Spiritual Life Is Real Life
Lately on his blog Gene Callahan has been lamenting the free-market economist’s tendency to reduce all human choices to economic ones. First Gene was horrified at a recent argument in defense of allowing monetary payments for adoption, but then Gene switched his target to this passage from Mises in Human Action:
“All human values are offered for option. All ends and all means, both material and ideal issues, the sublime and the base, the noble and the ignoble, are ranged in a single row and subjected to a decision which picks out one thing and sets aside another. Nothing that men aim at or want to avoid remains outside of this arrangement into a unique scale of gradation and preference.”
Gene was saying this is clearly not the right way to look at people, because it would mean (for example) that we have to picture Jesus saying to Himself, “Well, I certainly have a great absolute advantage at producing loaves and fishes. And I do think that Galilee offers tremendous opportunities for opening a chain of loaf and fish stores. On the other hand, just how much utility will I really gain from that whole ‘dying on the cross’ business?””
I have a few responses:
==> Gene is quite obviously mischaracterizing Mises’ position when he (Gene) says in his first volley that Mises “famously treated moral choices as just another species of economic choice.” No, Mises didn’t do that at all; Mises explicitly denied that he was doing that.
==> If you don’t take my word for it, take the word of this guy in his book popularizing Austrian economics:
The dominant
school of economics, often referred to as the Neoclassical
School, seems to describe people behaving in ways that
are hard to relate to the human activity we see around us
every day. The textbook humans seem robotic, rigidly obeying
a set of equations that “maximizes their utility” based on
a set of parameters. The equations themselves are said to
“cause” supply and demand to meet at an equilibrium price—
one that sets the quantity demanded equal to the quantity
supplied. What place do humans have in such a system of
equations? It seems difficult to relate those mathematical constructs
to the world in which we live. How is the idea of man
as a utility equation solver relevant to an Islamic revolution,
to Mother Teresa, to Jimi Hendrix, or to your own decision to
take a vacation that you “really can’t afford,” but really need? [p. 11]The Austrian School of economics is an alternative to the
mainstream approach. It places economics on a sound, human
basis. It avoids the traps that plague most of modern economics:
the assumption of selfishness as the basic human motivation,
a narrow definition of rational behavior, and the overuse
of unrealistic models. [p. 12]Although we often use profit to refer to monetary gain, it
also has a wider sense, as in, “How does it profit a man to
gain the world but lose his soul?” We perform all of our
actions, whether buying a stock or retreating to a mountain to
meditate, with an eye to profiting in this psychic sense. As the
above quotation indicates, if we choose to lead a pious life in
poverty, it is because we expect the end result to benefit us
more than the cost of surrendering the pursuit of worldly
goods: we expect to profit from the choice. [p. 24]Austrian economics does not attempt to decide whether
our choice of ends to pursue is wise. It does not tell us that
we are wrong if we value a certain amount of leisure more
than some amount of money. It does not view humans as
being only worried about monetary gain. There is nothing
“noneconomical” about someone giving away a fortune, or
turning down a high-paying job to become a monk. [p. 25]The question of whether or not there are objective values
does not concern economics. Again, that should not be taken
to mean that Austrian economics is hostile to any religion or
system of ethics. I personally know of Austrian economists
who are Catholics, atheists, Orthodox Jews, Buddhists, Objectivists,
Protestants, and agnostics, and, if I only knew more
economists, I’m sure I could mention Muslims, Hindus, and so
on. Economics should, quite properly, leave comparing values
to ethics, religion, and philosophy. Economics is not a theory
of everything, but simply a theory of the consequences of
choice. In studying economics, we take human ends as an
ultimate given. People, somehow, do choose ends and do act
to pursue them. The goal of our science is to explore the
implications of these facts.Mises said in the introduction to Human Action:
“Choosing determines all human decisions. In making
his choice man chooses not only between various
material things and services. All human values
are offered for option. All ends and all means, both
material and ideal issues, the sublime and the base,
the noble and the ignoble, are ranged in a single row
and subjected to a decision which picks out one
thing and sets aside another. Nothing that men aim at
or want to avoid remains outside of this arrangement
into a unique scale of gradation and preference. The
modern theory of value widens the scientific horizon
and enlarges the field of economic studies.” [p. 26]
==> Continuing with the above-quoted author’s idea to look at Scripture where obedience to God is treated as “economic,” consider this verse: “Do not store up for yourselves treasures on earth, where moths and vermin destroy, and where thieves break in and steal. 20 But store up for yourselves treasures in heaven, where moths and vermin do not destroy, and where thieves do not break in and steal. 21 For where your treasure is, there your heart will be also.”
==> More generally, I think it is wrong to compartmentalize our actions, as Gene–following Collingwood–wants to do. (This is a bad habit that I often fall into, and my Bible study partner often Ctrl-Alt-Deletes it.) A Christian, for example, isn’t supposed to do holy stuff on Sunday, and secular stuff the other six days. No, even when he gets up on Monday morning to go to work and make the donuts, he should be doing that to glorify God. This is definitely purposeful behavior, and is an example of human action. If someone says, “Immoral actions are off the table,” that’s fine, but I don’t see how that adds anything to the analysis; it certainly doesn’t seem like a fruitful category of analysis to me.
But whether or not it is fruitful, for sure it is clear that Mises wasn’t saying, “All moral choices can be viewed as economic” (if that means anything narrower than merely “purposeful”) and there’s nothing odd in imagining Jesus considering disobeying His Father’s will but choosing to obey. After all, Jesus was (famously) tempted by Satan to pursue a worldly life, and Jesus chose to reject him.
(We are getting into some deep theological issues here–did Jesus have the power to sin?–but surely Gene doesn’t think Jesus rejected Satan’s offers the same way people sneeze when pepper is blown in their faces.)
“… because it would mean (for example) that we have to picture Jesus saying to Himself, “Well, I certainly have a great absolute advantage at producing loaves and fishes. …”
Replace the loaf and fish store idea with the goal of saving his listeners, and this is precisely what happened, along with everything else in this scenario.
The means were the miracles, which satisfied Jesus’ preference for providing evidence for his message.
The Austrian concept of “profit” is, “achieving the sought after state of existence that was more desirable than the prior one” (it’s not “profit” if you didn’t employ means toward the ends – that would be just good fortune).
The Austrian analysis holds: All deliberate actions are of a profit-seeking nature.
This is retrospectively true by definition, and therefore useless because no possible action could ever break that rule. If someone gave away all their money you would say they were profit seeking because they wanted to be poor, if the same person earned and saved a lot of money you would say they are equally profit seeking because they want to be rich.
Unless the rule excludes some outcomes, it’s not helping you figure out which outcomes are likely to happen.
As the evolutionary biologists like to say… what happens is what happens.
“This is retrospectively true by definition, and therefore useless because no possible action could ever break that rule.”
It’s useful because of the implications, which, although apodictically certain, are not understood by some, and therefore they adhere to bad economic beliefs.
Bad economic beliefs come from failing to follow this Action Axiom to its logical conclusions.
Take the Labor Theory of Value, for example: If all deliberate actions are profit-seeking, then the value people place on scarce resources are relative to the goal sought after, not the resource, itself. Labor comes from value, not the other way around.
Deliberate action reveals preferences rankings: The present state is preferred less than the one sought after.
The fact of scarcity implies the concept of costs in terms of foregone opportunities, or at least forestalled opportunities.
(The limited number of actions we can take at a time force us to prioritize those actions, which implies the concept of time preference.)
The opportunities or goods foregone by the acting individual reveal a higher bound of value for the means that would have been required to pursue them – this is how all prices are really set (even when would-be central planners try to control prices).
This is why prices need to reflect consumer preferences, rather than central planning, in order for the economy to be sustainably more profitable for more people.
And as Tom Woods explains, preference rankings reveal the Law of Diminishing Marginal Utility, an important implication of which is that increases in production is how subjective value, and therefore prices, come down.
Values being subjective, price controls can only burden the pursuit of already revealed preferences. They don’t change the values people place on goods, all other scarcity conditions being equal.
Tom Woods lecture on Praxeology
http://www.youtube.com/watch?v=1PRTFAXX5Us
Tom goes on to say that the Law of Diminishing Marginal Utility reveals the concepf of the Demand Curve.
No testing, no data, required, he says. These all follow logically from the Action Axiom.
Yeah, Tom Woods gives a good lecture, but there’s sneaky hidden assumptions in there. I don’t dispute that if you observe that someone took a particular action, you can deduce that the action they took was their first preference (all things considered) but you have no way to observe their other preferences (i.e. you cannot measure the things that don’t happen).
For example, Tom mentions that people can make mistakes, so on any particular occasion you say “Ahh, I saw him go through the red door, therefore he doesn’t like the green door.” But, maybe he was in a hurry and just didn’t notice the green door, or didn’t stop long enough to properly consider the choice because he’s more worried about his wife leaving him, and right now doesn’t give a toss about the doors.
I’m even more suspicious when he jumps to the demand curve always sloping down. There’s a bunch of situations (admittedly special cases) where demand curves don’t slope down. The yo-yo craze, or other fashion oriented goods for example, or network goods such as telephones or Internet. To understand why these special cases happen you really have to observe real people dealing with a real world. That’s the bit that bothers me, trying to skip the data collection .
– Robert Tucker
I do often have difficulty explaining to people (generally not economics type people) that economics is more than a study of money. Although money is one useful way for people to make exchanges between one another, it isn’t the only way, and certainly not all exchanges can be reduced to a monetary value. Money can be interesting to study, and it is a useful invention, but isn’t the be all and end all.
Personally, I don’t believe it is possible to form an ordered list of all a person’s choices from start to finish, in a highly multidimensional world. For starters, the list would change from moment to moment, I might generally prefer strawberry ice cream to chocolate, but after three strawberries I’m over that, and I’d like something different. More than that, we need to consider uncertainty… no human ever sees all the outcomes they could choose, as best we see a glimpse of what might happen.
Then people are not fully consistent. On a difficult decision, maybe weighing up a bunch of factors, finally you choose something, not because it was a clear winner but because you just have to get on with life and make a choice. Put back into the same position, you could well choose differently.
Finally there’s creativity, a week later you suddenly realise there was a whole different option you hadn’t thought of before which takes you in a totally different direction. It can happen, but you can’t be sure whether a creative option really will work for you… sometimes you just have to try it and hope.
Not wanting to get religious, but I think the free will concept must, by consistency, also apply to Jesus… if he was incapable of failure, then what he did would have been the actions of an automaton and therefore could not be considered success either. It’s logically impossible to force someone to be good, since a person acting under compulsion cannot be considered to make any moral decision.
“Gene is quite obviously mischaracterizing Mises’ position when he (Gene) says in his first volley that Mises “famously treated moral choices as just another species of economic choice.” No, Mises didn’t do that at all; Mises explicitly denied that he was doing that.”
Yep, you certainly are completely misunderstanding what Collingwood (and I) are getting at here! My characterization stands: what Mises meant in rejecting homo economicus was that people didn’t only focus on monetary or material things. But what he did with that truth was to turn *all* choices into forms of economic calculation: see the passage I cite. (And see my passage from EFRP, which commits the same mistake!)
“I think it is wrong to compartmentalize our actions, as Gene–following Collingwood–wants to do.”
Did you actually go and read the Collingwood essay? I at least have the decency to read Mises when I criticize him. He was certainly not “compartmentalizing” our actions, nor am I recommending that!
I don’t see how
“But what he did with that truth was to turn *all* choices into forms of economic calculation: see the passage I cite. (And see my passage from EFRP, which commits the same mistake!)”
does not translate into saying that some choices are forms of economic calculation and some aren’t, which clearly means that one is compartmentalising actions into economic and non-economic ones. I therefore also wonder how that does not contradict
“nor am I recommending that!”
Gene, does Jesus Himself commit Mises’ mistake then too? Jesus didn’t say, “Yes, it would profit a man to gain the whole world by following the prince of it, but we can’t simply look at utility. Instead we have to consider that you would lose your soul, and so really such a man should take the path that does not profit him in this type of case.”
Jesus also didn’t say, “Yes you could store up treasure, but that would be immoral instead you should not chase after treasure.”
Gene wrote:
what Mises meant in rejecting homo economicus was that people didn’t only focus on monetary or material things. But what he did with that truth was to turn *all* choices into forms of economic calculation: see the passage I cite.
(1) The pedantic point: No he didn’t turn all choice into “economic calculation.” A central planner who is deciding how much food to give to workers in the factory isn’t even engaged in economic calculation, let alone is Mother Teresa.
(2) The more important point: Mises is developing a theory of action per se. All purposeful behavior falls under this rubric. You (and you claim Collingwood) agree with this. So you should stop saying that Mises did something wrong.
Now, if you and Collingwood want to come up with further categories *within* purposeful behavior, go ahead. By the same token, Mises loosely talks about cool deliberate reasoning of a scientist setting up an experiment versus someone shooting his wife when he finds her in bed with another man (my examples not his). Those are both action though. It would be silly to say, “Mises is wrong to think that shooting your spouse is a form of economic action.”
Gene, what is the definition of economic choice in your view?
“My characterization stands: what Mises meant in rejecting homo economicus was that people didn’t only focus on monetary or material things. But what he did with that truth was to turn *all* choices into forms of economic calculation”
Mises did not “turn” all choices into forms of economic calculation.
He recognized the praxeological nature of the very concept you yourself just utilized and presumed as obvious and trivial, namely CHOICE.
The very meaning of choice presupposes an economic calculation that can be generally described as “I will do this because it’s better than doing that.”
As Sean explained below, morality and Mises’ theory are very much compatible. A morality is a code of conduct. A person who acts according to a particular moral code is doing so because they think it is better than doing the alternative.
Going to church, praying, pretending to know the Mind of God, and beleiving oneself possessed by spirits or demons, these are all actions that you choose to engage in that you think are better than other actions. Identifying the cause for those actions to be centered at you, is not “turning” your actions into economic calculations. It is recognizing them to be such.
Did you want to claim that you pretending to know the mind of God is due to you thinking it is a worse thing to do than the alternative? That would be funny.
I retract the use of “economic calculation” above because it is not necessarily implied by homo economicus.
Last one Gene (for now): I am saying that at best Collingwood’s framework is compatible with Mises’, and at worst I don’t think Collingwood’s framework is helpful. But for you to say you side with Collingwood against Mises makes no sense. For all we know, Mises could read Collingwood and say, “Yep, I agree with that.”
There is nothing about Mises’ system that is incompatible with morality. If I have before me the choice to steal money or to consciously obey the categorical rule not to steal, I will choose one or the other, based upon various contingencies. Assuming that it is possible to choose to follow the ethical rule simply because I believe that it is right to do so (and there is nothing in Mises that says this is impossible) then there is certainly “calculation” in the sense that I value the purely motivated goal of complying with the moral rule over all of the other options. If I value something categorically above all others, and this would apply to Jesus’ decision to submit to crucifixion, then it is ranked higher in my valuation than anything that entails violating that categorical rule.
Sean gets it.
Major.Freedom gets it.
I thought I was getting it, but then:
Bob “No he didn’t turn all choice into “economic calculation.” A central planner who is deciding how much food to give to workers in the factory isn’t even engaged in economic calculation, let alone is Mother Teresa.”
MF: “The very meaning of choice presupposes an economic calculation that can be generally described as “I will do this because it’s better than doing that.”
MF says that all choice, all action is based on economic calculation, but Bob denies that. I don’t follow. Why is the central planner not performing economic calculation when he allocates resources in such and such a way rather than doing something else? Is not Mother Teresa performing economic calculation when she chooses to minister the poor rather than do something else?
Collingwood says the child running around the garden has no plan, but he does plan – to fulfil the desire to run around the garden. If told to, he will (may) stop, which tells us it a choice.
Mises seems to be saying there is no such thing as economic, moral or expedient calculation, only action. All action is the same. What distinguishes one from another is not the action, it is the preconditions that set up the choice. It is the ends to which the action is directed. The child acts to fulfil the urge to run, which comes to a large extent from the subconscious. It still only leads to two choices: to run or no to run. To run will satisfy the (possibly innate) urge. Not to run might keep him out of trouble. Which does he value most at that moment? Mother Teresa acted from a thought out moral system. She valued helping a great deal, but she was still left with a simple choice: to minister or not to. Which did she value the most at any particular moment?
Can we catagorise the actions based on the things that led us to the choice? I don’t see why not – we can sub-divide action into those with a large impulsive or large moral component. Mises as I understand it did not consider to be within the sphere of study he chose. He said ” However unfathomable the depths may be from which an impulse or instinct emerges, the means which man chooses for its satisfaction are determined by a rational consideration of expense and success.” I don’t quite know where the “rational” came from, but he seems to be saying that the origin of the choice, be it instinct or thoughtful deliberation, s not relevant to the action.
This would lead the study of the origins of the choices we make a separate field of study. We can do it if we want, but it ain’t what Mises was talking about.
“MF says that all choice, all action is based on economic calculation, but Bob denies that. I don’t follow. Why is the central planner not performing economic calculation when he allocates resources in such and such a way rather than doing something else? Is not Mother Teresa performing economic calculation when she chooses to minister the poor rather than do something else?”
Bob isn’t denying that the central planner is attempting to calculating – he’s denying that his calculation can be successful.
The central planner can never achieve his ends of feeding the poor because he is hindering the profit motive of the rich who produce the food that the poor buy.
So, central planning ends up reducing the supply of food, making it more expensive. The opposite of the intended goal.
Yes, the would-be central planner is employing scarce means, and he is motivated by psychic profit, as MF says.
But he doesn’t have the correct information, which can only be known through the revealed preferences of individuals, which in turn requires them to be free to express their preferences.
When prices don’t reflect voluntary actions, they aren’t the correct prices. And then malinvestments ensue because entrepreneurs are working with the wrong prices.
Hey You Guys: Mises uses “economic calculation” in a very specific way in *Human Action*, it means profit and loss estimates based on market prices. So the institutional prerequisites are private property (including in the means of production) and the use of a money commodity. Thus, Mises wasn’t reducing all human choices to economic calculation.
“… in *Human Action*, it means profit and loss estimates based on market prices.”
Market prices don’t only express themselves in terms of money, though.
The price for bartered goods was the other good.
Or, if this helps, if the price of a hamburger is $1, it is also the case that the price of a dollar is a hamburger.
Money is simply that good which is most widely used in indirect exchange. You don’t need money for economic calculation to occur.
(I apologize for what could be seen as a tangent, but I honestly believe that “economic calculation” cannot be understood without reference to the thing being calculated – and it isn’t the money units, per se, that is being calculated, but the goods which are subjectively valued.
(The calculations made on the money units are only as good as the money’s link to the use-value placed on the goods that are sought, which is not always good as evidenced by the “boom” phase of the business cycle.)
From the quote I’ve seen you use of Mises using the term “economic calculation” (which I only vaguely remember, and can’t cite), it does not appear that he is precluding non-monetary calculations.
Further, I see his view on money as logically following from his view of the means-ends framework of human action, so I don’t see how he *could* logically conclude that calculations cannot occur without money.
Guest, I’m not trying to be a jerk, but I’m going to play the argument from authority on this one. I wrote the study guide to Human Action for the Mises Institute, and here is my new book from the Independent Institute which is a modern restatement of Human Action.
The whole point of the socialist calculation debate is that the planners can’t engage in true calculation, because they lack money prices.
If you want to use “economic calculation” in a broader way, to mean something like “considering the psychic costs and benefits of an action,” OK that’s fine, but it’s not how Mises was using the term in Human Action.
Bob, I think Gene was just informally using the term “economic calculation” to signify psychic cost-benefit calculation. I think what he’s trying to say is that Jesus was not concerned with what choice would maximize his happiness, whereas Mises would say that even people who care about morality are still utility-maximizers. I can’t speak to whether that’s a fair characterization of Mises, but that seems to be what Gene is getting at.
Right, that’s why I said I was just being pedantic. I’ve only gone full-tilt with that point because others are saying I’m wrong about it.
I think you’re right. Mises did use the term in a much more specific manner than Callahan and myself used.
Mises wrote:
“It will be evident, even in the socialist society, that 1,000 hectolitres of wine are better than 800, and it is not difficult to decide whether it desires 1,000 hectolitres of wine rather than 500 of oil. There is no need for any system of calculation to establish this fact: the deciding element is the will of the economic subjects involved. But once this decision has been taken, the real task of rational economic direction only commences, i.e., economically, to place the means at the service of the end. That can only be done with some kind of economic calculation. The human mind cannot orient itself properly among the bewildering mass of intermediate products and potentialities of production without such aid. It would simply stand perplexed before the problems of management and location.”
When I said that economic calculation is what we all do regardless of whether there is a price “system” for the means of production, it was in the “homo economics” framework which Gene was making his argument.
I should not have said economic calculation and taken it for granted that Mises would have agreed.
“Guest, I’m not trying to be a jerk, but I’m going to play the argument from authority on this one.”
You have every right to be a jerk, and I would still enjoy your contributions.
Joseph Salerno, in one of his videos on “Calculation and Socialism”, agrees with you that there is a distinction between “calculation” and “valuation”.
I hold that this distinction is unnecessary, and that, further, the Austrian critique based on the Socialist Calculation Problem holds even in non-monetary transactions, since revealed preferences – in whatever form they take – are required for true calculation.
Price controls in a barter economy would have the same problems with calculation.
Please feel free to be a jerk, at any rate. I like you a whole lot. We can have some fun. Heh.
You see how I treat hostility from the Lefties, here. It’s entertaining for me.
In fact, in Tom Woods’ recent interview with Michael Malice, they discuss the merits of aggression and antagonism.
You can relax with me; And if it gets heated, just know that at the end of the day it’ll be cool.
Love you, bro.
(I’ll even still like you when you get lured into Keynesianism through bitcoinscough excuse me, what now?)
Yup.
Mises wrote:
“Economic calculation is calculation in terms of money prices.” – Human Action, pg 205.
And most definitively that Murphy is right:
“Economic calculation cannot comprehend things which are not sold and bought against money. There are things which are not for sale and for whose acquisition sacrifices other than money and money’s worth must be expended. He who wants to train himself for great achievements must employ many means, some of which may require expenditure of money. But the essential things to be devoted to such an endeavor are not purchasable. Honor, virtue, glory, and likewise vigor, health, and life itself play a role in action both as means and as ends, but they do not enter into economic calculation. There are things which cannot at all be evaluated in money, and there are other things which can be appraised in money only with regard to a fraction of the value assigned to them. The appraisal of an old building must disregard its artistic and historical eminence as far as these qualities are not a source of proceeds in money or goods vendible. What touches a man’s heart only and does not induce other people to make sacrifices for its attainment remains outside the pale of economic calculation. However, all this does not in the least impair the usefulness of economic calculation. Those things which do not enter into the items of accountancy and calculation are either ends or goods of the first order. No calculation is required to acknowledge them fully and to make due allowance for them. All that acting man needs in order to make his choice is to contrast them with the total amount of costs their acquisition or preservation requires. Let us assume that a town council has to decide between two water supply projects. One of them implies the demolition of a historical landmark, while the other at the cost of an increase in money expenditure spares this landmark. The fact that the feelings which recommend the conservation of the monument cannot be estimated in a sum of money does not in any way impede the councilmen’s decision. The values that are not reflected in any monetary exchange ratio are, on the contrary, by this very fact lifted into a particular position which makes the decision rather easier. No complaint is less justified than the lamentation that the computation methods of the market do not comprehend things not vendible. Moral and aesthetic values do not suffer any damage on account of this fact.
“Money, money prices, market transactions, and economic calculation based upon them are the main targets of criticism. Loquacious sermonizers disparage Western civilization as a mean system of mongering and peddling. Complacency, self-righteousness, and hypocrisy exult in scorning the “dollar-philosophy” of our age. Neurotic reformers, mentally unbalanced literati, and ambitious demagogues take pleasure in indicting “rationality” and in preaching the gospel of the “irrational.” In the eyes of these babblers money and calculation are the source of the most serious evils. However, the fact that men have developed a method of ascertaining as far as possible the expediency of their actions and of removing uneasiness in the most practical and economic way does not prevent anybody from arranging his conduct according to the principle he considers to be right. The “materialism” of the stock exchange and of business accountancy does not hinder anybody from living up to the standards of Thomas a Kempis or from dying for a noble cause. The fact that the masses prefer detective stories to poetry and that it therefore pays better to write the former than the latter, is not caused by the use of money and monetary accounting. It is not the fault of money that there are gangsters, thieves, murderers, prostitutes, corruptible officials and judges. ” – Human Action, pgs 214-216.
Boom.
“Boom.”
That’s what he SAYS, but, unless I am missing some specific nuance he is pouring into the term “economic calculation”, it doesn’t follow logically from the Action Axiom.
Maybe this next point will help:
“No calculation is required to acknowledge them fully and to make due allowance for them. All that acting man needs in order to make his choice is to contrast them with the total amount of costs their acquisition or preservation requires.”
To me, this is contradictory:
To “contrast … with the total amount of costs their acquisition or preservation requires” *IS* economic calculation, in my view.
Maybe there’s a spot earlier in the source where he defines “economic calculation”.
Ah, here we go:
The Sphere of Economic Calculation
https://mises.org/library/sphere-economic-calculation
“It is not the task of economic calculation to expand man’s information about future conditions. Its task is to adjust his actions as well as possible to his present opinion concerning want-satisfaction in the future. For this purpose acting man needs a method of computation, and computation requires a common denominator to which all items entered are to be referable. The common denominator of economic calculation is money.”
So, a man can’t adjust his actions as well as possible to his present opinion concerning want-satisfaction in the future if he’s all alone – a scenario in which money is useless?
It’s as if he’s having a brain fart, forgetting methodological individualism (to some degree, at least).
In the context of the division of labor, it’s almost not worth mentioning that money “needs to be” a common denominator, since money, BY DEFINITION, is a common denominator.
Each individual who engages in indirect exchange does so precisely because he believes that the intermediary good can be later traded for something he values more than that which he sold for it.
It’s in the interest of each individual that he holds a good which is valued by many people and that will be valued as far as possible in the future, and so he seeks such goods out, naturally.
Goods with such qualities BECOME the money.
I maintain that there’s nothing essentially different happening under a money economy than under a barter economy.
Barter economies do not have a common denominator by which individuals in a division of labor can compute gains and losses.
Mises did not forget methodlogical indivdualism. He just recognized the benefits of individuals in society using money.
I have a bit of a problem reconciling the quotes from Mises.
“All human values are offered for option. All ends and all means, both material and ideal issues, the sublime and the base, the noble and the ignoble, are ranged in a single row and subjected to a decision which picks out one thing and sets aside another. Nothing that men aim at or want to avoid remains outside of this arrangement into a unique scale of gradation and preference.”
This says that everything is on one scale – whether it involves money or not. Specifically *nothing* that men aim at or want remains outside this arrangement. Yet he then says economic calculation involves only those choices that involve money. If everything is actually on one scale, but economic calculation uses only some of them, then economic calculation must end up with the wrong answer as it fails to consider some things that are on the same scale.
An example from the quote MF provides to illustrate my problem:
“One of them implies the demolition of a historical landmark, while the other at the cost of an increase in money expenditure spares this landmark. The fact that the feelings which recommend the conservation of the monument cannot be estimated in a sum of money does not in any way impede the councilmen’s decision. The values that are not reflected in any monetary exchange ratio are, on the contrary, by this very fact lifted into a particular position which makes the decision rather easier. ”
I totally fail to see that – I don’t know what he means. Is he saying is is easy to decide to keep the landmark, or easy to decide to destroy it? How is one even going to approach the question? Sure, a spectacular landmark against a small sum of money may be easy. So is a very minor landmark against a huge sum of money. But what basis is one supposed to use to make this decision? How is it made easier by the fact that the values are not reflected in money exchange value? How can values that are not monetary be “lifted” into a particular position? Does that also apply to base values? At some point the councillors would spare the landmark for the expenditure of a sum of money. That is effectively putting a money valuation on the landmark, although Mises rejects this, and seems to just hand wave the issue away.
Mises says that all things are on this one scale. Economic calculation includes only those things that are valued in money terms. Therefore of necessity any economic calculation is only involving a fraction of the possibilities on the scale. How does Mises believe one should approach this?
Harold:
“This says that everything is on one scale – whether it involves money or not. Specifically *nothing* that men aim at or want remains outside this arrangement. Yet he then says economic calculation involves only those choices that involve money. If everything is actually on one scale, but economic calculation uses only some of them, then economic calculation must end up with the wrong answer as it fails to consider some things that are on the same scale.”
Economic calculation is not meant as a universal methodology to help individuals make choices, if individuals have values in their ranked scale that fall outside the scope of money and prices. Mises considered the example of a “priceless” piece of land.
What he did not intend for his readers to do is attempt to utilize economic calculation for those very things that are outside of its scope.
How does Mises say we should approach this, I.e. some values falling within and some falling outside the scope? I don’t know if he specifically mentioned something about that off the top of my head, but I would think a good first approximation is Mises’ ethical ideal, which is classical liberalism. Do what you may, as long as you do not initiate aggression.
Personally, I would find it troubling if I lacked an ability to make choices unless they involved money prices. That would be off-putting for some of the choices I make now that do not involve money prices.
“Personally, I would find it troubling if I lacked an ability to make choices unless they involved money prices.”
Oh, OK. If this is all he’s saying, then that’s all well and good.
I’m so used to seeing Mises and Rothbard being super rigorous in explaining logical implications that I guess I got ahead of the context.
To be sure, though, money prices are just prices in terms of the opportunities to be sought after when money is traded in the future.
So, all money prices can be restated in terms of the preference ranks of both that which is sold for it and that which is bought with it.
Money is just a bridge between these two ranked preferences – that’s money’s function.
When the means to attain the ends which are currently “outside the scope” of money prices can be had, through indirect exchange, at a lower opportunity cost than what is presently being incurred, a money price will be assigned.
“When the means to attain the ends which are currently “outside the scope” of money prices can be had, through indirect exchange, at a lower opportunity cost than what is presently being incurred, a money price will be assigned.”
Only if that thing which is being indirectly exchanged, is generally accepted.
If we trade your hamburger for my slice of pizza, and then I turn around and trade the hamburger for someone else’s ham sandwich, while the hamburger is an indirectly exchanged good that alone does not make it a money commodity.
“… while the hamburger is an indirectly exchanged good that alone does not make it a money commodity.”
Yes, agreed.
To MF and Guest.
MF: “What he did not intend for his readers to do is attempt to utilize economic calculation for those very things that are outside of its scope…Personally, I would find it troubling if I lacked an ability to make choices unless they involved money prices.”
Guest “Oh, OK. If this is all he’s saying, then that’s all well and good.”
But that is not all he is saying. How do we reconcile this with his example of the landmark? He says that the “valuation” of the landmark in non-money terms makes the choice easier. That is like saying deciding between this for $100 or that for 6000 Thai Bart is made easier because the currencies are different.
Does it help to put it in an individual context, rather than a public project? I find my outbuilding very aesthetically pleasing, although it has no market value. It will cost $1000 to maintain it or it will fall down. Do I spend the money or not? It makes no sense here to say that because the aesthetic enjoyment is not expressed in money terms it makes the choice easier. On the contrary, the only way I can make the choice is to put them in the same currency – is my aesthetic enjoyment worth $1000 to me? Is that economic calculation?
“He says that the “valuation” of the landmark in non-money terms makes the choice easier.”
Maybe he meant it is easier to say no to any price offer, compared to haggling and thinking about a price that you would accept?
Maybe, but is that a good way for an economist to look at things?
After all, there must be choices made about things like landmarks – we don’t just say that is a landmark and so we can never consider demolishing it. Surely an economist must consider that to say no to any price is foolish.
“Surely an economist must consider that to say no to any price is foolish. ”
No. An economist must consider that to say that to say no to any price is foolish is foolish because value is subjective. And if it’s not logically impossible, the economist must consider the possibility. An economist must therefore remain cautious about pronouncing others’ valuations as foolish rather than take them as a given for economic theorising.
“After all, there must be choices made about things like landmarks”
Choices exist only for individuals who face alternative courses of action.
“we don’t just say that is a landmark and so we can never consider demolishing it.”
Who’s the “we” here? If you’re talking of the owner of a landmark, he sure can consider never demolishing it. I’m sure you’ve heard of the phrase “over my dead body”.
Harold, you’re sneaking in your own personal value judgment about money.
It is not the job of an economist to take everyone’s values an conclude that some values are in some cosmic way more true or more valid than other values.
You have to work hard to separate what you think is so obviously valuable such as say a billion dollars in exchange for a small piece of land you own that you may have in the past considered “holy”, and what the facts on the ground are concerning other people’s values.
Nobody is asking you to adopt those values. You just have to at least recognize them as what is actually taking place.
Bala and MF, I think your comments are summed up with this bit: “An economist must therefore remain cautious about pronouncing others’ valuations as foolish rather than take them as a given for economic theorising.”
I have been imprecise with my “foolish” remark. I meant to say that it is foolish to have a category of valuation that cannot by its nature be considered against money. Mises himself seems to say so when he says everything is on the same scale.
Whilst it is not necessarily foolish for an individual to personally decide that his landmark is not worth accepting any amount of money for. As you say, that is up to him. It is foolish for him to say “sorry, that building comes under category of “landmark”, so it is easy to decide not to accept your offer of a fortune for it for that reason.”
Yet that is exactly what Mises seems to be saying happens in his example when he says the valuation of the landmark in non-money terms makes the choice easier.
Has he not contradicted himself?
No. Mises hasn’t contradicted himself in any way. All you need to understand in this example is that the monument (or the services it renders) forms the ceiling of that individual’s value scale and that all units of money and all sums of money must come below the monument on that individual’s value scale. This necessarily means that other goods exchanged for money must also come below the monument on that individual’s value scale for to say otherwise would be a contradiction.
“This necessarily means that other goods exchanged for money must also come below the monument on that individual’s value scale …”
Yes, this is what I was trying to qualify, below, when I said:
“I would say, though, that all valuations are made in terms of opportunities foregone for the individual.
“Money just makes some opportunities more cost effective.”
“All you need to understand in this example is that the monument (or the services it renders) forms the ceiling of that individual’s value scale and that all units of money and all sums of money must come below the monument on that individual’s value scale. ”
Sorry, that will not work. He may think it is a pretty shabby monument, but a landmark nonetheless. He may be quite happy to demolish it for a significant gain in sewage treatment, although he would favour its retention if the gain were small.
I think I may be concentration on a detail and missing the big picture. Lets look again at what he is saying, and see if I can make sense of it.
Economic calculation is ONLY for those things actually traded for money. So far so good. Mises also recognises that we value things that are not traded for money, so what do we do about those things?.
Mises says we can include the value we put on things that are not usually traded for money.
We have a scale of preferences and everything is on this scale. We know if we prefer A to B regardless of money. Some things are traded in money, so for this particular sub-set, (which is not intrinsically special or more important than the non-traded preferences) we have the tool of economic calculation. For everything else we do not have economic calculation, yet they still exist on our scale of preferences.
If I have that right, then he seems totally wrong in saying: “The values that are not reflected in any monetary exchange ratio are, on the contrary, by this very fact lifted into a particular position which makes the decision rather easier.” How could that possibly be the case? Making it inaccessible to the useful tool of economic calculation cannot make the choice easier.
So we have this tool of economic calculation that is limited to the sub set of things that are traded.
Mises asks how the engineer can know if his technology will relieve more unease than alternatives. “Such comparisons can only be made by the use of money prices.” He answers. Yet how can this be if there is a category of non-money values that must be considered? Surely of necessity he must consider these as well? A proposed road destroys a habitat. The habitat is not traded, so cannot be part of economic calculation. Destroying it will cause unease. Building the road will relieve unease. Which is greater? How can we possibly know?
Economic calculation tells us that *if* we were to develop a road through the habitat, then technology A relieves more of the unease due to things that are traded than does technology B. It can never tell us whether such a thing should be done, or even whether an individual would prefer it were done. Mises seems to offer us no way to decide.
Other economists resolve this by putting some valuation on the habitat (or landmark), but Mises denies us this option by restricting economic calculation strictly to those factors that are actually traded.
It still seems just as confused and contradictory to me.
When I said we have scale of preferences, that is not really what I meant. I mean that given a choice we will have a preference between two alternatives at a particular moment.
“He says that the “valuation” of the landmark in non-money terms makes the choice easier.”
It’s not the money you ultimately want, but that which you will buy with it. When you sell something for money, your side of the transaction is incomplete – or, you’ve made an investment for the future (in acquiring money), but it has yet to pay out, which only happens when you buy something with it.
So, unlike with barter, money prices don’t directly reveal the other side of an individual’s transaction.
I THINK this is why he’s saying that non-money valuations are easier.
Guest, I think we are on the same lines here. When you say “To “contrast … with the total amount of costs their acquisition or preservation requires” *IS* economic calculation, in my view.” That is sort of what I am getting at.
If one is to consider the value of the landmark against the cost of re-routing that pipe, then surely the *only* way to do it is to out them in the same unit. It matters not whether this is dollars, hamburgers or acres of land, but there must be a common unit.
“If one is to consider the value of the landmark against the cost of re-routing that pipe, then surely the *only* way to do it is to out them in the same unit.”
I also think we’re close.
I would say, though, that all valuations are made in terms of opportunities foregone for the individual.
Money just makes some opportunities more cost effective.
Is it profitable for the would-be central planner to piss off or help this group rather than the other? This is ultimately the basis for any action that will take place with regard to the landmark.
That’s not right or wrong – it’s how all decisions are made.
The wrong thing is stealing from tax-victims in the first place.
Anyone? When I see something that makes no sense to me, sometimes it is because it makes no sense. Sometimes it is because I am not seeing it right. I get this a lot with Mises, and here is a relatively simple example.
From all of the above, my main problem is this: “The values that are not reflected in any monetary exchange ratio are, on the contrary, by this very fact lifted into a particular position which makes the decision rather easier. ”
Does that make sense, and if so how?
It’s difficult because he’s trying to frame the issue in the context of central planning, and I’m not sure if he intends that the reader should consider that to be relevant.
All economic actions are made by individuals, so to me the central planning context is irrelevant.
I think what he’s trying to say is that non-monetary prices more readily reveal the means [to an end] sought after – you don’t want the money, per se, but rather the means that the money will buy.
I agree with you that sparing the landmark for an expenditure of money would put a money valuation on it.
Further, what does it matter that some things don’t have a money price when they have prices in terms of other goods or opportunities foregone? Money is a good like any other good.
Perhaps the whole point of his discussion about economic calculation is to win Socialists over by showing that, in terms of social well-being, a free market is optimal.
But since economics doesn’t happen in “society”, to me this is irrelevant and muddies the water, as it were. Economic coordination happens between specific individuals. There is no relevant “macro” metric.