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A Critique of Mises's Praxeology (Part 1?)

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Jon: Re the Graeber exchange, it turned out from the comments section that Graeber did not understand economics very well and he ignored/disregarded many obvious examples of barter, so I would not uncritically take his word on the matter.

You mean cases where barter led to money (he doesn't dispute that barter occurred)? One of the obvious examples is one that I addressed (and if I recall correctly, the others were along the same lines).

The act of production isn't "abstracted" away. In fact in some jobs you could get paid daily even. The fact remains that the wage-earner is earning their wage well in advance and despite of whether the good sells or not, so they neither have to wait nor do they have to risk losses out of their own assets should the business flop.

This is just what I mean. In advance of what? In advance of a future exchange. The worker doesn't earn his wage in advance of his work, and he doesn't earn it whether he works or not.

You are rather foolishly assuming that he thinks that labour does not take place over time. It does, it simply is nowhere near the time it takes to fully bring a good to market.

I don't mean to say that he would reject something so obvious. I'm charging that he held contradicting beliefs and employed whichever suited his purposes in a given situation (whether he did this consciously or not, I don't know).

"The limits of my language mean the limits of my world." ~ Ludwig Wittgenstein
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Fool on the Hill:

"Maybe I misunderstand you, but I don't think I agree. If we can return to the example of the piano, we notice that there is never a time when the pianist does not have enough notes."

Yes, a misunderstanding.  I'm referring, for example, to the time before the actor plays a particular note.  Before he plays a particular note (X), we could conceive that he wants to play note X.  We can conceive that to want is to strive after that which one does not have.  In this sense, we could conceive that playing note X is "scarce" for the actor.  He wants that which he does not now have: the playing of note X.   The same principle applies to song X.

I'm merely suggesting that if someone wanted to construct a universal, subjective concept of scarcity that is consistent with Misesian praxeology, one could approach it in this way.   Essentially, one would be conceiving the "end" of action to be scarce for the actor concerned in the sense that the actor attempts to "attain" it.  In other words, the end of action is always scarce, or, scarcity and end refer to the same phenomenon in action.

*****

"But what the word "exchange" typically refers to is not the unseen but the seen portion of the action. A robot, for example, could be programmed to exchange things, but this would not constitute "acting" on the robot's part. By doing this, I believe that Mises tries to transfer some of the particular characteristics of exchange to all of human action."

I'm not sure, but I believe you may be making a criticism similar to the one that Hayek made:

"I have long felt that the concept of equilibrium itself and the methods which we employ in pure analysis have a clear meaning only when confined to the analysis of the action of a single person and that we are really passing into a different sphere and silently introducing a new element of altogether different character when we apply it to the explanation of the interactions of a number of individuals."

"...the sense in which we use the concept of equilibrium to describe the interdependence of the different actions of one person does not immediately admit of application to the relations between actions of different people."

("Economics and Knowledge")

"...my 1937 article on the economics of knowledge,...was an attempt to persuade Mises himself that when he asserted that the market theory was a priori, he was wrong; that what was a priori was only the logic of individual action, but the moment that you passed from this to the interaction of many people, you entered into the empirical field." (Hayek on Hayek)

Do you mean something close to this?    And/or the difference between "subjective exchange" and objective exchange?

In other words, one notion entails choosing the next item on my "value scale."  The other notion entails moving an object from place to place in objective, extended space.  Something like this ?

 

*****

"I don't think one could conceive of marginal utility (interpreting it in a way that is incompatible with the LTV) without thinking in this way. Indeed, as I argued, if things are only obtained through unproductive reception and exchange, then marginalism logically follows."

Could you please elaborate a little on this?   Do you mean to say that without an implicit objective-type theory of exchange one could not have the theory of marginal utility as it is typically formulated ? 

 

 

"It would be preposterous to assert apodictically that science will never succeed in developing a praxeological aprioristic doctrine of political organization..." (Mises, UF, p.98)

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You mean cases where barter led to money (he doesn't dispute that barter occurred)? One of the obvious examples is one that I addressed (and if I recall correctly, the others were along the same lines).

I don't recall the specifics of the discussion. The original article had a pretty extended debate on the matter.

This is just what I mean. In advance of what? In advance of a future exchange. The worker doesn't earn his wage in advance of his work, and he doesn't earn it whether he works or not.

In advance of its final sale to market. I mean who cares about contributing to the production of a non-marketable component, really? Some workers of course -do- earn their wages prior to doing any work but this isn't what is important.

I don't mean to say that he would reject something so obvious. I'm charging that he held contradicting beliefs and employed whichever suited his purposes in a given situation (whether he did this consciously or not, I don't know).

Which contradictory beliefs, exactly? The fact that production takes time does not necessarily mean much by itself, especially if the worker only contributes to a fragmented part of the entire process of production (which most do; service sector workers are another story.)

Freedom of markets is positively correlated with the degree of evolution in any society...

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RobinHood: Here is the acid test. Ask yourself this. Do you, before even opening an Austrian work, decide that should it prove to be correct, you will become an Austrian?

Well, if it proved itself correct to me, then I guess I would have to become an Austrian. Certainly I have my own biases. When I read an Austrian work, I expect it to be wrong. However, I am very interested in why its wrong. Sometimes something seems intuitively wrong, but I need to formulate a coherent explanation before I really dismiss it. So if I am unable to do that, I very likely could change my mind.

FOTH and Student, consider yourselves honored. Many Keynesians and Marxists here I see as irreedemable.

Thanks, I guess. I kind of figured that everyone just took me for a troll, which is one of the reasons why I'm leaving.

"The limits of my language mean the limits of my world." ~ Ludwig Wittgenstein
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Funny, people keep telling me that I haven't read Mises thoroughly enough while admitting that they've only skimmed my posts.

(I'll get to the other replies tomorrow.)

"The limits of my language mean the limits of my world." ~ Ludwig Wittgenstein
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Adam: As I assume you already know, Mises explicitly states that praxeology is tautological in nature.  A critique of Mises's praxeology stating that praxeology is tautological in nature constitutes agreement with Mises, not disagreement with him.

I am aware of that. However, I am not convinced that he holds to those principles when he employs the concept of "uneasiness."

But here again, you are in agreement with Mises, because you relate the object of action (playing the piano) with a categorial "attitude" of the actor toward playing the piano, i.e., "liking" it.   As Mises conceives things, you are merely saying that you play the piano not to avoid or ameliorate dissatisfaction (uneasiness), but rather to gain or experience satisfaction.  I believe Mises would consider "avoiding dissastisfaction" and "gaining satisfaction" as two different ways of saying the same thing.

I don't disagree with this. I think you are saying that I play the piano because I have an aversion to not hearing the sound of the piano at that time. Yes, that's a tautology in line with what I said. But the way I read Mises, some of his concepts seem to diverge from this. Here are a few examples:

1. "Economic goods which in themselves are fitted to satisfy human wants directly and whose serviceableness does not depend on the cooperation of other economic goods, are called consumers' goods or goods of the first order" (ch. 4). By "satisfy human wants" I assume he means the same thing as the "removal of uneasiness." Following what you said, wouldn't this mean that all stages of production and all types of goods directly remove uneasiness? After all, it is only that I desire something and not why I desire it that makes it remove uneasiness (i.e. its part of the form of action). So if I planted a bunch of crops, wouldn't that remove uneasiness just the same as eating those crops? My impression was that only consumer goods removed uneasiness. Is that wrong? I'm curious as to how you would define the difference between consumer and producer goods as you seem much more clear and consistent than Mises.

2. "We may furthermore say that [economics] is perfectly neutral with regard to all judgments of value, as it refers always to means and never to the choice of ultimate ends." If the ultimate end is always the removal of uneasiness, then what is Mises saying here? He seems to imply that one could choose an ultimate end, but if an ultimate end only refers to the categorial nature of every action, then how can one speak of choosing ultimate ends?

3. Finally, and this is probably the most important one, Mises's theory of time preference relies on the notions of present and future satisfaction. But if satisfaction is merely a categorial aspect of every action as you say, then how can one defer satisfaction to the future? Isn't one merely deferring the content of the satisfaction to the future? If I save my money, then I am experiencing the present satisfaction of saving it, and in the future, I'll experience the satisfaction of spending it. So how can this explain interest given that both saving and spending are satisfying? (More on this in my upcoming piece on time preference.)

I believe that a critique of a historical interpretation is not identical to a critique of praxeology.

I think Mises tries to pass off thymology as praxeology (i.e. as something apodictically necessary). My final two pieces should make this point more apparent.

"The limits of my language mean the limits of my world." ~ Ludwig Wittgenstein
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Malachi replied on Wed, Aug 8 2012 8:31 PM
"When I read an Austrian work, I expect it to be wrong."

I cant imagine why anyone might think youre a troll. Reading an apodictically certain treatise and expecting it to be wrong is like reading a novel and hoping to find grammatical errors.

Keep the faith, Strannix. -Casey Ryback, Under Siege (Steven Seagal)
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Yes, a misunderstanding.  I'm referring, for example, to the time before the actor plays a particular note.  Before he plays a particular note (X), we could conceive that he wants to play note X.  We can conceive that to want is to strive after that which one does not have.  In this sense, we could conceive that playing note X is "scarce" for the actor.  He wants that which he does not now have: the playing of note X.   The same principle applies to song X.

And yet Mises also says this: "As long as the world is not transformed into a land of Cockaigne, men are faced with scarcity and must act and economize; they are forced to choose between satisfaction in nearer and in remoter periods of the future because neither for the former nor for the latter can full contentment be attained" (ch. 19 -  a different place than the one about Cockaigne I quoted earlier). So clearly he doesn't mean that about scarcity here. I think you're stretching common definitions here. Theories of value, for example, often refer to scarcity. Certainly they can't be referring to this type of scarcity.

If, however, the piano had a damaged string that I knew could only withstand five more notes, and I wanted to play more than five, then the notes would indeed be scarce.

I'm merely suggesting that if someone wanted to construct a universal, subjective concept of scarcity that is consistent with Misesian praxeology, one could approach it in this way.   Essentially, one would be conceiving the "end" of action to be scarce for the actor concerned in the sense that the actor attempts to "attain" it.  In other words, the end of action is always scarce, or, scarcity and end refer to the same phenomenon in action.

But it wouldn't in anyway be the same scarcity. It's just the same word with a different definition. And I don't see the use of having two words for the same thing. Why not just use "end"?

Do you mean something close to this?    And/or the difference between "subjective exchange" and objective exchange?

In other words, one notion entails choosing the next item on my "value scale."  The other notion entails moving an object from place to place in objective, extended space.  Something like this ?

I'm not sure he's really saying the same thing, but it might be related. I'm saying something along the lines of what Kant said in the quote I used at the beginning. If I move my hand from side-to-side, there's two aspects to this behavior. One is the empirical, simply the appearance of my hand moving through space. The other is the intelligible, the act of willing, the choice, the preference. You could say that the content of choice is double natured. The intelligible content of choice is always the "good" (I prefer Plato's term over Mises's "uneasiness). The empirical content of choice is always different but falls into different categories. I think of exchange as one of these empirical categories (others include running, eating, talking, etc.). Thus, I think "autistic exchange" misleads because it implies something empirical, the specific nature of the behavior. While "action" refers to the universal intelligible character. When combined, it seems to imply that people always do a specific type of action, that action always has the same content rather than just the same form. It makes no more sense to say that we always exchange one state for another than it does to say that we always "run" from one state to another.

Could you please elaborate a little on this?   Do you mean to say that without an implicit objective-type theory of exchange one could not have the theory of marginal utility as it is typically formulated ?

No, I don't think that's what I mean. I mean that marginal utility assumes that we already "have" something, usually more than one unit of something. Everything considered is "had." No means of obtaining a product are considered except exchanging with someone who "has" it. Scarcity just refers to how many products people "have" in relation to how many products people want. If we assume that all types of actions are exchanges, it's easy to see how this view might seem plausible.

"The limits of my language mean the limits of my world." ~ Ludwig Wittgenstein
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Fool on the Hill:

If I may begin with a few general comments:

A.  I know of no perfect social theory, and I'm confident that if you were to put forth a non-Austrian social theory, whether your own, or that of someone else, myself and others would be able to locate valid problem areas in that theory.   If the social theories we consider aren't perfect, then a few things follow.

B.  What we are talking about is the relative merit of the existing theories.  We are talking about which theory provides the most accurate and consistent explanation of the phenomenon relative to the other theories.  Austrian social theory provides or provided an explanation of why people purchase diamonds instead of bread when bread is objectively more valuable since it is necessary for life; of why abolishing the price system (socialism) won't work; and of why there are regular booms and busts.  The point isn't that those explanations/theories are perfect.  The question is whether there are better explanations.   If someone wants to avoid recurring boom/bust cycles, which theory should they adhere to instructing them on what to do to avoid them?  The standard for judging a social theory can't be an implicit standard of perfection.  The standard has to be a relative one:  ABC theory explains phenomenon X better than Austrian theory. 

C.  If a particular social theory isn't perfect, then we have to either address and correct the imperfections, or abandon the theory in favor of a different theory.  Your critique of praxeology seems to suggest the latter, but I believe this is based on an underlying conviction that no satisfactory answer can be provided that addresses the imperfections in praxeology.   What I'm trying to show is that for every valid critique you advance against the imperfections or weaknesses in Mises's conception of praxeology, there is an equally valid way to satisfactorily conceive or resolve the situation consistent with Mises's conception of praxeology.  

D.  In my opinion, a significant portion of your critique is dependent on the difference between the concrete versus the universal meaning of various words and terms.  You want to establish that regarding term X, it should be interpreted in its concrete or common-sense meaning, not in its universal or content-less meaning.   Granted that a lot of people struggle with this same thing.  If you own a copy of Epistemological Problems of Economics, or can access it online, Mises explains:

"The most troublesome misunderstandings with which the history of philosophical thought has been plagued concerns the terms "pleasure" and "pain."  These misconceptions have been carried over into the literature of sociology and economics and have caused harm there too."

"....Bohm-Bawerk did not see that in saying this he was adopting the same purely formal view of the character of the basic eudaemonistic concepts of pleasure and pain---treating them as indifferent to content---that all advanced utilitarians have held."

"That the concepts of pleasure and pain contain no reference to the content of what is aimed at, ought, indeed, scarcely to be still open to misunderstanding."

(chapter: Development of the Subjective Theory of Value)

The common-sense meaning of the terms pleasure and pain is "materialistic," and refers to such things as the pleasure of eating ice cream and the pain of a broken leg.  But in the context of formal social theory (the context of constructing it as opposed to trying to disprove it), the concepts "pleasure" and "pain" refer to the universal phenomenon of the the positive development versus the negative development.  (happiness/unhappiness, satisfaction/dissatisfaction, ease/unease, etc.)   In praxeology, these concept pairs all refer to the same two fundamental categories of action or consciousness.

I think we have to grant that if a given term is going to be interpreted in its material sense, when its universal or content-less meaning is needed to make the theory work, then the theory will not work.

E.  Here is one way to understand Mises's conception of praxeology that squares with his presentation of it in Human Action:

Mises's primary thesis is that there is a logic entailed in human action, and that logic derives from the structure of the human mind.  Due to the structure of my mind, every X that appears as a means of my action entails a Y.   If we consider the proposition "every action has an opposite and equal reaction," we can understand Mises's thinking if we interpret this proposition as referring to an epistemological phenomenon as opposed to a physical or ontological phenomenon.  In other words, for Mises, necessity is a mental phenomenon. 

If every action must entail a formal implication (a "reaction") which manifests as an "effect" in relation to a "cause", then the action which is, for example, lowering an interest rate, qua action, must entail a formal implication.

"...given that data in a particular situation, it (praxeology/economics) can draw inevitable conclusions as to their implications.  And if the data remain unchanged, these implications will certainly be realised.  They must be, for they are implied in the presence of the original data." (Lionel Robbins)

We can consider this primary thesis independent of any particular thinker's presentation of this thesis applied to concrete situations.  We can examine Mises's theory of the market and form a judgment about how successful he was in applying formal analysis to market phenomena.

Mises holds that for praxeology to maintain or achieve formal exactness, the concepts of praxeology must be purely formal and not contain or refer to concrete contents.  This implies that in principle, a "pure" praxeological scheme is possible consisting of only the categories of action and their relations, with no content specified.  This would be something like  (....)  x  (.....)  =  (.....) in mathematics.  Categories and relations, but no content.  That would be pure praxeology.

Regarding Human Action---Mises's presentation of praxeology as applied to market phenomena---there are valid questions that can be asked, some of which your critique addresses, such as:

1.  Does Mises present a pure praxeology in Human Action?

2.  Does Mises, in the book Human Action, relate every market phenomenon to its corresponding category in human action?   Does he assign to every market phenomenon its praxeological action category?

3.  Does he demonstrate clearly how market or catallactic necessity (his description of necessary cause and effect with regard to actions performed on the market) derives from the underlying praxeological categories?   Does he show clearly how the necessary relationship between X and Y in market phenomena derives from the pure categorial relationship between category A and category B of human action?

In general, how does Mises's actual practice and application compare to his own standard of "pure" praxeology that he sets forth?

I think these are valid questions.

 

 

 

"It would be preposterous to assert apodictically that science will never succeed in developing a praxeological aprioristic doctrine of political organization..." (Mises, UF, p.98)

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Fool on the Hill:

"...wouldn't this mean that all stages of production and all types of goods directly remove uneasiness? After all, it is only that I desire something and not why I desire it that makes it remove uneasiness (i.e. its part of the form of action). So if I planted a bunch of crops, wouldn't that remove uneasiness just the same as eating those crops? My impression was that only consumer goods removed uneasiness. Is that wrong? I'm curious as to how you would define the difference between consumer and producer goods..." (emphasis added by AK)

Yes, I agree.   The answer is, I would not try to start from historical economic (market theory) concepts (which refer to only a subset of human action) and work backwards to the categories of action.  Instead, I would begin by constructing the categories of action and see what they implied about market phenomena.

*****

"We may furthermore say that [economics] is perfectly neutral with regard to all judgments of value, as it refers always to means and never to the choice of ultimate ends." If the ultimate end is always the removal of uneasiness, then what is Mises saying here? He seems to imply that one could choose an ultimate end, but if an ultimate end only refers to the categorial nature of every action, then how can one speak of choosing ultimate ends?"

Here are some important passages by Mises on the relationship between means and ends.  TH = Theory and History, MM = Money, Method, and the Market Process:

As soon as people venture to question and to examine an end, they no longer look upon it as an end but deal with it as a means to attain a still higher end.  The ultimate end is beyond any rational examination.  All other ends are but provisional.  They turn into means as soon as they are weighed against other ends or means.(TH-14)

As soon as we start to refute by arguments an ultimate judgment of value, we look upon it as a means to attain definite ends.  But then we merely shift the discussion to another plane.  We no longer view the principle concerned as an ultimate value but as a means to attain an ultimate value, and we are again faced with the same problem.(TH-23)

In fact, he who passes judgement of an alleged end, reduces it from the rank of an end to that of a means.  He values it from the viewpoint of an (higher) end and asks whether it is a suitable means to attain this (higher) end.(MM-22-23)

Strictly speaking, only the increase of satisfaction (decrease of uneasiness) should be called the end, and accordingly all states which bring about such an increase means.  In daily speech people use a loose terminology.  They call ends things which should be rather called means.  They say: This man knows only one end, namely, to accumulate more wealth, instead of saying: He considers the accumulation of more wealth as the only means to get satisfaction.  If they were to apply this more adequate mode of expression, they would avoid some current mistakes.(MM-22)

Happiness—in the purely formal sense in which ethical theory applies the term—is the only ultimate end, and all other things and states of affairs sought are merely means to the realization of the supreme ultimate end.  It is customary, however, to employ a less precise mode of expression, frequently assigning the name of ultimate ends to all those means that are fit to produce satisfaction directly and immediately.(TH-13)

The net result of this theoretical situation is that it is inconsistent to conceive that the actor can choose both ends and means.  In Mises's conception of praxeology, the actor can choose various means to attain satisfaction (or to remove uneasiness).  Regarding the notion of "ultimate ends," this notion is confusing to me.  Every action has an end.  I think the notion of "ultimate ends" is confusing and misleading.

*****

"Finally, and this is probably the most important one, Mises's theory of time preference relies on the notions of present and future satisfaction. But if satisfaction is merely a categorial aspect of every action as you say, then how can one defer satisfaction to the future? Isn't one merely deferring the content of the satisfaction to the future? If I save my money, then I am experiencing the present satisfaction of saving it, and in the future, I'll experience the satisfaction of spending it. So how can this explain interest given that both saving and spending are satisfying? (More on this in my upcoming piece on time preference.)"

Well, I think this is a valid point.

I believe Hulsmann wrote a paper in which he tried to explain interest in terms of the difference between means and ends.  In this case then, interest would be conceived as a relationship between the several categories entailed in each and every action, as opposed to Mises's conception which seems to imply a comparison of satisfaction in one action with satisfaction in another action.

In general, if someone were interested in explaining the phenomenon of interest in the context of Misesian praxeology, I believe they should begin by constructing or conceiving the categories of action, and then see what those categories imply about interest.

******

"And yet Mises also says this: "As long as the world is not transformed into a land of Cockaigne, men are faced with scarcity and must act and economize; they are forced to choose between satisfaction in nearer and in remoter periods of the future because neither for the former nor for the latter can full contentment be attained" (ch. 19 -  a different place than the one about Cockaigne I quoted earlier). So clearly he doesn't mean that about scarcity here. I think you're stretching common definitions here. Theories of value, for example, often refer to scarcity. Certainly they can't be referring to this type of scarcity."

Here, to me, your conclusion seems to be derived a priori and not from an impartial reading of what Mises is saying.

Mises refers to two "worlds"; the world of non-scarcity and the world of scarcity.  He asserts that this world is a world of scarcity.   And his explanation of scarcity includes "neither for the former nor for the latter can full contentment be attained."   One could easily draw the conclusion from this that scarcity is identical to the striving for contentment which has not been attained.  Is Mises's passage here proof of the meaninglessness of the concept of scarcity?  Or is his passage proof of the need to clarify and formalize the concept of scarcity?   This depends one's goal.

*****

 

AK:  "I'm merely suggesting that if someone wanted to construct a universal, subjective concept of scarcity that is consistent with Misesian praxeology, one could approach it in this way.   Essentially, one would be conceiving the "end" of action to be scarce for the actor concerned in the sense that the actor attempts to "attain" it.  In other words, the end of action is always scarce, or, scarcity and end refer to the same phenomenon in action."

Fool on the Hill:  "But it wouldn't in anyway be the same scarcity. It's just the same word with a different definition. And I don't see the use of having two words for the same thing. Why not just use "end"?"

Praxeology is a living science.  Part of the process is the realization that what were commonly considered separate and unrelated phenomena, a, b, and c, are actually instances of one and the same phenomenon.

Is a concept the same thing as the future?  And are those two things the same as an end?  Well, not in historical thought.  However, if the categories of action include a category of unobserability or unperceptibility, then, from the point of view of individual action, a concept, the future, and an end, may be conceived as instances of the same phenomenon:  those things in action we refer to but do not observe.

Why use multiple words to describe the same thing?  I suppose that during the transition from the time people believe that everything they encounter is a different, seperate, and unrelated thing, to the time when they realize that many of the concrete things they encounter are instances of the same phenomenon, there will be redundancy.  During the process of consolidation there will be holdovers from the prior redundancy.

*****

"I'm not sure he's really saying the same thing, but it might be related. I'm saying something along the lines of what Kant said in the quote I used at the beginning. If I move my hand from side-to-side, there's two aspects to this behavior. One is the empirical, simply the appearance of my hand moving through space. The other is the intelligible, the act of willing, the choice, the preference. You could say that the content of choice is double natured. The intelligible content of choice is always the "good" (I prefer Plato's term over Mises's "uneasiness). The empirical content of choice is always different but falls into different categories. I think of exchange as one of these empirical categories (others include running, eating, talking, etc.). Thus, I think "autistic exchange" misleads because it implies something empirical, the specific nature of the behavior. While "action" refers to the universal intelligible character. When combined, it seems to imply that people always do a specific type of action, that action always has the same content rather than just the same form. It makes no more sense to say that we always exchange one state for another than it does to say that we always "run" from one state to another."

I think I understand what you are saying.   You are conceiving "exchange" in the narow or contentual sense, as opposed to the wider or universal sense.  

If I were reading Mises and he mentioned "autistic exchange," I would tend, automatically, to interpret him in the universal sense.  I would understand him to mean the individual actor's attempt to replace one state of affairs with another.

By contrast, you are reading Mises's "autistic exchange" as something like "autistic archery."   This implies that all action includes archery.

I personally have no problem equating "exchange one state of affairs for another" with "attempt to substitute one state of affairs for another" or any other phrase of a similar nature.  If Mises contrasts autistic exchange with interpersonal exchange, I will tend automatically to assume he means autistic action as contrasted with interpersonal action.

(As an important note in passing, it is important to distinguish between interpersonal action in the objective sense, and in the subjective sense.  Interpersonal action as described from the point of view of an observer (objective interpersonal action), is not the same as interpersonal action from the point of view of the actor who acts interpersonally (subjective interpersonal action).  Praxeology is concerned with subjective meaning and not objective meaning, and thus praxeology deals with subjective interpersonal action; those cases where it is the intention of the actor himself to perform an interpersonal action.)

*****

"No, I don't think that's what I mean. I mean that marginal utility assumes that we already "have" something, usually more than one unit of something. Everything considered is "had." No means of obtaining a product are considered except exchanging with someone who "has" it. Scarcity just refers to how many products people "have" in relation to how many products people want. If we assume that all types of actions are exchanges, it's easy to see how this view might seem plausible."

This is an excellent realization or insight. 

Here is an explanation of marginal utility by writer James Bonar writing in 1888:

"... and this brings us to the central point of the theory: We judge the value a man attaches to an article by the lowest use to which he is willing to put it.  If he would light the fire with the mahogany wood, the mahogany to him has simply fire-lighting value.  Or, if he would feed the horses with his corn, he values corn at its horse-feeding value.  He feeds himself with it, too, but he has enough of it to make any particular quantity of it only of the horse-feeding degree of importance to him.  We judge that such and such a use is the lowest from the fact that, when the stock of goods is decreased, that use is first forgone.  For example, if the supply of corn were cut short, the horse would loose first, or to take the other case the mahogany would cease to be used as firewood." (Austrian Economics, An Anthology, p. 16)

This seems to indicate that the theory of marginal utility is dependent on the concept of a "stock" or "supply" of goods, meaning, a number or quantity of identical goods possessed by the actor.   If this is the case, then the theory of marginal utility, as historically formulated, is not part of praxeology to the extent that not all actions entail a stock of indentical goods.   In other words, as the theory of marginal utility is commonly or historically formulated, it only applies to a subset of actions, and is thus, to use your term, "empirical" in nature.

Here is Hoppe on the theory of marginal utility:


"Or the law of marginal utility:  Whenever the supply of a good increases by one additional unit, provided each unit is regarded as of equal serviceability...."  (Economic Science and the Austrian Method, p.14)

Thus, the theory of marginal utility (as typically conceived) seems to apply only to a subset of human actions--those actions in which the actor possesses multiple units of a good .  In this sense, it is a law of economics (catallactics) specifically, but not a general praxeological law.

However, as with the concepts of scarcity and exchange, we need not conceive the theory of marginal utility in this narrow, contentual, sense.  The theory of marginal utility can be conceived in a universal sense.  E.g.:

We may conceive a praxeological law establishing a necessary relationship between supply and value in the following way.

We assume person A strives for something X.  The striving for X is identical to the not having of a wanted X.  This is the "short supply."

The striving for X, is identical to the valuing of X.

Thus, when A strives for X, this is identical to both the not having of a wanted X (the “low”supply), and a valuing of X (the “increase” in value).

And thus, “decreased” supply and “increased” value, are necessarily related.  Because in striving for X, actor A does that which is to value it, and does that which is to increase his supply of it.

Thus, if one wanted to construct a universal, non-particular (in your terms, non-empirical) conception of marginal utility---a theory that asserts a necessary relationship between "supply" and "value,"---one could approach it in this way.

Of course, your previously stated objections would apply to this new conception too.   This depends on what our goal is upon realizing the non-universal nature of various aspects of praxeology as presented by previous thinkers such as Mises.

I think it's great that you are analyzing Mises's praxeology and  making these important insights independently...

"It would be preposterous to assert apodictically that science will never succeed in developing a praxeological aprioristic doctrine of political organization..." (Mises, UF, p.98)

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Adam: Austrian social theory provides or provided an explanation of why people purchase diamonds instead of bread when bread is objectively more valuable since it is necessary for life; of why abolishing the price system (socialism) won't work; and of why there are regular booms and busts. The point isn't that those explanations/theories are perfect.  The question is whether there are better explanations.

These are precisely the type of things I have a problem with in Mises. I think there are better explanations.

What I'm trying to show is that for every valid critique you advance against the imperfections or weaknesses in Mises's conception of praxeology, there is an equally valid way to satisfactorily conceive or resolve the situation consistent with Mises's conception of praxeology.

Right. This is a good formulation of the dialectical process. We are developing the internal contradictions of his employment of praxeology so that we might arrive at a higher level of knowledge.

Mises holds that for praxeology to maintain or achieve formal exactness, the concepts of praxeology must be purely formal and not contain or refer to concrete contents.  This implies that in principle, a "pure" praxeological scheme is possible consisting of only the categories of action and their relations, with no content specified.  This would be something like  (....)  x  (.....)  =  (.....) in mathematics.  Categories and relations, but no content.  That would be pure praxeology.

This can be very tricky. I'm currently reading Hegel, and he shows how dynamic these categories are. Exchange, for example, is a universal categorial form as it classifies specific actions as its content. But when considering exchange as a chosen action, it becomes content and action becomes the form.

In general, how does Mises's actual practice and application compare to his own standard of "pure" praxeology that he sets forth?

I think these are valid questions.

Yes, these are the types of questions I am trying to raise.

As soon as people venture to question and to examine an end, they no longer look upon it as an end but deal with it as a means to attain a still higher end.  The ultimate end is beyond any rational examination.  All other ends are but provisional.  They turn into means as soon as they are weighed against other ends or means.(TH-14)

This is pretty good, although I'm not quite know what he is saying about the ultimate end here. Does he mean the "good life"?

As soon as we start to refute by arguments an ultimate judgment of value, we look upon it as a means to attain definite ends.  But then we merely shift the discussion to another plane.  We no longer view the principle concerned as an ultimate value but as a means to attain an ultimate value, and we are again faced with the same problem.(TH-23)

In fact, he who passes judgement of an alleged end, reduces it from the rank of an end to that of a means.  He values it from the viewpoint of an (higher) end and asks whether it is a suitable means to attain this (higher) end.(MM-22-23)

I think I see what he is saying here.

Strictly speaking, only the increase of satisfaction (decrease of uneasiness) should be called the end, and accordingly all states which bring about such an increase means.  In daily speech people use a loose terminology.  They call ends things which should be rather called means.  They say: This man knows only one end, namely, to accumulate more wealth, instead of saying: He considers the accumulation of more wealth as the only means to get satisfaction.  If they were to apply this more adequate mode of expression, they would avoid some current mistakes.(MM-22)

Now this I think undermines some of the previous quotes. I liked what he said about the ends shifting into means. But here he seems to imply that the end ultimately becomes fixed as "satisfaction." I think it's correct to consider the accumulation of wealth as an end or as a means depending on what aspect of it you want to look at. If, for example, we conclude that the accumulation of wealth is not satisfying him, then we have to stop considering it as a means. Remember Mises said that the economist (or whoever) can criticize something as means but not as an end. So we can criticize any specific action since it is a means to satisfaction. But once we conclude that an action doesn't bring satisfaction, we can no longer consider it as a means, because, by definition, a means is something that brings satisfaction. Thus, we are now looking at the action as an end (i.e. something for which there could be a means to but for which there is no longer any end for).

I believe Hulsmann wrote a paper in which he tried to explain interest in terms of the difference between means and ends.  In this case then, interest would be conceived as a relationship between the several categories entailed in each and every action, as opposed to Mises's conception which seems to imply a comparison of satisfaction in one action with satisfaction in another action.

I've heard of that paper, and I plan to read it. I've already pretty much finished my section on time preference and don't know if I want to include any more in it, but I will try to address the Hulsmann paper here later when I read it. It sounds like it might have some interesting things to say on the subject.

In general, if someone were interested in explaining the phenomenon of interest in the context of Misesian praxeology, I believe they should begin by constructing or conceiving the categories of action, and then see what those categories imply about interest.

I think we are on the same page here.

(As an important note in passing, it is important to distinguish between interpersonal action in the objective sense, and in the subjective sense.  Interpersonal action as described from the point of view of an observer (objective interpersonal action), is not the same as interpersonal action from the point of view of the actor who acts interpersonally (subjective interpersonal action).  Praxeology is concerned with subjective meaning and not objective meaning, and thus praxeology deals with subjective interpersonal action; those cases where it is the intention of the actor himself to perform an interpersonal action.)

That's another way to put it. In that case, I would say that Mises gives the impression that what are really objective properties are subjective properties. In fact, the Misesian tradition is often referred to as "subjectivist." To me, the objective and subjective aspects of economics are equally important for the science. This seems to indicate that something isn't quite being framed right.

Thus, the theory of marginal utility (as typically conceived) seems to apply only to a subset of human actions--those actions in which the actor possesses multiple units of a good .  In this sense, it is a law of economics (catallactics) specifically, but not a general praxeological law.

But I am questioning its status as a law of economics as well as praxeology. We could picture a world with two people in it. Neither person has either water nor gold in their possession. Yet either person could pay the other to get the water or gold for them. Marginal utility doesn't explain here why gold would cost more since the supply of each is the same (i.e. zero). I think one must ultimately consider the preference for the activity of obtaining gold versus the activity required for obtaining water. One could perhaps conceive of the higher preference of the activity of obtaining one as a higher supply. But then we have to keep that definition in mind when we conceive of what we normally mean by supply. We can't then conclude that the quantity of water that one possesses affects the price that one is willing to pay for an additional glass of water since this doesn't affect the preference for the activity required to obtain it.

The striving for X, is identical to the valuing of X.

The problem with this formulation is that striving is purely a quality, while value is something that is quantifiable. Therefore, value can't be identical with striving. It must be a particular form of striving. In order to derive this form, one must incorporate certain objective considerations. To put it in terms you used earlier, I feel like you are saying here that A is A rather than stating in what way A is B (identity vs. form). If value is only one form of striving, then striving has other forms. Thus, striving does not necessitate value by itself. If praxeology is concerned only with pure striving (striving qua striving), it cannot formulate anything about value.

I think it's great that you are analyzing Mises's praxeology and  making these important insights independently...

We are getting into some difficult philosophical territory, but it has been a good discussion.

"The limits of my language mean the limits of my world." ~ Ludwig Wittgenstein
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But I am questioning its status as a law of economics as well as praxeology. We could picture a world with two people in it. Neither person has either water nor gold in their possession. Yet either person could pay the other to get the water or gold for them. Marginal utility doesn't explain here why gold would cost more since the supply of each is the same (i.e. zero).

Why would it necessarily have to explain this? You are bringing up a pure hypothetical world. Picturing cute little hypothetical worlds has no bearing on why water in this world is valued far less than diamonds.

We can't then conclude that the quantity of water that one possesses affects the price that one is willing to pay for an additional glass of water since this doesn't affect the preference for the activity required to obtain it.

I'm not really following. Why is this the case? You almost speak of a preference for these activities as if they were hobbies.

 

Freedom of markets is positively correlated with the degree of evolution in any society...

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Jon: In advance of its final sale to market. I mean who cares about contributing to the production of a non-marketable component, really?

The specific character of production need not exclude it for non-market use. I'm not sure why the market sale should be taken as the point of reference. Why not the point where the capitalist uses the money from the sale to buy a good for his own consumption, for example?

Why would it necessarily have to explain this? You are bringing up a pure hypothetical world. Picturing cute little hypothetical worlds has no bearing on why water in this world is valued far less than diamonds.

Because production exists. That's how commodities enter the world. Marginal utility theory doesn't seem to acknowledge this fact.

I'm not really following. Why is this the case? You almost speak of a preference for these activities as if they were hobbies.

Well, why could we conclude that the quantity does affect the price necessarily? As far as preference, in order to obtain water, one must either "produce" it themselves or must trade something else for it (or obtain it by gift or theft). If one trades for it, one must "produce" the thing traded for it. Thus, in one's actions, one demonstrates a preference for the production of water versus the production of the thing that can be traded for it.

"The limits of my language mean the limits of my world." ~ Ludwig Wittgenstein
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Fool on the Hill:

My main goal is to demonstrate how alternate conceptions or formulations are possible for some of the important conceptions of praxeology which you are critiquing, such alternate conceptions being consistent with, but not identical to, Mises's conceptions.  Examples that we've discussed here include the concepts of scarcity and exchange, and the theory or marginal utility.

As previously mentioned, and I assume you agree, we can take any particular problem(s) or inconsistency(ies) we encounter with a given theory as cause to abandon the theory, or as cause to modify it.  Your critique seems to suggest the former, and I'm advocating the latter position.

I assume you do not agree that a significant portion of your critique hinges on your interpreting conceptions that are intended in their universal sense, instead in their concrete or empirical sense.  For example, regarding this:

The striving for X, is identical to the valuing of X.

You write this:

"The problem with this formulation is that striving is purely a quality, while value is something that is quantifiable."

Here you explicitly critique the formulation in question by applying a concrete, or physical, or measurable, or empirical, meaning to the conception "valuing of X."

But that is not my conception of the notion of "valuing X," nor is it the conception of Mises.  Probably, relatively few, if any, Austrians would consider value to be measurable or quantifiable.   Thus, a significant portion of your critique, as I previously mentioned, is based on your insistence on interpreting conceptions that are intended in their universal sense, in their concrete or physical sense.

Here is a typical passage of Mises dealing with the concept of value:

It is customary to say that acting man has a scale of wants or values in his mind when he arranges his actions. On the basis of such a scale he satisfies what is of higher value, i.e., his more urgent wants, and leaves unsatisfied what is of lower value, i.e., what is a less urgent want. There is no objection to such a presentation of the state of affairs. However, one must not forget that the scale of values or wants manifests itself only in the reality of action. These scales have no independent existence apart from the actual behavior of individuals. The only source from which our knowledge concerning these scales is derived is the observation of a man's actions. Every action is always in perfect agreement with the scale of values or wants because these scales are nothing but an instrument for the interpretation of a man's acting.

There is nothing in this passage that indicates or implies a conception of value wherein value is to be considered a measurable or quantifiable entity or phenomenon.

What Mises expresses here is that the information that we value X, is derived from the fact that we choose X, and not Y.

Here, "value" is meant in a universal sense.  Every action will have its "value"--- either that which the actor chooses, or, that which the actor strives for---depending on how the particular social thinker has constructed his/her theory.  By value, Mises intends a universal feature of each and every action.  You've granted that striving is a pure quality, and in Austrian economics and praxeology, value is also a "pure quality" (by which I mean a category or universal element of action).   And thus the formulation stands as an "equivalency proposition," similar in nature to 2 x 2 = 4, where both identity and non-identity are expressed in one proposition.

My main point is that in adopting a concrete, physical, or empirical conception of the concept of value, you are no longer critiquing Mises's praxeology or probably anyone else's praxeology.   In this instance at least, you are critiquing the implications of meanings you have imputed yourself, which are distinctly different from the meanings intended by the original thinkers.

 

 

"It would be preposterous to assert apodictically that science will never succeed in developing a praxeological aprioristic doctrine of political organization..." (Mises, UF, p.98)

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As previously mentioned, and I assume you agree, we can take any particular problem(s) or inconsistency(ies) we encounter with a given theory as cause to abandon the theory, or as cause to modify it.  Your critique seems to suggest the former, and I'm advocating the latter position.

Personally, I can't see myself using a modified Austrian framework in the future. I'd more likely use the language of other economic paradigms. But if you want to reformulate Austrian economics in light of my criticisms, I would be interested to see what you come up with. I understand that there are some Austrians who are probably closer to my viewpoints, Ludwig Lachmann for example. The same conclusions can often be reached from within different traditions.

But that is not my conception of the notion of "valuing X," nor is it the conception of Mises.  Probably, relatively few, if any, Austrians would consider value to be measurable or quantifiable.   Thus, a significant portion of your critique, as I previously mentioned, is based on your insistence on interpreting conceptions that are intended in their universal sense, in their concrete or physical sense.

But right after you say that value is identical to striving, you say:

Thus, when A strives for X, this is identical to both the not having of a wanted X (the “low”supply), and a valuing of X (the “increase” in value).

I had assumed that the words "supply" and "increase" referred to quantity. To say that something has increased or is greater than something else is itself a form of measurement. Wikipedia says this about quantity: "Quantity is a property that can exist as a magnitude or multitude. Quantities can be compared in terms of "more", "less" or "equal", or by assigning a numerical value in terms of a unit of measurement."

Thus, if one wanted to construct a universal, non-particular (in your terms, non-empirical) conception of marginal utility---a theory that asserts a necessary relationship between "supply" and "value,"---one could approach it in this way.

But I don't see where the "marginal" aspect comes in. Where are the units for which one can be marginal for another? Once you include these units, these units are by definition particulars. So there is no way to formulate marginal utility without reference to particulars.

By chance did you mean extended objects instead of particulars (i.e. things that exist in space)? I wasn't talking about extended objects. Perhaps my use of empirical is confusing. I was following Kant's usage of the word. In any case, your exposition did not include particulars and is thus not an exposition of marginal utility.

"The limits of my language mean the limits of my world." ~ Ludwig Wittgenstein
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Profit

Just like how he does for the concept of exchange, Mises also purports to derive the concept of profit from the category of human action:

Profit, in a broader sense, is the gain derived from action; it is the increase in satisfaction (decrease in uneasiness) brought about; it is the difference between the higher value attached to the result attained and the lower value attached to the sacrifices made for its attainment; it, in other words, yield minus costs. To make profit is invariably the aim sought by any action. If an action fails to attain the ends sought, yield either does not exceed costs or lags behind costs. In the latter case the outcome means a loss, a decrease in satisfaction.

Properly understood, if “psychic profit” can refer to a characteristic of human action, it can only refer to the expected higher level of satisfaction obtained during one period of time versus another (unrealized) use of that same period of time. The graph of “psychic profit” would look something like this:

[Note that time 2 has a different variable than time 1, but both actions at time 2 have the same variable. The “+ n” signifies the greater preference for the top action assuming that n is greater than 0 (and the reverse if it is less than 0).]

Mises then explains how this “psychic profit” takes the form of monetary profit in the market economy:

In the market economy all those things that are bought and sold against money are marked with money prices. In the monetary calculus profit appears as a surplus of money received over money expended and loss as a surplus of money expended over money received.

Did you notice the logical leap? Actually, depending on interpretation, the error may have been already present in Mises’s description of “psychic profit.” But I’m going to be charitable in my interpretation of “psychic profit” and call the connection a logical leap. The problem is—once again—that “psychic profit” refers to an intratemporal relation while monetary profit refers to an intertemporal relation. Monetary profit refers to an increase of money received over money that was actually spent previously. If monetary profit were to conform to “psychic profit,” it would simply mean that a business sold a product for more money than it could have sold the product. So McDonald’s would profit off of selling a cheeseburger for $1 because it could have sold it for 50 cents. In this sense, every situation we would normally conceive of as a loss becomes a profit. Even Mises admitted that his notion of “psychic profit” is nothing like monetary profit:

The difference between the value of the price paid (the costs incurred) and that of the goal attained is called gain or profit or net yield. Profit in this primary sense is purely subjective, it is an increase in the acting man's happiness, it is a psychical phenomenon that can be neither measured nor weighed.

Clearly, when we ordinarily speak of profits, it is something we can measure (Note: I think Mises actually means that “psychic profit” is not measured as a multitude; it already is a measure of magnitude. In any case, monetary profit is measured as a multitude). A graph of monetary profit might look something like this:

[Note that time 1 and time 2 have the same variable. The “+ n” refers to a profit if the number is greater than 0 and a loss if it is less than 0. No reference to alternative actions are necessary in depicting monetary profit.]

We see now why Mises misconceived human action as an increase in satisfaction. It was because profit was his true starting point. Thus, not only does Mises conceive of all action as exchange but also as profitable exchange. In this sneaky way, Mises tries to naturalize the relations of “bourgeois” society. Surely one couldn’t be against capitalist profits if one seeks to profit in each day-to-day action oneself? I’ve seen it a number of times: someone objects to the profits that capitalists make, and some adherent to Misesian-style reasoning replies with something like, “well, the workers profit too!” But when they say this, they are equivocating between two notions of profit. The “psychic profit” the worker receives simply indicates that he would rather work than not work for that period of time. His acceptance of the job doesn’t say anything about an improvement over his previous state of affairs. The profit the capitalist receives, however, refers to an ever-increasing amount of income.

Yet even this doesn’t necessarily mean that the capitalist is improving his state of affairs in the psychic sense. One doesn’t necessarily benefit from inhaling more air than one exhales, or from planting more trees than one chops down. Profit-seeking isn’t a necessary aspect of human action but a pathological one specific to the capitalist mode of production. Profit is not action itself but a specific object of action. Thus, profit is the subject of history and not of praxeology.

Let’s examine some of Mises’s specific claims about profit. First of all, by profit Mises means “entrepreneurial profit.” He dismisses a portion of what we normally consider profit to be instead from “originary interest.” This is necessary in order to explain why there is an average rate of profit above zero. Thus, anything above the average rate constitutes an entrepreneurial profit while anything below it constitutes an entrepreneurial loss. This seems to be a tacit admission that entrepreneurial profit is a zero-sum game, but Mises will later raise an objection as to how it is not (we’ll see in a minute how this objection is simply smoke and mirrors). Mises claims that entrepreneurial profit is due to the entrepreneur’s ability to predict uncertain future market conditions. Furthermore, he claims that the entrepreneur’s ability in this regard is not only beneficial to himself but to society in general.

To see how profits relate to exchange, let’s return to Radford’s account of the exchange-only prison economy. According to Mises, “[t]he only source from which an entrepreneur's profits stem is his ability to anticipate better than other people the future demand of the consumers.” Like Mises, Radford seems to admire the entrepreneurs and condemns the economic ignorance of the masses who oppose them. Radford gives one example of how entrepreneurs in the POW camp were able to make a profit from predicting future demand: “As soon as prices began to fall with a cigarette shortage, a clamour arose, particularly against those who held reserves and who bought at reduced prices. Sellers at cut prices were criticised and their activities referred to as the black market.” Let’s take a closer look at this. The successful entrepreneurs sold their food rations when cigarettes were abundant, and therefore got them at low prices. Then, when the supply of cigarettes went down, the entrepreneurs exchanged their now more valuable cigarettes for food. They thus ended up with more food than they started with.

Mises would argue that these entrepreneurs are providing a valuable service to the other members of the POW camp. But what do the other prisoners really gain? They are simply sold back the same things that they sold the entrepreneur but now at a higher price. If the entrepreneurs hadn’t traded with them, they would have more stuff and would be better off. True, the prisoners agreed to each trade and thought that they would be better off. But they only thought that the trade was beneficial because they failed to anticipate the change in the supply of cigarettes. The fact that they were angry is evidence that they regretted their actions. Plus, if they also foresaw the change in the market, then there would be no entrepreneurial function at work, no entrepreneurial profits. The previous prices would have adjusted to the future conditions. The example is akin to one where a man loses all of his money in a poker game and then is offered all of it back as a loan. How fortunate of the winner to be able to anticipate the gambler’s future demand for a loan! How is this not a zero-sum game? Mises admits that it is in a stationary economy: “In the imaginary construction of a stationary economy the total sum of all entrepreneurs' profits equals the total sum of all entrepreneurs' losses.”

Mises has an answer. Only a “progressing economy” avoids the zero-sum game:

In the progressing economy the range of entrepreneurial activities includes, moreover, the determination of the employment of the additional capital goods accumulated by new savings. The injection of these additional capital goods is bound to increase the total sum of the income produced, i.e., of that supply of consumers' goods which can be consumed without diminishing the capital available and thereby without reducing the output of future production…it is out of this additional wealth that the surplus of the total sum of entrepreneurial profits over the total sum of entrepreneurial losses flows.

But something doesn’t seem quite right here. As J. B. Say noted, products are exchanged for products. In the previous case, we might consider one entrepreneur to have 5X and another to have 5Y. If the first entrepreneur exchanges 5X for 5Y and then later, due to his ability to anticipate future conditions, exchanges 4Y back for his original 5X, then we can see how his profit is merely the second entrepreneur’s loss. Mises concedes this (it’s a stationary economy). But what if both entrepreneurs instead of trading their 5 commodities (somehow) invest them so that they produce 10X and 10Y respectively? This still does not allow both entrepreneurs to gain a profit in exchange. Now the first entrepreneur might exchange 10X for 10Y and then trades 8Y back for his original 10X. As far as the exchanges go—the profit gained from the anticipation of future demand—it’s still a zero-sum game. This holds true no matter how many X or Y each entrepreneur produces.

But—one might object—the total quantity of goods increases, and thus each entrepreneur realizes a profit in this sense. To this, we merely need to point out that the quantity of goods increases before any of the exchanges are made. They increase quite regardless of the entrepreneur’s ability to predict future states of the market. Why does the quantity of goods increase? Mises once again ignores the unique character of production and attributes the increase in goods to the entrepreneur’s “savings” and “investment in capital.” The reason he does this is clear—he wants to draw your attention away from the transaction that is occurring between the entrepreneur and the laborers. The laborer produces a quantity of goods for the entrepreneur and gets back a smaller quantity in exchange. Mises’s theory provides only two possible means of explaining this discrepancy. One, the workers fail to anticipate the value of their future product and thus undervalue the price of their labor. This is clearly the same zero-sum game. Any time a profit arises for the entrepreneur, it means a loss to the laborers. The laborers would have been better off producing the goods themselves (every decision to work for a wage is a malinvestment, in other words). Mises’s views aren’t clear, but I think he would reject this interpretation and favor the second one: the laborers receive less than their full product because they have higher time preferences. If this is right, then Mises avoids falling into a zero-sum game by merely reincorporating originary interest back into the concept of entrepreneurial profit. Thus, entrepreneurial profit includes precisely what Mises says it is supposed to exclude!

It should be clear that the entrepreneur provides no net benefit to society in an exchange-only economy.  Could he perhaps be of benefit in a society with production? After all, Mises says that the entrepreneur has to follow the dictates of the consumer. In the prison economy, any transaction the entrepreneur fails to make simply means that the existing goods are distributed differently. But in a production economy, the actions of the entrepreneur determine what goods exist in the first place. Mises argues that the market forces the entrepreneur to create goods that are beneficial to society. But what exactly does he mean here? Consider the following quote:

If one wants to call entrepreneurial action an application of the method of trial and error, one must not forget that the correct solution is easily recognizable as such; it is the emergence of a surplus of proceeds over costs. Profit tells the entrepreneur that the consumers approve of his ventures; loss, that they disapprove (705-706).

Yet this conclusion doesn’t seem very sound. We can conclude that the laborers who agree to work for an entrepreneur at time 1 prefer to work for him than do anything else at that time. Further, we can conclude that the consumers who buy said entrepreneur’s products at time 2 prefer to buy those commodities over other commodities existing at the same time. But in no way do these actions necessarily express an approval for the actions of the entrepreneur. By acting, one only approves of one’s own actions. We are trying to consider whether the products that an entrepreneur produces are preferable to the products he chooses not to produce. The fact that one buys or doesn’t buy the products that he does produce says nothing about this judgment by itself. It only expresses a preference for the products that this entrepreneur actually produces versus the products that other entrepreneurs actually produce. To make an analogy that should be plain to any libertarian, consider the immigration between countries. The fact that one moves to a country does not express approval of the government’s past ventures. It merely says that one prefers to live under that state than to live under a different existing state. Even if one abstains from buying any products produced by entrepreneurs, this doesn’t send any signals to the entrepreneur via his rate of profit. The rate of profit only tells him how he is doing against other entrepreneurs, just like how the winner of an election is determined solely by the people who vote. The voice of the people who abstain from voting doesn’t factor at all into the percentage of votes that determines the winner.

Thus, no proof of the beneficial function of the entrepreneur can be derived praxeologically. If a case is to be made for the entrepreneur, it has to be made on “empirical” or “historical” grounds. Ultimately, I think one has to appeal to some sort of motivational theory. One has to claim that people generally perform better when they are forced to compete for artificially scarce rewards. In other word, one has to appeal to the tenants of pop behaviorism. Unfortunately for the advocate of the entrepreneur, there is a mountain of evidence against this theory.

But Mises still has one leg left to stand on—his theory of time preference. Perhaps this theory explains why the capitalist world is the best of all possible worlds. It is to this idea that we at last turn.

"The limits of my language mean the limits of my world." ~ Ludwig Wittgenstein
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The specific character of production need not exclude it for non-market use.

Good, then we're not talking about for-profit production though.

I'm not sure why the market sale should be taken as the point of reference.

Because that is the only point at which production fulfills its purpose, i.e. remunerating the investor-owner for the resources they put into the product and putting the product into the consumer's (or alternatively, next in line producer's) hands. Any other point, it is still resources in the process of being transformed. Nice but who is it useful to?

Why not the point where the capitalist uses the money from the sale to buy a good for his own consumption, for example?

You're speaking as if some person is deciding to use it as the point of reference. Were the "worker" (or whatever one wishes to call it) to take upon themselves the role of the owner-capitalist and produce and sell the good, they would not receive a single penny until they sold the good on. That is one of their alternatives to wage labour. Excessive discounting (i.e. drawing it out beyond the point where money is exchanged for the product or some similar arrangement obtains, i.e. that point when the lender/investor etc. see their money return to them) would simply attract competition from investors in other markets where the rate of return on capital invested is lower. It would also mean "workers" were relatively under-valued for their services (i.e. cheap relative to their productivity) and therefore based on this there would be every incentive to hire and profit from the discrepancy until the market nears equilibrium again.

The point of sale is the point where money returns to the investor, and neither "worker" nor "capitalist" will see a cent before then.

Because production exists.

So what?

That's how commodities enter the world. Marginal utility theory doesn't seem to acknowledge this fact.

I don't really see why it doesn't. Are you trying to say for it to be operative that it must apply in the context of an existing stock of goods? I don't see why. All it seems to imply is that the utility of a good is equal to its lowest ranked current use.

Well, why could we conclude that the quantity does affect the price necessarily?

Provided it continues to be regarded as the same good, it will go on to fulfil wants of an increasingly less urgent, subordinate nature. The question's simple really. Threaten to take away any one of those units and see which use will give way first.

As far as preference, in order to obtain water, one must either "produce" it themselves or must trade something else for it (or obtain it by gift or theft). If one trades for it, one must "produce" the thing traded for it. Thus, in one's actions, one demonstrates a preference for the production of water versus the production of the thing that can be traded for it.

Yes, the good to be traded is only desired insofar as its exchangeable for the other good. So why would the amount of that good that one already possesses not affect how they value that good?

 

Freedom of markets is positively correlated with the degree of evolution in any society...

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David B replied on Mon, Aug 13 2012 7:00 PM

 

@Fool on the Hill

I wanted to reply to some of your initial criticisms with some thoughts that might be useful.  I have an approach and this first set of thinking, I hope demonstrates that approach.  I'll finish with why I think this is the rights system, and that it has gaps, but not errors that need to be closed.  That those gaps are the ones that cause Marxism to be so appealing even though it's economics are demonstrably wrong when applied to the real world.  And finally I'd beg that you continue to bring your mind and all of your prodigious analytic capabilities into this camp, in my hope that doing so will help to attack the problems in the world which I'm sure you also see, namely the injustice that modern political and economic systems create and the damage it does to your fellow man. 

Time in Action

First, I'd like to discuss time relative to a human being in reality, and the stimulus/response phenomena without bringing a concept of teleology to the table.  Then I'll add teleology back and analyze how the time component illuminates the category of action.

Time is on one level a human category. We use it in comprehending the constant, chaotic and yet regular change that we perceive in reality.  We assume the concepts of past, present and future.  We only know the past through the evidence in a the now.  Either as memories, or as "current" observations of the present which we interpret as evidence of past events.  The future is for us a land of unknowns into which we project our imaginations about what might be.

So, I'd like to break down the stimulus/response cycle in man into a logical construct informed by empirical science.  Stimulus is the inputs into the brain in this case.  Light hits the eyes, sound hits the ears, and air moves over the skin.  Each phenomena from the real world produces electrical activity in the nerves within those organs.  The signals propogate to the brain through our nerves, where the brain interprets the information received as conceptual knowledge  (or understanding) about the world that is happening "now".  Please note however that at a minimum, the world you are observing conceptually is not the present, but is actually a reality that has past you by.  Meaning at a minimum the data is 50-400 ms old.  As we refer to it in computer programming it's stale data.  It may or may not be accurately reflect the present.  

For the purposes of this discussion, I'd like to set aside as magical, HOW I arrive at a decision that results in a response.  Instead, I'd like to focus on the time portion of that response resulting in empirically observable phenomena in reality.  In other words,   at some point I respond in some way to the stimulus that reached my brain.  That response (for it to be objectively observed) must involve an electrical transmission from the brain through nerve cells to one or more muscles in the body.  That is the response portion of the event takes time.  

Teleology and Praxeology

For the purposes of social interaction, regardless of it's form, we assume purpose and intentionality in at least SOME of the stimulus/response phenomena that we observe in others empirically. We do so as an intuition based on our own internal perception (right or wrong) of our own interaction with reality.  The categories of Praxeology apply when a human generated phenomena is teleological, as opposed to a reaction or instinct or some other unintended behavior.

As an aside here, about our implicit teleological interpretation of reality, I'd like to relate a story.  When we were kids, my sister would ask my mom to make me stop chewing loudly.   "He's doing it on purpose to make me mad," she would say.  Think about all of the categories she brought to the table.  She had no knowledge of the science of Praxeology, and yet she assumed that because my behavior made her mad, I was doing it to make her mad.  From her point of view, my behavior and all of its side effects were intended.  I was simply chewing to eat.  I did have a goal, but she attributed all side effects to my intentions.  So, the informative point of this example, is that as children, we intuit intentionality, and then we have to actually learn that other events in reality aren't necessarily caused by intention.   At some point we assume intention in the events we experience.  And reasonably so, after all we perceive our own actions as intended, why aren't all changes we see intended.  Now I don't know if the categories of Praxeology are absolutely a part of any high level of intelligence, or if they are a specific feature of human intelligence, but it doesn't matter because they are present in human intelligence, and we don't know of a way to engage reality (specifically the behavior of other humans) without assuming the categories of Praxeology.

Psychology, biology, neuroscience and other physical sciences may ignore the teleological interpretation of the behavior of the brain in this process, but social sciences assume a human intelligence as a means to explain the behavior of the people.  In fact, the biggest failings of social science are when they discard this view of human beings in the pursuit of empirically derived theories.  We will never be able to discuss social phenomena by referring to causal relations.  The relations, can only properly be interpreted as teleological.

Ok, so back to the stimulus/response cycle.  If you accept that this empirically informed model informs you about the time elements present in the internal experience of being human, then one can see that there is inherent risk in every action.  All behavior in response to stimulus, regardless of intentionality or not is predicated on stale data, and the effects generated by any behavior can only be observed as new stimulus, as stale data, when it becomes present once again as knowledge in the brain.

Time as Scarce

Now, when praxeologists refer to time as scarce, for it to inform our understanding of reality the statement must in some way conform to our experience of our changing reality.  At a minimum might realize that there are things which cannot be done at the same time, responses that cannot both happen simultaneously.  Meaning that I cannot now both walk and sit.  I may imagine doing either, I may imagine doing either at different points in some hypothetical future, but I cannot imagine making my muscles cause both behaviors NOW. (or in a future I will at some point experience as stale data).

When Mises referred to Cockaigne, as he often did, he always referred to it as some hypothetical existence with certain  properties of our reality altered.  When you hear him refer to this world of Cockaigne in his writing, the feature he alters in reality is important to pay attention to.  The thing that's been removed, will be one that's relevant to the present discussion at that time and place in the writing.  In one example referenced in one of your posts, you pointed out what you thought of as a logical inconsistency.  But I believe you simply missed the point Mises was making.  He retained the time limitation on action, but  he imagined a theoretical Utopia in which man would live forever (a different aspect of time that constrains a man) and wherein he was not subject to any physical deterioration of the body (disease or misuse, the entropic effects of time).  He additionally added a Utopian feature by which a man could in fact satisfy any of his desires, thus imagining that in some unknown and unexplained way, he offered that any goal a man might imagine for himself to attain he could do so, and the only constraint was when to do them, not if he would do them.  

Later Adam referred to the seen and unseen components of action in the abstract.  If you look closely at the time relationship in the stimulus/response model above, the inherent time gap in the feedback loop results in the potential for missing data, or an unseen.  Now, let's retain this model and discuss the concept of happiness or uneasiness.

Time and Happiness/Uneasiness

If one is to fix the category of happiness/uneasiness to some point in time during the stimulus/response cycle then it must sit in the black box junction at a point in time between the comprehension of reality (stale data about the past) and the origination of the action(nerves firing to create an action into reality).  Meaning that any imagined improvement in the world, is NOT something seen, but something unseen but hoped for.  Therefore any motivation to act, cannot be based on knowing that one will be happier, but instead must be based on a belief that I will be happier.  That belief may be right or not, but it's irrelevant in the abstract praxeological concept of happiness.  The happiness sought is about what one expects to occur in the future.

Now let's take this one slight step further, the happiness one expects to gain, IS NOT relative to the happiness one is taking out of the "present" (actually 400ms past).  Because we can't change the present, we can only trigger cause/effect relationships into an unseen and unknown future.  So the aim is not to improve the present, but to substitute one future expected reality with another future aimed at reality.

If one looks at it in this way, we see that in fact, the bear example fits praxeological abstract concept of action perfectly.  I don't curl up in a ball, and think that the attack by the bear makes me happier than I was before the bear attacked me.  I curl up in a ball, because I expect to prefer the experience of a bear attack while I'm in a ball, to my experience of a bear attack when I'm not in a ball.  Both realities that impel any action, the one which a man's action seeks to avoid and the one man's action seeks to attain, are the sources of uneasiness/happiness that impels action.  Meaning man's actions are always into an unrealized future.  

Understanding Praxeology

So, I too have spent lots of time thinking about these concepts from many different angles.  I often have wondered about how they relate to the reality we empirically understand.  The logical truths of praxeology, must continue to withstand inspection, as we learn more about the real world as embodied in our empirical science.  My hope is that that my description above helps you to see the kind of additional thinking and cross-disciplinary analysis one can do, to help confirm to yourself, or better understand the categories as Mises meant them, and in fact to put in additional little nuances that might explain pieces or slight inconsistencies as they appear in his work.  But it seems, you want to disagree with them, for some unknown agenda (actually we know, you like Marx better), while you would probably argue that I've tried to prove them for my own agenda.

Bias?

Now, often we see arguments that a Christian or a Muslim, or an Evolutionist, etc will always pay attention to the data that fits his understanding, and will ignore or reinterpret data that doesn't fit his understanding.  I don't know how to prove to you, that this is not what I'm doing.  The best response to this I've seen is in Ultimate Foundation of Economic Science.  In particular, the discussion of Euclidian Geometry and non-Euclidian Geometry and the assault on rational logic that arose as a result.  

I will admit, I've long assumed for some reason I don't know, that liberty and freedom were "the right way".  Perhaps it was my historical experience prior to thinking deeply on these topics, that more often than not a handout, was generally counterproductive and a helping hand up was generally productive when viewed in the long run.  I gravitated toward libertarian  thought.  But Praxeology pulled me in on it's own regardless of the political bias of most of it's users.

Logic is a Valid Tool; Nay the Only Tool

This all goes back to how one chooses to use the logical constructions in the mind in applying them to reality.  I will doubt my senses, but not the tool of logic.  It's possible that logic may not be "perfect", but it's my most trusted tool.  Not because it's infallible, but because I can't not use it.  (yes that means I must use it).  When you have a hammer, every problem is a nail.  So then the question is how do we apply the tool to reality?  You don't have a tool for knowledge creation other than logic.  We have sensory data that we interpret, but the categories you form have logic built into them from their conception.  Every word we use implies two logically opposite categories.  A set of things the word means (or applies to) and the set of things that it doesn't. A and 'A.  Now when we apply these words to reality, we find them woefully lacking, in that we will struggle with any definition to determine whether some 'things' that we hope to categorize as A or 'A will have features that might fit both categories, and cause us to be confused.  In fact it is these very phenomena that form the basis of all humor.

There are two goals for any logical system of knowledge, one is to be in fact logical and consistent, the other is to be applicable.   I will assume, but cannot know for sure, that since man began to use language as a tool, he has always in every time and in every place, used knowledge to perform this basic function of differentiating and carving up the world in order to use the categories (symbols) produced (called knowledge) to predict the future so that he can effectively create realities he wants, and avoid realities he does not.  To the extent that he constructed valid and applicable models, he was successful in his attempts to bend the world to fit his desires.  That is the useful nature of knowledge.  It is the only reason we have it.  Mises clearly points out that man cannot comprehend a world without regular and predictable change that would also have knowledge. 

So, in asking these questions as you have about Mises you may disconnect from his ideas if you so choose.  But do so because they actually ARE wrong when applied to reality.  Historically, the attacks on Praxeology have not been on the internal logic of the system.  Or on the applicability of the system to reality.  The only way it's been attacked has been to attack logic itself as flawed and biased.

But I believe this misunderstands the role that logic plays.  Logic is a tool that helps a man understand his world and reason about his world.  The value of reason for man, as evidenced by its use in reality is that we have no better tool for predicting the future.  Reason is the only tool we have which can overcome the pre-logical brain's mechanisms for survival.  Namely the "lizard brain" from which sensory inputs were directly wired to both hormone release (emotional states) and the muscles themselves.

Logic is the tool that raises man above instinct and reaction, and enables reflection, reasoning, and productive action.  Even in this forum you use logic in order to attempt to dislodge this system of thought called praxeology.

Discard Praxeology?  Explain Action!

But offer another theory of action.  Or explain why a theory of action isn't in and of itself, a valid tool for understanding the behavior of men.  This is the point Mises makes in Theory and History.  Without theory, history is simply noise and data.  It is through theory that we make the raw data into information that we can use to make decisions.  It is through theory that we "understand" what happened.  The landing on the moon, is not understood by describing the raw physical phenomena.  In fact, even if one tries to describe the landing on the moon in terms of matter and physics without thinking of spaceships and human beings and "moons", one still must use other theories like matter and energy and gravity and thrust and laws of momentum.    Theory ALWAYS is used to explain phenomena we refer to as history, or to predict phenomena in some imagined future.

Any discussion about anything is interpretation of phenomena.  Mises simply points out that this logical concept of action is at the root of all human behavior and knowledge.   That one cannot talk about the behavior of man with another theoretical framework and make sense of language, or logic, or the actions of man in reality, be it hunting or gathering, or producing and consuming.  The behavior of weaving a basket makes no sense if we talk in terms of instinct.  In fact as a reaction to stimulus they only make sense (to a human intelligence) if we add knowledge and teleology into our model of the phenomena of basket weaving.  In looking for a causal interpretation, one ends up at this black box of the brain which one can only understand if one assumes knowledge, purpose, and decision making.  Not because there might not be a causal chain, but because a causal chain would open up any new avenue for action to the person who was interpreting the behavior.  One must look at logic, language and knowledge formation (epistemology), and one must use a theory of action, of means and ends, of purpose, of usefulness to a purpose.  The basket isn't the result of some instinctive behaviors, it's the result of the application of the faculties of the human mind to some end.  

So our discussion isn't about whether or not Praxeology explains all of the behaviors of man, IF an action of man involves the use of knowledge, concepts, logic, and results in behaviors that can be observed.  Then the categories of action ARE necessarily there.  

If Marxism is Wrong; Wherefore Marxism?

The last comment I'll make is about Marxism itself.  There are two reasons this theoretical system such as Marxism survives and thrives in the face of a superior social science such as Praxeology.  First, it has a theory of conflict, regardless of whether or not it's an accurate theory, it has one, and that in and of itself gives it life because so much of the social experience of man is of inequalities in station, economic wealth and opportunity and political power or powerlessness.

The second reason it thrives and survives is because it not only discusses theoretically what conflict is in a social sense, it points at specific places and experiences of man, and says "Here is the source and cause of the inequities of man."  And it presents theorems as validation of these conclusions.  This is empowering to those who feel disenfranchised or who have in fact been exploited.  

Praxeology what about Conflict and Exploitation?

Austrian Economists(Praxeologists), Libertarians, and many, many other groups, have tried to point out that liberty, freedom, and individual property rights are the drivers and source of the ability of man to satisfy his wants and desires, such that from the lowest levels of society to the highest, each man in the society experiences a more comfortable and idyllic existence when compared with the equivalent social conditions in foregone ages.

I'll firmly go on record, that Praxeology has failed miserably to provide an explanation of conflict.  It's a social phenomena and Praxeology is the social science, then there must be an explanation of conflict.  There must be an explanation of the experience of exploitation.  For such a theory to be consistent and accurate it must proceed in just the same manner as the economic branch (theory of cooperation) has proceeded, by starting with methodological individualism and building a theory of conflict as man engages in social interaction.  Mises in multiple places and works, pointed out that he was sure that there was a praxeology of conflict, he just didn't figure it out, and left it to future praxeologists to work out how this was so.

Praxeological theorems about conflict and the entire field of politics, would sound the deathknell for Marxism, finally.  It deserves to be laid to rest.  We've been so busy attacking the economics of Marxism, and in the process have completely ignored WHY it's preferred.  As long as we can't offer a sound praxeological explanation of the phenomena of conflict, exploitation, class struggle (which may or not be a real phenomena) we can't answer the socialist propagandist.

Class Conflict? That's Ancient News

In the history of man, all political systems have created some measure of division between those with power and those without.  Recent history demonstrates just as empirically that even in a socialist regime the result is still a stratification between the party rulers and those who have to obey their edicts.

But this isn't the first time such a battle has been waged ideologically between those in power and those who were oppressed.  The history of Western Europe is just such a battle.  The serf against the lord and the king and the aristocracy.  The beginnings of classical liberalism (a political system, not an economic one mind you) arose out of these very struggles. In that time and place it was the merchants and the intellectuals (rich but non-ruling sons of lords or merchants) who engaged in ideological combat with the church and the aristocracy to free themselves and their fellow man from the exploitation of those that held power.

In the US before the rise of socialism the abolitionists fought against the ideologies that allowed bright and religious men to convince themselves that their exploitation of the black race in the US South was an acceptable practice. 

As rich merchants and politicians and businessmen drove the industrial revolution and modern mercantilist economies, factories and industrialization arose as a new working condition and again those who held power and wealth were able to once again exploit in many cases those who held less power and wealth.

Praxeology is Social Science

Marxism rose in a response to the mercantilist economic and political practices.  But it wasn't the only response, Subjective Value Theory lead to the resolution of the problems inherent in classical economics and the rise (in Mises) of an a priori science of human action, which proved to be capable of explaining all of the phenomena of economic life from the Micro all the way up to the macro. 

Praxeology is the mechanism for understanding the social life and existence of man, in all it's varied forms.  Conflict, power, political action, law, property, all of these exist in the realm of the social man, the man who must interact with and account for the behavior of other men in pursuit of his own goals.

Please stick around and help fill this gap.  What we have isn't broken, it's just incomplete.  Everyone is welcome to help.

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David B replied on Mon, Aug 13 2012 7:24 PM

@myself 

Got that post is a mess in spots. I wrote it too fast and didn't edit it properly before posting.

I'll be updating it...

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Jon: You're speaking as if some person is deciding to use it as the point of reference. Were the "worker" (or whatever one wishes to call it) to take upon themselves the role of the owner-capitalist and produce and sell the good, they would not receive a single penny until they sold the good on. That is one of their alternatives to wage labour. Excessive discounting (i.e. drawing it out beyond the point where money is exchanged for the product or some similar arrangement obtains, i.e. that point when the lender/investor etc. see their money return to them) would simply attract competition from investors in other markets where the rate of return on capital invested is lower. It would also mean "workers" were relatively under-valued for their services (i.e. cheap relative to their productivity) and therefore based on this there would be every incentive to hire and profit from the discrepancy until the market nears equilibrium again.

I'm curious as to what you think Mises means when he says profit isn't a zero-sum game in a progressing economy. I showed in my previous post that, in the Misesian framework, this must either be because the workers are failed entrepreneurs or because they have a higher time preference. Which one do you think it is?

I don't really see why it doesn't. Are you trying to say for it to be operative that it must apply in the context of an existing stock of goods? I don't see why. All it seems to imply is that the utility of a good is equal to its lowest ranked current use.

I thought that it implied that not only the utility but also the price of the good was determined by its ranking. If you have been following my conversation with Adam, then you'll notice that I just posed a very serious problem with his formulation of marginal utility. He conceded that marginal utility could not be formulated without assuming a preexisting supply. However, his formulation included only supply as magnitude and not as multitude. Marginal utility needs to be formulated with reference to multitude (i.e. there needs to be more than one of a particular type that can be ranked). Thus, any form of marginal utility that purports to be inherent in all human action must assume a preexisting supply of something.

Provided it continues to be regarded as the same good, it will go on to fulfil wants of an increasingly less urgent, subordinate nature. The question's simple really. Threaten to take away any one of those units and see which use will give way first.

So if I take away one unit of Depends from its manufacturer, which use will give way first?

Yes, the good to be traded is only desired insofar as its exchangeable for the other good. So why would the amount of that good that one already possesses not affect how they value that good?

Why would it necessarily? If I were building a house and already had 10 bricks, why would I be willing to pay less for an additional brick than if I had none at all? I mean sure if you took one brick away from me, the hole in my wall would be in the place of lowest rank. But why does this mean that I value that brick less than the others? Doesn't it just mean that I value a brick in that hole less than one in the other potential holes?

"The limits of my language mean the limits of my world." ~ Ludwig Wittgenstein
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I'm curious as to what you think Mises means when he says profit isn't a zero-sum game in a progressing economy. I showed in my previous post that, in the Misesian framework, this must either be because the workers are failed entrepreneurs or because they have a higher time preference. Which one do you think it is?

Or because their risk appetite isn't consistent with the risks entrepreneurs must bear in suffering losses if their predictions don't pan out. Who knows? It could be any combination of factors. I'd say it is a mixture of high TP. lack of understanding of even basic finance let alone markets (thank you, government education) and risk aversion.

He conceded that marginal utility could not be formulated without assuming a preexisting supply.

In which case it is a special case of a yet more general theory.

However, his formulation included only supply as magnitude and not as multitude. Marginal utility needs to be formulated with reference to multitude (i.e. there needs to be more than one of a particular type that can be ranked).

It suffices that a good serves a particular end. Its utility is its serviceability towards reaching that end. As it begins fulfilling increasingly subordinate ranks on a preference schedule, its utility continues to fall. If you mean that the theory of marginal utility requires a prior theory of valuation to get off the ground because it is concerned with discrepancies in values between goods (which are by definition homogeneous from the valuer's perspective), then possibly it does - the subjective theory of value.

So if I take away one unit of Depends from its manufacturer, which use will give way first?

The one upon which they place the least value, which is something only they can determine.

Why would it necessarily? If I were building a house and already had 10 bricks, why would I be willing to pay less for an additional brick than if I had none at all?

That would only make sense if you were indifferent to which end you were fulfilling, i.e. any particular end would be as good as any other end being fulfilled and there was no mutual exclusivity of one end depriving another end's fulfilment, i.e. the good is in abundance.

I mean sure if you took one brick away from me, the hole in my wall would be in the place of lowest rank. But why does this mean that I value that brick less than the others? Doesn't it just mean that I value a brick in that hole less than one in the other potential holes?

Indeed, or however else the consumer chooses to regard the good. The good in question isn't the brick but the brick fulfilling whatever capacity the consumer desires of it.

Freedom of markets is positively correlated with the degree of evolution in any society...

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Fool on the Hill wrote:

Personally, I can't see myself using a modified Austrian framework in the future. I'd more likely use the language of other economic paradigms. But if you want to reformulate Austrian economics in light of my criticisms, I would be interested to see what you come up with. I understand that there are some Austrians who are probably closer to my viewpoints, Ludwig Lachmann for example. The same conclusions can often be reached from within different traditions.

But that is not my conception of the notion of "valuing X," nor is it the conception of Mises.  Probably, relatively few, if any, Austrians would consider value to be measurable or quantifiable.   Thus, a significant portion of your critique, as I previously mentioned, is based on your insistence on interpreting conceptions that are intended in their universal sense, in their concrete or physical sense.

But right after you say that value is identical to striving, you say:

Thus, when A strives for X, this is identical to both the not having of a wanted X (the “low”supply), and a valuing of X (the “increase” in value).

I had assumed that the words "supply" and "increase" referred to quantity. To say that something has increased or is greater than something else is itself a form of measurement. Wikipedia says this about quantity: "Quantity is a property that can exist as a magnitude or multitude. Quantities can be compared in terms of "more", "less" or "equal", or by assigning a numerical value in terms of a unit of measurement."

Thus, if one wanted to construct a universal, non-particular (in your terms, non-empirical) conception of marginal utility---a theory that asserts a necessary relationship between "supply" and "value,"---one could approach it in this way.

But I don't see where the "marginal" aspect comes in. Where are the units for which one can be marginal for another? Once you include these units, these units are by definition particulars. So there is no way to formulate marginal utility without reference to particulars.

*******

Fool on the Hill:

I wouldn't reformulate Austrian Economics in light of your criticisms since your criticisms are saying something I already knew: that Mises's theory is not perfect, and that the entirety of Human Action does not constitute a monolithic "praxeology."   If I were interested in economics (market study) particularly, I would reformulate Austrian Economics in terms of the categories of action.  Your critique would be of little use for this since the categories of action are not clearly expounded or clearly discernible in your critique.

"Low supply" and "increase in value" are placed in quotations and parentheses to separate the formal aspect of the proposition from the application of the formal proposition to "empirical" or "complex" experience.   In other words, the formal law (the part outside the parentheses) explains why, in complex experience, we intuit a relationship between a low supply and an increase in value (the part inside the parentheses).   This is consistent with Mengerian and Misesian formal/exact science which holds that complex experience does not present itself to us as exact, but it is "in respect to the approaches to cognition by which we attain to them simply bear within themselves the guarantee of absoluteness."   In the above formulation, the formal law is the part outside the parentheses; our experience of complex, "empirical reality" is the part inside the parentheses.  Thus, your critique doesn't apply.

But I don't see where the "marginal" aspect comes in. Where are the units for which one can be marginal for another? Once you include these units, these units are by definition particulars. So there is no way to formulate marginal utility without reference to particulars.

People mistakenly believe that what is essential about the law of marginal utility is the concept of marginality, which requires, or seems to require, at least one of the following:  1) that the actor possess a number of identical items, 2) an intertemporal comparison of value.

The key is the recognition that the essence of the law of marginal utility is the statement of an exact or formal or praxeological relationship between supply and value in individual action.   Marginalism or marginality can then be seen as the application of this purely formal relationship between supply and value (as suggested above) to our complex experience consisting of several actions.  Historical formulations of the law of marginal utility, I will contend, are based partly on objective conceptions that are incompatible with praxeology (the formal analysis of the categories of human action). 

When/if the law of marginal utility is re-conceived as suggested above, there is no "marginalism" in this new formulation.  Marginalism is then moved over to the empirical or objective or thymological side of the treatment.

Just to be clear, the re-conceptions of scarcity (2006)and marginal utility (2008) in terms of the universal categories of action predates your present critique.  What necessitates their reconception is the desire to render praxeology as accurate and consistent as possible.  Your critique, though a confirmation of the need to improve praxeological conceptions, is not the cause or reason for improving them.

*******

Fool on the Hill wrote:

Just like how he does for the concept of exchange, Mises also purports to derive the concept of profit from the category of human action:

Profit, in a broader sense, is the gain derived from action; it is the increase in satisfaction (decrease in uneasiness) brought about; it is the difference between the higher value attached to the result attained and the lower value attached to the sacrifices made for its attainment; it, in other words, yield minus costs. To make profit is invariably the aim sought by any action. If an action fails to attain the ends sought, yield either does not exceed costs or lags behind costs. In the latter case the outcome means a loss, a decrease in satisfaction.

Here is how one can read this passage from Mises on the assumption that one agrees that there are universal categories of action:

Profit  =  the gain derived from action  =  the increase in satisfaction  =  the decrease in uneasiness  =  the difference between higher value and lower value  =  yield minus costs.

In other words, if we want, we can read Mises as, to a large extent, elaborating a chain of "tautological transformations."

The concept of profit is derived from the category of action because "satisfaction" (happiness, pleasure, etc.----each meant formally, not contentually) is a category of action, and profit is either:  another word for this category, or, a concrete instance of it, in which case it becomes a thymological notion.

Mises is reasonable and understandable in speaking of "deriving the concept of profit from the category of action."

If one wants to argue that Mises made mistakes or missteps in his theoretical application of the categories of action to a market setting (the interaction of a number of people), then one agrees with Hayek in 1937:

"...my 1937 article on the economics of knowledge [was] my attempt to persuade Mises himself that when he asserted that the market theory was a priori, he was wrong; that what was a priori was only the logic of individual action, but the moment that you passed from this to the interaction of many people, you entered into the empirical field."  (Hayek on Hayek, p. 72)

*****

Fool on the Hill wrote:

"Thus, no proof of the beneficial function of the entrepreneur can be derived praxeologically.  If a case is to be made for the entrepreneur, it has to be made on “empirical” or “historical” grounds."

This is largely correct.  But it requires neither a lengthy explanation nor an opponent of praxeology to see why.

If the notion of the entrepreneur is conceived to consist only of the categories of action, then the entrepreneur is a universal actor just like any actor, and there is no separating him theoretically from any other actor. 

If the notion of the entrepreneur contains concrete characteristics that differentiate him from the universal actor, precisely those concrete characteristics will prevent or destroy formal exactness in the affected propositions relating phenomenon A with phenomenon B.

In short, to the extent the entrepreneur is an ideal type, as opposed to an actor consisting of only the universal categories of action, concrete differentia replace universal categories, and formal exactness becomes unattainable.

This may help explain why those Austrians who make the concept of the entrepreneur the centerpiece of their theory tend not to emphasize the notions of a priori propositions, necessary truths, or exact laws.  The notion of the entrepreneur is likely a thymological construct.

 

 

 

 

"It would be preposterous to assert apodictically that science will never succeed in developing a praxeological aprioristic doctrine of political organization..." (Mises, UF, p.98)

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David, thanks for your thoughtful post. I'm not sure what I should respond to. I think I agree with a lot of what you say, and where I don't, you probably know where I stand. I admire your desire to develop praxeology in new directions, such as conflict theory. I hope you can make some contributions in this area. It should expand your understanding if nothing else.

If one looks at it in this way, we see that in fact, the bear example fits praxeological abstract concept of action perfectly.  I don't curl up in a ball, and think that the attack by the bear makes me happier than I was before the bear attacked me.  I curl up in a ball, because I expect to prefer the experience of a bear attack while I'm in a ball, to my experience of a bear attack when I'm not in a ball.  Both realities that impel any action, the one which a man's action seeks to avoid and the one man's action seeks to attain, are the sources of uneasiness/happiness that impels action.  Meaning man's actions are always into an unrealized future.

Yes, this is what I was trying to say.

So, in asking these questions as you have about Mises you may disconnect from his ideas if you so choose.  But do so because they actually ARE wrong when applied to reality.  Historically, the attacks on Praxeology have not been on the internal logic of the system.  Or on the applicability of the system to reality.  The only way it's been attacked has been to attack logic itself as flawed and biased.

No, I am not trying to attack logic itself. That would indeed be silly. I am trying to critique Mises's praxeology in the same why a math teacher might critique my math paper. I think he lays out some good concepts but doesn't hold to them consistently. I hope to lay out a labor theory of value at some point that will make sense from a praxeological perspective. One might call it an action theory of value.

"The limits of my language mean the limits of my world." ~ Ludwig Wittgenstein
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Before I forget, I had a collection of Mises quotes on the relationship of action to time that I wanted to post. The first set of quotes I more or less agree with. I think these quotes express the correct view of action as a selection of possible states over the same period of time (intratemporal).

Action is always directed toward the future; it is essentially and necessarily always a planning and acting for a better future. Its aim is always to render future conditions more satisfactory than they would be without the interference of action. The uneasiness that impels a man to act is caused by a dissatisfaction with expected future conditions as they would probably develop if nothing were done to alter them.

Action does not measure utility or value; it chooses between alternatives.

What counts for praxeology is only the fact that acting man chooses between alternatives.

As has been pointed out, every action aims at the attainment of a state of affairs that suits the actor better than the state that would prevail in the absence of this action.

The second set of quotes highlight what I think is Mises mistake--that action is about the improving of one period of time over the previous period of time (intertemporal). This is the mistake of seeing action as profit. I see these statements as contradicting the first set:

Man becomes conscious of time when he plans to convert a less satisfactory present state into a more satisfactory future state.

The urge toward action, i.e., improvement of the conditions of life, is inborn in man.

What a man does is always [!] aimed at an improvement of his own state of satisfaction.

Action is change, and change is in the temporal sequence. But in the evenly rotating economy change and succession of events are eliminated.

[In addition to the confusing statement that action is change, it’s not clear to me why there wouldn’t be a succession of events in the evenly rotating economy. Doesn’t rotation imply a succession of events?]

In addition, I thought this quote from John Dewey on the relationship of profit to human action might be relavent:

We now return to a consideration of the utilitarian theory according to which deliberation consists in calculation of courses of action on the basis of the profit and loss to which they lead. The contrast of this notion with fact is obvious. The office of deliberation is not to supply an inducement to act by figuring out where the most advantage is to be procured. It is to resolve entanglements in existing activity, restore continuity, recover harmony, utilize loose impulse and redirect habit. To this end observation of present conditions, recollection of previous situations are devoted. Deliberation has its beginning in troubled activity and its conclusion in choice of a course of action which straightens it out. It no more resembles the casting-up of accounts of profit and loss, pleasures and pains, than an actor engaged in drama resembles a clerk recording debit and credit items in his ledger. (Human Nature and Conduct, 199)

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Fool on the Hill wrote:

The second set of quotes highlight what I think is Mises mistake--that action is about the improving of one period of time over the previous period of time (intertemporal). This is the mistake of seeing action as profit. I see these statements as contradicting the first set:

Man becomes conscious of time when he plans to convert a less satisfactory present state into a more satisfactory future state.

The urge toward action, i.e., improvement of the conditions of life, is inborn in man.

What a man does is always [!] aimed at an improvement of his own state of satisfaction.

Action is change, and change is in the temporal sequence. But in the evenly rotating economy change and succession of events are eliminated.

[In addition to the confusing statement that action is change, it’s not clear to me why there wouldn’t be a succession of events in the evenly rotating economy. Doesn’t rotation imply a succession of events?]

In addition, I thought this quote from John Dewey on the relationship of profit to human action might be relavent:

We now return to a consideration of the utilitarian theory according to which deliberation consists in calculation of courses of action on the basis of the profit and loss to which they lead. The contrast of this notion with fact is obvious. The office of deliberation is not to supply an inducement to act by figuring out where the most advantage is to be procured. It is to resolve entanglements in existing activity, restore continuity, recover harmony, utilize loose impulse and redirect habit. To this end observation of present conditions, recollection of previous situations are devoted. Deliberation has its beginning in troubled activity and its conclusion in choice of a course of action which straightens it out. It no more resembles the casting-up of accounts of profit and loss, pleasures and pains, than an actor engaged in drama resembles a clerk recording debit and credit items in his ledger. (Human Nature and Conduct, 199).

******

"Man becomes conscious of time when he plans to convert a less satisfactory present state into a more satisfactory future state."

In other words, we may derive a praxeological, as opposed to a natural-scientific, conception of time from the concept of action.   The attempt to substitute one state of affairs with another (the initial premise or supposition of praxeology) implies the notion of time.

"The urge toward action, i.e., improvement of the conditions of life, is inborn in man."

Ontological or biological propositions are problematic in the context of praxeology.  But they are not necessary for praxeology.

"What a man does is always [!] aimed at an improvement of his own state of satisfaction."

Here, we'll take the easy explanation.  "Doing" (derivation of "does") refers to an action.  The statement is true by defintion.

"Action is change, and change is in the temporal sequence. But in the evenly rotating economy change and succession of events are eliminated."

Agreed.  Confusing.  Let's substitute: "Action aims at change."

"We now return to a consideration of the utilitarian theory according to which deliberation consists in calculation of courses of action on the basis of the profit and loss to which they lead."

I thought there was previous agreement that deliberation was itself an action.  What Dewey is referring to then, is the content of a particular action, and so it is not praxeology. 

If there was not previous agreement that deliberation is itself an action, let's reiterate that deliberation (the attempt to reach a conclusion (end) by means of thinking, reasoning, etc.) is itself an action.

******

Also, compare Dewey:

"Deliberation has its beginning in troubled activity..."

With Mises:

"The incentive that impels a man to act is always some uneasiness."

 

"It would be preposterous to assert apodictically that science will never succeed in developing a praxeological aprioristic doctrine of political organization..." (Mises, UF, p.98)

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Jon: In which case it is a special case of a yet more general theory.

But I wasn't contesting the more general theory.

It suffices that a good serves a particular end. Its utility is its serviceability towards reaching that end. As it begins fulfilling increasingly subordinate ranks on a preference schedule, its utility continues to fall. If you mean that the theory of marginal utility requires a prior theory of valuation to get off the ground because it is concerned with discrepancies in values between goods (which are by definition homogeneous from the valuer's perspective), then possibly it does - the subjective theory of value.

The one upon which they place the least value, which is something only they can determine.

But how does it have value for them? Are you saying that they would use all of the Depends if they didn't sell them?

That would only make sense if you were indifferent to which end you were fulfilling, i.e. any particular end would be as good as any other end being fulfilled and there was no mutual exclusivity of one end depriving another end's fulfilment, i.e. the good is in abundance.

I'm not sure what you're saying here. Are you saying that I would be less willing to pay as much for the final brick or not? I don't see how we get from the fact that I prefer one of two uses when I have a single unit of a good to that unit being more valuable than a second unit of the same good. That seems like a logical leap to me.

Let's say that there is one concert on Friday night and another on Saturday night, and I really want to go to both. If I only have enough money for one ticket, I'll go on Friday. Why do I prefer Friday? Because a friend of mine invited me to a party on Saturday. So I figure, if I can't go both days, I'll go on the day that allows me to have the most fun on the other day. But if I have enough money for both, I'll go both days. Given this, how can we conclude that the Saturday concert is less valuable than the Friday concert? We can assume that I enjoy both concerts equally while also allowing me a clear reason to prefer one over the other. Indeed, it's quite possible that I would prefer the lineup at the concert on Saturday to the one on Friday, yet still choose to go to the concert on Friday because I don't want to spend one of the nights alone. Thus, this choice tells us nothing about the relative utilities of the two units. You should be able to see how this fits in with my overall line of critique against Mises. It's just another example of his view that action demonstrates some sort of intertemporal selection.

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Adam: People mistakenly believe that what is essential about the law of marginal utility is the concept of marginality, which requires, or seems to require, at least one of the following:  1) that the actor possess a number of identical items, 2) an intertemporal comparison of value.

The key is the recognition that the essence of the law of marginal utility is the statement of an exact or formal or praxeological relationship between supply and value in individual action.   Marginalism or marginality can then be seen as the application of this purely formal relationship between supply and value (as suggested above) to our complex experience consisting of several actions.  Historical formulations of the law of marginal utility, I will contend, are based partly on objective conceptions that are incompatible with praxeology (the formal analysis of the categories of human action).

You mean marginal utility doesn't have anything to do with...marginal utility? How exactly do you apply this pure formal relationship to actual phenomena? This is like saying the essence of astrology is a purely formal relationship between stars and individual action. Sure you can formulate such a conception in your mind. Can you use it as a science to explain and predict reality? No. The same with marginal utility. It's just a pseudo science.

The concept of profit is derived from the category of action because "satisfaction" (happiness, pleasure, etc.----each meant formally, not contentually) is a category of action, and profit is either:  another word for this category, or, a concrete instance of it, in which case it becomes a thymological notion.

It is certainly not derived from action in anyway that preserves its normal meaning (which is what Mises switches to when he talks about economics).

In other words, we may derive a praxeological, as opposed to a natural-scientific, conception of time from the concept of action.   The attempt to substitute one state of affairs with another (the initial premise or supposition of praxeology) implies the notion of time.

Are there any words that praxeologists don't redefine? Why not invent new words so people don't mistakenly think that you're talking about reality?

Here, we'll take the easy explanation.  "Doing" (derivation of "does") refers to an action.  The statement is true by defintion.

No it's not, because improvement means to get better from one period of time to the next.

I thought there was previous agreement that deliberation was itself an action.  What Dewey is referring to then, is the content of a particular action, and so it is not praxeology.

Profit, in the normal sense, usually does refer to the content of action. Certainly it does in the economic sense, even Mises's entrepreneurial profit.

"Deliberation has its beginning in troubled activity..."

With Mises:

"The incentive that impels a man to act is always some uneasiness."

But deliberation is only one form of action. Dewey already assumes that action is taking place before deliberation occurs. Uneasiness merely transforms the previous form of action into deliberation. The Mises quote on the other hand seems to suggest that there is a point when man does not act, and that uneasiness is what causes man to act in the first place.

"The limits of my language mean the limits of my world." ~ Ludwig Wittgenstein
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David B replied on Sat, Aug 18 2012 2:26 AM

Fool on the Hill:
You mean marginal utility doesn't have anything to do with...marginal utility? How exactly do you apply this pure formal relationship to actual phenomena? This is like saying the essence of astrology is a purely formal relationship between stars and individual action. Sure you can formulate such a conception in your mind. Can you use it as a science to explain and predict reality? No. The same with marginal utility. It's just a pseudo science

Whoa... "Can you use it as a science to explain and predict reality?" You can't say no, unless you know whether or not there is predictive value. Any theory is not simply junk, if it successfully predicts and explains real phenomena. The only question to be resolved is do we have a better explanation that opens up more phenomena to understanding. Let's get silly here so I can point out the breadth of this comment.

If someone tells me that the sun in the sky, is the chariot of Apollo being pulled by 2 flaming (on fire, not gay) horses, and that at night he runs through the underworld, then I look at the phenomena and attempt to validate that it successfully matches the phenomena. Whups, it does. The only problem with that theory is that it doesn't add to my understanding. Meaning, that the only things it explains are phenomena that I already knew. It doesn't explain anything I didn't know.

If we look at the sun as we understand it today, we get lots of knew understanding that we did not have previously. For example, the aurora borealis. Add in gravitational pull, and suddenly you understand orbits, and planets, etc. You can understand things you did not previously.

So, come back to marginal utility as described by Mises. Are you sure, that it's not applicable and doesn't in fact explain phenomena that were previously unexplained. My problem with the attacks on marginal utility is that they're motivated by seeing profit as exploitation, instead of leaving any normative evaluation of the phenomena out of the analysis, and simply asking why it happens. We know it's because he can, but explain how the "can" part of profit arises out of the nature of man. Praxeology does that with value-free analysis.  

One can ask whether or not it "should" be that way all you want, but accurately analyze the consequences of attempting to remove it. The result must necessarily be a reduction in the accumulation of capital, and therefore a necessary reduction of production, and wealth, and the living standard for mankind, etc., etc. Now, if removing the instances of what Marx deems as exploitation from the world is the ultimate goal, forsaking wealth, living standards, etc. Then so be it, but embrace the other consequences too, and simply forsake wealth and higher living standards, longer lives, etc.

My point is two-fold, don't throw out a thoery simply because it seems silly.  Check it's accuracy first.  Secondly, leave your normative evaluation out.  Bring it back afterwards when examining the consequences of the valid theory.  Discard the theory simply based on it's inaccuracy.

Marginal Utility theory does explain profit.  The problem from the Marxist point of view is that they don't like the implications of that truth.

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David B replied on Sat, Aug 18 2012 2:27 AM

Lost all formatting in that one, wtf...

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But how does it have value for them? Are you saying that they would use all of the Depends if they didn't sell them?

It has value insofar as it is a means to serve whatever ends they might have. That's it. There's nothing more to it. If you want to go and brain scan people to find out why they prefer things, go ahead.

Are you saying that I would be less willing to pay as much for the final brick or not?

No, I am saying how much you are willing to pay for it will depend on how utile it is to you. For it to be of equal value to another brick, the end it fulfills would have to be of equal preferrability to you. The only situation in which that would obtain would be where you needed a definite quantity of goods to bring about a desired end, where any one of them being missing will fail to bring about the sought after end, and therefore where they only acquire value (to you, not in general) as a set.

We can assume that I enjoy both concerts equally

Marginal utility has little to do with "enjoyment" per se. It concerns fulfilment of more urgent preferences as against less urgent ones, in a purely formal, contentless manner. If you are constrained by a budget and opt for one fulfilment over another, you demonstrate preference for it.  Since it isn't concerned with la-la-land but action in time and space under conditions of scarcity, it examines how actors value means for the attainment of ends of varying urgencies, and therefore is only concerned with satisfaction in this sense, not in the sense of something being "most enjoyable". It isn't concerned with enjoyment in some abstract sense or indeed preference divorced from action i.e. mere wishing/dreaming.

Thus, this choice tells us nothing about the relative utilities of the two units.

In what sense does it not? You seem to be proceeding from a conflation of utiltiy with "enjoyment". Why? Again, you are not talking about preferences but "enjoyment" in your example.

You should be able to see how this fits in with my overall line of critique against Mises. It's just another example of his view that action demonstrates some sort of intertemporal selection.

Gee, what a nutty crank he is.

You mean marginal utility doesn't have anything to do with...marginal utility? How exactly do you apply this pure formal relationship to actual phenomena? This is like saying the essence of astrology is a purely formal relationship between stars and individual action. Sure you can formulate such a conception in your mind. Can you use it as a science to explain and predict reality? No. The same with marginal utility. It's just a pseudo science.

Calm down, this isn't Marxism.

It can certainly explain reality as a conceptual analysis of valuation. As for "prediction", why should this be its goal? Because "science" you will say is meant to "predict"? In what sense are statements regarding how individuals act to satisfy their ends with available scarce resources comparable to the stars, except insofar as the stars themselves can be harnessed as means towards ends? As actors we understand the concepts of striving to satisfy ends with means that are in scarce supply, so we understand both the end and that which can bring it about. Marginal utility theory explains how that relation - of means and an agent's ends - obtains from the point of view of the subject, and does not purport to explain how movements in the heavens can influence individuals' luck. Now Mises's formulation of it may not be perfect yet I have not seen anything better to supplant it, and certainly not from you or Marx.

Freedom of markets is positively correlated with the degree of evolution in any society...

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David: So, come back to marginal utility as described by Mises. Are you sure, that it's not applicable and doesn't in fact explain phenomena that were previously unexplained. My problem with the attacks on marginal utility is that they're motivated by seeing profit as exploitation, instead of leaving any normative evaluation of the phenomena out of the analysis, and simply asking why it happens. We know it's because he can, but explain how the "can" part of profit arises out of the nature of man. Praxeology does that with value-free analysis.

I actually don't think Marx uses the term "exploitation" as a moral condemnation but as a descriptive word. He also says that farmers "exploit" the land. I don't think he wants to end farming. But personally, I think the term is loaded, and I don't think I've ever used it on this site. As far as I can tell, my critique in this thread has been what you call a value-free analysis.

The result must necessarily be a reduction in the accumulation of capital, and therefore a necessary reduction of production, and wealth, and the living standard for mankind, etc., etc.

The reduction in the accumulation of capital does not necessarily mean a reduction of production and wealth. There are more ways to produce wealth than through capital. (Unless if by capital you mean means of production. In that case, the elimination of profits does not necessarily mean a reduction in capital accumulation.)

My point is two-fold, don't throw out a thoery simply because it seems silly.  Check it's accuracy first.  Secondly, leave your normative evaluation out.  Bring it back afterwards when examining the consequences of the valid theory.  Discard the theory simply based on it's inaccuracy.

Where have I brought in a normative evaluation? Marginal utility simply does not make sense. The labor theory of value has better praxeological foundations.

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Jon: It has value insofar as it is a means to serve whatever ends they might have. That's it. There's nothing more to it. If you want to go and brain scan people to find out why they prefer things, go ahead.

So the manufacturer throwing away the Depends if they don't sell constitutes a means of getting rid of them, and thus they have value? What doesn't have value then? It is hard for me to believe that any subjective use-value that the Depends have for the manufacturer could somehow contribute to the formation of its price. In order for the assumptions of marginal utility to hold, the act of throwing away the Depends must have more utility than the act of giving them away.

No, I am saying how much you are willing to pay for it will depend on how utile it is to you. For it to be of equal value to another brick, the end it fulfills would have to be of equal preferrability to you. The only situation in which that would obtain would be where you needed a definite quantity of goods to bring about a desired end, where any one of them being missing will fail to bring about the sought after end, and therefore where they only acquire value (to you, not in general) as a set.

The bricks still have value if one is missing. I would rather have a wall with a hole in it than no wall at all. But I really do not want a hole in the wall. I don't see how one can prefer ends in this way. I can only fulfill the marginal end if I have already fulfilled the other ends. I can't choose the final brick over the penultimate brick. What I do choose the final brick over is whatever I give up for the final brick.

Marginal utility has little to do with "enjoyment" per se. It concerns fulfilment of more urgent preferences as against less urgent ones, in a purely formal, contentless manner.

What does "urgent" mean? Does this have something to do with time preference?

If you are constrained by a budget and opt for one fulfilment over another, you demonstrate preference for it.

I don't see how this has anything to do with marginal utility. Because I choose to buy a brick instead of a flower pot doesn't mean the value of the brick is based on how many other bricks I have.

It isn't concerned with enjoyment in some abstract sense or indeed preference divorced from action i.e. mere wishing/dreaming.

Yet it considers the relationship between the final and the penultimate brick to be a relation of "preference" even though one can never demonstrate such a preference in action.

In what sense does it not? You seem to be proceeding from a conflation of utiltiy with "enjoyment". Why? Again, you are not talking about preferences but "enjoyment" in your example.

Because the decision isn't made based on the things themselves but on what substitutes for them. It is not because there are more of them that one is valued less than the other. There is no reason to suppose that I would be willing to pay less for the second concert.

It can certainly explain reality as a conceptual analysis of valuation.

Not when it ignores the fact the goods a producer produces have no or little utility for the producer.

As for "prediction", why should this be its goal?

David, for one, has said that one of Austrianisms chief advantages over Marxism is in its ability to predict.

Now Mises's formulation of it may not be perfect yet I have not seen anything better to supplant it, and certainly not from you or Marx.

Out of curiosity, what have you read by Marx?

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Time Preference

Mises’s chapter on “Action in the Passing of Time” is quite possibly the most confused chapter in the entire book. Why is it so confused? First off, it’s flat out contradictory. For instance, Mises says: “[Acting man’s] only concern is to make the best use of the means available today for the best possible removal of future uneasiness.” But just a little later he asserts something completely different: “The uneasiness which acting man wants to remove as far as possible is always present uneasiness.” Which is it? Does acting man only want to remove future uneasiness or does he always want to remove present uneasiness? Are the present and the future the same thing for Mises? That might explain why his analysis is so static, so confused about the nature of time.

But that’s just the start of the problems. Just try to entangle this bit:

He who consumes a nonperishable good instead of postponing consumption for an indefinite later moment thereby reveals a higher valuation of present satisfaction as compared with later satisfaction. If he were not to prefer satisfaction in a nearer period of the future to that in a remoter period, he would never consume and so satisfy wants. He would always accumulate, he would never consume and enjoy. He would not consume today, but he would not consume tomorrow either, as the morrow would confront him with the same alternative.

What does this even mean? If someone who consumes something reveals a preference for satisfaction in a nearer period of the future, then someone who does not consume something must then reveal a preference for satisfaction in a later period of the future. But someone who prefers satisfaction in a later period will never consume. Does this mean then that since I am not eating breakfast right now that I will never eat breakfast? Where does Mises get this idea that people always want to consume sooner and that later means never?

Then Mises notes an apparent exception to his time preference rule:

There are enjoyments which cannot be had at the same time. A man cannot on the same evening attend performances of Carmen and of Hamlet. In buying a ticket he must choose between the two performances. If tickets to both theaters for the same evening are presented to him as a gift, he must likewise choose. He may think with regard to the ticket which he refuses: "I don't care for it just now," or "If only it had been later." However, this does not mean that he prefers future goods to present goods. He does not have to choose between future goods and present goods. He must choose between two enjoyments both of which he cannot have together. This is the dilemma in every instance of choosing. In the present state of his affairs he may prefer Hamlet to Carmen. The different conditions of a later date may possibly result in another decision [emphasis mine].

It seems to me that this exception would apply at all times (and which the bold sentence seems to admit). One can never do everything at once. We must always choose between various forms of satisfaction. One might think Mises is differentiating between satisfaction in general and dissatisfaction (which would mean all he is saying is that people prefer satisfaction to dissatisfaction). But this, he doesn’t seem to be doing either. For he says that the act of provisioning (and with it I assume production and saving) is itself satisfying:

If action is primarily directed toward the improvement of other people's conditions and is therefore commonly called altruistic, the uneasiness the actor wants to remove is his own present dissatisfaction with the expected state of other people's affairs in various periods of the future. In taking care of other people he aims at alleviating his own dissatisfaction.

It is therefore not surprising that acting man often is intent upon prolonging the period of provision beyond the expected duration of his own life.

Therefore, all action is satisfying and one is never choosing between present and future satisfaction. One is always choosing between counterfactuals of the same period of time. The correctness of this choice brings satisfaction.

What then is an example of this supposed preference of nearer satisfaction? Mises provides only one example, one that once again clashes with his other principles:

Those contesting the universal validity of time preference fail to explain why a man does not always invest a sum of 100 dollars available today, although these 100 dollars would increase to 104 dollars within a year's time. It is obvious that this man in consuming this sum today is determined by a judgment of value which values 100 present dollars higher than 104 dollars available a year later. But even in case he chooses to invest these 100 dollars, the meaning is not that he prefers satisfaction in a later period to that of today. It means that he values 100 dollars today less than 104 dollars a year later. Every penny spent today is, precisely under the conditions of a capitalist economy in which institutions make it possible to invest even the smallest sums, a proof of the higher valuation of present satisfaction as compared with later satisfaction.

First, he seems to forget that he doesn’t consider having money (or even spending it) to be a form of consumption—that is, a direct means of satisfaction. The fact that I don’t invest $100 doesn’t necessarily say anything about my desire for present consumption. Second, there is no reason to presume that investing my money is the best way to maximize my satisfaction in a year’s time. Perhaps spending the money at a bar to develop friendships, or going out on a date with a potential romantic partner will lead to greater satisfaction in a year’s time.

A more concrete example is found in Daniel James Sanchez’s article “Of Time and Marshmallows.” Sanchez mentions an article in the New Yorker about a study conducted with children. The children are given a choice between having one marshmallow now or having two marshmallows after waiting an indefinite time (about 15 minutes it turns out) for the experimenter to return. Most children apparently can’t resist and eat the marshmallow within the first 3 minutes. Sanchez concludes that this is an example of how we prefer present satisfaction over future satisfaction. The problem with this conclusion is that it views time within a vacuum—as if we can simply add time to something without changing what is being chosen. The children are not merely choosing between one marshmallow now and two later. They’re choosing between one marshmallow or two marshmallows plus waiting 15 minutes (and for all they know it could be longer) by themselves in a boring room. They might be choosing between sitting in a room and playing outside. One might think a better way to conduct the experiment would be to measure the preference of spending mundane time before a supposed satisfaction to spending the mundane time after the satisfaction. One could, for example, allow people the choice of either waiting in line for an hour before they go on a roller coaster to waiting in line for an hour after they get off of the roller coaster. But even this can’t measure what it claims to because any period of waiting occurs between supposed periods of satisfaction, and thus the contrary proposition that people always prefer future satisfaction would fit the data just as well.

The fact is, we can only do one thing at a time, and at all times, we must be doing something. Therefore, anytime we choose to do something now, we are also choosing to defer something we could be doing to a later time. This is not to say that time preference can’t take the form of a pathology. Procrastination is certainly a real phenomenon, but no one procrastinates 100% of the time.

Sanchez extends the marshmallow example into a hypothetical scenario involving interpersonal exchange:

Time preference plays just as fundamental a role in interpersonal exchanges as it does in "autistic" exchanges. Let us imagine Craig and Carolyn as parties in a potential exchange. Craig has no marshmallows, but is expecting to get two from his mother in 15 minutes. Carolyn has one marshmallow. They both consider the following potential exchange: Craig "borrows" Carolyn's marshmallow to eat now in exchange for "paying her back" with the two marshmallows he'll get in 15 minutes. This potential exchange is precisely analogous to the "autistic" exchange of the Stanford experiment, except for all the additional considerations that are wrapped up in relations with others (wanting to befriend/please/not please/etc., the other person).

This is a good illustration of how Austrian economists err in equivocating between autistic and interpersonal exchange. The error here is that autistic exchange is always about using while interpersonal exchange is always about owning. This leads to two conceptions of consumption: one in which an object is used up and another in which an object is removed from circulation and from producing anything which can be circulated. Owning in fact does not refer to the relationship between a person and an object, but between a person and another person. A person who owns an object has the power to forbid another from using it. When Sanchez moves from the concept of autistic exchange to that of interpersonal exchange, he also moves from the concept of using to the concept of owning but does not acknowledge it. Craig and Carolyn are not in fact negotiating between when each will eat (use) the marshmallows but when each will own them. (Also note how the goods aren’t produced by either of the participants, nor do they give up anything they produced for them. They simply have them coming as a gift in the future—just like in the prison economy.)

To make this point clearer, let’s first up the count of marshmallows. Carolyn still only has 1 marshmallow but Craig has 20 marshmallows coming. However, they aren’t coming until 5 hours. Assuming the same interest rate compounded every 15 minutes, Craig now has to give 20 “future” marshmallows for Carolyn’s present marshmallow. Now let’s reverse the number. Carolyn has 20 present marshmallows and Craig has no marshmallows but 1 coming in 5 hours. In order for Carolyn to exchange the 20 present marshmallows for Craig’s 1 future marshmallow, a negative interest rate must be in play. From the perspective of owning, this is clearly absurd and unrealistic. “All else being equal,” Mises would say, one would prefer to have more now than less later. Thus, Mises concludes that one prefers the satisfaction of wants in the present to those in the future. But wait, when he refers to the satisfaction of wants, doesn’t he mean use and not ownership? What is the use of a marshmallow? Surely it is to eat it. So let’s reconfigure the scenario.

There are 20 marshmallows which Carolyn must eat now unless she negotiates with Craig. There is 1 marshmallow which Craig must eat in 5 hours unless he negotiates with Carolyn. Now the tendency towards a positive interest rate disappears entirely. While most would prefer to own 20 marshmallows as opposed to 1, most would rather eat 1 at a given moment than eat 20. Even if we change it to something more agreeable, like French fries, it is still no more likely that one will prefer 20 French fries now to 1 in 5 hours than 1 French fry now to 20 in 5 hours. Ownership is the power to determine use and not use itself. In the original scenario, Carolyn could eat 1 marshmallow now or eat that same marshmallow after 15 minutes. Craig could only eat his two marshmallows after 15 minutes. Thus, the reason the interest rate is always positive is not that we always prefer to use something now as opposed to later, but because we prefer to have the ability to use something now or later to just the ability to use something later. This becomes even clearer when we talk about money, which is of course what we are actually trying to explain here. Money is one of the only things—perhaps the only thing—that is completely imperishable. One dollar received now and saved “under the mattress” buys exactly the same things in 5 years that a dollar received after those same 5 years does. Though perhaps incomplete itself, the Keynesian concept of liquidity preference captures this reality much better than the Austrian concept of pure time preference. The other thing we have to consider is the fact that in a capitalist economy, money is capable of turning over through the production process. This itself allows for the possibility of interest (more on the importance of turnover in a future appendix).

This insight has a range of profound implications. We can no longer see the lender as making a sacrifice of present use. The fact that I’d prefer not to eat my 20 marshmallows right now does not infringe upon my ability to lend them at interest. I’m in fact being rewarded for something I’d prefer not to do in the first place. What the interest rate really does is compensate me for my loss of social power—my power to control others through the regulation of the use of objects. Second, the borrowers do not necessarily decrease the amount of future use-values by their spending. Housing, transportation, food, healthcare, education—in short, what those with “high time preferences” spend most of their money on—may actually be the best way to maximize one’s future use-values. For the average worker, $5000 spent on a car to get her to a job will result in much more future satisfaction than $5000 put in the bank. Yet the difference in time preference is supposed to be the explanation for the inequality of wealth.

So how did Mises get to this theory of time preference? Let’s return to his faithful disciple Rothbard, who has the merit of revealing Mises’s mistakes in more explicit fashion:

A fundamental and constant truth about human action is that man prefers his end to be achieved in the shortest possible time. Given the specific satisfaction, the sooner it arrives, the better. This results from the fact that time is always scarce, and a means to be economized. (Man, Economy, and State, ch. 1)

And there we have it. Time preference is derived from a concept we have already debunked as nonsense. Rothbard’s view is that we have a certain amount of time that we are “spending.” And if we don’t achieve our end right away, we are wasting scarce time. But this is only true if we accept Rothbard’s conception of wants conceived outside of time. In a way, this is simultaneously a rejection of the truth of time preference, namely that people prefer different things at different times. It frames things as if we want these particular things whenever, and it’s just a matter of economizing our time so that we can get them as quickly as we can. The falsity of such a conception should be clear to anyone who is willing to think about it critically.

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Appendix I: Time Preference as an Explanation of the Price of Land

Steve Keen recently noted* the difficulty in changing economic paradigms by referring to the transition between the Ptolemaic and Copernican/Galilean theories of the solar system. Part of the difficulty, he explains, arises because the old model was used to explain so many things that any new model has to address a number of periphery issues in addition to its core claim. He gives the example that people had a hard time accepting the Copernican/Galilean system because they used Earth's position in the center of the universe to explain gravity. If the sun is the center of the solar system, then why don't objects fall towards the sun?

A similar obstacle is encountered when challenging the Misesian theory of time preference. In addition to explaining interest, Mises claims that time preference is necessary to understand how land can have finite prices:

Moreover, the phenomenon of originary interest explains why pieces of usable land can be sold and bought at finite prices. If the future services which a piece of land can render were to be valued in the same way in which its present services are valued, no finite price would be high enough to impel its owner to sell it. Land could neither be bought nor sold against definite amounts of money, nor bartered against goods which can render only a finite number of services. Pieces of land would be bartered only against other pieces of land. A superstructure that can yield during a period of ten years an annual revenue of one hundred dollars would be priced (apart from the soil on which it is built) at the beginning of the second year at nine hundred dollars, and so on.

While this explanation may seem plausible at first, on closer examination it becomes clear that it is based on poor reasoning. Mises claims that land can produce an infinite return but money and commodities can't. He gives the example of a superstructure that last 10 years and brings in a total of $1000. He says that this constitutes a finite return, but he ignores the fact that the money made from this production can be reinvested indefinitely (or "infinitely" to use his term). At the end of 10 years, the superstructure deteriorates, but the capitalist has made $1000. How much does a new machine cost? $1000. The same could occur after the next 10 years and so on.

So there is no difference between land and other means of production in regards to finite and infinite returns. What then does determine the price of land? It's quite simple. The price of land is based on the rate of profit. The superstructure when combined with labor yields the capitalist a certain amount of profit. Assuming that the capitalist wants to reinvest this profit, he has to decide between adding more superstructure and labor to his existing land or buying new land. If he has $100 from his previous profits, reinvesting this year-by-year may yield him additional profits of $10 each year. As long as he is reinvesting this $100, he can't spend it on consumption. Now suppose a given amount of land is also capable of yielding $10 of profit each year. How much would someone be willing to pay for this land? Well, if someone with $100 could make $10 or profit per year by investing in superstructure/labor and presumably make $20 per year by investing $200 in superstructure/labor, then it wouldn't make sense for them to invest $200 in land that will only yield $10 per year. Thus, the capitalist won't pay more than $100 for the land. A similar line of reasoning could be applied to the seller of land.

We see then that time does play an important role in the determination of the price of land, but not in the "sooner or later" terms of Mises. Rather, it is the amount of profit that can be made in a given period of time (i.e. the rate) that determines the price of land.

 

*Keen's site seems to be down at the time of this posting.

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David B replied on Sun, Aug 26 2012 10:06 PM

 

FOTH : Does acting man only want to remove future uneasiness or does he always want to remove present uneasiness? Are the present and the future the same thing for Mises? That might explain why his analysis is so static, so confused about the nature of time.
 
He's not confused, you didn't quote the complete passage : 
 
Mises : Action always aims at the removal of future uneasiness, be it only the future of the impending instant. Between the setting in of action and the attainment of the end sought there always elapses a fraction of time, viz., the maturing time in which the seed sown by the action grows to maturity. The most obvious example is provided by agriculture. Between the tilling of the soil and the ripening of the fruit there passes a considerable period of time. Another example is the improvement of the quality of wine by aging. In some cases, however, the maturing time is so short that ordinary speech may assert that the success appears instantly.
 
So, he basically says that Action takes time to achieve the end sought.  To initiate or begin an action demonstrates a desire to change the future, and is by definition an improvement (subjectively) of the present.  
 
So when he says (Mises) : As a rule what separates the actor from the goal of his endeavors is more than one step only. He must make many steps. And every further step to be added to those previously made raises anew the question whether or not he should continue marching toward the goal once chosen.
 
He means that during a period in which man is acting toward an end to appear at some future time, he must continue to prefer to do the thing he is doing over all other actions he could instead perform.  If some other action would remove uneasiness of the present more than the current action, it would happen.  It seems to me he completely understands how a man moving through time must relate himself mentally in his evaluation of the world and of his own actions.
 
But you next ask in a very odd way about the present good vs. future good preference.  Or current satisfaction to future satisfaction.   At least I think you do.
 
Mises : He who consumes a nonperishable good instead of postponing consumption for an indefinite later moment thereby reveals a higher valuation of present satisfaction as compared with later satisfaction. If he were not to prefer satisfaction in a nearer period of the future to that in a remoter period, he would never consume and so satisfy wants. He would always accumulate, he would never consume and enjoy. He would not consume today, but he would not consume tomorrow either, as the morrow would confront him with the same alternative.
 
FOTH : What does this even mean? If someone who consumes something reveals a preference for satisfaction in a nearer period of the future, then someone who does not consume something must then reveal a preference for satisfaction in a later period of the future. But someone who prefers satisfaction in a later period will never consume. Does this mean then that since I am not eating breakfast right now that I will never eat breakfast? Where does Mises get this idea that people always want to consume sooner and that later means never?
 
Again the sentence right before the ones you quote gives us a clear representation of what he means...
 
Mises : Time preference is a categorial requisite of human action. No mode of action can be thought of in which satisfaction within a nearer period of the future is not--other things being equal--preferred to that in a later period. The very act of gratifying a desire implies that gratification at the present instant is preferred to that at a later instant. He who consumes a nonperishable good instead of postponing consumption for an indefinite later moment thereby reveals a higher valuation of present satisfaction as compared with later satisfaction. If he were not to prefer satisfaction in a nearer period of the future to that in a remoter period, he would never consume and so satisfy wants. He would always accumulate, he would never consume and enjoy. He would not consume today, but he would not consume tomorrow either, as the morrow would confront him with the same alternative.
 
He means that consuming a good now to whatever ends means that you prefer to satisfy that end now, as opposed to satisfying that end 1 minute from now, or 5 minutes from now, or 1 hour from now.  You ask about breakfast, or any eating in response to hunger.  Well hunger changes, meaning you become hungrier and hungrier, when he says all things being equal, he means all things being equal, your level of hunger conditions your response.  Because the passage of time changes your preference.
 
He means again, that the fact that you ever act means that the end you acted towards is one that you prefer not only over other ends you could have acted towards, but that you also preferred achieving that specific end sooner to achieving it later (assuming that it could have been achieved at both points).  He acknowledges that certain ends can only be achieved at specific times, in reference to the concerts which you bring up later, but that's not the same thing.
 
I'll reform the statement a little more clearly :
 
Process D produces end E.  (eating a sandwich, feeling full for a period of time).  The process takes 3 minutes, and it takes an additional 4 minutes to feel full.  When I'm not eating now we know that my expected uneasiness at now + 7 minutes is not sufficiently dissatisfying that it impels me to perform D instead of whatever it is that I'm doing, but if I do in fact eat at some point A, it means by definition, that I prefer feeling full at A + 7 to feeling the hunger I would feel at A + 7.  It also necessarily means that I preferred starting at point A to starting at A+1, and therefore that I preferred feeling full at A+7 instead of feeling full hungry at A+7 and full at A+8.
 
Right?  I don't see how you can't see this isn't true.
 
If one can only get the same level of satisfaction at time A and time A+1 then time A is preferred.  The only reason to delay till A+1 is if the satisfaction at that time could in fact be greater.  This could only be true if "all things are not equal."  Something other than just the end of consuming at time A must present in the end of consuming at A+1, and that this new factor makes the End of consuming at A+1 a different and more highly valued end than A.
  
How can this be confusing?
 
His concert example is not an apparent exception, he in fact points this out.  It's a choice between achieving an end at all, and not achieving it at all.
 
But you go on, to give his money example as his only example, and then criticize it: 
 
FOTH : First, he seems to forget that he doesn’t consider having money (or even spending it) to be a form of consumption—that is, a direct means of satisfaction. The fact that I don’t invest $100 doesn’t necessarily say anything about my desire for present consumption. Second, there is no reason to presume that investing my money is the best way to maximize my satisfaction in a year’s time. Perhaps spending the money at a bar to develop friendships, or going out on a date with a potential romantic partner will lead to greater satisfaction in a year’s time.
 
Not investing it doesn't say anything about your desire for present consumption.  It says something about your valuation of 100$ now vs. not having the 100$ for a period of time in exchange for having 104$ at some future time.  Of course the value of the 100$ now must and can only be related to the anticipation of how you might use it between now and when you would have gottent 104$ back.  You say, "there is no reason to presume that investing my money is the best way to maximize my satisfaction in a year's time."  The word presume demonstrates a lack of understanding who is making the decision.  If you invest it you are presuming it's a better use of your money than to hold 100$ and whatever potential use you might use it for in the intervening time.  That's a fact of reality that I can know.
 
You did a lot of weird stuff that doesn't make sense to me in the marshmallow examples, I'll dig into them more deeply and get back to you in my next post.  But you form a conclusion that doesn't make sense to me, and I'll point out why.
 
FOTH : We can no longer see the lender as making a sacrifice of present use. The fact that I’d prefer not to eat my 20 marshmallows right now does not infringe upon my ability to lend them at interest.
 
"Having to eat 20 marshmallows right now," is not an analogous to holding cash.  You introduced it as a device to make a point, that depended on that point.  When a lender foregos lending and holds cash it's because he anticipates the potential to either A) invest it for more or B) that some other use of that money is likely to provide greater satisfaction to him between now and the time when he would have gotten 104$. 
 
FOTH : I’m in fact being rewarded for something I’d prefer not to do in the first place. What the interest rate really does is compensate me for my loss of social power—my power to control others through the regulation of the use of objects.
 
How does having cash instead of lending it equal having the power to control others through the regulation of the use of objects?  You mean he might buy stuff with it?  Buying stuff with it transfers ownership of the money to them, and ownership of the good or the results of the service to you.  Control of the use of objects changes, and each gains control of a thing they want control of more than the thing they give up control of.  You've gained control by spending it.  You already had control by owning it in the first place.  If you lend it, someone pays you a premium for temporary control of it.  Of course they pay an interest rate, if they want they money they have to.  Otherwise go save your own goddamn money?!  I'm not obligated to give someone else my money that I acquired through my own savings.  The fact that I saved money means that I purchased and consumed less than the market rate of my labor paid me.
 
FOTH :  Second, the borrowers do not necessarily decrease the amount of future use-values by their spending. Housing, transportation, food, healthcare, education—in short, what those with “high time preferences” spend most of their money on—may actually be the best way to maximize one’s future use-values.
 
Without getting into the inanity of "use-value" vs. value.  Of course they prefer the thing they're getting to use now.  Otherwise they wouldn't have done borrowed for it.
 
FOTH : For the average worker, $5000 spent on a car to get her to a job will result in much more future satisfaction than $5000 put in the bank. Yet the difference in time preference is supposed to be the explanation for the inequality of wealth.
 
Poor vs. rich is generally a reflection on accuracy in calculation about the future, and especially so in a free market.  Unlike other forms of economic and political organization liberal capitalism, tends to take from the lazy and stupid and give to the hard-working and savvy.  Rich kids lose daddies money, and poor driven kids work smarter and harder and get rich.  We see it all the time.  Wisdom about how one saves, borrows, invests, and purchases goods, results in the accumulation of wealth.  
 
Now, the car loan is a great example.  I'm amazed you had the guts to use it :)  Let's get detailed on the worker's car and her job and look at choices being made, in the economy we know.  
 
  • Car : the car provides transportation.  to and from work, to and from stores for necessities, to and from leisure activities.  At the same time there are many different cars she might choose to pursue buying, she might get a really cheap used car for 2000$. She could spend the 5000$ you mentioned for a slightly better used car.  She might also want to purchase a brand new sports car for 100k$.  Instead she might  choose to forego the car and use some other means of transportation, bike to work, walk to work, take a bus to work, borrow a friends car for trips to the store, etc.
  • Job : the job pays a wage, but there are in the market many jobs a worker can find, and in selecting any job one needs to look at all of the expenses that come with the job, and all of the income that comes from the job.  Subtracting expenses from income is the way one calculates profit.
 
In picking a job then and deciding on whether or not to buy the car (using a loan), all of these factors need to be considered.  If a job that requires a car to get to and perform, provides sufficient profit (remember the costs of transportation are part of the expenses) then that is a profit calculation.
 
BTW, do socialists learn basic accounting?  Anyway, those who correctly anticipate their costs, and generate a profit in their monthly budget (whether you're a worker or a capitalist) will increase their wealth.  Those who do badly at estimating their costs and generate a loss (or break even) will lose their wealth.  Almost all people in society will fluctuate in wealth. I've personally had unexpected issues come up in my life which ended up being very large expenses to me.  These expenses set back my personal wealth accumulation by a huge amount.
 
Uncertainty can always throw a monkey wrench into peoples plans.  But if you want to convince me that there is something inherently unfair that the owner of a pizza restaurant can buy a Mercedes for cash, and his pizza cook  can only buy a used Ford Focus...  I'm not feeling it...  The owner by investing a large amount of his personal wealth, is able to provide an income to all of his employees and to himself.  He is not guaranteed to make a profit.  He is taking a risk.  If he generates a profit, that profit is a direct result of his risk taking and the labor he does in fact put into running the restaurant.  Go look at the restaurant business.  The life of a private business owner is very, very risky and requires huge amount of labor.  His larger income is a direct consequence of his risk taking and the labor he puts into the attempt to generate a profitable business.  He has risked his own financial wealth to do so.  Some business owners get loans, but they put up their own capital to secure the loan, either the assets of the company or their own personal homes or property.
 
Those who get wealthy are those identify and take potentially lucrative risks, who save up wealth (generated by working) and then put it at risk in productive efforts.  If they are smart and hard working, they end up providing a productive business that not only generates a profit for them, but also enriches the rest of the social community by providing goods that meet demand, and provides a steady reliable income to other less wealthy members of society who either have not yet saved up their own wealth.
 
I'll tell you what, the longer this Marxist drivel holds the attention and adulation of a significant portion of the population the longer we're stuck trying to get people off their asses and into their own pursuit of wealth using the economic behaviors that work.

 

 

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David B replied on Sun, Aug 26 2012 10:22 PM

@FOTH

One other question, isn't a theory supposed to explain the world as it is?  Not propose the world as it ought to be and explain how the world is messed up?

For example, contrary to many libertarian's believe Praxeology doesn't actually tell us how the world should be, it explains how it actually works.  All the phenomena of current modern economies is understandable and explainable.  

The eventual collapse and utter economic ruin of communist states is also predicted and explained by Austrian Economics.  But it doesn't tell us what "Should come to pass".  There is no "libertarian capitlist state yearning to break free" from the bonds of statism, buried somewhere in the capitalist teachings of Austrian Econmics.

The support it provides to Liberalism and Capitalism is indirect.  It just predicts results of those systems that are preferred by the overwhelming majority of humanity.  Unfortunately it's union leaders and corporate bigwigs and special interest groups that favor Keynsianism, State intervention, and/or Socialism instead.

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David: So, he basically says that Action takes time to achieve the end sought.  To initiate or begin an action demonstrates a desire to change the future, and is by definition an improvement (subjectively) of the present.
Well, if removing present uneasiness is a necessary result of aiming to remove future uneasiness, then that contradicts what Mises says about man being concerned only with removing future uneasiness. What you quoted only clarifies the first sentence, but it doesn't resolve the contradiction it has with the second.
 
I'm confused by your use of the word "improvement." Improvement over what? An earlier period of time? Why do you add "(subjectively)" afterward? Is there a type of improvement that is not subjective?
Mises: No mode of action can be thought of in which satisfaction within a nearer period of the future is not--other things being equal--preferred to that in a later period.
Sure one can. I might want to have a baby at some point. Having a baby constitutes a form of satisfaction. However, I prefer to have this satisfaction in a later period as opposed to a nearer period.
He means again, that the fact that you ever act means that the end you acted towards is one that you prefer not only over other ends you could have acted towards, but that you also preferred achieving that specific end sooner to achieving it later (assuming that it could have been achieved at both points).  He acknowledges that certain ends can only be achieved at specific times, in reference to the concerts which you bring up later, but that's not the same thing.
But every action also demonstrates a deferral of something else. So it doesn't make sense to say that I always prefer something sooner. I prefer different things at different times. If this is what you are saying, I agree with you. But this doesn't tell us anything about the interest rate or the inequality of wealth. Why is the interest rate almost always positive and never negative or zero? This doesn't tell us that.
Process D produces end E.  (eating a sandwich, feeling full for a period of time).  The process takes 3 minutes, and it takes an additional 4 minutes to feel full.  When I'm not eating now we know that my expected uneasiness at now + 7 minutes is not sufficiently dissatisfying that it impels me to perform D instead of whatever it is that I'm doing, but if I do in fact eat at some point A, it means by definition, that I prefer feeling full at A + 7 to feeling the hunger I would feel at A + 7.  It also necessarily means that I preferred starting at point A to starting at A+1, and therefore that I preferred feeling full at A+7 instead of feeling full hungry at A+7 and full at A+8.
 
Right?  I don't see how you can't see this isn't true.
 
If one can only get the same level of satisfaction at time A and time A+1 then time A is preferred.  The only reason to delay till A+1 is if the satisfaction at that time could in fact be greater.  This could only be true if "all things are not equal."  Something other than just the end of consuming at time A must present in the end of consuming at A+1, and that this new factor makes the End of consuming at A+1 a different and more highly valued end than A.
  
How can this be confusing?

OK. This might be nitpicky, but I think it might clear things up. First off, one isn't choosing between being hungry or full at A+7 by eating or not eating the sandwich. If I don't eat the sandwich, that doesn't mean that I will be hungry at A+7. And if I will be hungry and I do eat it, it doesn't mean that I will now be hungry at A+8. So eating a sandwich now doesn't demonstrate a preference to feeling full now versus full later since there is no reason to assume that I will be hungry later.

Second, you talk about the satisfaction at A+1 being greater than the satisfaction at A. I disagree that praxeology could make this conclusion. As I've been saying, action doesn't demonstrate a comparison of satisfaction between time. This is how I would reinterpret the preference for eating a sandwich at A+1 versus A.

[A: Don't eat sandwich] [A+1: Eat sandwich] > [A: Eat sandwich][A+1: Don't eat sandwich]

You see that the equation is not reducible to [A+1: Eat sandwich] > [A: Eat sandwich]. That's because these aren't the only things being chosen. I've expressed the other component as a pure negative--"don't eat sandwich." But this can also be expressed as a pure positive if we know what fills the time, for example, post on Mises.org.

[A: Post on Mises.org] [A+1: Eat sandwich] > [A: Eat sandwich][A+1: Post on Mises.org]

So if I post on Mises.org now, I demonstrate a preference to eat a sandwich at A+1. But I can't abstract away the act of posting to conclude that I simply choosing a sandwich later to now. It's an entire package that I am choosing. There are four distinct variables, none of which cancel each other out.

His concert example is not an apparent exception, he in fact points this out.  It's a choice between achieving an end at all, and not achieving it at all.

How does one choose not to achieve an end at all? Isn't that a contradiction?

Not investing it doesn't say anything about your desire for present consumption.  It says something about your valuation of 100$ now vs. not having the 100$ for a period of time in exchange for having 104$ at some future time.  Of course the value of the 100$ now must and can only be related to the anticipation of how you might use it between now and when you would have gottent 104$ back.  You say, "there is no reason to presume that investing my money is the best way to maximize my satisfaction in a year's time."  The word presume demonstrates a lack of understanding who is making the decision.  If you invest it you are presuming it's a better use of your money than to hold 100$ and whatever potential use you might use it for in the intervening time.  That's a fact of reality that I can know.

Again, this doesn't shed any light as to why the interest rate is positive. Why is it a better use of the poor's money to consume it versus invest it? Could it be because they do not have as much? That they don't already have cars, houses, education, and medical care? Indeed, don't these facts add more to our understanding of the rate of interest than a theory that amounts to "people prefer what they prefer because they prefer it." If someone came to this message board and asked "why do people always elect interventionists who know nothing about economics?" Wouldn't you consider it a pretty bad answer if someone simply answered "people elect interventionists because they prefer to elect interventionists to noninterventionists"?

"Having to eat 20 marshmallows right now," is not an analogous to holding cash.

You're exactly right. That's the point I was trying to make. The author of the article gave an example of a study about eating marshmallows and then assumed that eating marshmallows amounted to the same thing as holding cash.

How does having cash instead of lending it equal having the power to control others through the regulation of the use of objects?

If I have cash in my possession, then I control its use. If someone else tries to use it, I can have them thrown in jail. However, if I loan the cash out, I no longer control its use. If someone else tries to use it, I don't have the power to have them thrown in jail. The person borrowing the money does.

Of course they pay an interest rate, if they want they money they have to.  Otherwise go save your own goddamn money?!  I'm not obligated to give someone else my money that I acquired through my own savings.  The fact that I saved money means that I purchased and consumed less than the market rate of my labor paid me.

I'm not saying anything about what you are obligated to do or what should be done. I'm not saying anything about Mises's prescriptions. I'm saying that his explanation of why things are the way they are is bad. 

Without getting into the inanity of "use-value" vs. value.  Of course they prefer the thing they're getting to use now.  Otherwise they wouldn't have done borrowed for it.
My point is that they are not necessarily choosing between satisfaction now and satisfaction later by "consuming." They may be choosing to maximize their future wealth just as much as the "investor" is.
Poor vs. rich is generally a reflection on accuracy in calculation about the future, and especially so in a free market.  Unlike other forms of economic and political organization liberal capitalism, tends to take from the lazy and stupid and give to the hard-working and savvy.  Rich kids lose daddies money, and poor driven kids work smarter and harder and get rich.  We see it all the time.  Wisdom about how one saves, borrows, invests, and purchases goods, results in the accumulation of wealth.
I've certainly seen Misesians explain inequality in terms if time preference. See this article, for example. "The more pronounced one's "future orientation," the higher one's social class ... as opposed to 'underclass values' or 'high time-preference' behaviors such as improvidence, hedonism, purposelessness, immediate self-gratification of needs or wants, and capricious spontaneity or irresponsibility." Oh, those poor people who spend most of their money on food, housing, and healthcare. They're just stupid lazy bastards. If only they would just acquire a higher time preference so they could rack in some dough while starving to death.
In picking a job then and deciding on whether or not to buy the car (using a loan), all of these factors need to be considered.  If a job that requires a car to get to and perform, provides sufficient profit (remember the costs of transportation are part of the expenses) then that is a profit calculation.
But part of the workers costs is the actual labor itself. In order to calculate profits, the costs have to appear in the same unit as the gain. There's no way to conclude whether she's made a profit or not. But I've explain all this in my entry on profit.
Anyway, those who correctly anticipate their costs, and generate a profit in their monthly budget (whether you're a worker or a capitalist) will increase their wealth.
What is wealth and how do you measure an increase in it?
The owner by investing a large amount of his personal wealth, is able to provide an income to all of his employees and to himself.
If he spent the money on consumption, it would also provide an income to someone else.
He is not guaranteed to make a profit.  He is taking a risk.  If he generates a profit, that profit is a direct result of his risk taking and the labor he does in fact put into running the restaurant.  Go look at the restaurant business.  The life of a private business owner is very, very risky and requires huge amount of labor.  His larger income is a direct consequence of his risk taking and the labor he puts into the attempt to generate a profitable business.
Sure, skills can certainly help make a larger than average profit. But even a complete idiot can make profits pretty much risk free by sticking their money into an S&P 500 index fund. If Mark Zuckerberg could live for ever, he could put all of his money in an index fund and live off of the interest for eternity without lifting another finger. Now I don't want to get into whether he would be deserving of that or not. But attributing an infinite return of money to five years of work and the risks involved doesn't seem like a very good explanation of why profits are made. Of course people don't live forever, but money is inherited which could amount to the same thing. 
Those who get wealthy are those identify and take potentially lucrative risks, who save up wealth (generated by working) and then put it at risk in productive efforts.  If they are smart and hard working, they end up providing a productive business that not only generates a profit for them, but also enriches the rest of the social community by providing goods that meet demand, and provides a steady reliable income to other less wealthy members of society who either have not yet saved up their own wealth.
I think I've shown in my profit entry why this logic doesn't hold up. You even said earlier that people are poor because they made poor calculations about the future. The gains of the rich then are simply the losses of the poor. You can't say they benefit the poor by giving them back some of what they won from them in a bet.
"The limits of my language mean the limits of my world." ~ Ludwig Wittgenstein
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One other question, isn't a theory supposed to explain the world as it is?  Not propose the world as it ought to be and explain how the world is messed up?

Sure, I'm making no proposals here. My problem is with the explanation.

The eventual collapse and utter economic ruin of communist states is also predicted and explained by Austrian Economics.

Communist state is an oxymoron. The ruin of these states was also predicted by various anarchists and Marxists.

The support it provides to Liberalism and Capitalism is indirect.  It just predicts results of those systems that are preferred by the overwhelming majority of humanity.  Unfortunately it's union leaders and corporate bigwigs and special interest groups that favor Keynsianism, State intervention, and/or Socialism instead.

Why didn't Ron Paul get elected if the majority prefers liberalism to state intervention?

"The limits of my language mean the limits of my world." ~ Ludwig Wittgenstein
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David B replied on Tue, Aug 28 2012 1:16 AM

I did read the rest of this post, but there didn't seem like anything else to respond to. (Don't want to quibble about predictin of communist regimes downfalls or the definition of communist.)  I don't think those are relevant to our dicsussion.

David : It just predicts results of [Capitalism and Liberalism] that are preferred by the overwhelming majority of humanity.

FOTH : Why didn't Ron Paul get elected if the majority prefers liberalism to state intervention?

Because that isn't the choice they are offered.  They are offered a chance to get paid without work vs. a choice to suffer in the short term for a long term healthier economy.

But more specifically, I'll quote Hayek from a video: 

Well, I'm afraid so long as we retain the present form of unlimited democracy, all we can hope for is to slow down the process, but we can't reverse it.  I am pessimistic enough to be convinced that unless we change our constitutional structure, we are going to be driven on against people's wishes deeper and deeper into government control.  It is in the nature of our political system, which has now become quite as bad in the United States as anywhere else.  What we have got now is in name democracy but is not a system in which it is the opinion of the majority which governs, but instead where the government is forced to serve a sufficient number of special interests to get a majority.

An interesting quote to say the least.

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David B replied on Tue, Aug 28 2012 8:53 AM

Ok, you missed the time preference example I gave, and badly.

FOTH : Second, you talk about the satisfaction at A+1 being greater than the satisfaction at A. I disagree that praxeology could make this conclusion.

I never said this.  Look carefully again at what I said.  You have the greater than symbol backwards.

If "all things are equal", I'll choose eating at A to choosing "not eating now" and eating at A+1.  If I choose instead to eat at A+1, then all things were not equal!.

I guess it might be so obvious that it's impossible to see?

One thing to note, preference refers to valuing.

I found this quote poking around the site, let's see if it makes things more clear

Joseph Salerno : Time preference is a “category” of human action, meaning that any act undertaken brings the actor’s goal closer in time and demonstrates a preference for satisfaction sooner rather than later. Another way of putting it is that no one has an infinite time horizon. Everyone without exception has a finite “period of provision,” beyond which the achievement of any goal is valueless to the actor. The term “positive time preference” is therefore redundant and the concept of “negative time preference” is logically contradictory. Zero time preference would occur only in a world in which everyone was completely satisfied at every moment of time and need not ever act–think of a world in which consumer goods rained like manna from the heavens at every spot on earth and each individual could instantaneously clone himself an infinite number of times so that his capacity for enjoying this superabundance was also unlimited and you come close to imagining a zero time preference world.

To act is to bring some satisfaction (expected) closer to now.  This cannot happen unless there is some positive time preference.  Meaning a preference to bring satisfaction closer, rather than leaving it unchange, or pushing it farther off.  The reason time is brought into the discussion, is because all considerations of satisfaction require action to attain, and therefore require time to pass to bring an expected end into the present which is "more satisfactory"

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