It is not only a task of economic science to discard the errors concerning measurability in the field of action. It is no less a task of economic policy. For the failures of present-day economic policies are to some extent due to the lamentable confusion brought about by the idea that there is something fixed and therefore measurable in interhuman relations. (p. 361)

4. Stabilization

  • The urge toward action, i.e., improvement of the conditions of life, is inborn in man. Man himself changes from moment to moment and his valuations, volitions, and acts change with him. In the realm of action there is nothing perpetual but change. There is no fixed point in this ceaseless fluctuation other than the eternal aprioristic categories of action. (p. 361)
  • The goal assigned to the policy of stabilization is the preservation of the immutability of this money expenditure. This would be all right if the housewife and her imaginary basket were constant elements, if the basket were always to contain the same goods and the same quantity of each and if the role which this assortment of goods plays in the family’s life were not to change. But we are living in a world in which none of these conditions is realized. (pp. 362-363)
  • The mere fact that the quality of all goods and services of the first order is subject to change explodes one of the fundamental assumptions of all index number methods. (p. 363)
  • But even apart from all these insurmountable obstacles the task would remain insoluble. For not only do the technological features of commodities change and new kinds of goods appear while many old ones disappear. Valuations change too, and they cause changes in demand and production. The assumptions of the measurement doctrine would require men whose wants and valuations are rigid. (p. 364)
  • Only if people were to value the same things always in the same way, could we consider price changes as expressive of changes in the power of money to buy things. (p. 364)
    • Viz., you cannot infer purchasing power changes from price changes in reality.develop
  • Changes in the purchasing power of money must necessarily affect the prices of different commodities and services at different times and to different extents. (p. 365)
    • Refer to this when elaborating Section 2 (see my note from p. 358).revisitTODO
  • In the field of praxeology and economics no sense can be given to the notion of measurement. In the hypothetical state of rigid conditions there are no changes to be measured. In the actual world of change there are no fixed points, dimensions, or relations which could serve as a standard. (p. 365)
  • The monetary unit’s purchasing power never changes evenly with regard to all things vendible and purchasable. (p. 365)
  • Where there is action, there is change. Action is a lever of change. (p. 365)
  • Human action originates change. As far as there is human action there is no stability, but ceaseless alteration. The historical process is a sequence of changes. It is beyond the power of man to stop it and to bring about an age of stability in which all history comes to a standstill. It is man’s nature to strive after improvement, to beget new ideas, and to rearrange the conditions of his life according to these ideas. (p. 366)
  • In the imaginary—and, of course, unrealizable—state of rigidity and stability there are no changes to be measured. In the actual world of permanent change there are no fixed points, objects, qualities or relations with regard to which changes could be measured. (p. 367)

5. The Root of the Stabilization Idea

  • The fact that rigidity in the monetary unit’s purchasing power is unthinkable and unrealizable does not impair the methods of economic calculation. What economic calculation requires is a monetary system whose functioning is not sabotaged by government interference. (p. 367)
  • Changes in the relation between the supply of and the demand for the precious metals and the resulting alterations in purchasing power went on so slowly that the entrepreneur’s economic calculation could disregard them without going too far afield. (pp. 367-368)
    • I.e., high stock-to-flow ratio.develop
  • The idea of rendering purchasing power stable did not originate from endeavors to make economic calculation more correct. Its source is the wish to create a sphere withdrawn from the ceaseless flux of human affairs, a realm which the historical process does not affect. (p. 368)
    • Endowments which were designed to provide in perpetuity for an ecclesiastic body, for a charitable institution, or for a family were long established in land or in disbursement of agricultural products in kind. Later annuities to be settled in money were added.
  • He who invested his funds in bonds issued by the government and its subdivisions was no longer subject to the inescapable laws of the market and to the sovereignty of the consumers. (p. 369)
    • His income no longer stemmed from the process of supplying the wants of the consumers in the best possible way, but from the taxes levied by the state’s apparatus of compulsion and coercion.
    • He was no longer a servant of his fellow citizens, subject to their sovereignty; he was a partner of the government which ruled the people and exacted tribute from them.
    • What the government paid as interest was less than the market offered. But this difference was far outweighed by the unquestionable solvency of the debtor, the state whose revenue did not depend on satisfying the public, but on insisting on the payment of taxes.
      • See Ammous’ The Fiat Standard for more discussion on government bonds.revisit
  • Capitalists and entrepreneurs were fully aware of the fact that in the market society there is no means of preserving acquired wealth other than by acquiring it anew each day in tough competition with everybody. (pp. 369-370)
  • The investor who for security’s sake shuns the market, entrepreneurship, and investment in free enterprise and prefers government bonds is faced again with the problem of the changeability of all human affairs. He discovers that in the frame of a market society there is no room left for wealth not dependent upon the market. His endeavors to find an inexhaustible source of income fail. (p. 370)
  • There are in this world no such things as stability and security and no human endeavors are powerful enough to bring them about. There is in the social system of the market society no other means of acquiring wealth and of preserving it than successful service to the consumers. (p. 370)
  • Even the most ruthless government in the long run is not able to defy the laws determining human life and action. (p. 370)
  • If the government invests funds unsuccessfully and no surplus results, or if it spends the money for current expenditure, the capital borrowed shrinks or disappears entirely, and no source is opened from which interest and principal could be paid. (p. 371)
    • I.e., capital consumption.develop

Chapter XIII. MONETARY CALCULATION AS A TOOL OF ACTION

1. Monetary Calculation as a Method of Thinking

Part IV

Chapter XIV. THE SCOPE AND METHOD OF CATALLACTICS

2. The Method of Imaginary Constructions

  • An imaginary construction is a conceptual image of a sequence of events logically evolved from the elements of action employed in its formation. It is a product of deduction, ultimately derived from the fundamental category of action, the act of preferring and setting aside. In designing such an imaginary construction the economist is not concerned with the question of whether or not it depicts the conditions of reality which he wants to analyze. Nor does he bother about the question of whether or not such a system as his imaginary construction posits could be conceived as really existent and in operation. Even imaginary constructions which are inconceivable, self-contradictory, or unrealizable can render useful, even indispensable services in the comprehension of reality, provided the economist knows how to use them properly. (pp. 385-386)
  • Thus we conceive the category of action by constructing the image of a state in which there is no action, either because the individual is fully contented and does not feel any uneasiness or because he does not know any procedure from which an improvement in his well-being (state of satisfaction) could be expected. (pp. 386-387)
    • Thus we conceive the notion of originary interest from an imaginary construction in which no distinction is made between satisfactions in periods of time equal in length but unequal with regard to their distance from the instant of action. (p. 387)
      • I.e., time-preference is zero under this imaginary construction.
        • Viz., Mises uses imaginary construction to show how originary interest is inherent to all humans, by showing the absurdity of the imaginary construction (in which there is no time preference—which also means no original interest).develop
      • See Chapter XIX, Section 2.revisit

3. The Pure Market Economy

  • Only at a later stage, having exhausted everything which can be learned from the study of this imaginary construction, does it turn to the study of the various problems raised by interference with the market on the part of governments and other agencies employing coercion and compulsion. (pp. 387-388)
The Maximization of Profits
  • What a man does is always aimed at an improvement of his own state of satisfaction. In this sense—and in no other—we are free to use the term selfishness and to emphasize that action is necessarily always selfish. Even an action directly aiming at the improvement of other people’s conditions is selfish. The actor considers it as more satisfactory for himself to make other people eat than to eat himself. His uneasiness is caused by the awareness of the fact that other people are in want. (p. 393)
  • Some economists believe that it is the task of economics to establish how in the whole of society the greatest possible satisfaction of all people or of the greatest number could be attained. (p. 394)
  • Economics is not intent upon pronouncing value judgments. (P. 394)
    • Value judgements imply meta-level perspective and that implies zero-sum, because the attainment of one perspective comes at the expense of others—viz., Austrian economics (via subjective value theory) is positive-sum and benefit the whole society.develop
      • See my note from p. 260

5. The State of Rest and the Evenly Rotating Economy

See Chapter XVII, Section 19 (“The Gold Standard”). See also Spitznagel’s discussion of ERE.Spitznagel

  • The plain state of rest
    • It is not merely an imaginary construction. It comes to pass again and again. (p. 397)
      • The lull will certainly disappear as soon as the momentary conditions which brought it about change.
  • The final state of rest (and the final price)
    • This final state of rest is an imaginary construction, not a description of reality. For the final state of rest will never be attained. New disturbing factors will emerge before it will be realized. (p. 398)
  • The final price can only be defined by defining the conditions required for its emergence. No definite numerical value in monetary terms or in quantities of other goods can be attributed to it. It will never appear on the market. The market price can never coincide with the final price coordinated to the instant in which this market structure is actual. But catallactics would fail lamentably in its task of analyzing the problems of price determination if it were to neglect dealing with the final price. (pp. 398-399)
    • Viz., praxeology must discuss the nature of the final price, even when it’s not realizable in reality.develop
  • Economists often erred in neglecting the element of time. (p. 399)
  • The evenly rotating economy
    • The evenly rotating economy is characterized by the elimination of change in the data and of the time element. (p. 400)
      • It is inexpedient and misleading to call this imaginary construction, as is usual, the static economy or the static equilibrium, and it is a bad mistake to confuse it with the imaginary construction of a stationary economy.
    • The evenly rotating economy is a fictitious system in which the market prices of all goods and services coincide with the final prices. There are in its frame no price changes whatever; there is perfect price stability. The same market transactions are repeated again and again. (p. 400)
      • Therefore prices—commonly called static or equilibrium prices—remain constant too.
    • Action is change, and change is in the temporal sequence. But in the evenly rotating economy change and succession of events are eliminated. Action is to make choices and to cope with an uncertain future. But in the evenly rotating economy there is no choosing and the future is not uncertain as it does not differ from the present known state. Such a rigid system is not peopled with living men making choices and liable to error; it is a world of soulless unthinking automatons; it is not a human society, it is an ant hill. (p. 402)
  • In the imaginary construction of an evenly rotating economy, indirect exchange and the use of money are tacitly implied. But what kind of money can that be? (p. 403)
    • All transactions can in fact be effected through transfer in the bank’s books without any recourse to cash. Thus the “money” of this system is not a medium of exchange; it is not money at all; it is merely a numéraire, an ethereal and undetermined unit of accounting of that vague and indefinable character which the fancy of some economists and the errors of many laymen mistakenly have attributed to money.
      • On this numéraire, see also Chapter XVII, Section 5 (“The Problem of Hume and Mill and the Driving Force of Money”). Also see Hoppe’s argument on money.revisit
  • Money is necessarily a “dynamic factor”; there is no room left for money in a “static” system. (p. 404)
    • But the very notion of a market economy without money (i.e., the ERE) is self-contradictory.
  • The imaginary construction of an evenly rotating system is a limiting notion. In its frame there is in fact no longer any action. (p. 404)
    • We can employ this problematic imaginary construction only if we never forget what purposes it is designed to serve.
      • Firstly, we want to analyze the tendency, prevailing in every action, toward the establishment of an evenly rotating economy; in doing so, we must always take into account that this tendency can never attain its goal in a universe not perfectly rigid and immutable, that is, in a universe which is living and not dead.
      • Secondly we need to comprehend in what respects the conditions of a living world in which there is action differ from those of a rigid world.
  • The mathematical economists fail to recognize that the state of affairs they are dealing with is a state in which there is no longer any action. (p. 405)
    • They deal with equilibrium as if it were a real entity and not a limiting notion, a mere mental tool.

6. The Stationary Economy

See the next section’s sub-section (“The Entrepreneurial Function in the Stationary Economy), as well as Chapter. XV, Section 9 (“Entrepreneurial Profits and Losses in a Progressing Economy“).revisit

  • The imaginary construction of a stationary economy is an economy in which the wealth and income of the individuals remain unchanged. (p. 405)
    • With this image changes are compatible which would be incompatible with the construction of the evenly rotating economy.
      • E.g., population figures may rise or drop provided that they are accompanied by a corresponding rise or drop in the sum of wealth and income.
  • In the stationary economy the total sum of all profits and of all losses is zero.
  • In the progressing economy the total amount of profits exceeds the total amount of losses.
  • In the retrogressing economy the total amount of profits is smaller than the total amount of losses.
  • The precariousness of these three imaginary constructions is to be seen in the fact that they imply the possibility of the measurement of wealth and income. As such measurements cannot be made and are not even conceivable, it is out of the question to apply them for a rigorous classification of the conditions of reality. (p. 406)

7. The Integration of Catallactic Functions

  • In the imaginary construction of the evenly rotating economy there is no room left for entrepreneurial activity, because this construction eliminates any change of data that could affect prices. (p. 407)
  • Action is always speculation. (p. 408)
    • Profit is the payoff of successful action. (p. 612)
  • In any real and living economy every actor is always an entrepreneur and speculator; the people taken care of by the actors—the minor family members in the market society and the masses of a socialist society—are, although themselves not actors and therefore not speculators, affected by the outcome of the actors’ speculations. (p. 408)
  • Economics, in speaking of entrepreneurs, has in view not men, but a definite function. This function is not the particular feature of a special group or class of men; it is inherent in every action and burdens every actor. (p. 408)
    • Everyone is an entrepreneur because human acting (i.e., symbolic rather than indexical) requires knowledge creation (as already pointed out in Section 5).develop
    • To assume otherwise is literally de-humanizing.develop
  • There is no such thing as a perfectly safe investment. (p. 409)
  • Individuals do not react to a change in conditions with the same quickness and in the same way. The inequality of men, which is due to differences both in their inborn qualities and in the vicissitudes of their lives, manifests itself in this way too. (p. 411)
The Entrepreneurial Function in the Stationary Economy
  • In a changing economy an excess either of profits or of losses must emerge. (p. 413)
    • Think of individual entrepreneurs instead of nation states to grasp this sentence better. Under the gold standard, productive entrepreneurs’ proportional wealth increase, until the return equals the cost of expansion. There is a profit for him, until the entrepreneurial project reaches that point.develop
      • Spitznagel discusses how this process plays out (with Siegfried, Johann, and Günther).
        • Viz., everyone would be the average Johann under the ERE.
        • Does Spitznagel confuse the ERE with the economy under the gold standard?developSpitznagel
    • Also see my note from p. 464

Chapter XV. THE MARKET

3. Capitalism

  • The market economy is a man-made mode of acting under the division of labor. But this does not imply that it is something accidental or artificial and could be replaced by another mode. The market economy is the product of a long evolutionary process. It is the outcome of man’s endeavors to adjust his action in the best possible way to the given conditions of his environment that he cannot alter. It is the strategy, as it were, by the application of which man has triumphantly progressed from savagery to civilization. (p. 426)

4. The Sovereignty of the Consumers

  • On the market no vote is cast in vain. (p. 434)
  • It is true, in the market the various consumers have not the same voting right. The rich cast more votes than the poorer citizens. But this inequality is itself the outcome of a previous voting process. To be rich, in a pure market economy, is the outcome of success in filling best the demands of the consumers. A wealthy man can preserve his wealth only by continuing to serve the consumers in the most efficient way. (p. 434)
  • There is in the operation of a market economy only one instance in which the proprietary class is not completely subject to the supremacy of the consumers. Monopoly prices are an infringement of the sway of the consumers. (p. 434)

5. Competition

  • In the catallactic field competition is always restricted by the inexorable scarcity of the economic goods and services. (p. 438)
    • In each sector only comparatively small groups can engage in competition. (p. 439)
      • Because time is scarce (see Ammous’ Principles of Economics, Chapter 3).develop
  • To assign to everybody his proper place in society is the task of the consumers. (p. 439)
    • But remember: everybody is both consumer and producer (voter and voted) at the same time.
      • See Section 12 (“The Individual and the Market”).revisit
  • What a newcomer who wants to defy the vested interests of the old established firms needs most is brains and ideas. If his project is fit to fill the most urgent of the unsatisfied needs of the consumers or to purvey them at a cheaper price than their old purveyors, he will succeed in spite of the much talked of bigness and power of the old firms. (p. 440)
    • I.e., knowledge (viz., technology).develop
  • Catallactic competition must not be confused with prize fights and beauty contests. The purpose of such fights and contests is to discover who is the best boxer or the prettiest girl. (p. 440)
  • Monopoly prices are an important market phenomenon, while monopoly as such is only important if it can result in the formation of monopoly prices. (p. 443)
    • Because monopoly prices defy the definition of market price proper. See Chapter XVI.revisit
  • On the market every commodity competes with all other commodities. (p. 443)
    • However dissimilar they may be—because time is scarce resource for humans.develop

6. Freedom

8. Entrepreneurial Profit and Loss

  • The specific entrepreneurial profits and losses are not produced by the quantity of physical output. They depend on the adjustment of output to the most urgent wants of the consumers. (p. 459)
    • What produces them is the extent to which the entrepreneur has succeeded or failed in anticipating the future—necessarily uncertain—state of the market.
    • The ultimate source from which entrepreneurial profit and loss are derived is the uncertainty of the future constellation of demand and supply.
      • We hold money because the future in uncertain (see e.g., Hoppe). Elaborate the connection.revisitdevelop

9. Entrepreneurial Profits and Losses in a Progressing Economy

See Chapter. XIV, Section 6 (“The Stationary Economy“).revisit

  • We must guard ourselves against the popular fallacy of drawing a sharp line between short-run and long-run effects. (p. 464)
    • What happens in the short run is precisely the first stages of the chain of successive transformations which tend to bring about the long-run effects. The long-run effect is in our case the disappearance of entrepreneurial profits and losses. The short-run effects are the preliminary stages of this process of elimination which finally, if not interrupted by a further change in the data, would result in the emergence of the evenly rotating economy.
      • See my note from p. 413
  • Profit and loss are entirely determined by the success or failure of the entrepreneur to adjust production to the demand of the consumers. (p. 465)
  • An excess of the total amount of profits over that of losses is a proof of the fact that there is economic progress and an improvement in the standard of living of all strata of the population. (p. 466)
    • Simply because the demand of the consumers are met by the product.develop
      • Profit-seeking business is subject to the sovereignty of the consumers, while non-profit institutions are sovereign unto themselves and not responsible to the public. Production for profit is necessarily production for use, as profits can only be earned by providing the consumers with those things they most urgently want to use. (p. 468)
  • It rests with the philosophers to change people’s ideas and ideals. The entrepreneur serves the consumers as they are today, however wicked and ignorant. (p. 469)
Some Observations on the Underconsumption Bogey and on the Purchasing Power Argument
  • The excess of profits over losses is not a consequence of the rise in the prices of the factors of production. The two phenomena—the rise in the prices of the factors of production and the excess of profits over losses—are both steps in the process of adjustment of production to the increase in the quantity of capital goods and to the technological changes which the entrepreneurial actions actuate. Only to the extent that the other strata of the population are enriched by this adjustment can an excess of profits over losses temporarily come into being. (pp. 471-472)revisit
  • The basic error of the purchasing power argument consists in misconstruing this causal relation. It turns things upside down when considering the rise in wage rates as the force bringing about economic improvement. (p. 472)revisit

10. Promoters, Managers, Technicians, and Bureaucrats

  • He will prefer among the various methods with regard to which the technicians are neutral, the one the application of which requires the smallest cost. (p. 474)
    • Compare this to “as long as it gets there” mentality, which wouldn’t prevail under the gold (or bitcoin) standard wherein not only capital but money is also scarce.develop
  • Economic calculation as practiced in the market economy, and especially the system of double-entry bookkeeping, make it possible to relieve the entrepreneur of involvement in too much detail. He can devote himself to his great tasks without being entangled in a multitude of trifles beyond any mortal man’s range of sight. (p. 474)
    • The managerial function is always subservient to the entrepreneurial function. It can relieve the entrepreneur of a part of his minor duties; it can never evolve into a substitute for entrepreneurship. (p. 476)
      • He sees the prospects of an uncertain enterprise from another angle than that of the man who is answerable for the losses. It is precisely when he is rewarded by a share of the profits that he becomes foolhardy because he does not share in the losses too. (p. 477)
  • In profit-seeking business the discretion of the managers and submanagers is restricted by considerations of profit and loss. The profit motive is the only directive needed to make them subservient to the wishes of the consumers. There is no need to restrict their discretion by minute instructions and rules. (pp. 481-482)
  • Bureaucrats are men who in every instance must observe a set of inflexible regulations. (p. 482)

11. The Selective Process

  • Everybody has the opportunity to take his chance. A newcomer does not need to wait for an invitation or encouragement from anyone. He must leap forward on his own account and must himself know how to provide the means needed. (p. 486)
    • I.e., permissionless (e.g., see Chris Dixon on Web2.0).develop
      • However, the entrepreneurial pursuits are interfered by politics under the fiat system, because of the Cantillon effect (i.e., the centralized fiat rail—which explains fiat’s low salability across time—makes providing “the means needed” with savings harder).develop
        • Related: “Business leverage come from capital, people, and products with no marginal cost of replication (code and media).” – Naval Ravikantdevelop
  • In many countries interventionism has so undermined the supremacy of the market that it is more advantageous for a businessman to rely upon the aid of those in political office than upon the best satisfaction of the needs of the consumers. (p. 487)
    • Again, play stupid games, win stupid prizes.
  • Success in business is the proof of services rendered to the consumers. (p. 487)
    • The poor man need not be inferior to the prosperous businessman in other regards; he may sometimes be outstanding in scientific, literary, and artistic achievements or in civic leadership.
  • Equality of opportunity, it is said, could be provided only by making education at every level accessible to all. (p. 488)
  • It produces imitation and routine, not improvement and progress. Innovators and creative geniuses cannot be reared in schools. (p. 488)
    • An entrepreneur cannot be trained. A man becomes an entrepreneur in seizing an opportunity and filling the gap.
  • The most successful businessmen were often uneducated when measured by the scholastic standards of the teaching profession. But they were equal to their social function of adjusting production to the most urgent demand. Because of these merits the consumers chose them for business leadership. (p. 488)

12. The Individual and the Market

See Chapter. XIV, Section 7 (“The Integration of Catallactic Functions“)—specifically, my note from p. 408.revisit

  • He does not always see that he himself is a part, although a small part, of the complex of elements determining each momentary state of the market. Because he fails to realize this fact he feels himself free, in criticizing the market phenomena, to condemn with regard to his fellow men a mode of conduct which he considers as quite right with regard to himself. (p. 489)
  • Modern man in contrasting a producers’ policy with a consumers’ policy has fallen victim to a kind of schizophrenia. (p. 494)
  • He fails to realize that he is an undivided and indivisible person, i.e., an individual, and as such no less a consumer than a producer. (p. 494)

13. Business Propaganda

I.e., advertisement

  • Therefore advertising pays the advertiser only if the examination of the first sample bought does not result in the consumer’s refusal to buy more of it. It is agreed among businessmen that it does not pay to advertise products other than good ones. (p. 498)
  • In this regard there is no difference between the costs of advertising and all other costs of production. (p. 499)
  • All costs of production are expended with the intention of increasing demand. (p. 499)

14. The “Volkswirtschaft”

  • Here we have only to answer the question of whether or not any of the essential features of the Volkswirtschaft are compatible with the market economy. (p. 502)
  • As far as there is still some room left for the actions of individuals, as far as there is private ownership and exchange of goods and services between individuals, there is no Volkswirtschaft. Only if full government control is substituted for the choices of individuals does the Volkswirtschaft emerge as a real entity. (p. 505)

Chapter XVI. PRICES

1. The Pricing Process

2. Valuation and Appraisement

3. The Prices of the Goods of Higher Orders

4. Cost Accounting

5. Logical Catallactics Versus Mathematical Catallactics

15. The Chimera of Nonmarket Prices

Chapter XIX. THE RATE OF INTEREST

1. The Phenomenon of Interest

2. Originary Interest

3. The Height of Interest Rates

4. Originary Interest in the Changing Economy

5. The Computation of Interest

Part V

Part VI

Part VII

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