Human Action: A Treatise on Economics

Summary

Human Action is Ludwig von Mises's comprehensive treatise on economics, published by Yale University Press in 1949. It is an expanded English reworking of his German treatise Nationalökonomie, which had appeared in Geneva in 1940 with little notice because of the war. At nearly nine hundred pages, it attempts to build the whole of economics from a single starting point: the fact that human beings act. Mises defines action as purposeful behavior, the use of means to attain chosen ends. From this starting point he develops what he calls praxeology, the general science of human action, of which economics is the best-developed branch. He argues that its theorems are known by reasoning rather than by experiment, so that statistics and history can illustrate economic laws but cannot establish or refute them. This a priori method, together with his insistence that only individuals act and that values are subjective, sets the book apart from most economics of its time. The treatise is divided into seven parts. After the foundations, Mises discusses action within society, the division of labor and the role of economic calculation in money prices. The longest part, on catallactics or the economics of the market, treats prices, money, interest, time preference, entrepreneurship, profit and loss, wages and the business cycle. Here Mises presents the Austrian theory that credit expansion by banks lowers interest rates below their market level, encourages unsustainable investment and so produces booms that must end in depression. Later parts restate his argument that a socialist economy cannot calculate and examine the 'hampered market economy', in which government interventions such as price controls, credit expansion and confiscatory taxation lead, he argues, to consequences their sponsors did not intend and to pressure for further intervention. The final part considers the place of economics in society and in education. The book was reviewed widely, including by Henry Hazlitt in Newsweek, and became the central text of the revived Austrian school in the United States through students such as Murray Rothbard and Israel Kirzner. Mises revised it in 1963 and 1966; a Scholar's Edition of the 1949 text appeared in 1998. Mainstream economists have generally rejected its a priori method, and its political conclusions in favor of an unhampered market remain disputed, but it is widely regarded as the fullest statement of Mises's thought.

Plot or Argument

• Parts One and Two: action and society

  Mises defines human action as purposeful behavior, sets out the method of praxeology, and explains social cooperation as the result of the higher productivity of the division of labor.

• Part Three: economic calculation

  He explains how money prices make it possible to compare costs and returns, and sets out the limits of such calculation.

• Part Four: catallactics

  The longest part analyzes the market economy: prices, money, interest and time preference, entrepreneurship, profit and loss, wages and the Austrian theory of the trade cycle.

• Parts Five to Seven: socialism, intervention and economics in society

  He restates the impossibility of economic calculation under socialism, examines government interference with the market, and discusses the role of economics in public life and education.

Characters

• Ludwig von Mises, author

  Austrian economist writing in American exile.

• Carl Menger, authority

  Founder of the Austrian school, whose subjective theory of value Mises develops.

• Eugen von Böhm-Bawerk, authority

  Mises's teacher, whose work on capital and interest informs the book.

• Acting man, type

  Mises's abstract figure of the individual who chooses among ends and means.

Lessons

• Purposeful action

  Mises begins from the idea that people act to reach chosen ends. Students can consider what follows from treating choice, not behavior alone, as the subject of economics.

  • What does Mises mean by 'human action'?
  • Is doing nothing also a form of action?

• Method in the social sciences

  Mises argues that economic laws are known by reasoning, not by experiment. The claim invites discussion of how different disciplines establish knowledge.

  • Why does Mises think statistics cannot prove economic theorems?
  • What would a critic of the a priori method say?

• Booms and busts

  The Austrian theory of the trade cycle explains depressions as the result of earlier credit expansion. Students can compare it with other explanations.

  • How does credit expansion lead to a boom, in Mises's account?
  • How does his explanation differ from Keynes's?

Context

Mises wrote the book in New York during and after the Second World War, as an emigrant whose Vienna seminar had produced Hayek, Haberler, Machlup and others. Keynesian economics and mathematical methods were becoming dominant, and many Western governments were expanding economic controls.

Composition

The book grew from Nationalökonomie: Theorie des Handelns und Wirtschaftens (Geneva, 1940). Mises wrote a new English version, and Yale University Press published it in 1949. Revised editions followed in 1963 (Yale) and 1966 (Regnery); the Mises Institute issued a Scholar's Edition of the 1949 text in 1998.

Reception

Hazlitt and other journalists praised it and it sold steadily for a treatise of its size. Academic economists largely rejected its method, but it became the foundational text of the Austrian revival led by Rothbard, Kirzner and their students. The Liberty Fund issued an edition edited by Bettina Bien Greaves in 2007.

Comparisons

• Economic Calculation in the Socialist Commonwealth

  The 1920 article's argument that socialism cannot calculate without market prices reappears in Human Action as part of a complete theory of the market.

• Socialism: An Economic and Sociological Analysis

  Mises's earlier book applies the calculation argument and his sociology to every form of socialism; Human Action sets those conclusions within a general theory.

• The Road to Serfdom

  Hayek, Mises's student, turned the Austrian critique of planning into a political warning; Human Action supplies its economic foundation.

• The General Theory of Employment, Interest and Money

  Keynes's account of unemployment and his case for managing demand are the main contrast to Mises's theory of the trade cycle and his opposition to credit expansion.

• The Wealth of Nations

  Smith's analysis of the division of labor and the market is the classical precedent for Mises's account of social cooperation.

• Economics in One Lesson

  Hazlitt, who reviewed Human Action, popularized many of its conclusions about intervention in short chapters for general readers.

• The Communist Manifesto

  Marx and Engels's theory of class struggle and historical necessity is one of the doctrines Mises argues against throughout the treatise.

• Basic Economics

  Sowell's primer presents in plain language several of the same ideas about prices, incentives and the effects of controls.

Quotes

For Students

A reading companion for classical Christian high school students. See the student guide.

Reading Guide

Watch for

• The definition of action in the first chapter and how much Mises derives from it.
• His distinction between praxeology and psychology.
• The role of money prices in economic calculation.
• His account of the trade cycle and of intervention.

Key terms and names

Praxeology

Mises's name for the general science of human action.

Catallactics

The theory of market exchange and prices.

Time preference

The preference for satisfaction sooner rather than later, which Mises uses to explain interest.

Methodological individualism

The principle that social phenomena are explained by the actions of individuals.

Hampered market economy

A market economy subject to government intervention.

Seminar Questions

1. Comprehension How does Mises define human action?
2. Comprehension What causes the trade cycle in Mises's theory?
3. Interpretation Why does Mises insist that only individuals act?
4. Interpretation How does Mises connect interest to time preference?
5. Big Question Can economics be a science without experiments?
6. Big Question Does every intervention in the market lead to further intervention?

Faith Connections

• Luke 14:28 (Scripture)

  'Which of you, intending to build a tower, sitteth not down first, and counteth the cost': the reckoning of means against ends that Mises places at the center of action.

• Aristotle, Nicomachean Ethics, Book III (Great Conversation)

  Aristotle's analysis of deliberate choice as deliberation about means to ends is an ancient precursor of Mises's concept of purposeful action.

Logic and Rhetoric

Central argument: Because human action is purposeful choice among scarce means, the laws of economics can be deduced from the nature of action itself; these laws show that market prices coordinate cooperation and that interventions in the market produce unintended consequences.

Rhetorical device: deductive system. Mises proceeds from a single axiom about action to theorems on value, exchange, money and interest, presenting economics as a chain of logical implications.

Debate: Resolved: Economic laws can be known by reason alone, without empirical testing.

Writing Prompts

Essay: Explain Mises's claim that economic theorems are known a priori, and evaluate one objection to it.

Comparison with The General Theory of Employment, Interest and Money: Compare Mises's and Keynes's explanations of booms and depressions. What policies follow from each?

Creative Prompts

• Essay

  Mises says every action involves giving something up. Describe a recent choice of your own in his terms: what were the ends, the means and the cost?

• Classroom

  Divide the class into Austrian and Keynesian advisers to a government facing a recession, and have each side present a plan and predict its consequences.

• Dialogue

  Write a conversation between Mises and a statistician about whether economic laws can be tested by data.

Further Reading

• Socialism: An Economic and Sociological Analysis, Ludwig von Mises

• The Theory of Money and Credit, Ludwig von Mises

• Man, Economy, and State, Murray N. Rothbard

• Ludwig von Mises: The Man and His Economics, Israel M. Kirzner