Human Action: A Treatise on Economics

  III.

  UMAN ACTION and Nationalökonomie have the same overall structure of seven parts, and the bulk of the English edition consists of material directly translated from the German. However, significant differences exist. Human Action is considerably longer, and contains numerous additions to its predecessor. There are also passages, sections, and chapters in Nationalökonomie which were either omitted, shortened, or significantly altered in Human Action.

  The most important addition in Human Action is Chapter VI on uncertainty. This chapter does not appear in its predecessor, nor is its subject matter discussed elsewhere. Here, Mises further clarifies his earlier epistemological investigations through the introduction of the categorical distinction between apodictic certainty (the realm of praxeology), class probability (the realm of the natural sciences), and case probability (the realm of history). Several commentators have noted the similarity of Mises's distinction between class probability and case probability and that between risk and uncertainty introduced by Knight in Risk, Uncertainty and Profit in 1921.43 Yet, it does not appear that Mises was influenced by Knight in this regard. Mises had been long familiar with Knight's work, and had already made reference to Risk, Uncertainty and Profit in Nationalökonomie in conjunction with his discussion of profit and uncertainty.44 Rather, it appears more likely that Mises's Chapter VI was stimulated and influenced by his younger brother, Richard von Mises (1883–1953). A professor of aerodynamics and applied mathematics at Harvard University, Richard von Mises's most outstanding theoretical achievement was his contribution, from 1919 onward, to the frequency theory of probability.45 In principle, Ludwig accepted Richard's frequency interpretation of probability, but Ludwig provided a new definition of randomness, and thus significantly improved on Richard's theory.46

  Apart from the addition of Chapter VI, all other changes or additions to Human Action from its predecessor can be described as non-substantial. Some material is reorganized, the discussion of some subjects is expanded or further applications are provided, and there are some changes in emphasis or perspective. Most reorganization concerns the book's first philosophical parts, i.e., Chapters I and II. Thus, in order to account for an English-American audience and its different philosophical background and tradition, Mises completely rewrote and rearranged the material presented here.47 In addition, Human Action contains a new Chapter HI (“Economics and the Revolt against Reason”). In Nationalökonomie, the subject matter of Chapter IX of Human Action (“The Role of Ideas”) is discussed in a much longer chapter of the same title (“Die Idee im Handeln”).48 The expansions, further applications, and changes of emphasis or perspective concern Parts HI through VII.

  Augmentations

  to Nationalökonomie

  Chapters

  XXXV “The Welfare Principle versus the Market Principle” (pp. 829–850)

  XXXVIII “The Place of Economics in Learning” (pp. 863–876)

  Sections

  XV.6 “Freedom” (pp. 279–285)

  XV.7 “Inequality of Wealth and Income” (pp. 285–286)

  XV.9 “Entrepreneurial Profits and Losses in a Progressing Economy” (pp. 292–299)

  XV.10 “Promoters, Managers, Technicians, and Bureaucrats” (pp. 300–307)

  XVI.15 “The Chimera of Nonmarket Prices” (pp. 3 92–3 94)

  XVIII.8 “The Mobility of the Investor” (pp. 514–517)

  XXV.2 “The Socialist Doctrine” (pp. 689–691)

  XXVI.4 “Trial and Error” (pp. 700–701)

  XXVII. 3 “The Delimitation of Governmental Functions” (pp. 715–719)

  XXVII.5 “The Meaning of Laissez Faire” (pp. 725–727)

  XXX.3 “Minimum Wage Rates” (pp. 763–773)

  Elaborations

  XI.2 “The Theory of Value and Socialism” (pp. 206–207)

  XV.4 “The Metaphorical Employment of the Terminology of Political Rule” (pp. 272–273) XVII.6 “Inflation and Deflation; Inflationism and Deflationism” (pp. 419–21)

  XVIII.4 “Some Applications of the Time-Preference Theory” (pp. 496–499)

  XX.6 “The Alleged Absence of Depressions Under Totalitarian Management” (pp. 562–563)

  XX.7 “The Difference Between Credit Expansion and Simple inflation” (p. 568)

  XXI.6 “A Comparison Between the Historical Explanation of Wage Rates and the Regression Theorem” (p. 606)

  XXI.7 “Remarks About the Popular Interpretation of the 'Industrial Revolution'” (pp. 613–619)

  XXXI.5 “The Chimera of Contracyclical Policies” (pp. 792–794)

  IV

  The commercial success of Human Action exceeded both the author's and the publisher's expectations. It was published on September 14, 1949; three weeks later, the press was already planning the second and even a third printing. In a memo, Chester Kerr (who later headed the press when the second edition was issued) spoke of sales of “an extraordinary rate for a $10 volume of solid reading.” In January 1950, it became a Book-of-the-Month Club alternate selection. Reviews, as one might expect, were highly polarized, with the popular press treating it as the brilliant work of a genius, while academic economists (Seymour E. Harris49 and John K. Galbraith50) regarded it as shockingly archaic and insufficiently pious towards the profession. John Hicks alternately praised (“a powerful book“) and mocked the book (“Mises sets up Capitalism as a god, which it is sinful to touch“),51 while Ludwig Lachmann gave Mises one of his few enthusiastic academic endorsements in the pages of Economica.52 A debate between Mises's student and prime defender Murray Rothbard and detractor George J. Schuller took place in the pages of the American Economic Review.53 Regardless of the mixed reception, and contrary to the widespread opinion that Mises would surely be the last member of the Austrian School, Human Action served as the essential foundation for the huge and growing free-market political movement and an academic movement of Austrian School economists, for which it continues to serve as the primary text today.

  The first edition of Human Action was continuously in print for fourteen years. In February 1961, Mises initiated the second revised edition of Human Action in a letter to Ivan Bierly of the Volker Fund, a foundation that had supported Mises's teaching and writing. In March, Mises wrote the publisher, “It seems to me that now after twelve years it is time to publish a new edition, revised in some points and slightly enlarged.” He informed Yale that he could have the changes by the end of the year. Yale Press received the news with enthusiasm and waited for Mises's changes.

  What followed was another trial in Mises's life. The second edition went into production far later than anticipated, which left the publisher without copies of Human Action for fifteen months. Mises was never given galley proofs to examine before publication. When the second edition finally appeared in May 1963, it was riddled with typographical errors. There were missing paragraphs and lines, duplicated lines, and even a duplicated page. There were no running heads on the pages and the printing was variously light and dark. Despite protests, the publisher refused to accept full responsibility, which led Mises to secure the services of an attorney. In die de facto settlement (Mises never acceded to it entirely), Yale distributed errata sheets and agreed to prepare a corrected third edition when the second edition sold out. The matter was finally settled when Henry Regnery worked to secure the rights for his publishing company in early 1966. He reset the book and published the third edition later that year (at which time Mises was eighty-five years old).54, 55

  Mises left no essay or speech explaining the changes (some of them substantial) made to later editions of Human Action. Original drafts of manuscripts delivered to the publisher are not available. Neither are personal notes available, from Mises or the publisher, or information on the precise timing of the changes. Some changes to later editions were suggested by Mises's friend Percy L. Greaves, Jr., in a memo dated October 12,1961. For instance, Greaves suggested that Mises alter the content of paragraph three on page 187, dealing with German aggressiveness, to apply t
o Russia. The paragraph was eliminated entirely. Greaves also suggested that the section on International Monetary Cooperation beginning on page 473 “be brought up to date.” Four paragraphs were added to the end of the original (unchanged) section. Referring to immigration, Mises writes on pages 820–821 : “Neither does it mean that there can be any question of appeasing aggressors by removing migration barriers. As conditions are today, the Americas and Australia in admitting German, Italian, and Japanese immigrants merely open their doors to the vanguards of hostile armies.” Greaves suggested amending this passage, but no change was made in the second edition. For the third edition, the passage is eliminated altogether and replaced with an additional paragraph calling for a philosophy of mutual cooperation to replace the view that there are “irreconcilable antagonisms” between groups in society.

  Other notable changes were made to later editions, some of which cannot be considered improvements. Pages 796–799 of the first edition include some insightful remarks about the workings of German exchange controls and international barter agreements in the 1930s. These comments, cited and built upon in a later historical study of the New Deal by Rothbard,56 are entirely eliminated from subsequent editions. The final two paragraphs on page 563, in which Mises sheds light on the relationship between public opinion and an inflationary monetary policy, are also eliminated. As a smaller matter, for later editions, the section on imperfect competition was changed from the 1949 edition, and not with clarifying results. For instance, the 1949 edition includes this sentence: “The confusion which led to the idea of imperfect or monopolistic competition stems from a misinterpretation of the term control of supply” (p. 357). Later editions change the sentence to introduce ambiguity: “Considerable confusion stems from a misinterpretation of the term control of supply. “57

  On monopoly theory, the first edition contains a crucial paragraph that was eliminated in subsequent editions, a passage that elucidates how far Mises's understanding of the monopoly price was from the mainstream neoclassical view. “Monopoly prices,” he writes in this and later editions, “are the outcome of a deliberate design tending toward a restriction of trade” (p. 356). In the original edition Mises added an additional paragraph explaining what is meant by the word “deliberate.” It is only the economist who can contrast the competitive price with the monopoly price; the businessman, “like every other seller,” only wants to realize the highest price attainable. With this passage, we gain a deeper understanding of Mises's own theory, which is closer to the Rothbardian view that in the actual operation of the free market, there is no meaningful way to distinguish between a monopoly and a competitive price. Indeed, neither Mises nor Rothbard regarded their respective positions on monopoly as incompatible.58

  One particular change has caused considerable confusion. In section XV.6, “Freedom,” the original edition focuses on die necessity of curbing government power, and concludes that government is “by necessity the opposite of liberty” and is a “guarantor of liberty and is compatible with liberty only if its range is adequately restricted to the preservation of economic freedom” (p. 283).59Revised editions preserve that passage with only minor alterations, but add seven wholly new paragraphs preceding it. These new paragraphs in the revised editions introduce a different focus on the necessary and specific powers of government, which appear rather expansive by Misesian standards: “The maintenance of a government apparatus of courts, police officers, prison, and of armed forces requires considerable expenditure. To levy taxes for these purposes is fully compatible with the freedom the individual enjoys in a free market economy” (third ed., p. 282).

  Also, these later editions substantially alter the definition of freedom itself. In the original, Mises states: “A man is free as far as he can live and get on without being at the mercy of arbitrary decisions on the part of other people” (p. 279). Mises does not define “arbitrary,” but he appears to have in mind actions that infringe on someone's person or property without his agreement. Revised editions, in contrast, state: “we may define freedom as that state of affairs in which the individual's decision to choose is not constrained by governmental violence beyond the margin which the praxeological law restricts it anyway” (third ed., p. 282). The phrase “praxeological law” (meaning the law of cause and effect in human affairs) works here as qualifier; it is so expansively applied that any government activity, however arbitrary, that is said to preserve or achieve “freedom” might be deemed permissible. The original definition, more specific and stringent, rules out arbitrary interventions altogether.

  Thus, these added passages in later editions go even further to permit conscription, and it is here we find a direct inconsistency with Mises's prior writings. In particular, the passage is at odds with Mises's defense of secession, which he elevated to the rank of a core principle of the liberal program, as explained in Nation, State, and Economy in 191960 and even more emphatically in Liberalism in 192 7.61 If every person is entitled to secede from the state then the state becomes a kind of voluntary organization from which exit is always allowed; accordingly, any form of conscription would have to be considered illegitimate and impermissible. Even more strikingly, however, the passage stands in contradiction to the discussion, and rejection, in Nationalökonomie of conscription as a species of interventionism which, according to its own internal “logic,” leads inevitably to socialism and total war. “Military conscription,” Mises wrote, “leads to compulsory public service of everyone capable of work. The supreme commander controls the entire people,… the mobilization has become total; people and state have become part of the army; war socialism has replaced the market economy.”62

  Major Changes

  in Later Editions

  Deletions from

  the First Edition

  IX.2, par. 32: “What is wrong with the Germans…means of waging war” (p. 187)

  XV.6, pars. 1–4: “The words freedom and liberty…he can attain liberty” (pp. 279–280)

  XVI.6.3, par. 3: “In calling the monopolist's…emergence of monopoly prices” (p. 356)

  XX.6, pars. 43–14: “It is no answer to this to object…a sham, they are absent” (p. 563)

  XXXI.6, pars. 10–23: (“Remarks about the Nazi Barter Agreements“): Entire section (pp. 796–799)

  XXXIVI, par. 14: “Neither does it mean that…vanguards of hostile armies” (pp. 820–821; deleted from 3d edition only)

  Additions to the

  Second and Third Editions

  XV6, pars. 1–13: “Philosophers and lawyers have…no freedom at all” (pp. 279–282; 3d ed.)

  XVI.6, sees. 5–6: “If the available quantities…a cartel depends” (pp. 361–362; 3d ed.)

  XVII.19, pars. 28–31: “The International Monetary Fund…monetary troubles” (p. 478; 3d ed.)

  XXVII.6, pars. 9–18: (“Corruption”): “An analysis of interventionism… as justified” (pp. 734–736; 3d ed.)

  V.

  HUMAN ACTION, building on and expanding its German predecessor, transformed Austrian economics, as it is understood today, into a predominantly American phenomenon with a distinctly Misesian imprint, and made possible the continuation of the Austrian School after the mid-twentieth century. Thus the first edition assumes an importance that extends beyond the mere historical. It reveals the issues and concerns that Mises considered primary when releasing, at die height of his intellectual powers, the most complete and integrated statement of his career. In particular, making the unchanged first edition available again retrieves important passages that were later eliminated, and clarifies questions raised by unnecessary, and, in some cases, unfortunate additions and revisions made to later editions.

  That the original edition represents the fullest synthesis of Mises's thought on method, theory, and policy, and is the book that sustained the Austrian tradition and the integrity of economic science after the socialist, Keynesian, Walrasian, Marshallian, and positivist conquests of economic thought, is reason enough to reissue die or
iginal on its fiftieth anniversary, making it widely available for the first time in nearly four decades. A high place must be reserved in the history of economic thought, indeed, in die history of ideas, for Mises's masterwork. Even today, Human Action points the way to a brighter future for the science of economics and the practice of human liberty.

  Jeffrey M. Herbener (Grove City College)

  Hans-Hermann Hoppe (University of Nevada, Las Vegas)

  Joseph T. Salerno (Pace University)

  October 199863

  _______________________________

  1. The archives at Yale University Press, Grove City College, and the Ludwig von Mises Institute provided source material.

  2. The Theory of Money and Credit, trans. by H.E. Batson (Indianapolis, Ind.: Liberty Classics, [1912] 1980).

  3. Essays can be found in On the Manipulation of Money and Credit, trans. by Bettina Bien Greaves (Dobbs Ferry, N.Y.: Free Market Books, 1978).

  4. Economic Calculation in the Socialist Commonwealth, trans. by S. Adler (Auburn, Ala.: Ludwig von Mises Institute, [1920] 1990).

  5. Trygve J.B. Hoff, Economic Calculation in the Socialist Society, trans. by MA Michael (Indianapolis, Ind.: Liberty Press, [1949] 1981).

  6. Murray N. Rothbard, “The End of Socialism and the Calculation Debate Revisited,” Review of Austrian Economics, 5, no. 2 (1991), 51–76.