Chapter 19: Truth & Consequences

“It is the theory that decides what can be observed.” —Albert Einstein


Seeing survival as the primary motivation in human existence is not new with Mises. Spinoza considered it dominant in the mid seventeenth century. Ernest Becker saw death as the “worm at the center of the apple” a few decades ago. Mises placed human action at the center of what we would call a self and nicely avoids the insoluble dilemma of mind/body interaction with his focus on purpose. Mises considered himself a theoretical dualist, which I take to mean that he employed both mental and physical concepts together but did not postulate independent hypothetical forces as well. He is a monist, although with mental realizing a fundamentally different function while grafting on the physical.

That alone makes his system closer to reality, but the issue that strikes me as most original and compelling is his inversion of cause and effect on the etiology of positive social emotions. It changes the way we play the game. Carts and horses are rearranged everywhere. It is useful to see this in examples. For this purpose and my own benefit, I shall use myself as someone for whom this inversion offered a path to salvation:

As stated earlier in this book I was purchased and raised by people with whom I had no biological or legal connection. For $250 it must be admitted they got a good deal in most ways. I stayed out of trouble, did well in school, played sports year round, got along with everyone, and almost supported myself financially since age twelve. But all was not well in the land of secrets. I could do what I willed but not will what I willed. For example, I could go somewhere with Stanley Andersen and never enjoy it, yet go anywhere with Uncle Frank and be thrilled. That never changed, no matter how I felt about it, although, to be honest, it only mattered to me in that I was rarely with Frank.

No matter what I did the Andersens never seemed satisfied. Some ethereal substance of human compassion seemed to be missing. I could connect with animals, and people in various contexts, but at home we were almost autistic, and the responsibility for that deficit defaulted to me. No one looked at context. The problem was soul, mine. Doing what I willed was not good enough. I should also be able to feel what they expected. But nothing ever changed. I liked being with Frank and did not like being with Stanley. That was simply fact.

So what to do? I imagined there must be ducks in multiple dimensions (agencies) that really cool people somehow all get in a row. Mind, body, and soul presented the leading contenders for fields of agency in those days, although soul might be more neatly tucked into mental today. Apparently all three of these areas mattered, and it appeared that I could only function in one. I could hit a baseball, solve geometry problems, and save money but apparently not radiate the warmth of human kindness. Soul and mental needed work, as I ranked near the bottom on everything that could not be weighed or measured.

There were no books for those deficient in human compassion, so I worked with what was available. Dale Carnegie and Norman Vincent Peale were popular then, and positive thinking was the dominant technique. So in addition to keeping one's shoulder closed, and taking outside pitches to the opposite field, you had to think in a prescribed way about hitting also. A home run with every swing! Should one just ignore realistic possibilities, or perhaps in good taste mentally feign limitatons? I don’t know, but I did hear that “winners never quit and quitters never win”;” laugh and the world laughs with you, cry and you cry alone”; “positive thinking is better than negative nothing”, and so on almost forever. We would run out of printer ink before we run out of aphorisms.

Just reciting this stuff makes me sick. I hated it then, and I hate it now. Perhaps I have no talent for blind optimism. I scored poorly in pretend and trying harder simply illustrated my ineptitude. Perhaps I simply did not know how, although there is no limit to how much one can expend (waste) in trying. Then again, it might just be a stupid idea, and I could somehow see the mistakes. The Marines say they do the difficult immediately, but the impossible takes a little longer. But that Emperor has no uniform. Maybe the Marines should be issued a dictionary with each field manual. "Impossible" should be impossible to misinterpret.

I cannot say that I spent long, lonely periods shouting injunctions at myself, so maybe I did not give it enough effort. But one can say that about any project and waste a lifetme trying to square the circle. Yet I did construct the idea that there was a big world of mental action, and perhaps even a place for a soul, in which I got the lowest grades in class. Maybe it would be best for me simply to try to compensate. Someone involved with me might never feel the radiation of love and caring, but I could make sure the bills got paid and the grass was cut, as might a competent domestic. I was defective, no matter how many batters I could strike out, how high my test scores, or how well I pretended to enjoy artificial.

Pavlov was more prominent then than now. He conditioned responses in dogs so perhaps that is how people work. If something happens often enough you begin to expect it. That expectation might act to insure it happening. A virtuous circle could develop. Coaches say winning is a habit. So just win, Baby, and eventually it will become automatic. But you cannot fix a problem that is not there with an action that would not work if it was. The bottom line became that no matter what I tried and how hard I worked nothing changed. Everyone else in the world seemed to have been born with something not present in me. I was the Tin Man from Wizard of Oz. If I was going to be artificial, the Terminator would have been my preference. At least I could have been enthusiastic about that, in my limited way.

But you know how this stuff goes. You start down a path. It gets thicker and darker. Nothing works, the feelings become intolerable, so you just shut down. You look away, pretend nothing happened, and file it subconsciously as something to address later. It goes nowhere, and the judgment does not change, but that elephant gets locked in the garage. Good luck there.

We had a definite emotional deficiency in my family. I assumed it was due to me, perhaps because I was an only child. Children with siblings learn to share. They come to like giving away half their Twinkies or letting someone borrow their glove, bat, bicycle, or car. To me that usually seemed like an imposition, but then everyone else had been conditioned to love it, just like embryos hung upside down in Brave New World loved to work upside down when they grew up. I could struggle with it but saw little gain. As a child I resembled a congenial puppy who was house trained and barked at intruders. But I did not wag my tail very much, and perhaps a poodle would have been a better choice.

Now consider Mises’ formulation. Feelings are not endogenous. They do not stem from operant conditioning or hormonal stimulation of the milk of human kindness. Compassion is not the result of faking it until you make it, whereupon it transforms into donations and Peace Corps service. The flow goes the other way. Love is not bestowed, it is collected. People get affection for each other because they realize that through cooperation they mutually benefit. It is a win/win situation with a huge dynamic upside, which does not go unnoticed. This is cool in that the process does not happen without awareness and is logically intrinsic to purpose. We can will what we do, and what we do results in what we feel. Love is not a sensation we observe in ourselves. It is an awareness, a mental/physical correlate of cooperative action. This is redemption for me. It is something I can grasp. No messing around with souls and mental agents. Let’s play ball.

The world does not see it as just described, but that is quite my point. The world sees love flowing from soul, self, or pheromones out from the person onto others. The others have nothing to do with it except as triggers, like light or movement. I think that demeans relationships. People explain love as if contained in the individual. Is the loved one irrelevant other than as a stimulus? Does the relationship contribute nothing to the feelings? Fortunately, we do not simply react as light sensors when someone passes by. We can just say no to pheromones. We can choose.

It makes little sense to me that the loved one would be so incidental, but this was not apparently my strong suit. I, for example, have no reaction to incidents like the earthquake in Haiti or famine in Somalia. I am bothered by the animals caught in such situations but not the people. I don't presume a connection, quite the opposite. I could be stereotyped as the typical capitalist, and hence seen as having cheated and lied my way to my twenty acres. I owe it all to the vast numbers of others who I swindled along the way. Whatever the mechanism I expect that somehow their crisis will become my responsibility. I was never big about sharing my cookies when I was young and have little interest in giving away my acres today. I pay at the office every two weeks and paid all my early years for the fact that the Andersens could not have their own children. Losing supplies does not make one prosper. Spinoza says that is experienced as displeasure. So does Mises. So do I. Altruism does not work, has never worked, and will never work. What we get is self-interest that under the division of labor brings benefits to everyone. We appreciate that, and call it love and all the good feelngs that go with it. But that is all there is. There is no self-sacrifice except for those who want to save the world, and the only sacrifice they refer to is that done by someone else.

We felt nothing in the Andersen family because there was nothing. It was not a deficiency in me. It was a deficiency in the relationship. There was no honest sharing of responsibilities. We did cooperate in maintaining the yard and locking the doors, but the idea of pooling our resources in addressing the critical issues of existence never occurred. They lied about the basics, and I lied about my response. That is not sharing. That is pretending. I do well in any relationship with reciprocity. All the feelings are there then, at least from my perspective. So the relationship is there also. The other and I cooperate on something that matters to both, and as a result all the affects of human compassion exist in that relationship. But these situations do not generalize to abstract humanity. I do not like humanity in general. I like individuals with whom I share life on this planet. But I don’t owe them anything nor they me. We just travel this life together and are both the better for it. And the love comes from that, not from some endocrine gland at the base of the brain. It exists in the relationship, as it should, because it is not caused. It is lived, together.

There is no way to measure the milk of human kindness. It does not come in milliliters or ounces. It is a metaphor that does what metaphors do—present abstractions as concrete. The abstraction is the relationship between the people. The love does not exist there. It is something we feel because of what we do there. But like all cause and effect relationships, we define it by the cause, and the cause here is both people acting together, not two individuals acting apart. There are differences in the degree that people love, but it can not be measured with an instrument. It is measured by the degree of interdependency involved in dealing with life issues as a team. One does not sit on the couch managing the remote, eating Cheetos, and feeling the love. One might remember a love, but that love was not borne eating Cheetos and emoting. It came from shared efforts to address the issues life presents us. The more you block out the world, the less you feel, the less you love. The more you experience of the world, its pleasure and its pain, and the more you cooperate with others to deal with the problems, the more you love and experience the positive emotions. The State can take away the product of those shared efforts and give them to whoever they dictate as more deserving. But they can never create or delete the love. In the end that is all that really matters. And along the way it is what makes life worthwhile.

As another example, Karla works at the animal shelter, when she feels like it. Sometimes she does not show up. The dogs do not leave, which means someone else has to work her shift. Karla does the minimum, never anything extra and does not manifest any intrinsic interest in the animals. Those that care for the animals make this their life. Those who work for the money do not find the pay satisfactory. Yet Karla says she loves the dogs as much as anyone else. Can she make that claim? Is that information only available from her private perspective? Perhaps, if love emanates from within, but if it is a product of the relationship then she cannot love them as much as the regulars. Love is a product of appreciating the cooperative support in ensuring survival. The dogs give the regulars purpose and they give the dogs hope. Both benefit and you can see that in the wagging tails and the staff smiles. Karla gets paid. When she is there the dogs get fed, like in prison. They share space ten hours a week and nothing more. Feelings are a part of that, and the feeling that fits here is indifference. My guess is that Karla shares indifference at more places than the kennel.

Also, a National Guard advertisement has a young, sturdy lad say that his priorities are “country, community, and family”. The ad is well done, the people are all well chosen and I can see the intended audience trying to emulate the guardsman. If it was me as I existtoday but being the intended age I would say he has those three priorities in inverse order. And I would have to realize that my concept of family is ideosyncratic in that dogs have a prominent if not priority spot in my sense of family. But if was me as I was at age eighteen my reaction would have been to try to copy him which would have prompted a need to shore up my love for country. How does one do that? I guess as a youth one could rely on idealism and the capacity to cast others in a way that invites cooperation. If not that then perhaps you just fake it untill you make it. “Constant repetition carries conviction”, says a positive thinking quote. But what might have sounded like duty when I was young sounds like brain washing today.

The point here is that there is nothing to work on that would bring a person and country together unless they share the same ideology and a project to support it. There is no way to gain affection for the country while lying on the couch eating Nachos. And there is no way to share ideologies if you do not. Repetition then simply brings irritation.

Finally, Hillary Clinton was talking about an Arab country and said they are going to have to develop a more positive attitude about the United States. Apparently they are supposed to do that on their own. I have no idea how. Neither does Hillary.

The bottom line is that we do not love and therefore get involved. We get involved and therefore love. That is such a better way. We can control what we do and through our actions what we feel. It does not work the other way around. There is no free lunch. The price of love is experience. The price of experience is loss. No loss, no love. We did not design this system. But we have to live in it.

Chapter 18: The Competition

"An error does not become truth by reason of multiplied propagation, nor does truth become error because nobody sees it." --Mahatma Gandhi

Psychoanalytic theory is another view of human behavior. Sigmund Freud was a frustrated neurologist who, following the fashion of his time, tried to explain human behavior through Newtonian Physics. Everything in that system is mass and motion. His implicit model of the human mind was a reflex arc. The energy was electromagnetic. People were electronic circuits that generated instinctual energy and attempted to discharge it into the world. The system worked towards a reduction in energy, the process of which was somehow experienced as pleasurable (perhaps by another neural circuit). If this energy was not discharged it could be short circuited into other areas and produce neurotic symptoms. Therapy and health resided in removing these blocks so the energy could flow freely through. It was essentially a “just do it” philosophy, although with a hedge. He allowed for something called sublimation that could magically turn a sexual drive into a Mona Lisa or aggression into plowshares. He needed an out because people do not always get healthy by running around just doing it; instead, perhaps just as often, they get sued.

Freud succeeded in offering a model of man as machine, the problem being precisely that. Man became cause only, no purpose, and if everything is caused and determined then how does he change? There is no entrance into the system because that effort itself has to be caused, and so on all the way down. This leads to the following type of problem:

Waitress: “Would you care to order?”
Customer: “No thank you. I am a determinist so I am going to just sit here and see what happens.”
Waitress: “Hmm, perhaps I will just wait to see if I come back.”

Or course this would apply to Freud’s therapeutic endeavors as well. The people had left the room; only machines remained.

It gets worse. People understood the restriction scientific reductionism set for human experience. It ruled it off limits. So they snuck the patient in through the back door by hypothesizing that somewhere in the patient’s head there existed a conflict free ego that could assume human responsibilities. The conflict free entity in the therapist’s head could talk to his counterpart in the patient’s head, perhaps while the two of them observed the dialogue. Essentially the therapist could do nothing (since everything was determined) while pretending otherwise, and then charge for it. Just like the Federal Reserve.

We are more than instinctual drives and discharge channels. We act, we choose, we have purpose. We are not machines. Nor are we machines with little people in our heads pulling little levers. We are people who act, which means we can walk and chew gum at the same time. We think, choose, and act in concert. This only appears magical if one does not realize it is all simply part of the same thing, action.

There are more, perhaps many more theories, although I do not claim to be an expert on this topic. Frankly, I find most of them tedious to read, like government manuals. Operant conditioning pairs behavior with a response, while classical conditioning pairs an antecedent condition with a response (Pavlov). Again, the problem they have is that no one is at home. The theorist simply operates on a physical level assembling happy little habits like a Swiss watchmaker. Their writing chronicles an empty space where the mental is void of people and the physical is void of matter. Not much to root for there.

Cognitive interpretations see mental as an energy source. This implies a metaphysical dualism. This is the position to which most people default. Religion says that the thought is as bad as the action. Philosophers say a man is but the product of his thoughts, what he thinks, he becomes. And coaches say that winners never quit and quitters never win. Mental is seen as an instigator and potential equalizer, a possible fusion/fission reaction. But anyone can see that thought is different than action, so the concern must be that thought can inexorably lead to action. Yet it has no means to do so and is not even fueled by its own energy—it simply plugs into the physical.

If you find yourself thinking excessively about cookies in the cabinet that does not mean that the thoughts will somehow drag you into the kitchen. Rather it indicates you have a desire looking for a means. So deal with the desire. Targeting the thought is the wrong appoach. It has no authority; you cause the action. And you control it better with alternatives than injunctions. The choice should not be an abstract one about cookies or not, but a specific one between these cookies and these jeans. Do not expect a few platitudes to hold back desire. Intellect is no match for emotion. Control is your job. Choosing is how you do it. Do it right; compare apples to apples. Then decide.

There are of course theological views of human behavior. People should know where they stand on them. It is not possible for us to avoid considering ultimate purpose. And it appears to me that people who do not have a God tend to act like one. But other than from a faith based position we do not seem to have any idea what might help us to prosper in any world except ours. Personally, I choose to believe in a higher power, but apparently what will be will be regardless of what we do about it. So it seems reasonable to make the most of this life and let God handle the next one. That is, unless your faith tells you otherwise. But then be careful not to step all over the principles that seem to help us in this world.

Then there are instinct theories, but as we have said that does not help much. The term instinct is simply a name we give to something we do not understand. It is an attempt to bridge thought and action. Emotions are hybrids as well, although they are more than just hypotheses. Affect is thought en route to action. But feelings are not agents, so we cannot build a theory of human behavior on them.

Yet we need to consider them. Feelings are evidence-based information. Emotions are hybrid creatures, part mental and part physical. They could potentially be measured, meaning some endorphin or neurotransmitter could be correlated with an experience. They underscore sensory experience and help us make sure we do not miss that which is important. It is impossible to cry about something that does not matter or enjoy something you do not like. The practical point is to keep your feelings and use them, rather than deny or distort them. Behavior, not feeling, is our area of responsibility. Emotions are just signs.

The metaphysically critical issue is whether emotion can usurp authority or does authority remain with the person. A bet could be made here, the truth of which can be assessed in consequences. I am axiomatically saying that the individual at all times in all situations remains in charge of the action, which means that "losing control" involves choosing to do so. A person never gets swept away by emotion. Instead, he or she chooses to act emotionally, the consequences of which might be disastrous or the fact of which may violate important ethical principles. But the claim is not that our choices are always good, just that we always make them. Sometimes a choice explodes, but no one makes us do it, and emotion does not cause it. The buck stops with us, at times raining down in pieces on a very dumb move.

It is irrelevant how strong an emotion becomes internal to the individual. By itself it can never storm the Bastille. Control is entirely defined by when an action enters the external chain of causality, and that is always a matter of choice. This is an all or nothing issue like pulling a trigger or trading a stock—you either do it or you don’t. Of course emotions can run right through ideas. Resolutions rarely last through the day. But the caveat about fighting desire with desire remains. When an affect is opposed by a comparably energized alternative, any action, no matter how intense, can easily be seen as a choice, and there is always a valid way of evening up the sides. It remains to the individual how he presents to himself the possible exchange, i.e. 1) read about the monetary system versus no one else is, or 2) read about the monetary system versus someone has to. Such a choice probably most often takes the abstract form of free lunch versus responsibility, but while desire is never subtle, responsibility might need representation. The case for it needs to be presented in high definition accompanied by a musical soundtrack. Honor is not hard to maintain when consequences of dishonor are clearly laid out. And we control the media. The more we care, which means the more we have committed and the better we present the alternative to impulse, the more we hold fast to our principles.

We are in good company here. This was Spinoza’s approach to emotions. He was the one who called the positive ones those that support our existence and the negatives ones those that oppose it. And he saw emotions simply as facts about the nature of our experience. There is much to sort out about them, and that is what makes us human. But suppressing emotion is like sticking one's head in the sand. Not much down there is going to help us.

Spinoza’s term for our responsibility in handling emotion was to find the “adequate” response. Keep the emotion; figure out what to do about the situation. Anger will not eat you up, but losing it might get you killed. Anger provides motivation. The same is true for love, which is a feeling that may not last untill death do you part, but which is something, and better supervised than left wandering around at night on its own. Keep your affects until you have decided what to do with them. They will not bother your T cells. Emotions both guide and energize us. Do not leave home without them.

Action defines us. Thoughts can spin around forever and never leave our heads. Emotions are unborn actions, but they can grow. Thoughts can be left alone, while emotions might need light supervision. Choice, however, is a full time job. Choice defines what we are and what we become. We are purpose, a small bit of autonomy in a world of causality. Perhaps this connects us to a higher power, and if so, then all the more reason to get it right. It is what we do.

Chapter 17. Magic Carpet Ride

“Relativity applies to physics, not ethics.”—Albert Einstein


As physical science reduces matter to smaller components to gain understanding, so does behavior science reduce complex to simple. A symphony goes from the combined effort of the orchestra to the coincident efforts of individuals, to a composite of means designed to produce variety of goals all intended to remove uneasiness in order to increase survival. The boson, today’s smallest physical particle, is analogous to the conceptual wish to stay alive, which is the basic element in the mental world. From that concept, with the addition of means, ingenuity, talent, and energy we reach the limits of the possibilities of individual action.

But it does not stop there. Individuals form groups. Not only can people tie their own shoes as individuals, they can buy shoes as consumers, create shoes as producers, or trade shoes as speculators. They can create pictures of shoes, send those pictures to anywhere in the world in less than a second or to Mars in less than three minutes. You get the picture. None of that could be done by our furry ancestors.

Most of what we do is a product of society. On our own we barely survive, if at all. What causes us to group together? Here is where Mises leaves economics and enters into the general theory of human behavior. He has an explanation for how man forms societies, which if correct makes him Darwin of the mind. His explanation is logical, encompassing, and while conceptually sophisticated, is accessible to common sense.

Mankind has always appreciated the importance of society. It was likely first understood as the work of God. All societies had a religion, in which God’s rules were typically passed on through prophets, visions, or kings to the masses who were then to obey. There are possible natural causes as well, such as instincts, genetics, nationality, social evolution, or geography. And order can come through leaders, idealized or feared, most of whom feel they can intuit truth through special powers. Marx comes to mind. Society then can occur from natural causes or can be molded or pounded into shape by an idealized or coercise leader enforcing his superior values on the essentially incompetent population. This is where it becomes necessary to break a few eggs to make an omelet. Stalin had to break more than a few. Emperors and tyrants seldom have misgivings about “collateral damage”. Unfortunately, whether worshiped or simply feared, a centralized leadership will always end up breaking eggs. Power corrupts.

There are two common aspects of these various theories: 1) the nature of its action occurs outside our purview, and 2) the element, if natural, has a direct effect in itself--i.e. not mediated through reason. We do not directly see instincts, genetics, nationality or place of origin. And as Mises shows, these various elements tend to contradict themselves as they dance around the idea that the tie is conceptual, specifically, ideological. For example, Dominicans do not view themselves as Haitians although their soil is contiguous, and children separated from their families at birth do not intuit a connection with their estranged families.

Mises hypothesizes that social bonds are a product of the division of labor. People feel a connection to other people because they appreciate (consciously or preconsciously) that their ability to function and survive is exponentially increased through cooperation via the division of labor. If everyone, for example, only could mow lawns, few would get their lawns cut. No one would build the mowers, produce the fuel, distribute supplies, or keep away intruders. Without division of labor everyone would be spending their time hunting, gathering, or plundering. It was that way in the land of yore. There were not many people, and their yards were probably unkempt.

The division of labor is as close as we will ever get to something for nothing. It exponentially increases our capacity to survive. It provides the motive for an ever more complex society. Conceptually it has the common sense simplicity of Darwin’s natural selection and yet the functional capacity to explain whole societies. It is that big of a deal and accomplishes the complete theory of society with one turn of the card. It has everything one would want in a theoretical system: efficacy, simplicity, and intuitiveness.

Previous hypotheses about the nature of human sociability did not include a mental component. Action theory does; it is a combination of mental which determines a means and physical which brings it about. There is little we do that does not involve mind and body acting in synergy. It is not likely that the most critical element in our survival and the most gratifying part of our life experience happens outside of awareness. Also, Occam’s razor directs us to not include more than we need in our theories. Less is better. This favor’s Mises’ theory. Our appreciation of the power of the division of labor does it all: God does not have to get involved; a dictator does not have to break eggs; and people do not have to change their nature. We only need what is already there—people who act in their own interest and appreciate the power of social cooperation (plus a government that stays out of their way). How simple is that. How elegant. And even better, it is probably correct.

The logical consequences of this theory inverts a cause and effect relationship in social interaction. Social feelings, the positive ones that essentially make life worth living, are not the cause of social relationships; they are the result of them. We feel love for others not because some force flows out through us, but rather because an awareness comes to us. Those feelings are the emotional component of an appreciation that through an experience of working together we more efficiently improve our capacity to survive. They are the result of cooperation, not the cause of it. The term "wingman" popped into my head in this context and its function is relevant here:

“The idea behind the wingman is to add the element of mutual support to aerial combat. A wingman makes the flight both offensively and defensively more capable by increasing fire power, situational awareness, attacking an enemy threatening a comrade, and most importantly the ability to employ more dynamic tactics.”

The pilots like each other because they fly together. They do not fly together because they like each other.

I like our theory so far. We try to survive. We take action to improve our ability to do that. The division of labor geometrically improves our capacity to do so and our awareness of this leverage results in the reduction of uneasiness and increase in satisfaction which forms the basis of all social cooperation. It is also the source of all the positive emotions that makes life worthwhile. And it all happens merely by the nature of the system and the logic that it follows. No supernatural force is necessary. No coercive control is demanded. And we can leave our basic nature just as it is. Society happens for the same reason water flows downhill.

Chapter 16. Which Came First?

"It is often stated that of all the theories proposed in this century, the silliest is quantum theory. In fact, some say that the only thing quantum theory has going for it is that it is unquestionably correct."--Michio Kaku


From the point of view of an egg, a chicken is merely the egg’s way of making another egg. From the point of view of a chicken an egg is the chicken’s way of making another chicken. Hazlitt presented this analogy in a discussion about cause and effect. Something is obviously wrong with it, but what is wrong is not necessarily easy to explain. There exists a causal relationship between chicken and egg but also apparently many a slip between cause and effect. Hazlitt was not concerned about chickens. He was addressing buying and selling. I am not concerned about either of those issues, but rather about human action. However, perhaps we should address all three because it might be easier using analogies

Chicken and eggs have a causal connection, but that does not mean that eggs have perspectives. Perspective assumes purpose, and as far as we know eggs do not intend to do anything. Chickens just happen.

And while our interest here is human action, the world is tottering on the mistake John Maynard Keynes made in his assessment of buying and selling. It is true that for every buyer there is a seller, but that does not identify cause and effect. Actually, buying and selling is a reciprocal relationship and neither is dominant when the system is honest. But a problem occurs when the buyer is counterfeit. This is also not easy to understand, yet we are doomed if we fail to grasp it. So let’s take a look. The critical error occurs by confounding money with purchasing power.

Keynes looked at market exchange and assigned cause to the buyer. Buying, he felt, stimulated production. Austrian economics views it the other way around. The problem is that demand requires more than desire. Demand is desire plus means (something to exchange), a combination which elevates it above wishful thinking. It is wishful thinking backed up by previous effort, the physical component of which becomes the limiting factor. Desire is cheap, but supplies are dear. Means is not simply money. Goods are never exchanged for money. They are exchanged through money for other goods (and services). We value money not for itself but for the things we can obtain with it. In a sound monetary system goods and money stay in balance. The maker of bricks enters the market by exchanging his brick production for money. This money then represents real products he has contributed to the economy. The farmer can enter that market with his apples and through money exchange them for bricks.We exchange real goods and services, not wishful thinking and empty promises.

Keynes felt we could skirt natural law by simply printing more money—more money supposedly allows more buying. But there is nothing more to buy. Suppose the new money first goes to the maker of bricks. He spends it. The farmer wants bricks, but none are being produced. If the farmer has already started building a house he is in trouble because there will not be enough bricks to finish it. That is how inflation causes malinvestment. It gives false signals. Fiat money represents nothing tangible, so it loses value and measures nothing.

But in addition the new money reduces the purchasing power of the existing supply, thus raising prices. The farmer in essence trades his apples for higher prices. Buyers do in fact induce sellers and visa versa, but the brick manufacturer is no longer a genuine buyer. He is a fake, like the pretentious egg. Neither of these two pretenders represent honest authority. The egg does not produce a chicken and the buyer does not make a purchase. The egg simply evolves, and the buyer simply steals.

The horror of today’s economics hinges on this error. Something has to be terribly wrong when people fly airplanes into our buildings and Federal authorities advise us to fight back by going shopping. Frankly, if we cannot see that something is wrong with such a plan then we are all doomed.

Keynes treated desire as the mover, when in reality it is desire plus means that moves markets. Means are the limiting agent; desires are everywhere and hence free, like dandelions. Physical is the limiting factor in moving people. Causality and purpose exist in the physical world. There is no direct agency with mental. It guides. It is important. But it takes no action. Action entails entering a causal chain. Mental cannot engage that. It has no location or motion. It is a concept, not a thing. Unrefined, it does no work, is abundant, and hence cheap. No one trades apples for wishful thinking.

When it comes to a cause and effect relationship between mind and body it is clear which leans on which. It is one thing to wish to run a marathon and quite another to train for one. A person can think about losing weight with impunity but will lose weight only through effort. Actions speak louder than words. That is a metaphor, by the way; words do not really speak. People speak. Their bodies do the work, the mind never utters a peep. This is not to diminish mind. Mental directs us to goals; it just can’t take us to them. The body does the heavy lifting. Only the body enters the causal world of external reality. The mind functions in an advisory capacity, which can be extremely important, even critically so, but it is never the agent. If the chicken and egg are arguing about who is dominant, side with the chicken. If the mind and body are having such an argument, side with the body. Mental shuts down at night while the body keeps working. If the body shuts down the mental goes with it.

Mises merely threw up his hands when it came to metaphysics. Philosophers in his day were all abuzz about language. They did not start addressing mind until later in the century. Today we have the benefit of Searle or Chalmers and can pretty well put the mind/body dichotomy to rest: it is all body when it comes to agency. The body gets you to work. The body brings home the pizza. Mind is the global positioning system; body is the automobile. Causality exists in the physical world and only body can alter a chain of cause and effect. Mental presents itself only through physical. We plan and choose means in the virtual world of conception without which we would certainly disappear as a species. But for action as defined in action theory the agent is entirely physical. Mental and physical make a great team but the mental drafts on the physical. That is why we measure actions in praxeology, not wishful thinking. Something has to get us up off the couch. After all, 90% of responsibility is just showing up.

Chapter 15. Let's Make a Theory

"The truth of a theory is in your mind, not your eyes."--Albert Einstein

Human Action, by Ludwig von Mises is the cornerstone of the Austrian school of economics. They are the good guys, the ones who get it right. They keep their eye on reality rather than utopia—the no free lunch, alternatives exclude, things fade group.

The book was offered as a general theory of human behavior, although cast as a text on economics and considered, I believe, largely as that. Its power, however, goes beyond economics. Or maybe economics goes beyond economics. The cornerstone of the theory offered here for understanding human beings lies in this book. It is a general theory.

The world comes in neat parameters. Gravity varies inversely with the square of the distance. It does not just vary with the wind, stuck into place by an awkward constant. It is nice and crisp, like energy equals mass times the speed of light squared, or light decreases with the square of the distance. Quadratic equations are not necessary to solve such conditions. This is important because it makes sense to then assume that a theory of human behavior should also come neat and clean. One need not keep reaching into one’s pockets looking for variables to paste into position so the system keeps spinning. We start with one rule: people act to reduce uneasiness. (And it's not even squared.)

Freud based a system on sex. He generalized that a bit into a term called libido, but sex was always central in his construction. He also needed aggression, and finally a death instinct. It all got a bit messy. That is what we do not want. Postulating a death instinct is like postulating that the Earth rests on a giant turtle, which rests on another turtle, and so on, all the way down. It is just pulled out of a work-kit to fit an odd place. Instinct itself, let alone one for death, is also just that. Calling something instinctual means it matters, but we have no idea why. We metabolize carbohydrates through the Kreb’s cycle. Okay, that explains the physical by smaller pieces of physical; but an instinct explains nothing. It just masquerades as constructive. The question becomes “how does an instinct work” and there is no Kreb’s cycle one can draw on the blackboard.

Sexual repression was prevalent in Freud’s era. He provided a service by including sexual feelings as a dimension of behavior. But it was largely the refusal to recognize these feelings that caused the mental mischief. People developed hysterical blindness because they did not want to see. That condition has essentially ceased to exist. We have a different problem today. Perhaps a little repression now would be useful. Just ask Tiger Woods. But sex was never sturdy enough to serve as the basis of human behavior. Life is not all that much fun. It is more about staying alive. Combat vets do not have wet dreams. They have nightmares. Perhaps sex can explain black widow spiders, but it was never going to work for us.

We will hang our theoretical system here on the wish to stay alive. Pleasure comes from those things that increase our ability to survive, and pain from those things that decrease it. Life is about relieving distressing feelings. We shun those situations that jeopardize our well being. Mises says we act to reduce uneasiness. I think that puts it most clearly.

Actions are complicated events, encompassing the important dimensions and entailing a series of steps. This makes it sound complicated, but so is riding a bicycle and yet once we have mastered it we give it no attention. Action is not simply movement. It is not even necessarily movement. Action is purposeful, meaning it has a mental component and is directed at a goal. That goal enters the real world. Reflexes are not actions. Wishful thinking is not an action. Locking the door to keep someone out is an action, but so is not locking the door to allow someone in. Actions enter the causal chain of external reality to alter the sequence, or in the negative, to keep the situation as it is. In riding this bicycle one needs mind, body, and external reality. The sequence goes from uneasiness, to goal, followed by understanding causality, envisioning ways to influence reality, choosing a means, and action. This is what we do. This is what defines us as human beings. This is what defines us as individuals. It is our niche in the Universe. And it is the basis of how we should conceptualize our theory of being in the world.

Breathing is very complicated when described physiologically or biochemically. From a personal perspective it is pretty easy—just in and out. We generally pay it no attention, yet we breathe every moment of our lives. So too with actions. Do not get lost in the steps, since we do them all the time. They constitutes what we are, even if we have some trouble describing them in detail.

Having said that, mainly to help you trust that you will master action even if you can’t describe it, there is still more to say about action itself. We are talking about mind/body, subjective/objective, ordinal/cardinal. These are all major conceptual issues of living, and while we zip through them like riding a bicycle or breathing, still, looking at them closely makes sense at times.

The objective/subjective issue, for example, splits the world today. Science has been very successful in an objective world. We extract ourselves from the subject and use sensory input in measuring and making observations. Our opinions and feelings get in the way so we keep them out. We just want tensile strength or energy coefficients. This works wonderfully in calculating work loads for bridge girders or miles per gallon for rotary engines. But it does not work on measuring feelings. Love, hate, pride, confidence are entirely subjective. If we play scientist with ourselves, we eliminate ourselves. Science eliminates the subjective from its field of observation. But subjective is the field of observation in human experience. We thereby rule ourselves off limits. There is no objective measure of how much John likes Mary. There is no way to verify that John likes Mary twice as much as he does Kristen. Cardinal numbers do not work here. There is no common denominator with which we can compare the two.

Subjectivity cannot be measured with an instrument because there is no physical substrate that correlates in a fixed ratio with it. It can be observed. We are not impotent facing subjectivity. It is just that we cannot apply arithmetic to it. Instead we rank it. Another way of saying this is that subjectively is measured in ordinal numbers. Objectivity is measured in cardinal numbers. I found these terms unfamiliar, as you might as well. Quite simply, ordinal numbers arrange items in an order, while cardinal numbers measure the number of items in an assemblage. Ordinal measures how much; cardinal measures how many. Cardinal numbers measure items from an objective perspective, they can be counted; ordinal numbers measure items from a subjective perspective, they can be valued.

If we already can ride this bicycle then why all the fuss? Because we must know our limits. The science of physics can be measured. The science of human behavior can only be understood. It cannot be measured. It is not a fault of our understanding that we have no positive emission tomography that measures how much David likes his dog. That answer does not exist in the world of things. It exists in concepts. We are stuck with that. In understanding human beings we cannot employ electron microscopes. We probably cannot call on inductive reasoning either, which is what science entails. There is no physical correlate of the issues we wish to understand. So there is nothing to be measured, counted, or induced.

But we are not lost. We exist. We can observe ourselves any time we want and in fact some of us do that occasionally. We can look at ourselves knowing that we are a part of the world and deduce information from those observations. Deduction becomes the method of human behavior, and logic becomes the “experiment” that corrects our assumptions. We can, quite simply, look at ourselves, and deduce that perhaps others feel as we do. We do not need double-blind experiments to determine that Gary likes baseball more than bridge. We understand what it means to prefer something to something else. We can see what Gary does. That is ordinal. That is where we live.

It gets better. Ordinal can become objective. In action one chooses. Suppose Kevin has a choice of having dinner with Gloria or Bridget. He can weigh all the plusses and minuses of each, and does, but we have no way of measuring the intensity of his assessments. Scientific Instruments, Inc., does not offer such a device, although perhaps eHarmony might be presumptuous enough to do so. But at some point Kevin must choose Gloria or Bridget (success not necessarily implied). There are only two ordinal numbers, first and second. The factors cannot be measured. He does not value Gloria 1.174 times more than Bridget (or visa versa). There is no ratio. There is simply one or the other. Very neat. Very objective. Such is action.

So action theory does not care what determines the choice, or how close the choice is or ratios are, etc. It just asks yes or no. Does he call Gloria or Bridget? End of praxeological science. We do not need quantities of subjectivity when studying action. We just need action, and it is observable. Check the phone records.

So we have a science by seeing what people choose. Actions speak louder than words anyway. This just cuts to the bottom line. Motives are important, but they are reflected best in what people do. We seek understanding, not the construction of a mathematical language for human behavior. Leave math for the physicists. Use understanding for the social sciences. If you question why Kevin chose Bridget over Gloria you do not need differential equations. You need context and history.

All action involves exchange. This is readily apparent in the market. The farmer brings apples and trades with the baker for bread. Or more accurately in an indirect exchange economy sells his apples and uses the money to buy the bread. But exchange apparently does not only include commodities. If Betsy refuses a piece of pie because she is on a diet that does not involve an exchange of things. But it does involve an exchange. Betsy tolerates her hunger in this situation because she prefers that over not fitting into her jeans. She makes a choice, and it entails an objective, observable event—she either does not does not eat the pie.

Dr. Wilson sets the alarm at 5:30 am Sunday morning because he is on call at the hospital that day at 7 am. He prefers the benefits of his occupation over the comfort of a leisurely Sunday morning. Again, this is an exchange. And we can observe it by checking the parking lot for his car. Action entails intent, goal, means, and—well, action. It somehow all impinges on the real world. This contrasts with merely wanting to reach work, wishing one was at work, or thinking up excuses why one is not. Merely wanting to reach the hospital will never be an action until he leaves the house. Wishing one was at work chases its tail in the mental and never does the hard lifting of addressing the real world. Thinking up excuses for staying home is deliberating means, but there is no exchange. There is contemplation of exchange. The action is in the action. Yes or no. Get to work or call in sick. Pick one. All the rest is subjectivity, and we are “real” scientists. We are objective. Sleep in or show up. That is all we need know. The rest we can deduce.

So it is all pretty elementary. People want to stay alive, and they pursue activities consistent with that desire. Those things which increase one’s capacity to negotiate the world are experienced as pleasurable. Those things that threaten one’s functioning or prosperity are distressing. People act to reduce distress. All actions contain a mental and physical component and impinge on the material world. People pursue pleasure but not mindlessly like black widow spiders. Pleasure and actions to insure survival are inseparable. Increased capacity defines pleasure, although the experience typically remains discrete about it. But we are not essentially pleasure seeking organisms as Freud might impute. We are organisms striving for integrity, pursuing a process in which pleasure rides along for free. Perhaps that is Nature’s way of keeping us in the game.

We choose. We act. We seek survival and grab what gusto we can along the way. All the rest is means. Means defines who we are. It largely determines the quality of our trip in this world. If we see our earthly existence as a part of a longer journey, action theory has nothing to say on the subject. The only givens in praxeology are that we strive to maintain our existence. How we define our existence and how we seek maintaining it is our choice, but the satisfaction of our experience will be defined by how well we perceive our success in those efforts. And again, the proof of that perception will not be measured in our words, but in our actions. Panic about dying suggests we did not rate our success too highly.

We are not merely mental. We are not merely physical. We are also not simply individual. We are a perhaps arbitrarily identified mental/physical dimension of a larger synthetic whole. We can't go too wrong when all the players are in the game. Action theory encompasses mental, physical, and the external world. For now, that appears sufficient for charting a course. And while it quietly brings all these dimensions together, it conveniently offers them in neat quantum packages. One either acts or does not act. How simple is that? Darwinism for behavior.

As a quick digression, I must say that Mises uses two words in his text that few people know and that are not in the usual dictionaries: praxeology and catallactics. These words have not caught on and perhaps get in the way. Praxeology means the study of human action. It comes from the Greek word for action, but it was not coined until the nineteenth century and carries little tradition. Catallactics means the study of market exchange. I shall frequently substitute the common terms in my book, using “action theory” for praxeology and “market theory” for catallactics. Perhaps the technical terms have gathered too much dust.

Revisiting our theory it becomes apparent that after chosing our basic building block there will be no turning back. If we are wrong it will be all the way down. But this is true of any deductive line of thought. Freud faced the same problem and that is how he got on thin ice (if any ice at all) when he interpreted disfiguring trauma as displaced castration anxiety. Soldiers blinded in combat allegedly suffered from Oedipal anxiety—like one might never be concerned about becoming blind! According to Freud overwhelming environmental events had no psychological import other than by stimulating sexual conflicts. Further, Freud felt that death caused no difficulty because humans are incapable of conceptualizing death. How hard is it to imagine yourself beng gone? Apparently even brilliant people have their defense mechanisms.

Still, there is no certainty with either type of reason, deductive or inductive. The major error in deductive comes from false original premises. There is always an original given that you cannot deductively verify, much like a lens can never see itself. One can not deduce up the chain, only down. So if you start wrong, you stay wrong. But that is true for everyone, and we just live with it. Survival appears to be the primary goal for living creatures. but if that proves wrong our system collapses. If you need more assurance, try faith. But then faith has little connection with reason. It controls doubt through coercion or inspiration. Impressive and perhaps correct, but not logically compelling.

Action theory does not ask that mankind change its nature. It is the personal expression of a free market, where everyone acting in their own interest necessarily results in benefit for all. Most visions of social utopia sound attractive, but they rest on the necessity of people morphing into saints. We supposedly will lose interest in ourselves and seek good only for others. Consider the benefits: April fifteenth will become a national holiday. Hunger will disappear. Theft will cease to exist because loss will be considered social gain. In fact, people will have no possessions because they will give them all away. Do not worry though because they will live on donations, which they can re-gift as in a holistic time share program. Equality will finally be realized. The world will be complete.

Sorry about the diatribe but Mises gets pretty angry at socialist ideas also so perhaps it is in my mentoring. The bottom line here is that people act in their self interest. They always have and always will. If you think society can change that, I suggest you fold your theory.

There are many views of human behavior. Freud thought we sought pleasure and gave expression to instinctual drives. Religious views see us as placed here by God to honor him and earn an afterlife. Nihilists say human existence does not mean anything. Determinists feel we are driven entirely by physical forces and our view that we can act purposely is merely an illusion. Becker feels we are driven by a fear of death.

Praxeology or action theory sees survival as our primary motivation. On a clear day that appears obvious, but most often behavior is not seen as revolving around staying alive. Most often it is explained in terms of satisfaction rather than risk aversion. Perhaps this is a personal experience kind of thing, but I would explain the reluctance to use survival as the cornerstone as due to the fact that it would thereby always be in our minds. How could one enjoy the party with death always on the other side of the door? And since the world is largely dualist and sees mental as an independent agent that contributes directly to consequences, then why cripple it with negativity. If as you think so you become, then always smile and look up. But if mental activity offers guidance rather than impetus then we better get it right. Survival appears to be the basic building block, and merely coloring the world cheerful is not going to make it cheerful. Positive thinking might profit from a dialogue with truth.

The first section of the book is finished except for the last chapter. That work can be seen on our website: http://www.badgerhillpress.com/ This begins the third section. The book divides into: history, metaphysics, liberty. The following will be about chapter 14.

Chapter 14. Hazlitt

"The theory seems to be that as long as man is a failure he is one of God's children, but that as soon as he succeeds he is taken over by the Devil." --Henry Louis Mencken

Henry Hazlitt was born November 28, 1894 and died July 8, 1993. He died at age ninety-eight, having continued writing well into his eighties (there is hope). In childhood his family finances were modest, his father having passed away when Henry was an infant. Hazlitt attended one year at City College of New York but left to pursue life as a journalist. He was uncredentialed, self-taught, and is credited for introducing Austrian economics to the English-speaking world.

His interests were journalism, literature and economics. Much of his editorial work was literary criticism, but his books involved mainly economics. The literary work improved his skills as a writer, while his skills as a writer improved his presentation of economics. Unlike many economists he is a joy to read.

Hazlitt began his career as a journalist for the Wall Street Journal at age twenty and wrote his first book at age 21. He made his reputation as the literary editor for The Nation in the 1930’s, but Roosevelt’s New Deal ended that. The magazine supported the New Deal, while Hazlitt did not, so he left to work at the American Mercury from where he moved to editorial writer at the New York Times. During that period he became connected to the Austrian economic school and from his editorial position introduced it to America.

His economic beliefs found a home with the Austrian school, and when The New York Times supported the Breton-Woods agreement (the financial order we follow today) Hazlitt could not support the agreement and left to work at The National Review and then at Newsweek. We can see that principles guided his life. Given his background I am not surprised that he favored a meritocracy rather than an aristocracy. Family connections did not get him into Yale or Harvard.

Hazlitt is unusual among economic writers for his literary skills. His writing comes alive, and the economics tags along for free. Economics in One Lesson might be the most popular economic text ever written. But his economics are as sound as his writing. Being self-taught he was not as subject to fallacies of crowd psychology, which can be indoctrinated through the educational system. His first book, Thinking as a Science, served him well and gave him a foundation from which to critique Keynesianism. Keynesianism is the mass economic delusion that permeates the world today. Hazlitt saw right through it, which he might not have been able to do had he grown up in the system.

We read Hazlitt here for his criticism of Keynes, which he does in The Failure of the New Economics. We also look at Economics in One Lesson, which really is one lesson, albeit with multiple examples. His point in that book is that no one gets something for nothing. Since human beings have such trouble with that idea we have all the more reason to remember it. We sometimes fail to learn not so much because we can not grasp certain ideas, but that we understand them too well and cannot accept the consequences to which logic inexorably leads us.

Hazlitt wrote twenty-three other books. I intend to review many of them for any natural laws we can bring to bear on our purpose. We need all the wisdom we can gather, although without losing ourselves in the mere gathering. Eventually we must take our precepts out into the world. We need to bring all that is necessary, but not more. Hazlitt will help us.



Economics in One Lesson

Through reading we try to uncover natural laws of human behavior. We intend to use them to formulate a theory of survival and prosperity. Some might ask why survival and prosperity should be our foundation, why not devotion and duty, or service and sacrifice? The answer is that you have to start somewhere. One simply chooses because otherwise such questioning can chase its tail forever. One guesses on the basis of observation and experience. It seems that living things at bottom try to stay alive. That appears to be more basic than service and sacrifice. So I am picking it. Perhaps this disposition to continue living is due to chance. Perhaps it comes through design. But either way it appears best for us to get in line with it. It is hard to argue with the idea that living creatures prefer to remain alive. I can hang an aphorism on that.

Natural laws in the behavioral world are different from those in the physical world. Physical events can be observed and measured. Behavioral events can be observed but not measured. The subjective component of behavior can neither be observed nor measured. Yet the subjective is the most important part. All sensation, thought, emotion, memory, intent, and judgment is subjective. It lies outside of evidence based systems, i.e. subject to objective verification. We live our lives from a subjective perspective and know infinitely more about ourselves through experience than from double-blind studies and observational comparisons. Yet while this dichotomy happens to be huge in the realm of therapy, we are going to skip over it here other than to say that laws of human behavior are not as crisp as those of physics. But we cannot negotiate life well without them. Quantum mechanics might be more accurate, but we can fly to the moon with Newtonian physics. So is it with natural laws of human behavior. They are close enough to offer invaluable guidance in our effort to save ourselves and the planet. We seek natural laws of human behavior in our reading. We need them to rise above trial and error which offers too little trial and too much error. Economics in One Lesson is exactly what it says, but the lesson is critical. Human behavior does not present an infinite number of problems. It just presents some that appear infinitely difficult. This book touches one of them.

The literal lesson, cast in terms of economics, is that, “A bad economist looks only at one group and short term effects, while a good economist looks at all of society and long term effects.” This can be abstracted to a more general proposition that for everything there is a cost—that nobody gets something for nothing.

Hazlitt states the lesson in the first chapter, but in an abstract form. He then spends the rest of the book showing how this works out in real situations. We shall follow some of his thought here. It was possible to start this section of my book anywhere, but I begin with Hazlitt because his message is basic, and he eases us into economics. The bad actor in this narrative is typically the State. It is the only agency powerful enough to ruin everything. People feel the State generates money in some fourth dimension. Frederic Bastiat stated in 1850, “The State is the great fiction by which everybody tries to live at the expense of everybody else.” Other concepts are basic as well, but this one is never far away. Government is power and power corrupts. Few people are as blind to the big picture as those empowered to run the world. They put out fire after fire only to run the well dry.

And we make the same mistakes, again and again. Hazlitt shows us how, with his own literary style. I shall try to include some of his craft in reviewing his chapters. So we need to recognize that we support bad economics in its myriad disguises, and also to question why common sense runs down our legs when we deal with such issues. Then again, perhaps that metaphor gives us a clue.

The Broken Window:

Bastiat also introduced the parable of the Broken Window. A hoodlum throws a brick through the baker’s window. One of the town folk, Mr. Brightside perhaps, considers a silver lining:


“It will make business for some glazier (‘Hazlitt’ continues). As they begin to think of this they elaborate upon it. How much does a new plate glass window cost? Fifty dollars! That will be quite a sum. After all, if windows were never broken what would happen to the glass business? Then, of course, the thing is endless. The glazier will have $50 more to spend with other merchants, and these in turn will have $50 more to spend with still other merchants, and so ad infinitum. The smashed window will go on providing money and employment in ever widening circles. The logical conclusion from all this would be, if the crowd drew it, that the little hoodlum who threw the brick, far from being a public menace, was a public benefactor.

Now let us take another look. The crowd is at least right in its first conclusion. The little act of vandalism will in the first instance mean more business for some glazier. The glazier will be no more unhappy to learn of the incident than an undertaker to hear of a death. But the shopkeeper will be out $50 that he was planning to spend for a new suit. Because he has had to replace a window, he will have to go without the suit (or some equivalent need or luxury). Instead of having a window and $50 he now has merely a window. Or, as he was planning to buy the suit that very afternoon, instead of having both a window and a suit he must be content with the window and no suit. If we think of him as part of the community, the community has lost a new suit that might otherwise have come into being, and is just that much poorer.

The glazier’s gain of business, in short, is merely the tailor’s loss of business. No new “employment” has been added. The people in the crowd were thinking only of two parties to the transaction, the baker and the glazier. They had forgotten the potential third party involved, the tailor. They forgot him precisely because he will not now enter the scene. They will see the new window in the next day or two. They will never see the extra suit, precisely because it will never be made. They see only what is immediately visible to the eye.”


The Blessing of Destruction:

The idea that a replacement economy generates wealth gets examined further by Hazlitt in this chapter. He expands the context to war, which should not be surprising considering his book was written in 1946. Conventional knowledge stated that World War II brought an end to the Great Depression. Not so, says Hazlit. War does nothing for the economy. It simply destroys wealth. Destruction replacement is not economic growth.

“Though some of them would disdain to say that there are net benefits in small acts of destruction, they see almost endless benefits in enormous acts of destruction. They tell us how much better off economically we all are in war than in peace. They see ‘miracles of production’ which it requires a war to achieve. And they see a postwar world made certainly prosperous by an enormous “accumulated” or “backed-up” demand. In Europe they joyously count the houses, the whole cities that have been leveled to the ground and that ‘will have to be replaced.’ In America they count the houses that could not be built during the war, the nylon stockings that could not be supplied, the worn-out automobiles and tires, the obsolescent radios and refrigerators. They bring together formidable totals.

But this is merely our old friend, the broken-window fallacy, in new clothing and grown fat beyond recognition. It confuses need with demand. But need is not demand. Effective economic demand requires not merely need but corresponding purchasing power. Here is a chance for another fallacy and the broken-window crowd usually grab it. They think of ‘purchasing power’ merely in terms of money. Now money can be run off by the printing press. As this is being written, in fact, printing money is the world’s biggest industry—if the product is measured in monetary terms. But the more money is turned out in this way, the more the value of any given unit of money falls. The falling value can be measured in rising prices of commodities. But as most people are so firmly in the habit of thinking of their wealth and income in terms of money, they consider themselves better of as these monetary totals rise, in spite of the fact that in terms of things they may have less and buy less. Most of the “good” economic results which people attribute to war are really owing to wartime inflation. They could be produced just as well by an equivalent peacetime inflation.

The war, in short, will change the postwar direction of effort; it will change the balance of industries; it will change the structure of industry. And this in time will also have its consequences There will be another distribution of demand when accumulated needs for houses and durable goods have been made up Then these temporarily favored industries will, relatively, have to shrink again, to allow other industries filling other needs to grow.

This is inevitable when we consider that demand and supply are merely two sides of the same coin. They are the same thing looked at from different directions. Supply creates demand because at bottom it is demand. The supply of a thing they make is all that people have, in fact, to offer in exchange for the things they want. In this sense the farmers’ supply of wheat constitutes their demand for automobiles and other goods. The supply of motor cars constitutes the demand of the people in the automobile industry for wheat and other goods. All this is inherent in the modern division of labor and in an exchange economy.” (The answer is in the math.)

Cash for Clunkers is a contemporary version of the broken window. Old cars are destroyed and replaced with new ones. Dealers, by law, must inject sodium silicate into the engines to kill them. Could the government think of nothing better to do with those vehicles? These vehicles are all big; they could haul something. Although that is just part of the problem.

There is short term gain in automobile sales but at a long term cost to society. Taxpayers pay for the rebates, program administration, disposal, and loan defaults. Consumer debt becomes increased at a time when most citizens are trying to pay it down. Money spent on unneeded cars can no longer be spent on more essential items. And new car sales collapse when the program ends. The automobile industry is supported immediately, while everyone else pays later. If this is such a good idea why not continue it with refrigerators, washing machines, and houses? Wampum for Washers! Help for Houses! Loans for lawnmowers! (In fact they are doing it with appliances. What next, heirlooms and antiques?)

The government presents it all as a plan to save energy, but that is just an excuse. If they want to save energy they could stop using the strategic oil reserve to keep gasoline prices down. Rising prices reduce sales. The government really wants to increase the money supply. They cannot get commercial banks to lend. So they add bad monetary policy to bad production decisions. The country is already bloated with debt and cannot service the interest as it is. Borrowing to pay off debt is like trying to lose weight by the energy expended in eating more. You can’t fool the quarks. And calories still count.


Tariffs:

Hazlitt is hardly a fan of tariffs. He begins:

“A mere recital of the economic policies of governments all over the world is calculated to cause any serous student of economics to throw up his hands in despair. What possible point can there be, he is likely to ask, in discussing refinements and advances in economic theory, when popular thought and the actual policies of governments, certainly in everything connected with international relations, have not yet caught up with Adam Smith? For present-day tariff and trade policies are not only as bad as those in the seventeenth and eighteenth centuries, but incomparably worse. The real reasons for those tariffs and other trade barriers are the same, and the pretended reasons are also the same.

In the century and three-quarters since The Wealth of Nations appeared, the case for free trade has been stated thousands of times, but perhaps never with more direct simplicity and force that it was stated in that volume. In general Smith rested his case on one fundamental proposition: “In every country it always is and must be the interest of the great body of the people to buy whatever they want of those who sell it the cheapest.” “The proposition is so very manifest,” Smith continued, “that it seems ridiculous to take any pains to prove it; nor could it ever have been called in question, had not the sophistry of merchants and manufacturers confounded the common sense of mankind.”


The effects of tariffs appear to have been designed to prove the point of his book. Domestic manufacturers cannot compete with foreign so the government raises the price of foreign goods with a tariff. Piggybacked on the government, the domestic industry can sell its goods. They gain and the effect is seen immediately. But customers now pay more for the product, and that money can no longer be spent on something else or invested in capital equipment. Production suffers because inefficient producers are supported at the expense of efficient ones. Foreign nations can no longer sell their product here and hence they have fewer dollars with which to buy our exports. He gives a nice example which is easier to follow than the abstraction I give here, but the bottom line is that the protected industry benefits at the expense of everyone else and total production in the country declines.

So what is the appeal? Why do we handle international trade worse now than we did two hundred years ago? The answer again is that nobody gets something for nothing in this life, but government always suggests how they can try. And government appears to be right in the short term, which people can see; but they are wrong in the long term, which is less apparent. Government can only give what it first takes away. As Margaret Thatcher said, “The problem with socialism is that you eventually run out of other people’s money to spend.”

Whatever social system exists, from anarchy to totalitarianism, there has to be a way to handle the existential realities that “things fade and alternatives exclude.” The horse and buggy was a fine way to get around in the nineteenth century, but it had to step aside to make way for motorized vehicles. If the government subsidized horse drawn carriages we would all be complaining about oat prices today. There is no way to live without dying, love without losing, or progress without replacing. Somewhere in there lies the problem human beings can’t handle. We are not the captains of our ships; we largely go along for the ride. We get the ride, and can enjoy the view, but are allowed only one trip. In itself that is not so bad. But when we compare it to the infinite trips that perhaps could be available it becomes unacceptable. There are limits to life on this planet, and our inability to accept these limits lies at the base of most of our disasters.

We enact tariffs because we want no one to suffer. We buy domestic because we fail to see the effects 4000 miles away. And we can ignore the fact that government has to take from someone to give to someone else. Life is like The Price is Right; we can bid up to what is real, but if we ask for too much we lose.

Two issues are getting intertwined here. One is tariffs. They are pretty easy. Tariffs are a classic story of the lesson of Hazlitt’s book. There is nothing conceptually difficult about seeing that. But why do people not see it? That is the more difficult part and what I am hoping to at least offer a hypothesis about. People cannot deal with limits, loss, and death. So we accept any fantasy that helps us avoid those issues. But since no one gets something for nothing we pay a price for this escape. War, famine, poverty, and barbarism are all end products of failing to confront existential limits. We cannot change the limits, but we can reduce the compensatory struggle against them that occurs at the bottom of disaster. Perhaps if we do not hurt so much we might not have to struggle so hard. It is fine to reach high for a goal that is possible, but attempting the impossible leads to frustration which leads to repetition. We can accept failure if we see progress. But attempting the impossible produces no progress. The effort is all wasted, which is much harder to accept. So we do not. We repeat. That is where we fail to learn from history.

There is nothing heroic about attempting the impossible. One Pyrrhic victory is one too many. We may not be able to achieve Nirvana, but we can make falling short much more comfortable. We need to know when not to try. Nothing comes free. The cost for our failure to confront the limits of our existence in this life might be too much for the world to survive. We do not need the cavalry here. We need common sense.

I shall not apologize for this exegesis. Our hope is not to recite more quickly the rules of international trade. We need to understand why nations never apply them. The problem is emotional not cognitive. In group therapy the problem is not seeing that the past gets in the way. Everyone concedes that. The problem is the pain of saying goodbye to the past. Like dieting, the difficulty is not in making the calculations. The problem is what happens when 1200 calories runs into 5:30 pm. We need to grieve for the losses we incur in life every day, not put them on credit to be addressed at some indeterminate future. Finances are generally best handled on a cash basis, and so are loses. Do not run a tab. Eventually that leads to emotional bankruptcy, and from then on one can only play the lottery. At that point agency is lost and with it goes hope.

But back to the more specific. I hear less about tariffs than about “buy American”. People think that is a great idea, although the only difference between buying American and tariffs is whether the demand comes from citizens or government. General Motors and Chrysler overpaid labor until they could not compete and went broke. GM sold most of their cars at a loss before the government bought the company. But today we are supposed to continue to buy American cars so that union workers can be paid 95% of their wages for a year if unemployed. Citizens are asked (someday forced?) to spend an extra $2000 for a domestic brand, which means $2000 less to spend on something else. That something else might have been investment in capital goods which would make America more productive. Instead, we pay American workers more than everyone else in the world because they feel they deserve it. And those who work for less are considered slave labor. Apparently there is no market price for labor in Korea, just capitalistic abuse. Supply and demand must not determine wages in China where obviously supply is high. But economic law does not disappear just because it favors the competition. Further, of course, not buying foreign goods results in other countries having no foreign exchange with which to buy our exports (if we had any). So the least efficient auto workers are subsidized and the most efficient penalized all in order to meet someone’s idea of a fair wage. When wages are set by authority rather than the free market the system is no longer capitalism. It is socialism. That is fine if people want socialism. But then they will get the results as well. So they better prepare for shortages and learn to live on promises.

The point of the free market is that everyone votes with their spending. Production and prices are not determined by special people who are made of better stuff than their peers. If we do not let the market work, government will take its place. Something has to. We know how that turns out. No one went to East Berlin to buy stereos. No one goes to North Korea to buy automobiles. Capitalism, a system where private property, sound money, and personal liberty combine to allow citizens to determine price and production, results in an increase of material wealth. Socialism lets the State make the important decisions, which results in fewer goods of poorer quality. Again, just look at East Berlin/West Berlin, North Korea/South Korea, the ex Soviet Union and the Western World. There is no doubt how this goes.

Capitalism is not perfect, but it is the best system we have. And it is the only society in which one can be free—meaning able to individually determine the course of his/her life. Each person is free to make his own decisions but responsible for them as well. (No one gets something for nothing.) Since people have different talents and make difference choices they will produce different results. Their income will reflect their production. The market is impersonal. It rewards those who satisfy demand. Demand comes from each and every member of society. People are left as free as possible to become what they might as long as they do not interfere with the opportunity of others to do the same. They choose what to do rather than being told what to do. To assume that people do not know what is best for their lives is to presume judgment from a loftier perch. The people in a free society act for themselves. Those in a socialistic society let government (the “experts”) act for them. Guess who reaches the finish line first.

If we” buy American”, we disavow the free market. And there can be no free market for one country only. Open means free. Closed means controlled. We cannot get bauxite in Iowa. China cannot grow corn in Xinchang. The whole world must be involved. It is this working together, with a mutual appreciation of the power of division of labor, that makes it productive and which, just as importantly, constitutes the social bond that ties people together. Warm feelings of social connection do not simply flow from brain chemistry or some altruistic fifth dimension. Social bonds are a result of appreciating that we are all in this together and that without each other we will not survive. It is said that if goods do not cross borders, armies will. Socialism is called the welfare/warfare state. People do not just make this up. The point of the free market is to maximize production and facilitate cooperation. Maybe nothing was in short supply before Eve ate the apple. But it is now, and life is a struggle. It makes no sense to have Canada grow bananas, China to grow corn, and the United States to assemble weed eaters. The free market rewards the efficient, and all of society benefits, not just entrepreneurs. Our choice is inequality and abundance or equality and poverty. Pick one. Your life depends on it.

There is another choice here. One can either have capitalism and liberty or socialism and subservience. The pairs are inexorably linked—it’s in the math. And they are mutually exclusive. Liberty means individuals determine the course their own lives, and assume the responsibility as well. The individual is seen as supreme. As a system that is called individualism. Capitalism is simply the social system built on this principle. It offers freedom.

Compliance, on the other hand, means that one does as instructed. The government chooses for the people and assumes responsibility for them as well. The State is the important unit. As a system it’s called collectivism. Its variants include socialism, communism, fascism, dictatorship, and monarchy. It offers ease and promises utopia. The distinction between these two systems rests largely on who assumes the responsibility, individuals or State. Somehow nothing gets done without work. Everything costs something. And it appears that when those who sew the effort reap the rewards they work harder than if their production is given away to those who merely watch it all happen.

People will profess that they can offer the best of both worlds, but they are selling perpetual motion machines on the side. Yet, unfortunately, people believe them. Free lunches are easy to sell. But freedom and socialism are mutually exclusive. George Bush once said, “I’ve abandoned free market principles in order to save the free market system.” If that makes sense to you, take a break. But that is exactly what “buy American” asks you to do.



Prices:

We are a thankless lot. Replete with iPhones, heat pumps, and high-speed Internet we complain about scarcity and distribution. Enough is never enough. That is fine; the world does not just drop out of a tree for us, and we need to strive. But we can too easily ignore what we have while grasping for what do not, and we tend to operate under the presumption that perpetual motion exists and entropy does not. Again, we want more, and there is always someone to promise it free of cost—for a fee.

We live in a world of unparalleled abundance because of the free market system. It is a system, not a non-entity. The world itself is a system. The earth goes around the sun for a reason. That reason may be that some higher power liked symmetry, or gravity happens. But either way events have grown up around this system of which we are neither independent nor the author. Our major point here will be repetitious, but so is Hazlitt’s book. He says everything on the first page—i.e., that no one gets something for nothing. And our problem is we want things for free. Social planners feel that people who do not work should be supported by those who do, apparently simply by having the workers pick up the coconuts that drop everywhere from the trees. We have plasma screen televisions in every home, but some screens are larger than others. And the issue with price is that there should be none. Everything should simply flow out of the abundance of the Earth and everyone receive their fair share (decided by them) from the great bounty.

But economics is about scarcity. The most important commodity on the planet is oxygen, yet it costs nothing (shipping can be a problem depending on how much higher or lower you want to go beyond sea level). But few things exist in unlimited quantities. Therefore most things have to be used economically, meaning ranked and ordered in relation to other goods that are both needed and limited.

The free market ranks and orders these supplies on the basis of the choice of each member of society. And that choice is not merely politically correct. It is backed up by actions measured in the purchases they make. In other words the sum total of supply meets the sum total of demand (demand being defined as need combined with purchasing power, and purchasing power as measured in terms of money but not defined by it). Some good or service is always traded for some other good or service, but never for money itself. Money is simply the means of exchange and a common denominator in which to mathematically calculate price. This is an important issue because newly created fiat money, which is not a reflection of new goods or services having been added to society, is merely a fraud perpetrated on the purchasing power of the currency.

So in a free market system price is the voice of the people. In a collectivist system price is the arbitrary judgment of a bureaucrat. We can dreamily pretend that some concept like society itself or “the people” collectively make a determination, but society, being an abstraction, can do nothing by itself. Someone always decides for society. The point being that no matter how one might conceive of it, there is no objective access to anything that transcends human judgment. One can say it comes for God, and even be right about it. But no one has been able to show in an evidence based system that anything higher than individual people becomes involved. We can wish, hope, or decree that there is, but that does not make it so.

The bottom line is that the world is limited, choices have to be made, and these choices can be made either through the free market or through socialistic authority. The free market gets everyone involved and monitors itself impartially. Socialism relies on the possibility that someone more skilled or informed will make the decisions to which everyone else then complies. This is like having a choice of a team with one superstar who carries the load for everyone versus having less talented players who contribute collectively. Either system can win or lose, but they function differently and do not mix well.

The free market generates energy, coordinates behavior through an automatic, impartial system, and wins by teamwork and effort. Socialism, if it triumphs at all, does so by expertise and discipline. Neither program comes with a guarantee. The free market can house tree sloths, and socialism can place idiots in authority. Unfortunately, today we might have a combination of citizens who do not care and experts who do not know. I would not bet on that horse.

Let me try stressing the bottom line here again. The free market gets everyone involved and through action not just words. It is a product of the renaissance, with its focus on the sanctity of the individual. So it is relatively new in the world. England and the United States have been in the forefront of this approach for the past two hundred years. It has out produced any other system and does so by recognizing realities of the external world. Businesses need to fail. Success needs to connect with reward. Talent and effort are not all equal. Everything costs something. Capitalism can provide extra lunches, but it also permits fewer excuses.

Collectivism allegedly selects those most likely to successful administrators and typically inserts a perpetual motion machine into their theory. It points out where capitalism falls short and offers a program that drops coconuts from trees. Everyone shall have more products and less work. There are no exceptions to this beneficence, and collectivism always looks good because of its false promises. Essentially it assigns agency to mental rather than physical entities. The free energy comes from taping into that powerful world of dualism—that thinking in itself is an agent, capable of driving engines and moving mountains. If they are right about this, we are home free. If they are wrong, we are dead wrong. This is about metaphysics. There either is a real world out there that we must walk around, not over or through, or we are free and anything is possible. Dare to dream is the motto if thoughts are boundless energy. For example, “A man is but the product of his thoughts. What he thinks, he becomes.”—Mahatma Ghandi

Roosevelt was a collectivist. People loved his claim that, “The only thing we have to fear is fear itself.” Don’t worry about nuclear winter, social collapse, or ethnic cleansing. Roosevelt does leave one thing to fear—fear. So look the other way when worried about anything else and chastise those who do not. Materialists, as opposed to the dualists, notice the world out there and see agency in the physical rather than the mental. There are in fact two philosophical systems of the world: materialists who see everything based in the physical (including thought), and idealists who see everything as derived from mental. Again, you have to pick one. Roosevelt cares only how you think because he believes how you think changes the world. Jefferson was a materialist, “Those who control your supplies control your future.” Does courage come from sandbags and extra ammo, or extra ammo and sandbags come from courage. It is a chicken or egg thing. They interface. The question becomes to which to we assign agency. Is mental contingent on physical or the other way around? And how does one decide?

I have had the opportunity to get to know Wyatt Earp, the great, great nephew of the American Legend. He talks about his famous ancestor and says that the first Wyatt did two things to prepare for possible physical confrontations. He tried every way possible to avoid conflict so he would not be questioning his motives in the middle of a gunfight. Then he arranged as many of the physical things in his favor as he could if conflict could not be avoided. He had a lot more to fear than fear itself and tried to attend to those concerns. And guess what? It fits our idea that there is no free lunch. Setting the physical stage requires a lot more work than repeating “I think I can.” Positive thinking can be done while one is falling asleep. How hard is that? Go with the idea that success is not likely to come easily. Start with the physical.

I might close my iteration here with a quote from Spinoza, “If the way I have shown to lead to these things seems very difficult now, nevertheless it can be found. Indeed that which is obtained so seldom must be difficult. How could it be, if salvation were at hand and could be obtained without great labor, that it is neglected by almost everybody? But all things excellent are as difficult as they are rare.”


Hazlitt has thus far been excluded on the pricing issue here. Let’s bring him in:


“The private enterprise system, then, might be compared to thousands of machines, each regulated by its own quasi-automatic governor, yet with these machines and their governors all interconnected and influencing each other, so that they act in effect like one giant machine.” The free market is regulated by natural cause and effect as opposed to arbitrary judgment of authority.


“It follows that it is just as essential for the health of a dynamic economy that dying industries should be allowed to die as that growing industries should be allowed to grow. For the dying industries absorb labor and capital that should be released for the growing industries. It is only the much vilified price system that solves the enormously complicated problem of deciding precisely how much of tens of thousands of different commodities and services should be produced in relation to each other. These otherwise bewildering equations are solved quasi-automatically by the system of prices, profits, and costs. They are solved by this system incomparably better than any group of bureaucrats could solve them. For they are solved by a system under which each consumer makes his own demand and casts a fresh vote, or a dozen fresh votes, every day, whereas bureaucrats would try to solve it by having made for the consumers, not what the consumers themselves wanted, but what the bureaucrats decided was good for them.

Yet though the bureaucrats do not understand the quasi-automatic system of the market, they are always disturbed by it. They are always going to improve it or correct it, usually in the interests of some wailing pressure group.”

Choices must be made. “Heads Carolina, tails California” means exclude one.


Inflation:

There are twenty-four chapters to Economics in One Lesson. They all illustrate the lesson. You need to read the book. It is written for the non-academic, addresses a myriad of issues, and arrives in a beautiful hardback cover from the Mises Institute for a mere $12.

We have probably gathered the precept we need. Reading the book itself brings the lesson to life and addresses more issues of economics. This relates to Jefferson’s caution that “those who expect to be ignorant and free expect what never was and never will be.” He was not talking about learning quadratic equations or the Krebs cycle. He meant human behavior and social relations. At issue is liberty and freedom. Economics is central to that. Read the book.

I shall move to a second Hazlitt work after citing one of his paragraphs on inflation. It is central to understanding where we are today as a country and a civilization. If we all perish in nuclear winter we shall at least know why. And if it is possible to avoid Armageddon we might get some help on how to do it. He writes:

“Like every other tax, inflation acts to determine the individual and business policies we are all forced to follow. It discourages all prudence and thrift. It encourages squandering, gambling, reckless waste of all kinds. It often makes it more profitable to speculate than to produce. It tears apart the whole fabric of stable economic relationships. Its inexcusable injustices drive men toward desperate remedies. It plants the seeds of fascism and communism. It leads men to demand totalitarian controls. It ends invariably in bitter disillusion and collapse.”

It is too late for us to avoid these consequences. Governments and their people lack the will to act in time. But it is not too late to react to the collapse and build thereafter with the principles of liberty and freedom a structure which can survive. Government cannot do this. It is the citizen’s responsibility.