Economic Progress

Ludwig Von Mises and the Human Action Shift in Economics

September 29, 2016

Ludwig von Mises, author of Human Action, focused on how individuals’ choices are an important factor in the study of economics.

September 29 marks the birthday of Ludwig von Mises (1881-1973), an influential leader in the Austrian School of economic thought who challenged the ideas of socialism and government intervention that were increasingly popular in the early 20th century. Mises also dismissed the idea that economics was driven by objective forces, suggesting instead that it centered on change caused by individuals. This topic would become the subject of his magnum opus, Human Action (1949).

Born in Austria-Hungary, now Ukraine, Mises spent the majority of his school years in Vienna and earned his doctorate from the University of Vienna’s school of law in 1906. Like most students of that time, Mises at first believed that government intervention was necessary for successful economic growth. It was only after reading Principles of Economics (1871) by Carl Menger that his outlook changed and he became convinced that sound economics could only occur through free markets and individual choices.

Upon graduation, Mises went on to pursue a variety of careers, which helped shape the development of his later economic theories. Most notable was his time at the Austrian Chamber of Commerce, where he became a prominent analyst and advised the Austrian government on economic policy issues.

After serving in World War I, Mises became the director of the Reparations Commission and is credited with helping prevent political and economic disaster in Austria after the Austro-Hungarian Empire was dissolved as a result of WWI’s peace settlements. During this period, Mises met Friedrich Hayek, who would go on to become Mises’ most famous student as a result of his 1944 defense of classical liberalism, The Road to Serfdom.

In 1940, Nazi Germany began to spread across Europe, and Mises, due to his Jewish heritage and anti-totalitarianism views, escaped to the United States. There, he taught at New York University, though as an unpaid visiting professor. Despite not holding a paid position in academia, Mises continued to attract a substantial following and soon completed his most celebrated work, Human Action.

In Human Action, Mises frames economics through the lens of praxeology, or the study of human behavior through the choices of individuals. Simply put, “Human action is purposeful behavior” where actors are constantly choosing between different options and selecting their preferences, writes Mises. In Human Action, Mises states that people act because they are never fully satisfied with their state of being and are constantly making strides to improve their personal well-being; “Acting man is eager to substitute a more satisfactory state of affairs for a less satisfactory. His mind imagines conditions which suit him better, and his action aims at bringing about this desired state. The incentive that impels a man to act is always some uneasiness.”

Mises joins his philosophical discussions of human actions with tangible economic practices by using the concept of action to explain value: “Value is not intrinsic, it is not in things. It is within us; it is the way in which man reacts to the conditions of his environment. Neither is value in words and doctrines, it is reflected in human conduct. It is not what a man or groups of men say about value that counts, but how they act.” Put simply, items do not have objective value. Rather, individuals assign subjective values to different objects.

Ultimately, Mises argues that government-controlled economic regimes (e.g., socialism) are unfeasible because it is impossible for a central authority to fully know and anticipate the desires of its population. Instead, Mises maintains that a free market is more successful because it will respond and adapt to individual choices more readily.

While Human Action provides a refutation of central planning and supports the idea that individuals benefit from a free and open society, it also discusses the conditions that are necessary for people to act—whether in their communities, at their jobs, or in society more generally.

In Good Profit (2015), Charles Koch writes about Mises’ human action model:

Monetary rewards are powerful incentives, but many other factors are critical to creating incentives that improve societal well-being. Ludwig von Mises believed there are three requirements for humans to act: (1) Dissatisfaction with the present state of affairs, (2) a vision of a better state, and (3) belief that we can reach that better state. When just one of these requirements is missing, people will not act.

Mises’ human action model is important to the Charles Koch Institute as we work to advance an understanding of how to help people improve their lives by examining critical issues that impede societal well-being.

In the Charles Koch Institute’s offices, our classrooms and conference rooms are named in honor of 28 men and women who spent their lives defending and promoting the ideas of a free and open society. Their names remind us of the fact that our work is only made possible by those who came before us. Ludwig von Mises is one such man, and his conference room displays an etching of this quote: “Within the market society each serves all his fellow citizens and each is served by them.”

This physical reminder connects us to Mises as we work to continue his legacy of improving well-being for all. Mises’ unwavering defense of the free market, especially after witnessing Germany’s devastating post-WWI hyperinflation and the failure of socialist regimes, was guided by his vision of a free society where man worked towards a better state. “Freedom in society,” Mises believed, “means that a man depends as much upon other people as other people depend on him.”