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In accordance with this thread, we are starting a Man, Economy, and State (by Rothbard) reading group.

This is the thread for Chapter 1.

Here is the book itself (set to Ch. 1):

http://mises.org/Books/mespm.PDF#page=66

Here is Murphy's Study Guide (set to Ch. 1):

http://mises.org/books/messtudy.pdf#page=12

Here is an HTML table of contents:

http://mises.org/rothbard/mes.asp

The tentative due date for reading and discussion Chapter 1 is Tuesday January 8 , 2013. This means that we are trying to fit most discussion in this time period. This does not mean that you cannot post before that deadline. Furthermore, discussion may continue after the deadline as well. However, we are trying to get most of our talk in up to that date. As such, please complete the reading a few days in advance so that we can have some nice back-and-forths until we begin the next chapter.

Post any thoughts and questions here. We can also discuss the study guide questions and any other related topics.

The chapter is roughly 78 pages long. If you begin on Dec 28th, you will have about 9 days to read Chapter 1, which comes in at just under 9 pages per day if you read uniformly. Continuous reading is recommended for better comprehension. Furthermore, having the book in hard copy allows you to mark up passages more easily. Interacting with the text likely allows for better retention and understanding.

If there are simple questions that are resolved quickly in this thread, the matter ends there. If a question involves a lot more discussion, we can start a thread on the specific question over in the "Beginners" section of the Economics forum.

Don't worry too much about the rules - it'll iron itself out.

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Here is a compilation of the discussion so far. Most centered on answers to Murphy's Study Guide:

1.If an infant cries immediately after birth, is this action in the praxeological sense? What if the infant, several months later, has learned that crying will often lead to attention from parents?

An infant crying immediately after birth is not action in the praxeological sense. The infant has no desired ends in mind, and does not act to achieve a more satisfactory state of affairs. Rather, the crying is an involuntary reaction to stimulus, the stimulus being the doctor “spanking” the infant so that it will cry and start to breathe. By contrast, an infant who cries after gaining knowledge that crying often leads to attention from parents is acting in the praxeological sense. The infant has a means (crying) and an ends (attention from parents), and it knowingly using its means to achieve its ends.

2.When doctors in the 1800s used leeches in an attempt to help patients, was this an example of human action?

Yes. Human action is the use of means to attain ends. It does not mean that the means are necessarily correct. Rothbard notes that it could turn out that they were the incorrect means to achieve the ends. However, even such scenarios are examples of human action and of using means toward ends.

3.Suppose a man is strumming his guitar while sitting on the sidewalk in a large city, and that his only purpose is to listen to the enjoyable music. How should the guitar be classified? What if passerby begin giving the man loose change, so that he now views the guitar as a means to earning money?

If the man is strumming his guitar purely for enjoyment, it is a consumers good, because it is bringing him immediate satisfaction. However, if he is strumming it as a means to earn money, it becomes a capital good, a means to earn a consumers good, money(which is a consumers good used as an indirect medium of exchange to facilitate trade among other consumers' goods).

4.Suppose that a boy, on June 4, is offered the choice of seeing a fireworks show that day, or in exactly one month. If the boy choose the show in the future, has he violated the law of time preference?

No. The law of time preference states that all other things being equal ("ceteris paribus"), individuals prefer a present good to a future good. A fireworks show on June 4 is not the same thing as a fireworks show on July 4. There may be many factors which make them different goods, and compel the boy to choose the show farther in the future; for example, if he is an American, he will choose it due to July 4 being Independence Day in America, which may be more satisfactory to him than a simple uncelebratory fireworks show on June 4.

5.Suppose someone says, “I like steak more than burgers, and I like burgers more than hot dogs, but my preference for steak over burgers is definitely stronger than my preference for burgers over hot dogs.” What do you think Rothbard would say about this statement?

First of all, preference is indicated on marginal units of a good, not classes of a good. Hence, saying that a person prefers steak over burgers is itself imprecise.

Furthermore, even if the question was asking about marginal goods, Rothbard would say that the claim about the preferences wouldn't make sense. We messages Robert Murphy about the matter and he agreed with our response. It does not make sense to compare the strength of preference of A over B to the strength of preference of B over C.

Some users disagreed with this analysis. See the thread for details.

6.Imagine that a chemist measures two bottles of water, and finds that the first contains 8.002 ounces of water, while the second bottle contains 8.001 ounces of water. The chemist concludes that the bottles of water are definitely different objects. How should the economist treat them?

There appeared to be a tentative consensus by the members that the economist is in no place to decide whether the objects are goods from the same stock or not. It depends on the end-user. If the user is a person who consumes the water, and hence likely doesn't care about that minuscule difference, then the bottles are likely part of a supply/stock of the same good. If the user is a chemist buying chemicals, then the bottles could be part of different stocks.

7.What are the two ways that capital increases productivity?

1)By increasing capital, you are able to use capital goods to do things you already can do more efficiently, e.g., Crusoe can use the stick to increase how many berries he can get down in 1 hour, say from 20 to 300.

2)By increasing capital, you are also able to use capital goods to do things you would not be able to do without them, e.g., Crusoe can use the capital good of an axe to build a house (obviously using other capital goods along the way).

8.What are the definitions of consumption, saving, and investment?

Consumption-Using up goods immediately,i.e., as consumers goods, not capital goods.

Saving- The restriction of consumption

Investment-The transfer of land and labor to the formation of capital goods, which will yield either lower-order production goods in the future or consumption goods in the future.

9.If capital goods increase the productivity of labor, why don't people create as many capital goods as possible?

People prefer to have things now rather than in the future; this is a fundamental truth of human action. This truth means that many resources are used as consumers goods, which fulfill present wants, as opposed to capital goods, which fulfill future wants.

10.Suppose that a farmer normally sets aside 10 percent of his harvest as seed corn. His son says, “That's silly! We should sell all of our harvest and make as much money as possible.” What would this policy lead to?

It would lead to a consumption of capital in the present and a reduction in the standard of living in the future. This is one of the reasons saving is important - to both create new capital and to replace capital that gets used up.

I may as well post this now.

Chapter One:Fundamentals of Human Action

1.If an infant cries immediately after birth, is this action in the praxeological sense? What if the infant, several months later, has learned that crying will often lead to attention from parents?

An infant crying immediately after birth is not action in the praxeological sense. The infant has no desired ends in mind, and does not act to achieve a more satisfactory state of affairs. Rather, the crying is an involuntary reaction to stimulus, the stimulus being the doctor “spanking” the infant so that it will cry and start to breathe. By contrast, an infant who cries after gaining knowledge that crying often leads to attention from parents is acting in the praxeological sense. The infant has a means (crying) and an ends (attention from parents), and it knowingly using its means to achieve its ends.

2.When doctors in the 1800s used leeches in an attempt to help patients, was this an example of human action?

Yes. Human action, in the praxeological sense, does not require that the action only benefits the actor. It is simply “purposeful behavior” as Ludwig von Mises puts it.

3.Suppose a man is strumming his guitar while sitting on the sidewalk in a large city, and that his only purpose is to listen to the enjoyable music. How should the guitar be classified? What if passerby begin giving the man loose change, so that he now views the guitar as a means to earning money?

If the man is strumming his guitar purely for enjoyment, it is a consumers good, because it is bringing him immediate satisfaction. However, if he is strumming it as a means to earn money, it becomes a capital good.

4.Suppose that a boy, on June 4, is offered the choice of seeing a fireworks show that day, or in exactly one month. If the boy choose the show in the future, has he violated the law of time preference?

No. The law of time preference states that all other things being equal ("ceteris paribus"), individuals prefer a present good to a future good. A fireworks show on June 4 is not the same thing as a fireworks show on July 4. There may be many factors which make them different goods, and compel the boy to choose the show farther in the future; for example, if he is an American, he will choose it due to July 4 being Independence Day in America, which may be more satisfactory to him than a simple uncelebratory fireworks show on June 4.

5.Suppose someone says, “I like steak more than burgers, and I like burgers more than hot dogs, but my preference for steak over burgers is definitely stronger than my preference for burgers over hot dogs.” What do you think Rothbard would say about this statement?

Rothbard would say it is ridiculous. There is no unit to measure how much you desire one good over another; you can't say “ I value X over Y by 20 utils, and Y over Z by 7 utils, ergo, I value X over Z by 27 utils.” What is a util? How do you measure one? The only difference in desires is found in value scales, not in absurd utilities. Additionally, the preference could change over time.

6.Imagine that a chemist measures two bottles of water, and finds that the first contains 8.002 ounces of water, while the second bottle contains 8.001 ounces of water. The chemist concludes that the bottles of water are definitely different objects. How should the economist treat them?

As different supplies of the same object.

7.What are the two ways that capital increases productivity?

1)By increasing capital, you are able to use capital goods to do things you already can do more efficiently, e.g., Crusoe can use the stick to increase how many berries he can get down in 1 hour, say from 20 to 300.

2)By increasing capital, you are also able to use capital goods to do things you would not be able to do without them, e.g., Crusoe can use the capital good of an axe to build a house (obviously using other capital goods along the way).

8.What are the definitions of consumption, saving, and investment?

Consumption-Using up goods immediately,i.e., as consumers goods, not capital goods.

Saving- The restriction of consumption

Investment-The transfer of land and labor to the formation of capital goods.

9.If capital goods increase the productivity of labor, why don't people create as many capital goods as possible?

People prefer to have things now rather than in the future; this is a fundamental truth of human action. This truth means that many resources are used as consumers goods, which fulfill present wants, as opposed to capital goods, which fulfill future wants.

10.Suppose that a farmer normally sets aside 10 percent of his harvest as seed corn. His son says, “That's silly! We should sell all of our harvest and make as much money as possible.” What would this policy lead to?

It would lead to a consumption of capital in the present and a reduction in the standard of living in the future. This is one of the reasons saving is important - to both create new capital and to replace capital that gets used up.

I don't think Rothbard would say it is ridiculous. Take for example the following value scale (of Tim):

1)Steak
2)Pork chops
3)Tuna salad
4)Burgers
5)Hot dogs

One need not employ the idea of utils to see that the degree to which Tim likes steak more than burgers is greater than that of Tim's preference of burgers over hot dogs. Hot dogs need ascend only one place in Tim's list of valuations for them to be more highly valued, whereas Burgers have to ascend three places to be more highly valued than steaks. If the list were like this though:

1)Steak
2)Burgers
3)Hot Dogs

It would be meaningless to try to ascribe some intensity or quantity to the differences of valuation between the three items.

I don't think the question was asking about acting for yourself verus acting for others. Rather, I think it was meant to be "what if the action is illogical from a scientific perspective - is it still human action?" To which the answer is still yes - just because a wrong mean is chosen to serve an end, it doesn't mean that the person is not choosing means - he's just choosing the wrong one.



Careful here - if my understanding is correct, both Mises and Rothbard considered money as neither a producer nor a consumer good. Instead, it had its own category. Walter block argues it is a producer's good: http://www.gmu.edu/depts/rae/archives/V ... arnett.pdf



I have my own concerns with this issue (I agree with your technical answer). I am unsure about when you may say that preferring one means at one point over another is merely choosing between different goods and when it is instead a matter of time preference.

For example, if you choose ice in the summer over ice right now (winter), Austrians maintain that you are choosing between different goods. Yet when you decide to save given the current interest rate, this is a matter of time preference. But why not have the second example also be an example of choosing between different goods? And why isn't the first scenario one of time preference? What is the technical distinction between them?



There is a simpler trick answer to the question - maybe it was a mistake on the part of Murphy, but notice that the question talks about classes of goods - not individual units. We know that people do not choose between classes of goods, they choose between marginal units of goods. Hence, the whole question is in fact moot - people choose on the margin.



I'm not exactly sure. Strictly speaking, an economist can't know what serviceability an object has to a person. Hence, he can't decide whether two units of the same object are both the same good or different goods.

I'm guessing it would be "safe" to consider the bottles of water to be the same good - however, it's not rigorous.



I would word it as it leading to a consumption of capital in the present and a reduction in the standard of living in the future.

Jargon, I think you are wrong. You are trying to use "number of jumps" to somehow quantify the utility differences. I don't think Rothbard would agree with this.

Imagine you are given a list of options from which you must choose one:

4) Eat apple
3) Eat banana
2) Mow lawn
1) Kill Bob

(where a higher numbers means more preferred)

If the person only had the ability to choose between these four, by your logic the person's preference for apples over bananas is weaker than his preference for bananas over killing Bob. I hope this makes clear for you that the number of jumps has no relation whatsoever to the strength of the preferences.

Hmm. I see what you're saying. I think I was mistaken in thinking of the individual area between items on the value scale, e.g. the area between "steak" and "burgers" (in the 2nd value scale you posted) and concluding that there is no way to measure value in between that. I didn't think of it like you explained with the 1st value scale you posted. I assumed the value scale contained only steak,burgers,and hot dogs.

In fact, Jargon, if you can use scale-jumps as the unit of measurement, then scale-jumps essentially become "utils" and you have cardinal utility.

My original answer was actually some nonsense about how human action is not always meant to benefit the actor or something like that. I'm not sure why I left part of that in my answer.




Huh,I thought all goods had to be either consumer goods or producer goods.



Well,I would say that it is because money always has the same use, no matter the time, place, season,etc., whereas "ice in the summer" can have different uses than "ice in the winter" (e.g. "ice in the summer" may be used in cube form for cooling lemonade,while "ice in the winter" may be used in "flat" form as a skating rink).

But I see what you're saying. I think a more clear way to put it would have been "While the good (a fireworks show) is the same, certain outside forces (national pride,perhaps the weather,etc.) cause the boy to prefer the fireworks show on July 4th to the one on June 4th."



Hmm,good point.



Ok.



Yeah my original answer just said it would lead to a consumption of capital, not sure why I took that part out.

4. I agree with fegedolfy's explanation about the difference between ice and money, and his final explanation of the fireworks.

5. I think intensity of preference is a valid concept, and exists even when there are only three things. A boy may prefer ice cream much more than any flavor of some slimy, bland, artificially flavored mush, but like the vanilla mush a little bit more than the chocolate mush.

This doesn't introduce utils by the back door, because there is no numerical value assigned. One cannot say he likes the ice cream ten times as much, only a lot more. And even if someone would assign numbers [which can always be done anyway, even for equal intensities, based on the reciprocal of the place in the hierarchy], as long as we grant that adding the numbers is invalid, we haven't introduced utils.

6. Maybe what Murphy was thinking with the two water bottles is that even though they are not strictly the same, because one has a very little bit more, it makes no difference because people don't care about trivial amounts. So that the two bottles are examples of homogeneous goods.

I think intensity of preference is valid so long as one does not associate with it any scientific validity. I can be of the opinion that I like x so many times more than y, no?

I agree with Jargon. There's nothing inherently quantitative about stating that there is a larger gap in preference between two potential options. So long as the distinction remains ordinal I don't see an issue. For instance, there's a difference between saying:



versus



Edit: basically what thatoldguy/smilingdave said.

This doesn't clarify to me why I'm wrong. In fact it seems very reasonable that you should not really mind the difference between eating an apple and eating a banana in comparison with eating a banana and killing Bob, wherein you definitely should mind.

If we take someone's value scale for an instant of their life, there would be many possibilities of action, ranging from killing yourself to eating a popsicle. Is it unreasonable to say that you feel much more strongly about the decision between killing yourself or eating a popsicle, than the decision between eating a fudgsicle and a rocketpop? Dave's example is probably a better one: if a child has the choice between dirty water, chocolate ice cream and vanilla ice cream, he would, in all likelihood, prefer even his least favorite ice cream flavor (vanilla) much more than dirty water. No quantification necessary.

Perhaps the disagreement springs from a difference in understanding what a "strength of preference" is.

I think that there is one way to make it so that you can compare strengths of preferences. The following would be it:

Take value scale

X - highest
...
Y - middle
...
Z - lowest

with ... representing other items. To say that the preference of X over Y is stronger than that of X over Z could mean that there are few things between X and Y, while there are many between Y and Z. In other words, if I can't have X, there are few other things I'd rather have than Y. However, if both X and Y are out of the question, I would rather go with many other things before choosing Z.

If defined like this - by number of iteratively-removed opprotunity costs - then yes, I agree - you can have a strength of preference.

Is this a useful definition? I don't know - I'll have to think about it. My intuition is that this definition is a little useless.

But I can't think of any other way to define strength of preference that would make Rothbard agree with the statement.

Jargon, a few things.



Whoopsies, I asked the wrong question - that should have been "by your logic the person's preference for apples over mowing the lawn is weaker than his preference for mowing the lawn over killing Bob."



Intuitively, it makes sense - but so could interpersonal utility comparison, and we know that's not possible.

Again, it might make sense if the definition of strength of preference is as I laid it out in the previous post. However, I suspect that the definition, while allowable, actually isn't very useful.

I see your point, though it seems like only a pyschopath would have his value scales such that mowing the lawn was one value place above killing bob.



I don't see the case for saying that intensity of preferences doesn't exist, as we all have them. It seems pretty uncontroversial to say that someone likes chocolate and vanilla ice cream much more than they like licorice ice cream, but he still likes chocolate better than vanilla. I suppose however, as far as I can tell that it is right that there is no economic purpose to this idea so it need not really be touched on. But I don't really understand why the book was asking us this then?

To clarify in our minds that there is a difference between "doesn't exist" and "cannot be measured".




Same thing here. In reality there is a difference between how much A and B appreciate, say, a hundred dollars. But it cannot be measured.
In addition, interpersonal is shakier because there no one who feels both feelings and thus no one can compare their intensity. But every individual knows that he likes ice cream much more than he likes vanilla goop over chocolate goop, by introspection.

I'd like to comment on the phrase "Intuitively, it makes sense, but...". I think the spirit of AE is that it is supposed to be an accurate model of reality. So that if something is strongly felt as obvious common sense by most intelligent people [and I know all these qualifiers are vague, strong, obvious, common sense, most, intelligent] then AE cannot deny it away. And if it does, it is a flaw in AE.

I think the right way is to say, yes, there are degrees of intensity of preference, but so far no one has discovered any economic significance to that fact. And as far as interpersonal utility differences, they too exist, and if we only knew how to calculate them we might be able to use them in our economic reasoning. But so far there is no way of knowing, so we treat them as unknown. Is there any mention in the literature of it not existing, or only of saying it is unknown?

While I'm at it, I think there is going to be something to talk about when we talk about indifference. The same distinction will pop up over there. Until a person acts and thus reveals a preference, it's not right to say the preference doesn't exist, merely that it is unknown to the observer.

I'm not saying there is no purpose to it. It seems that there might be important deductions to be made from it. For example, David Friedman came on the Mises forums once and talked about the Decreasing Marginal Utility of Income, where the gain from every new dollar earned is smaller than the gain from the previous dollar.

My point, however, isn't necessarily to deny strength of preference - it's to question what the heck it means. And this is both to Jargon and to Smiling Dave:



What does liking it "much more" mean? Even if you can say this "by introspection", what does it mean that you like X much more than Y?

Wheylous, you force me to wax philosophical. There is the real world, and there are axiomatic systems.

1. An axiomatic system can be constructed for sheer pleasure, or as an attempt to model the essentials of some aspect of the real world. As examples of the latter, geometry models space and what relations exists between parts of space. AE is an axiomatic system that attempts to model economic actions.

2. Every axiomatic system must have undefined terms. There is no getting round this, because language is finite, and thus every word can only be defined in terms of another word, which must be defined in terms of others not previously used [to avoid circularity], and so forth, until one runs out of words and must use words that will not be defined. If the axiomatic system is not to model the real world [for example, set theory, if you assume numbers are not part of the real world], then these undefined terms can just lie there, with axioms stated about their properties, and leave it at that. If the system is to model the real world, one must state what part of the real world is supposed to be modeled by the undefined term.

3. I don't think you are asking what it means to like something much more in the real world. I think you have experienced liking A much more than B, and B only a tiny bit more than C. That experience you had is the definition, the mental and emotional state Wheylous had with respect to A, B and C when he compared them, [or any state similar to it other people have, if we can sneak that in. If not, we'll just go with Wheylous].

4. In the axiomatic system of AE that is supposed to be a model of the real world, we can take it as an undefined concept and run with it. No harm done. [If someone is clever enough to define it in terms of the other undefined concepts, so that we reduce the number of undefined concepts by one, so much the better. But it's not essential]. We will then say that the undefined term [in the axiomatic system] corresponds to the feeling Wheylous had when comparing A, B and C [in the real world].

I'm about halfway through the first Chapter. I thought I would jot down some of the observations I made while I was reading(I've never done a reading group so I'm not sure what to discuss).

I read Menger's Principles of Economics a couple months back and I find that it's made Chapter 1 a bit easier to read.

It's also nice reading something that was written in English. Maybe it's me, but whenever I read a translated book it seems choppy and forced. This is especially true if it was translated from a language like German where one long ass word translates into a sentence in English.

Grundsätze der Volkswirtschaftslehre = Principles of Econ

I wrote to Ed Stringham on the issue and he said that he would agree with me. APPEAL TO AUTHORITY!!! I win.

I guess I will also write to Walter Block.