La acción humana: tratado de economía de Ludwig Von Mises- Sesión 1

Introduction to the Círculo Bastiat

Overview of the Session

• The speaker welcomes attendees to the sixth session of the Círculo Bastiat, expressing gratitude for their presence.

• The focus will be on Ludwig von Mises, an influential economist whose work significantly shaped economic understanding.

Importance of Ludwig von Mises

• The speaker emphasizes that reading "Human Action" by Mises is essential for truly grasping economics.

• Despite his contributions, Mises remains relatively unknown in mainstream economic education, often overlooked in university curricula.

Mises' Background and Contributions

Early Life and Education

• Ludwig Heinrich Edler von Mises was born on September 29, 1881, in Lemberg (now Ukraine), then part of the Austro-Hungarian Empire.

• He initially studied law and was influenced by Carl Menger's "Principles of Economics," which shifted his perspective from socialism to classical liberalism.

Career Highlights

• From 1909 to 1934, Mises worked at the Vienna Chamber of Commerce and Industry, allowing him time for research and writing.

• He hosted a private seminar every Friday evening where discussions evolved into significant intellectual exchanges among economists.

Key Works by Ludwig von Mises

Major Publications

• In 1912, he published "The Theory of Money and Credit," regarded as one of the foremost monetary treatises.

• His 1919 work "Nation, State, and Economy" critiques state interventionism in economics.

Critique of Socialism

• In his pivotal 1922 book "Socialism: An Economic and Sociological Analysis," Mises argued that without private property in production means, rational economic calculation becomes impossible.

Understanding Mises' Perspective on Socialism and Liberalism

The Concept of No Third Way

• Mises emphasizes that there is no "third way" between socialism and liberalism, arguing that attempts to synthesize the two often fail.

• He asserts that between private property and collective ownership, a third option is difficult to establish; one must either respect or deny economic freedom.

Mises' Background and Migration

• Mises was born in Lemberg (now Ukraine) but moved to Vienna with his family at a young age, where he spent much of his early life.

• Between 1934 and 1940, he taught at the University of Geneva before fleeing Europe due to Nazi threats against him as a Jew and a liberal thinker.

Escape from Europe

• Shortly after fleeing Geneva, Nazis confiscated Mises' library and papers, which were later discovered by Soviets post-war.

• His works remained largely inaccessible until recent years when efforts began to catalog these lost documents.

Life in the United States

• After arriving in New York in 1946, Mises became a naturalized citizen and served as a visiting professor at NYU for nearly 25 years.

• During this time, he revived an intellectual seminar reminiscent of those held in Vienna, attracting notable economists like Murray Rothbard.

Major Works and Contributions

• His seminal work "Human Action," published in 1949, consists of seven parts across 39 chapters totaling over 1300 pages.

• Throughout his life until his death in 1973 at age 92, Mises authored over 200 essays on economics and methodology.

Mises’ Influence on Mexico

Engagement with Mexican Authorities

• In the early 1950s, Mises visited Mexico upon invitation from local authorities to share his economic insights through lectures.

Introduction to Mises' "Human Action"

Overview of the Book's Structure

• The discussion begins with a reference to various conferences held by Mises, including one at the Free School of Law, setting the stage for an analysis of his work.

• The book is titled "Human Action," subtitled as a treatise on economics, indicating Mises' broader conception of economics beyond mere financial transactions.

• Mises emphasizes understanding economic activity through the lens of human action, suggesting that economic behavior is fundamentally about human decisions and actions.

Key Themes in "Human Action"

• The first part focuses on defining human action; it includes chapters such as "Man in Action" and addresses epistemological problems related to the sciences of human action.

• Subsequent chapters cover topics like uncertainty and time, reflecting on previous works by economists like Carl Menger.

• The speaker notes that while they aim to cover all 223 pages, they will primarily focus on introductory themes rather than detailed chapter analyses.

Detailed Breakdown of Parts

• The second part discusses action within a social framework; the third part covers economic calculation essential for economizing.

• Further sections address market theory (Catalá), social cooperation without markets, government intervention in markets, and the role of economics within society.

Understanding Praxeology

Introduction to Praxeology

• The introduction contains several key chapters: "Economics and Praxeology," which distinguishes between two closely related sciences—economics and praxeology.

• Praxeology is defined as the science studying human action broadly; it derives from Greek terms meaning 'action' (praxis) and 'understanding' (logos).

Relationship Between Economics and Praxeology

• While praxeology encompasses all forms of human action, economics specifically examines actions occurring in market exchanges.

• Mises refers to this market-focused study as Catalá—a term derived from Latin meaning exchange or barter.

Importance of Understanding Human Action

Economics as a Modern Science

The Nature of Economics

• Mises asserts that economics is the most modern of all sciences, highlighting its relevance even decades after its initial publication in 1949.

• The origin of economics as a science is often traced back to Adam Smith's "The Wealth of Nations" published in 1776, though this claim may require further examination.

• Compared to philosophy, which has existed for over 2500 years, economics is relatively new at just 250 years old.

Unique Contributions of Economic Science

• Mises argues that economic science opened up a previously unexplored area by identifying immutable laws governing social phenomena.

• Early economists recognized that human actions and interactions are governed by these unchanging laws, differentiating their study from earlier philosophical inquiries into social behavior.

Immutable Laws in Economics

• Mises emphasizes that while ancient thinkers acknowledged social phenomena, it was the economists who identified the consistent laws governing human action.

• This new field provided insights distinct from other disciplines like logic or mathematics, focusing on principles that explain individual and collective human behavior.

Principles Governing Human Action

• Mises highlights the existence of immutable laws regulating social phenomena resulting from human action; these principles are foundational to understanding economic behavior.

• A key example is the law of diminishing marginal utility: as individuals consume more units of a good, the additional satisfaction derived decreases.

Consistency in Natural and Social Sciences

• The law of diminishing marginal utility remains constant as long as humans retain their nature and live within our current natural world.

• Before economists emerged, many thinkers doubted whether regularities observed in logic or natural sciences applied to social order.

Implications for Understanding Social Order

• If no regularities exist in social actions akin to those found in nature or logic, then one could argue there are no constraints on behavior within society.

• Just as natural laws dictate how substances interact (e.g., water's molecular composition), similar principles should govern human interactions if they exist.

Understanding Human Action and Social Cooperation

The Role of Mises in Organizing Society

• Mises argues that human activity and relationships adhere to regular laws that must be respected to achieve certain objectives.

• He emphasizes that one cannot act arbitrarily within society, even if tempted by the belief that others are acting incorrectly according to one's moral principles.

The Limits of Imposing Will

• When individuals attempt to impose their views on others, they may face resistance, revealing the fallacy of believing one can do as they please without consequences.

• Adam Smith's analogy compares humans to chess pieces, highlighting that unlike chess pieces, humans cannot be moved at will; they have agency and autonomy.

Key Themes in Human Action

• Mises identifies two major themes: human action itself and social cooperation. While all social cooperation involves human action, not all human actions require cooperation.

• The example of Robinson Crusoe illustrates a scenario where survival necessitates action but occurs in isolation until interaction with another person (e.g., Friday) is possible.

Praxeology: A General Theory of Human Action

• Mises introduces praxeology as the general theory of human action emerging from classical economics, framing economic problems within a broader scientific context.

• He notes that while classical economists contributed significantly to political economy, it was through their work that praxeology developed as a comprehensive understanding of human behavior.

Distinction Between Praxeology and Catallactics

• Praxeology encompasses all aspects of human action, whereas catallactics specifically addresses market exchanges and economic interactions among individuals. This distinction is crucial for understanding economic theory according to Mises.

• Robinson Crusoe's situation presents an interesting case study; despite facing economic challenges due to isolation, he does not fit neatly into catallactic analysis since he lacks exchange opportunities on his own island.

Economic Activity Within Broader Context

Understanding Mises' Approach to Human Action

The Scientific Study of Human Action

• Mises argues against Marxism, historicism, and irrationalism by asserting that human action can be studied scientifically.

• For scientific study, phenomena must adhere to general principles and laws; capricious actions cannot be scientifically analyzed.

• Mises posits that while human action (praxeology) differs from natural sciences like chemistry or physics, it is still subject to principles and laws.

Historicism vs. Austrian Economics

• Historicists claim that only empirical economic facts can be studied, reducing economics to mere history rather than a science.

• They argue that studying economic events allows for the induction of certain principles; however, this view limits economics' scope.

• The distinction between studying economic facts versus developing economic theory is crucial; the former belongs more to historiography.

The Nature of Economic Theory

• Austrian economists assert that a valid economic theory exists independently of specific historical events and can apply universally across time and place.

• Mises emphasizes the importance of abstract knowledge in economics beyond just empirical observations of economic facts.

Market Understanding: Theory vs. Empirical Study

• A key question in economics is "What is a market?" which transcends specific instances like local markets or stock exchanges.

• Understanding how different markets operate requires empirical studies but also necessitates theoretical frameworks applicable across various contexts.

Conclusion on Economic Principles

Theory of Markets: Can a Universal Theory Be Established?

The Possibility of a Universal Market Theory

• The discussion begins with the question of whether a universal theory can be established for markets, with historicists arguing against it, stating that such an abstract theory is unattainable.

• The speaker suggests that it is indeed possible to create a market theory by identifying essential elements necessary for defining a market, focusing on the relationship between suppliers and demanders rather than just physical locations.

Elements of Market Exchange

• A key point made is that the division of labor is fundamental in establishing market dynamics; for example, one agent produces pears while another produces apples, creating distinct roles as suppliers and demanders.

• For exchange to occur between these agents, they must agree on prices; without price determination, no valid exchange can take place. This highlights the necessity of pricing in facilitating trade.

Dimensions of Exchange

• Every exchange has both economic and legal dimensions: when purchasing an item, one receives not only the product but also ownership rights over it (e.g., receiving a receipt when buying a car). This duality legitimizes the transaction.

• The importance of documentation in high-value purchases (like cars) versus low-value items (like candy) illustrates varying expectations regarding proof of ownership based on transaction size.

Abstracting Market Dynamics

• The speaker asserts that it is feasible to establish an abstract theory about markets quickly by observing real-world examples like local markets where clear divisions of labor exist among vendors selling different goods.

• Observations from everyday marketplaces demonstrate how supply and demand interact through price-setting during exchanges, reinforcing the idea that theoretical frameworks can be derived from practical observations.

Critique of Historical Economic Thought

• Mises argues against historicist views by asserting that universal economic theories are possible; he critiques Marxist perspectives which suggest differing logics based on social class affiliations leading to fragmented understandings among individuals.

Understanding Logical Structures in Economic Thought

The Nature of Truth and Logic

• The speaker discusses the existence of multiple logics, suggesting that different perspectives can lead to distinct truths about the same reality. For instance, capitalists may not view capitalism as exploitative, while workers do.

• A logical dichotomy is presented: one cannot simultaneously possess two contradictory attributes (e.g., a blue sack cannot also be red). This highlights the importance of clear definitions in logical discussions.

Mises' Perspective on Logic

• Mises asserts that there exists only one logic that has been universally recognized by various fields such as philosophy and science. He emphasizes this uniformity as foundational for all research.

• The historical acceptance of a singular logical structure is noted, with Mises citing its role in shaping human thought and action throughout history.

Epistemological Conditions in Economics

• The discussion shifts to epistemology within economics, questioning what type of science it truly is. Mises critiques Marxism for viewing thought as merely an ideological disguise for class-based egoism.

• According to Marx's interpretation, all human thought serves selfish interests aimed at justifying specific social conditions, negating any notion of objective inquiry into reality.

Differences Between Natural Sciences and Human Action

• A comparison is drawn between natural sciences and the study of human action. Unlike chemists who approach their subject without preconceived notions (e.g., discovering water's molecular composition), economists may carry biases into their analyses.

• The speaker questions whether economists can maintain objectivity when studying social relations influenced by pre-existing beliefs about human behavior.

Contradictions in Marxist Thought

• A contradiction within Marx's theory is highlighted: he claims individuals think according to their class but also states that modes of production shape societal ideologies. This raises questions about the consistency of his arguments.

• The simplification inherent in Marx’s division into two classes (owners vs. laborers) is critiqued for overlooking complexities within social structures.

Personal Context of Marx and Engels

• Notably, both Marx and Engels are described as having lived outside the proletariat experience; they were not true representatives of the working class despite advocating for it.

Understanding Class and Rationalism in Economic Thought

The Social Class of Marx

• The speaker questions which social class Karl Marx belonged to, suggesting that Marx's thoughts may not align with those of a typical proletarian.

• It is argued that Marx's perspective was shaped by his bourgeois background, leading to a disconnect from the actual experiences of workers.

Critique of Irrationalism

• The discussion shifts to irrationalism, particularly its stance on human action and social relations, asserting that reason cannot comprehend certain aspects.

• Mises critiques the limitations of social sciences in understanding complex human behaviors, emphasizing the need for rational analysis.

Science and Control

• Modern science is characterized by its ability to control natural phenomena, moving beyond mere theoretical knowledge to practical applications.

• Techniques developed through scientific understanding allow humans to manipulate natural forces (e.g., water flow), showcasing significant advancements in control over nature.

Economic Science vs. Natural Sciences

• Despite advancements in controlling nature through science, economics struggles to achieve similar results as seen in fields like chemistry or physics.

• There is a notable disparity between economic outcomes and those achieved in other sciences; this raises questions about the effectiveness of economic theories.

Challenges within Economic Theory

• Many economists have faced challenges when implementing policies aimed at achieving specific economic goals, often resulting in setbacks rather than progress.

• The speaker highlights skepticism regarding the feasibility of developing an effective economic science comparable to more established disciplines like biology or physics.

Role of Economists

What Should Economists Do?

The Role of Economists in Society

• The discussion begins with a comparison between engineers and economists, questioning why economics degrees are not structured around practical applications as seen in engineering.

• A pivotal question arises: "What should economists do?" This is linked to James Buchanan's book, highlighting the expectations placed on economists.

• The speaker critiques the current educational framework for economists, suggesting it prepares them only for limited roles such as government positions, which are scarce.

• Mises argues that the primary role of an economist is to explain economic conditions rather than actively intervene or manage economic activities.

• Ludwig Erhard is cited as a successful economist who allowed markets to function post-WWII without imposing top-down solutions, emphasizing minimal intervention.

Economic Theory vs. Practical Action

• Erhard’s famous response during a press conference about Germany's recovery was simply to let markets operate freely instead of implementing strict economic plans.

• The speaker draws parallels with physiocrats who believed in allowing natural market forces to prevail without interference from authorities.

• There’s a critique of how current economics curricula fail to prepare students for real-world challenges beyond traditional roles like planning and coordinating economic activity.

Institutional Framework and Economic Progress

• Adam Smith's perspective on political economy emphasizes creating conditions for wealth generation while ensuring governments have necessary resources for their functions.

• The importance of institutional frameworks is highlighted; effective rules are essential for achieving economic objectives rather than merely relying on policies alone.

• If progress relies more on institutions than policies, then legislators play a crucial role in shaping economic outcomes rather than just economists themselves.

Policy Implications and Market Outcomes

• A critical examination of policy objectives reveals that they often aim to alter market results perceived as suboptimal by policymakers.

• If market outcomes are deemed ideal under existing constraints (like scarcity), then interventions may be unnecessary; however, if they aren't optimal, economist intervention could be justified.