People readily line up on one side or another of great economic debates. How do they choose which side to take?
This is clearly a question worth asking. I have asked it of myself, and it has led me to being an Austrian and especially a Misesian.
To try to answer the question of why people decide about economics, let’s begin at the beginning, by asking how people decide anything. As a general rule, they rely on emotion, factual observation, logic, or intuition.
Emotion and factual observation need no explanation. When we think logically, we attempt to reason in a relevant, clear, orderly, organized, complete, and above all consistent way.
The word intuition is inherently confusing, because it attempts to describe something buried deep in our unconscious mind. How shall we define it? Is it about unconscious, non-verbal reason (factual observation and logic) or about unconscious , non-verbal emotion?
We will define intuition here as an unconscious and very powerful form of reason, not of emotion. Emotion can operate on either the conscious or unconscious level. Either way it has its own role. For example, it energizes us. But it does not help us reason, as intuition does.
Subjectivity
When we reach a conclusion about something, Austrian economics has noted that our conclusions and choices are subjective, coming from within ourselves and reflecting our individual perspective. Our subjective choices include the relative emphasis we place on mental modes.
At the same time, our conclusions are not simply subjective. The philosopher and economist David Hume has generally been regarded as an early all-in subjectivist, but he tempered his position on this in later writings which have been largely overlooked. In those writings, he pointed out that while our conclusions are subjective, they are determined within a framework of objective reality, a point which Mises also recognized.
Subjectivism tempered by reality is particularly true of our wants. We may decide that the world owes us a very high income, but the world may not agree. Even if we wish to spend all our time in leisure, we may nevertheless decide that the real world requires us to work. Reality in effect compels us to rank our wants from most to least important, because we cannot have everything we want.
Ends and Means
When we convert wants to goals (ends), we are far from done. We must also choose means toward those ends and rank them. The logical criterion for choosing means is what will most likely enable us to achieve the end in mind.
Like other examples of logic, the distinction between ends and means is abstract. It may be difficult to apply to the facts of life. If we want a new job, is that an end, or just a means to larger ends such as an interesting life or financial independence? Ends and means certainly do not exist in airtight compartments. Each influences the other.
Economics
Economics is often defined as a subject category. It is supposed to represent our study of how human beings behave in the material world. But it is more than that. It is also a method, a distinct mode of thinking.
Mises defined economics as a discipline focused on means, not ends. Why? Because he thought it was attempting something very difficult, to exclude as far as possible emotion from our thought process. Excluding emotion is much more feasible if we restrict ourselves to means, not ultimate ends, because choosing means is simpler if we already know our ends.
Mises’s student Rothbard agreed that economic method meant excluding emotion. This was very important. So many philosophers and economists have given us emotion masquerading as logic. Despite ( or because of) this deception, some of them deeply influenced history. One thinks of Hegel’s propaganda in support of toxic Nationalism and his follower Marx’s propaganda in support of Socialism and Communism.
At the same time, Rothbard disagreed that a method based as far as possible on observation and logic, especially the latter, would best be restricted to an analysis of means, because it would be too difficult to exclude emotion from a choice of ends. He thought it was possible to derive ends as well as means from factual observation and especially logic, in particular through logical analysis of what he and predecessors referred to as natural law. I have learned a great deal from Rothbard’s logical construction of natural law, but tend to agree with Mises that analysis through logic and observation is on firmer ground with means.
Returning to Mises’s more modest project of analyzing means, he was hoping to create an economics that in sociologist Max Weber’s phrase would be “value free” and thus more likely to be universally accepted. He wanted us to ask ourselves whether the means we have chosen are consistent with, and therefore appropriate for, our ends, or just the opposite.
Economic Method
The focus by Mises on fact and logic, especially the latter, raises another issue. One of the great debates within economics is whether we should rely more on one than the other. This is not just an academic debate. It is vitally important for anyone hoping to find economic answers.
It is natural to assume that collecting facts about human life, which because of the nature of time, means the human past, is the best and most illuminating road for economics to follow. Mises pointed out the fallacy of this idea.
The main problem is that we are studying human choices, and they keep changing, not only between past and present, but even between present and present. Our own choices may dramatically change from hour to hour or even minute to minute. Multiply our own mental “transitions” by billions of others.
Merely reading a study of what others choose can change what we choose. We may read that investors in stocks have done better over time than investors in fixed income instruments such as bonds. We hurry to sell bonds and buy stocks. The prices of stocks soar. This reinforces our wish to buy more stocks. Eventually the soaring prices are recognized as unsustainable, fear takes hold, everyone tries to sell at the same time, and prices collapse.
It was perfectly logical to doubt the sustainability of the 1929 stock market boom. It was, however, illogical to bet all one’s money on a market fall at any one moment. A celebrated investor did this in June, which led to his bankruptcy just before he could have made a killing in October.
Economic Debate
In describing economics as a discipline relying on logic in particular to identify the best possible means to our goals, we are also illustrating another phrase of Max Weber’s: an “ ideal type.” An “ideal type” is an abstraction that helps us understand reality, but which should not be confused with reality itself.
The reality is that economists in the actual world may be less logical and more emotional than many non-economists. This became worse as economists began working for governments about a century ago, and also for big business or labor unions. All of us have a strong emotional attachment to our paycheck.
We have all seen and heard the kind of train wreck passing for a contemporary “economic” debate. Opposite sides throw in the proverbial kitchen sink, no matter how irrelevant. Or they engage in what logicians call ad hominin arguments, equally irrelevant attacks on one’s opponent’s character. This kind of tactic may display the darker emotions such as envy or hate. Anyone who disagrees with you may be disparaged as a “liar” or “charlatan,” or worse.
Even if people calm down and try to be logical, they may not do it very well. The French philosopher Michel de Montaigne, a champion of factual observation, satirized logicians in his Essays: “[ Logic is all]” … definitions, classifications, etymologies, [and] quarrels…over words….” Early 20th century philosophers called “ Logical Positivists” unwittingly validated Montaigne by trying to reduce both logic and philosophy to an excruciating analysis of words and syntax, with often self-satirizing results.
By contrast, Mises and Rothbard recognized that whatever the pitfalls of logic, especially when misused or applied incorrectly, as is typically the case in metaphysics, it is the best way to cut through the fallacies of economics and reveal the truth about human action. Properly applied logic is much more effective than, for example, the “me too” scientism that has beset and misdirected much of recent economics.
Developing hypotheses and testing hypotheses though experiment is an excellent way to study matter, but is very difficult to apply to the actions of human beings, who are always shifting and complicating variables in some way. Once we touch matter, even matter becomes changeable. To offer only one example, we try to study what food is good for us, but what people eat is never quite the same from day to day, and no one can keep accurate records for years. Moreover, studying diet is simpler than studying all human economic transactions.
The complete lack of constant variables also explains why mathematical forms of logic are not useful. Economics is a qualitative, not quantitative discipline. Statistical analysis may be useful to present information, but the natural tendency to try to extrapolate past quantifications into future will inevitably fail.
It is natural for people to lump together all difficult or abstruse methods of economics and to contrast them with “common sense.” This is a mistake. Many abstruse methods violate common sense but not all. And even “common sense” must be corrected. For example, “common sense” suggests that more money will make us richer. Logic, however, reminds us to check prices. If they have risen faster than income, we have actually become poorer.
By relying primarily on non-quantitative logic, but also on factual observation to provide premises and to check our work, we can identify truths. We can even articulate many of them as laws, such as the law of supply and demand, marginal utility, diminishing returns, and comparative advantage, among many others. Some of the most important laws are defined in Mises’s Human Action and Rothbard’s Man, Economy, and State. Based on these and other sources, I compiled a hundred of them, which was not even a complete list.
Back to Ends
Leaving economics and economists aside for a moment, how do most people choose their ends and means in life? They typically rely on all their mental modes ( emotion, factual observation, logic, and intuition), but especially emotion. In some cases, it seems that the usual practice is to rely mostly on emotion and just to weaponize the other modes to serve the emotional choice.
Moreover, the ends we humans choose may vary widely. Mises hoped people would agree that peace and prosperity for all are preferable to war and devastation. But there may be dissenters even with this proposition, or if they do not dissent, their actions may not match their words.
The actions of military leaders invading and laying waste foreign territory certainly do not agree with the proposition that peace and prosperity should be our preferred ends. And it is actions, not words, that economics is primarily analyzing.
Conquerors and mass murderers may defend themselves as “realists.” Are they not expressing an ethic of self-interest? Does everyone not secretly embrace selfishness?
Well, those who captured planes and flew them into the World Trade Center did not seem to be realistic or express self-interest, unless one regards suicide in the act of killing innocents as a way to gain paradise. In this case, a rejection of peace and prosperity as a goal sprang from recognizable but not common motives.
If most people choose their ends through a combination of emotion, factual observation, logic, and intuition, what ends ( value systems) do they commonly choose? Here are some basic choices:
Tribalism. This is a variant on selfishness. Since we depend on one another, we cannot just be selfish, either in the immediate or especially in the long run. Tribalism therefore offers a compromise.
In this system, one must not be selfish within the tribe, with the exception of certain leaders, who are given a pass. Within the tribe, one is expected to honor such ideals as community, safety and security, order, stability, leadership, and authority. Outside the tribe, one can be as selfish as one likes, alone or preferably with colleagues. One can lie, steal, defraud, kill, or commit any form of predation or parasitism.
Connectivism. This is my personal terminology. Mises’s friend and student Henry Hazlitt described something similar under the term Mutualism in his book, The Foundations of Morality.) The underlying values have always been with us, but came to particular prominence as an eighteenth-century protest and reform movement aimed at overthrowing the government tyranny, corruption, and crony capitalism created by tribalism. Among the most important Connectivist ideals are: independence, personal responsibility, connection and cooperation based on reciprocity, openness to change, and getting government out of the economy or out of lives in general.
Equalitarianism. These values are equally ancient, and also gained prominence as a protest movement, in particular in the nineteenth-century. The ideal of complete economic equality is imagined to be compatible with either strong centralized government control or, alternatively, no government at all. In practice, however, a government-controlled version cannot work, because it requires coercion, which is inconsistent with equality.
Philanthropism. These values—of charity, altruism, and service—have been approved, to a greater or lesser degree, by every known human society, and are especially recommended by all leading world religions. Yet even they have their critics. Some warn that charity may degrade the recipient, create dependency, or prevent the recipient from facing reality and thus “growing up.” Others dismiss philanthropists as Pharisees, hypocrites, egoists, even surreptitious power seekers.
Choosing and Ranking
The broader issues raised by these different social systems, with their underlying values, are as old as human beings, or indeed as old as higher primates. Even if we choose among these systems primarily through emotion, the other modes of logic, factual observation, and intuition are always involved. They generally rein in emotion and help us to be more honest. This means calling ourselves out whenever we:
- Deceive ourselves or others about what we want or believe, especially when it increases our income or social standing;
- Fail to live up to what we profess to believe, because it requires effort or risk;
- Form temporary alliances with others through the expedient of glossing over or ignoring differences in what we want or believe.
We thus have four techniques to arrive at answers, and four broadly defined ends. but must continually ask ourselves whether we are using our four techniques appropriately to choose our ends.
For me, I sort out my economics, and in particular my analysis of economic means, with the tools provided by Mises. I use the same along with intuition and emotion to arrive at my ends, in particular my belief in what I have called Connectivism.
Based on my adherence to Connectivism, I reject Tribalism and Equalitarianism. I accept Philanthropism as a worthy ideal, although with a subsidiary status. I believe that both Mises and Rothbard would have identified with Connectivism as well.
Hunter Lewis is co-founder and former CEO of Cambridge Associates. From its early years, Cambridge Associates provided investment advice to university endowment funds including Harvard, Yale, Princeton, Stanford, MIT, and other universities representing three fourths of higher education endowment assets. Over the years, it became a global firm advising clients with many trillions of assets. Lewis has also served on the board of the Mises Institute.
