Human Action: Austrian Sociology, Lecture 2 with David Gordon - Mises Academy
Austrian Sociology, Lecture 2Human Action by Ludwig von Mises Chapter VIII, pp.153-165 David Gordon Mises Academy March 19, 2013
Liberalism• Mises is strongly committed to the free market. He also says that praxeology is value free. Is this a contradiction?• Mises says no. Economics does not imply liberalism, or any other ethical or political system.• Economics can say, if you want material prosperity, establish the free market. This is not a normative statement. It doesn’t say that people should favor the free market.
Liberalism Continued• Mises goes further. Most people do in fact want material prosperity.• Objection: what about values “higher” than money? Why should these values be subordinated to the pursuit of material gain?
Mises’s Response• Mises has two responses.• Under what conditions do the higher values flourish? What if they flourish to a greater extent in wealthy societies than in poor ones?• Mises also notes that supporters of the higher values don’t “sell” them as harmful to prosperity. His concern is what people do value, not with what they ought from an external perspective to value.
Religion and Liberalism• Liberalism is based entirely on reason, not faith. It says it is objectively true that the free market will lead to greater productivity than rival systems.• Mises calls doctrines of society that appeal to non-rational sources theocratic. These theocratic doctrines aren’t confined to religions. Any appeal to special non-rational knowledge counts as theocratic, e.g., claims that some person or group discerns the trend of history.
More Religion• Theocracy is not the same as religion. So long as religion says nothing about social institutions or teaches views in accord with liberalism, there is no opposition between liberalism and religion.• Mises is sympathetic to William James’s individualist view of religion.
Social Cooperation• We know that people benefit from social cooperation rather than living in isolation.• One reason for this is that there are some tasks that only a group of people can perform.• Mises does not think this is the main reason society developed. In primitive conditions, these tasks come up only occasionally.
Division of Labor• The main reason people form societies is the division of labor. People gain from specializing in production and exchanging. This generates permanent relations.• Recognizing the gains from trade took place very early in history.
Conditions for Division of Labor• The division of labor takes place because people aren’t equal in their abilities.• Also, areas of the earth are different.• There is another view of the division of labor taken by Adam Smith that does not start from inequality. Even equal people would find it beneficial to specialize. Whether this is right seems to depend on what we mean by “equality.” But it’s clear that inequality makes the division of labor much greater.
Law of Association• We can see how trade is beneficial to two people if each person is better at producing something than the other one. If I am better than you in growing apples and you are better in growing oranges, then we will have more apples + oranges if we each produce what we are best at making.
Law of Association Continued• What happens if you are better than producing everything than I am? Will it still be beneficial for us to trade?• Trade is beneficial even under this condition. You should specialize in the good where your absolute advantage is greatest and I should specialize where my absolute disadvantage is least. This is my comparative advantage. This expression is often misunderstood.
How Do We Know the Law is True?• The easiest way to understand why the law is true is to consider some examples. A baseball player who was skilled in making baseball bats may find it more beneficial to buy a bat from someone less skilled, because he can concentrate on playing baseball , where he will earn more money.• Notice that the difficult part is to explain why trade helps the person with the absolute advantage in all areas.
Exception to the Law• There is one case where trade between people where one has an absolute advantage in all areas is not better for all.• This case occurs when someone’s absolute advantage isn’t greater in one area than another.• This doesn’t arise very often in practice.
Ricardo• David Ricardo showed that the law held in international trade. His model holds fixed the capital and labor in the two countries. Capital and labor can’t be moved from one country to the other.• Some people have objected that Ricardo showed that trade is beneficial only under restricted conditions. There isn’t a general argument for free trade. But this is a misunderstanding. Trade is always beneficial, from the point of view of those engaged in it.
Generalizing the Law• The law doesn’t just apply to Ricardo’s case of trade between two countries.• It applies to any exchange between people, with the exception noted. It is a general law of association.• This Law of Association is basic to Mises’s theory of society.
Mises’s Proof of the Law• Mises’s proof of the law makes no reference to value. It is based on the cost of the alternatives, taken as physical quantities produced in a certain amount of time.• You can also prove the law by money calculations.• You can’t calculate directly in values. This is a fundamental point in HA.