Socialism - Людвиг фон Мизес Liberty Fund Library of the Works of Ludwig von Mises

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of the dreamer envisioning a lost paradise, who sees the future in a blaze of rose-coloured light, and condemns all that goes on around us.

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       A Contribution to the Critique of the Concept “Economic Activity”

       111

      Economic Science originated in discussion of the money price of goods and services. Its first beginnings are to be found in inquiries about coinage, which developed into investigations of price movements. Money, money prices, and everything concerned with calculation in terms of money—these form the problems in the discussion of which the science of Economics emerged. Those attempts at economic inquiry, which are discernible in works on household management and the organization of production—particularly agricultural—did not develop further in this direction. They became merely the starting point for various departments of technology and natural science. And this was no accident. Only through the rationalization inherent in economic calculation based on the use of money could the human mind come to understand and trace the laws of its action.

      The earlier economists did not ask themselves what the “economic” and “economic activity” really were. They had enough to do with the great tasks presented by the particular problems with which they were then concerned. They were not concerned with methodology. It was quite late before they began to grapple with the methods and ultimate aims of economics, and its place in the general system of knowledge. And then an obstacle was encountered which seemed to be insurmountable—the problem of defining the subject matter of economic activity.

       112

      All theoretical inquiries—those of the classical economists, equally with those of the moderns—start from the economic principle. Yet, as was necessarily soon perceived, this provides no basis for clearly defining the subject matter of economics. The economic principle is a general principle of rational action, and not a specific principle of such action as forms the subject of

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      economic inquiry.1 The economic principle directs all rational action, all action capable of becoming the subject matter of a science. It seemed absolutely unserviceable for separating the “economic” from the “non-economic,” so far as the traditional economic problems were concerned.2

      But, on the other hand, it was equally impossible to divide up rational actions according to the immediate end to which they were directed, and to regard as the subject matter of economics only those actions which were directed to providing mankind with the commodities of the external world. Against such a procedure it is a decisive objection that, in the last analysis, the provision of material goods serves not only those ends which are usually termed economic, but also many other ends.

      Such a division of the motives of rational action involves a dual conception of action—action from economic motives, on the one side, action from non-economic motives, on the other—which is absolutely irreconcilable with the necessary unit of will and action. A theory of rational action must conceive such action as unitary.

       Rational Action

       113

      Action based on reason, action therefore which is only to be understood by reason, knows only one end, the greatest pleasure of the acting individual. The attainment of pleasure, the avoidance of pain—these are its intentions. By this, of course, we do not mean “pleasure” and “pain” in the sense in which these terms used to be used. In the terminology of the modern economist, pleasure is to be understood as embracing all those things which men hold to be desirable, all that they want and strive for. There can therefore be no longer any contrast between the “noble” ethics of duty and the vulgar hedonistic ethics. The modern concept of pleasure, happiness, utility, satisfaction and the like includes all human ends, regardless of whether the motives of action are moral or immoral, noble or ignoble, altruistic or egotistical.3

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      In general men act only because they are not completely satisfied. Were they always to enjoy complete happiness, they would be without will, without desire, without action. In the land of the lotus-eaters there is no action. Action arises only from need, from dissatisfaction. It is purposeful striving towards something. Its ultimate end is always to get rid of a condition which is conceived to be deficient—to fulfil a need, to achieve satisfaction, to increase happiness. If men had all the external resources of nature so abundantly at their disposal that they were able to obtain complete satisfaction by action, then they could use them heedlessly. They would only have to consider their own powers and the limited time at their disposal. For, compared with the sum of their needs, they would still have only a limited strength and a limited life-time available. They would still have to economize time and labour. But to economy of materials they would be indifferent. In fact, however, materials are also limited, so that they too have to be used in such a way that the most urgent needs are satisfied first, with the least possible expenditure of materials for each satisfaction.

      The spheres of rational action and economic action are therefore co-incident. All rational action is economic. All economic activity is rational action. All rational action is in the first place individual action. Only the individual thinks. Only the individual reasons. Only the individual acts. How society arises from the action of individuals will be shown in a later part of our discussion.

       Economic Calculation

       114

      All human action, so far as it is rational, appears as the exchange of one condition for another. Men apply economic goods and personal time and labour in the direction which, under the given circumstances, promises the highest degree of satisfaction, and they forgo the satisfaction of lesser needs so as to satisfy the more urgent needs. This is the essence of economic activity—the carrying out of acts of exchange.4

      Every man who, in the course of economic activity, chooses between the satisfaction of two needs, only one of which can be satisfied, makes judgments

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      of value.5 Such judgments concern firstly and directly the satisfactions themselves; it is only from these that they are reflected back upon goods. As a rule anyone in possession of his senses is able at once to evaluate goods which are ready for consumption. Under very simple conditions he should also have little difficulty in forming a judgment upon the relative significance to him of the factors of production. When, however, conditions are at all complicated, and the connection between things is harder to detect, we have to make more delicate computations if we are to evaluate such instruments. Isolated man can easily decide whether to extend his hunting or his cultivation. The processes of production he has to take into account are relatively short. The expenditure they demand and the

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