Chapter Three -- Economics and the Revolt Against Reason

Since the mid 19th century, many self-styled "intellectuals" have been revolting against reason. Karl Marx and his followers led the charge. Realizing that the teachings of classical economics demonstrate that socialism can never work, and unable to refute that conclusion, they attacked reason itself.

Marxian polylogism, racial polylogism, and nationalist polylogism share two common traits. They always assert that some people think properly, and that others do not. And they can never describe what constitutes right thinking except to say, "Unless you think like we do, you are not thinking correctly."

Marxian polylogism is further characterized by an almost mystical faith in the power of history to effect social change. Marx devised an irrational system based on class envy. He invoked the inexorable power of Geist to explain how the utopian socialist vision would be realized. He never established any part of his system with simple logic. Instead, he employed the vacuous notion of "class logic," and ignored the many antinomies such a notion necessarily entails.

The champions of racial polylogism point to the undeniable differences among the various races of mankind and claim that each race has its own peculiar logic. As evidence they adduce the obvious fact that Western civilization has advanced more rapidly than any other. Such theories are exploded by observing that people of every race and nationality are willing and even eager to import Western technology into their own countries. It is clear that Africans and Asians desire material well-being for the same reasons Europeans do.

Some defenders of polylogism will admit that the essential faculty of reason does not vary among races and classes of men, then fall back on a rationalization: they meant only to say that a man's tastes and preferences are determined by his racial or socioeconomic background. This position is just as untenable as their original assertion. History records numerous examples of wealthy men of every race who voluntarily lived in poverty. And many great creative geniuses came from impoverished families. Critical examination of all the available evidence reveals no necessary connection between a man's racial or social background and his scale of values.

In the final analysis, it is the power of rational thinking that separates men from the beasts. Considered coolly and rationally, the various schools of polylogism offer very little truth and a great deal that is false. Man can abandon his reason -- and science -- if he wants to. But civilization, and humanity itself, will also be lost in the bargain.

Chapter Four -- A First Analysis of the Category of Action

Ends and means are essential concepts in the category of action. A physical object does not become a means until some acting human being employs it for his own purposes. Things that serve as means are always in limited supply. Any thing that is readily available to everyone is not the object of action. The classical economists called these things that acting man finds useful economic goods. We further differentiate between goods of the first order, available for the direct satisfaction of consumers' desires, and goods of higher order, which are used in the process of producing goods of the first order.

Acting man chooses among available alternatives. It is in this connection that economists speak of an individual's scale of values. The economic scale of values is entirely subjective. It can never be observed directly. It can only be inferred by observing real actions. Value is not an intrinsic property of economic goods. It exists only in the mind of acting man. In short, values are subjective.

Physiologists speak of man's needs. No doubt their observations are correct. But needs are not values. Economics does not deal with a scale of needs. It deals only with purely subjective scales of values.

Selection and renunciation are also essential concepts in the category of action. Thus, every action is an exchange. Man gives something up every time he makes a choice. The thing he gives up is the price paid. The value of that price is his cost. The value of the thing he obtains in exchange for the price paid is called his proceeds. When proceeds exceed cost, acting man realizes a profit. When the situation is reversed, acting man suffers a loss.

At this stage of our inquiry, we are dealing only with the individual's subjective scale of values, and so we must remember that calculation with these primary costs and proceeds and profits and losses is not possible. Action itself does not create a scale of magnitudes. It sorts and it grades. It does not quantify.

Chapter Five -- Time

Anteriority and consequence -- before and after -- are also essential concepts embedded in the category of action. Time is not a part of logic. A purely deductive system such as mathematics stands in a certain sense outside of time. But in praxeology, time is of the essence because acting man must always think in terms of the past, the present, and the future.

The time of praxeology is subtly different from the notion of time developed by pure introspection, or by the physical sciences. In meditation there is no present. In that sense the present is always becoming the past. Mechanical devices can only measure time that is already past. But for acting man, there is a real extended present during which current action is performed. Action is always rooted in the present moment as acting man weighs the uncertain future.

Time is always economized. Even if man had no difficulty in satisfying every desire, he would still economize time because he cannot do everything all at once.

The fact that man can only perform one action at a time has led some critics to charge that action is not always rational. They argue that if a man prefers a to b, and then chooses b instead of c, that he must henceforward and forevermore prefer a to c, or else he is not rational. In fact, these critics are wrong. They are conflating logic and time. Whenever acting man makes a choice, he considers only what is most important at that moment. To adapt his own internal scale of values to changing conditions is the essence of rational behavior. Only an automaton would maintain unchanging preferences in the face of changing circumstances, and man is not a robot.

Chapter Six -- Uncertainty

Man acts because the future is uncertain. If the future were known, there would be no reason to act. Some future events (e.g., how a machine will operate) can be predicted with a high degree of probability. But other aspects of the future are not so clearly seen. Praxeology must deal with uncertainty.

In speaking of an uncertain future, we are bound to speak of probabilities. We must be careful to distinguish between the concept of probability as mathematics approaches it and the more general notion of probability in a praxeological sense. The mathematician speaks of class probability. This concept is useful for acting man. But human action is also confronted with case probability, which is an entirely different thing.

Class probability is useful in the following context: we know everything about a particular set, or class, of events. With respect to a particular event, however, we know nothing -- except that it is a member of that class. The theory of probability and combinatorial analysis add nothing to our already perfect knowledge of the entire class. They merely facilitate calculations.

People deal with class probability on a daily basis. Insurance is based on the notion of class probability. Other businesses employ the same concept when making plans for spoilage, the turnover of inventory, or workloads that vary with the volume of business, as in the retail trades at Christmas time.

The notion of case probability deals with events that are essentially unique. We cannot assign these events to a class of essentially similar events, so we must deal with them by using the specific understanding of the historian. And this is why society can never be engineered as if it were a machine. Our understanding of other men is necessarily incomplete. The plans of the very wisest "social engineer" will always be thwarted by the independent actions of others.

People do not always distinguish carefully between the two separate and quite different concepts of class probability and case probability. Events that can be logically classified are susceptible to analysis using mathematical tools. But we are only fooling ourselves when we speak of case probabilities in numerical terms. Similarly, attempts to treat the hypotheses of the natural sciences in probabilistic terms are mistaken. A theory or hypothesis of say, chemistry, is neither true nor false in an apodictic sense. Logically, the most we can say about it is that it's consistent with all experimental observations to date.

Distinguishing between betting and gambling improves our understanding of probabilities. A bet is a wager placed on a special case. A gamble is a wager in the context of class probabilities. Theorists who approach economics as if human action were some sort of game are mistaken. In a game, nobody can win unless someone else loses. This is certainly not true in an economic sense. In a market economy characterized by voluntary exchange, all the participants gain in the bargain. Competition is not combat.

Human understanding is a tool of economics. Because the understanding concerns itself with case probabilities that can never be quantified, we know that economic predictions cannot be quantified either. The positivists will ridicule the economist. That does not change the facts. Uncertainty about the future is due, in part, to the actions of others, and experimental methods do not shed any light on those. Although it is imperfect, our human understanding is an indispensable tool for dealing with the uncertain future.

Chapter Seven -- Action Within the World

The goods at man's disposal are of limited utility. That is to say, a definite quantity of any good can only provide a finite amount of satisfaction. In considering how acting man makes choices, we are justified in hypothesizing the existence of some internal scale of values, or utility function, which acting man uses to sort and grade the various means at his disposal. However, we must always remember that this scale is an ordering only, and that calculation using the cardinal numbers is inadmissible in this sphere.

Further consideration of the category of action leads us to formulate the law of decreasing marginal utility. Acting man tends always to that felt desire which is most urgent. Therefore the utility of one additional unit of some consumable good is necessarily less than the utility of any unit of that good already in the consumer's possession. This principle is not a psychological rule. It is rooted in the category of action, and it is apodictically certain. It is fundamentally different from Gossen's first law, Daniel Bernoulli's principle de mensura sortis, and the Weber-Fechner law about the logarithmic sensitivity of human sense organs.

The fact that a definite quantity of any economic good can only produce a finite result when employed as a means leads directly to the law of returns, popularly known as the law of diminishing returns. This law states that in any productive process utilizing two inputs a and b, there is some optimum ratio of those inputs which maximizes total output. This is seen to be a consequence of the definition of an economic good. If output could be increased by increasing the proportion of one of the inputs without limit, then the other input would be unnecessary, or else it would not be an economic good. The law of returns is commonly associated with economies of scale, but those are not the same thing.

We have already seen that time is in limited supply, and that acting man economizes it. Thinking about this more carefully, we perceive that labor is a peculiar mode of action. Many of man's activities are ultimate ends; but labor is always a means to an end. Acting man values the things he can obtain by working, but he also values leisure time. This leads us to enunciate the principle of the disutility of labor. Man will work until he has reduced his available leisure to such an extent that the marginal utility of the next available unit of leisure exceeds the utility of the things an additional unit of labor would procure. To work any harder and longer than that does not make sense. This leads us to an additional realization. In our world, human labor is the limiting factor determining total production. There are always more resources that might be employed in production processes. But when everybody is busy working up to the limit of what each can do, there's just no way to pile on even more coal.

When speaking of the economic concept of labor we must keep the fact that labor is a means to an end clearly in mind. Activities that may be labor for one person are leisure for another. For instance, a leisurely drive in the country on Sunday afternoon is not labor -- not even for a taxidriver. And while it is true that some people are geniuses, the fact that they pursue their life's work with ceaseless dedication as an end in itself does not invalidate our observation that for the mass of humanity labor is a means and not an end.

Many economists teach that economics is the study of the scarcity of the material factors of production, and how man deals with that scarcity. In fact, their focus is misdirected. The one essential factor that makes production possible in the first place is the mind of man. Our entire civilization is the result of human action -- of man's ability to choose means and ends. That is why praxeology begins with and remains rooted in the category of human action.