This is Part 2 of my ongoing series of posts summarizing Bob Murphy’s excellent book Choice: Cooperation, Enterprise, and Human Action. The idea is to popularize and spread the word about Austrian economics and educate the public. Part 1 is here.
So what do we mean when we say economists study “human action”? First, the action must be purposeful behavior; reflex actions do not count, for example. It can even be inaction. Rush fans will recognize the quote: “if you choose not to decide, you still have made a choice.” Right?
Remember yesterday, I said: “Mises thought of economics as a deductive discipline, in which one divines, through analysis and reflection, the fundamentals of why humans act, and derives the necessary logical implications of these fundamentals using a deductive and logical chain of reasoning.” So what can we deduce from purposeful behavior?
Well, some of these are going to seem obvious. But it’s still necessary to state them — because it’s all foundational for what comes in the future.
First, obviously, if there is human action, then there must be a mind behind it. Human action is different from the mindless falling of a rock that we see in physics. Second, the actor must have goals, or preferences, in taking an action.
So far, pretty obvious. Here is another implication that is perhaps less obvious, but is very important: preferences are subjective and not objective. A related concept is that preferences are ordinal and not cardinal.
OK, I’m going to have to explain this one.
Cardinal numbers are “counting numbers” that measure things in units. In the equation 2+2=4, the numbers two and four are cardinal numbers.
“Ordinal” numbers arrange things in a series. Joe is first in line. Chocolate is my 4th favorite flavor of ice cream. (It’s actually my favorite; this is a theoretical discussion!) These preferences can’t be measured in units. I can say chocolate is my fourth favorite flavor, and vanilla is my third favorite. But I can’t measure the difference between these preferences in units. I can’t coherently say I prefer vanilla three times as much as chocolate. More importantly, there is no way to compare, in units, one person’s preference to another’s. You can’t say “Murray likes Buicks twice as much as Joe does.” (You can say Murray is willing to spend twice as much on a Buick as Joe is, but that’s a separate discussion for a separate day.)
The bottom line is: preferences are ordinal and not cardinal. You prefer one good or service to another, but — just like Frank is a better friend to you than Pete — this can’t be expressed in units (cardinal numbers).
Finally, an acting man believes he can influence the future. This is a better way of expressing the concept at issue than saying “man acts rationally” — because the word “rational” is a term that is loaded with connotations not used by Mises. For example, Murphy argues that to Mises, a rain dance is a “rational” act. Why? Because the person doing the dance has a goal (making it rain) and is engaged in action that is directed towards achieving that end.
The fact that we know the action will not accomplish the purpose does not mean the action is not “human action” (or “rational” as Mises uses the term). That’s why I like Murphy’s formulation that the man engaged in “human action” must believe that he can influence the future. This way, we can avoid judgments about whether that action is based on correct information, or whether it actually will achieve the purpose he believes it will achieve.
That summarizes Chapter 2, and is enough for today. Remember, we are still in foundational mode. Tomorrow, we will address the issue of Mises’s economics being an a priori discipline.
UPDATE: Let me say, as I should have at the outset, that any errors in these summaries are mine and not Murphy’s. I am restating his points in my language, and that opens up the possibility of inaccuracy. Should that happen, blame me, not him.