This is Part 8 of a 17-part series of posts summarizing Bob Murphy’s indispensable book Choice: Cooperation, Enterprise, and Human Action. Murphy’s book is itself is a summary of Ludwig von Mises’s classic treatise “Human Action.” (At the end of this short post, we’ll be about halfway home!) Like previous posts, this post is a summary of a summary. If you’re intrigued by what I discuss here, you’d do well to buy and read Murphy’s book.
The purpose of these posts is to popularize and spread the word about Austrian economics and educate the public. Rather than list all the previous parts, I have created a category for all these posts, called “Human Action and Choice,” so that all these posts can be read (in reverse order) with a single click. Note well: any errors in these summaries are mine and not Murphy’s.
Yesterday we introduced the concept of monetary (or economic) calculation. Today we’ll look a little bit more at that important concept, and talk about what it can, and cannot, do. Chapter 8 is a short chapter — and after the lengthy exercise we put the reader through yesterday, I am happy to do a shorter post today.
Although Murphy labels his chapter as being about what economic calculation can and cannot do, it seems to be principally about what it cannot do. Murphy starts by reminding us that a balance sheet (the key document in monetary calculation) seems so very precise . . . yet it is full of predictions about an uncertain future. You include, as an item of depreciation, 1/10 of the cost of a capital good expected to last 10 years . . . but for all you know, it will crap out tomorrow. You list your accounts receivable as an asset . . . but one of the businesses that owes you might go bankrupt next week, leaving you to receive pennies on the dollar.
Entrepreneurship is about predicting an uncertain future. Monetary calculation aids in this endeavor greatly — to the point where Goethe described double-entry bookkeeping as “one of the finest inventions of the human mind.” But no activity that involves predictions about the future can ever be exact.
one thing I find very attractive about Mises and Austrian economics is that it is so much more realistic than classical economics, because it treats human beings as human beings.
In Chapter 8, Murphy makes the point that, according to the Austrian school in general, and Mises in particular, it is not assumed to be true “that people in a market economy are just out to make money.” The great thing about Mises’s broad view of “human action” is that it does not judge between people’s ends or desires — and in particular, it does not require that the desired goal be a goal to make more money. The altruism of a Mother Teresa is every bit as compatible with Mises’s theories of “human action” as are a CEO’s mass firing of employees to boost the bottom line. So economic calculation is not the be-all and end-all of the Austrian school, by a long-shot — and to me, that makes it the most realistic economic school of thought in existence.
By contrast, classical economics all too often reduces people to stick figures in a graph, robotically “maximizing utility under constraint.”
That’s it! See, I told you this would be a short post! Tomorrow, we act much more ambitiously, tackling the economics of the market society, beginning with defining and studying the market economy. Hope you’re enjoying the posts. See you tomorrow.