Economics 101 – Part 1: The Scope of Economics

I recently started a recorded learning series where I read out and comment on some of the concepts that I work with here. This is the first part, titled “The Scope of Economics”:

Praxeology:

Economics:

Context (Economics, Human Action, Praxeology, Ethics, and History):

Related Posts:

Human Action, Ethics, Praxeology, Economics, and History

I recently spent some time integrating different concepts I read about into one coherent framework.

In particular I borrowed from Stefan Molyneux’ Universally Preferable Behavior and from Mises’ Human Action. The flowchart below is the result.

It enables you to (at least that’s the idea) categorize any theory someone proposes about Human Action into a proper sub-category.

Human Action, Ethics, Praxeology, Economics, and History

human-action-ethics-praxeology-history
CLICK ON IMAGE TO ENLARGE!

Examples of Theories About Human Action

  • Aesthetics: You should prefer truth to falsehood.
  • Morality: You should not initiate violence.
  • Personal Preference: I would prefer if you wore red rather than gray.
  • Economics: When one prefers 1 gold coin over good A, then he will be willing to surrender ownership of A in exchange for the coin.
  • Other Praxeology: A human who gets attacked will avoid the attack or defend himself.
  • Economic History: The average price of houses in the US declined from 2006 through 2010.
  • Other History: On October 29th Nima wrote this blog post on his laptop.

Determining True from False Theories About Human Action

As with any other science, the criterion for determining the truth or falsehood of a theory about Human Action, is logical validation and empirical accuracy.

Gray Areas

One issue that seems to worry people is that of gray areas. Most people are worried that if we allow for gray areas in the field of Ethics, it ceases to be a science. Others say that since there are gray areas in Ethics it doesn’t qualify as a science. Such assertions make little sense.

First of all, science is a process, not an absolute immutable law. It is the ongoing process of pursuing knowledge. It is true that the objective of science is the examination of truth versus falsehood in every field of human knowledge. But that doesn’t mean that there are no gray areas. There are certainly things that can without a doubt be confirmed as true or dismissed as false. Simple mathematical theories come to mind, for example. Then there are cases where the line becomes more blurred.

For example, biology teaches us that a bird has two wings, but once every so often a bird with one wing is born. Does this mean we are absolutely incapable of classifying the creature as a bird? Furthermore, does it completely detonate the science of biology?

Of course it doesn’t. It is thus the same way with Ethics. For example, sometimes the line between Aesthetics and Morality becomes blurry. To what extent can something be considered “considerable effort”?

Is it considerable effort if I’m a 3rd grader and I have to avoid walking by the 4th graders’ lockers because sometimes there is a bully who (rather pathetically) punches my shoulder? Maybe, but probably not as much as, say, having to move to another country. Is the bully’s action immensely evil? Probably not, at least not as evil as, say, waging a genocidal war that murders and/or dislocates millions of innocents.

Thus such gray areas actually help us explain why we condemn certain acts as enormous evils, while others can be considered minor evils, or even borderline aesthetically negative, rather than plain immoral.

Lifeboat Scenarios

Then there are those who like to put us to the test by confronting us with incredibly ridiculous horror scenarios or lifeboat situations which are supposed to invalidate the concept of objective Ethics: “What if a creature from another planet were to destroy the planet unless I raped a 29 year old prostitute using a condom? Surely THEN rape is moral, huh, huh??”

Such scenarios are not even remote arguments against the conceptual validity of Universally Preferable Behavior. Whether a space alien asks me to rape another person to save the world or not, it remains a true statement that rape cannot be universally preferable because the statement creates a logical contradiction. This would be akin to saying “Would you agree with the Grand Xenu that 1+1=3 if he threatened to destroy the whole world otherwise?” Heck, sure I would … does that mean that the theory 1+1 = 3 is true ??

Conformity with theories about Universally Preferable Behavior is optional. People are free to believe in false theories and act upon them. This doesn’t make the truth or falsehood of the theories ambiguous.

That having been said, I would like to encourage people to focus on solving the obvious problems we are facing in today’s world. Human Action, and Ethics in particular, is a science that is of course ultimately supposed to help us all live better and more peaceful lives. It is a science about rationally choosing and acting humans (where rational does NOT mean flawless, but rather non-instinctive action).

It is not a science about an imaginary society where all food has run out, all water is gone, all means of production have ceased functioning, all land has disappeared, and everyone is trapped in a giant ship that is sinking with only 3 lifeboats left to occupy. In such a world, human action ceases to exist and gives way to the instinctive and immediate whims of starving brutes fighting for survival. The relevance of Human Action and Ethics shrinks into irrelevant nothingness.

A medical doctor, well versed in the sciences of medicine and human biology, would be at a loss when tasked with saving an individual who suffers from tuberculosis, cancer, broken arms, and chopped off legs while having a heart attack and a brain aneurysm after having been hit by a train. Does this detonate the science of medicine?

The conceptual existence of gray areas and the conjuring up of lifeboat scenarios don’t make a dent in the concept of objective Ethics as defined by us here.

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“It is what you do that defines you.”

An important axiom came up in the movie Batman Begins:

“It’s not what you are inside, but what you do, that defines you.”

When analyzing an economic system, it is first and foremost relevant to analyze the actual actions of the actors who fulfill economic functions in that system and the actions that the government takes. All labels that are attached to groups or individuals need to be stripped off and cast aside. It is in particular imperative not to rely on what government officials are saying, but to take a close look at what they are actually doing.

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Human Action and Economics

It is important to understand the context and the scope of the science of economics. It is a common misconception that economics is a science that primarily deals with maths, numbers, statistics, averages, medians, and charts. Myriad university professors all across the globe teach students about supply and demand curves and how to calculate market equilibrium through the derivative of those, and perform many other numbers games.

All this accomplishes nothing but to obfuscate the true essence of economics. Little attention is paid to important concepts, such value and time preference, the formation of prices, the importance of consumption goods vs. factors of production, the concepts of money and monetary policy.

All market data is nothing but the outcome of actions performed by individuals, cooperating, producing, consuming, and competing on the market. Economics is first and foremost a science of human action, so before embarking upon an analysis of statistical data and mathematical concepts it is indispensable to understand the motivating forces behind actions performed by humans. Those have been fully explained by Praxeology.

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