Chapter I
The Laws of reasoning
1. Axiom of action
1.1. Apriorism
1.2. Praxeology
1.3. Epistemological dualism
1.4. Methodological trinity
2. Laws of logic
2.1. Arithmetic
3.2. Euclidean geometry
3. Laws of nature
3.1. Protophysics
3.2. Sociobiology
4. Laws of action
4.1. Law of value maximization
4.2. Law of marginal utility
4.3. Law of returns
4.4. Law of positive time preference
4.5. Law of profit maximization
1. Axiom of action
1.1. Apriorism
The world is full of events. To connect and comprehend the meaning of atomistic facts we have to have a rationalist theory. We have to set aside feelings and use reason. We have to start from the beginning by trying to understand reality with our reason.
When using reason by reflecting on our thoughts we immediately notice that our thinking is constrained by the logical structure of our minds. We can only think by obeying the laws of logic. They are a priori in the sense that they are axiomatic. They cannot be disproved because even trying to disprove them would only confirm them. They are the laws of thought. Or more precisely, the laws of logic. They do not determine the contents of our thoughts but they force them to stay inside a logical framework.
Similarly when making external observations we also notice that our logic and conceptual tools are a priori. The basic principles and standards of mathematics and protophysics cannot be proven wrong because all measurement already presupposes them. The laws of mathematics and protophysics are the starting point of knowledge of external observations.
1.2. Praxeology
If we are aprioristic prisoners of our own logical structure of mind then how can we even know if reality really exists outside our own minds? How do we know that the logical structure of our mind does not distort reality? How to bridge thinking with external reality? This is the eternal big question, the desideratum of philosophy. The tragedy of rationalism was that it failed to fully solve it. This failure opened the gates to relativism and all the horrors of modernism.
In 1949 Ludwig von Mises published his magnum opus, Human Action and finally Radical Rationalism found the key: Praxeology, the logic of action. It found the solution by pointing out that reasoning is action too! Acting man divides reality into subject and objects with the subject having a goal to understand and manipulate the objects. Reasoning is practically a crusade.
In acting, the mind of the individual sees itself as different from its environment, the external world, and tries to study this environment in order to influence the course of events happening in it. … Both, apriori thinking and reasoning on the one hand and human action on the other, are manifestations of the mind. … Reason and action are congeneric and homogeneous, two aspects of the same phenomenon. (Ludwig von Mises. The Ultimate Foundation of Economic Science, pp. 35-36, 42).
We all try to purposefully remove our ignorance and other uneasiness by improving our own knowledge and understanding of reality. Thus even mere reflective reasoning is an action. This praxeological realization has momentous consequences. It not only means that reasoning is a practical affair but also that it is constrained by the categories of action: Knowledge, goals, time, causality, regularity, means, choices, value and finally profit and loss. Reasoning is almost a business transaction.
[K]nowledge is a tool of action. Its function is to advise man how to proceed in his endeavor to remove uneasiness…. The category of action is the fundamental category of human knowledge. It implies all the categories of logic and the category of regularity and causality. It implies the category of time and that of value. (Ludwig von Mises. The Ultimate Foundation of Economic Science, pp. 35-36.)
By realizing that knowledge is a practical category of action and laws of reasoning are grounded on and constrained by the framework of action categories the gulf between mental and physical is finally bridged. Thus by substituting praxeological aprioristic acting mind for the traditional aprioristic active mind solves the Kantian idealistic dilemma that seemed to absurdly imply that the world is created by the mind. The axiomatic and realistic nature of praxeology provides the missing link in defense of rationalism against relativism. Reason and action are two sides of the same realist coin.
[Ludwig von] Mises took the idea of synthetic a priori – the idea that there are true statements about reality, derived from axioms and logic, that do not need to be tested – from Immanuel Kant. But Mises added an extremely important insight: Kantian mental categories can be understood as ultimately grounded in categories of action. With this, Mises bridged the gulf in Kantianism that separates mental from physical; what we think from the outside, physical world. (An Interview with Hans-Hermann Hoppe)
From the ultimate fact that reason and action are two sides of the same coin it follows that praxeology is the foundation of the theory of knowledge, epistemology. Praxeology is the basis of all our knowledge. In a sense this is an extreme form of “economic imperialism”. Even our reasoning is governed by the categories of economics! No wonder ivory tower philosophers who consider themselves above mundane affairs have always shrieked in horror at such an idea. But it is true nonetheless. In fact, it is self-evident once one dares to face the truth.
But how can mere action categories raise the idea of truth and validity? Mises never went into details but his follower Hans-Hermann Hoppe did by introducing a second and corollary axiom.
The second axiom is the so-called “a priori of argumentation,” which states that humans are capable of argumentation and hence know the meaning of truth and validity. … Action and argumentation axioms are interwoven strands of a priori knowledge. Thus, what it means to act and to have knowledge implied in action – both the meaning of action in general and argumentation in particular must be thought of as logically necessary interwoven strands of a priori knowledge. (Hans-Hermann Hoppe, Economic Science and the Austrian Method, pp. 65-66. Hereafter ESAM)
1.3. Epistemological dualism
Unlike idealist philosophies praxeology emphasizes that humans are not freely floating non-material thinking spirits but always connected to and constrained by practical physical reality. We are constantly reminded by uneasiness that there is scarcity of time, knowledge and physical resources. All our actions try to improve this situation. We could not long survive without trying to control our body and physical surroundings. Reasoning is an action where at minimum we try to better understand our situation. We are the subject while our environment is the object that has to be manipulated successfully with the help of true accurate knowledge. This creates the idea of practical truth. When we argue with ourselves about the right course of action to improve our situation we automatically understand the meaning of truth.
During reasoning we live both in the inner world of reflection and in the outer world of observations. We realize that this subject-object reality is without exception divided into only two spheres: Actions and reactions. The action of the subject takes place in a universe where the objects are causally connected. The objects do not act but only react to causal stimuli. There are no exceptions to this rule. Objects are under the control of absolutely regular natural laws which are then utilized in action.
If there were only actions in the universe there would be no regularities but everything would be chaotic. Action is only possible because of epistemological dualism. Humans have a unique role in universe because on the one hand they can act but on the other hand their actions take place in an orderly universe that make it possible to predict the consequences of actions and causally influence events.
Action presupposes a causally structured observational reality, but the reality of action which we can understand as requiring such structure, is not itself causally structured. Instead, it is a reality that must be categorized teleologically, as purpose-directed, meaningful behavior. …
In fact, one can neither deny nor undo the view that there are two categorically different realms of phenomena, since such attempts would have to presuppose causally related events qua actions that take place within observational reality as well as the existence of intentionally rather than causally related phenomena in order to interpret such observational events as meaning to deny something. Neither a causal nor a teleological monism could be justified without running into an open contradiction (Hans-Hermann Hoppe. The Great Fiction, pp. 78-79)
1.4. Methodological trinity
From epistemological dualism follows three very different methodologies: First, actions are studied with the method of historicism. It analyzes the motives, goals and choices of actions. Their contents are unique and depend on the context of action. Humans have a free will. We can never fully and with absolute certainty know the motives and feelings of other person. We can only speculate and make educated guesses because humans can usually understand each other. The method of historicism is speculative understanding of the actions of others.
Thus, knowledge regarding the particular course of actions is only a posteriori. Since such knowledge would have to include the actor’s own knowledge— as a necessary ingredient of every action whose every change can have an influence on a particular action being chosen—teleological knowledge must also necessarily be reconstructive or historical knowledge. It would only provide ex post explanations which would have no systematic bearing on the prediction of future actions because future states of knowledge could never be predicted on the basis of constantly operating empirical causes. Obviously, such science of action fits the usual description of such disciplines as history and sociology. (Ibid. p. 80-81.)
Second, actions can also be studied with the method of apriorism. It studies the aspects of action that are already presupposed in action, i.e. the categories of action and the formal relationships of goals and means. These do have absolute regularities in the sense that the acting individual tries to always maximize his success in attaining his goals. From this follows all the laws of action and the laws of economics and politics such as the maximization of value, law of marginal utility, law of returns, law of positive time preference and the law of supply and demand. These laws do not determine actions but they do constrain them. Individual still has a free will but his choices are limited by the laws of action and interaction. For example, individuals cannot violate the law of supply and demand.
Third, the reactions of natural objects can be studied with the method of empiricism. Senses are used to make observations and then the reactions between natural objects are studied with laboratory style analysis where hypotheses are tested to find regularities and laws of nature. Also these laws do not determine actions but they do constrain them. Individual still has a free will but his choices are limited by the laws of nature. He cannot fly like a bird nor swim like a fish.
Rationalism thus includes aspects of all three major scientific methods, historicism, apriorism and empiricism. These can be called the method of the archivist, logicist and laborant. Rationalism sees the three methods as true and useful provided that they are applied in the proper way: The contents of historical human action is studied with the method of historicism. The relationship of human ends and means are studied with apriorism. Reactions of natural objects are studied with the method of empiricism. Mixing these methods in a wrong way leads to false science. For example, empiricism is not a proper method in the study of human sciences since there are no cardinal utilities. Nor is historicism the proper method in the study of natural science since human action is constrained by laws of action and interaction. Apriorism is the supreme method in the sense that both historicism and empiricism are based on rationalist apriorism in the more general sense that they all have to follow the aprioristic-praxeological laws of reasoning and protophysics.
2. Laws of logic
But what exactly is implied in the axioms of action and argumentation? Mises never went into details but fortunately Hoppe did. He noted that by joining together the axioms of action and argumentation into an interwoven praxeological system it is possible to deduce the laws of logic.
When one understands that knowledge as displayed in argumentation is a peculiar category of action, the validity of the perennial rationalist claim that the laws of logic—beginning here with the most fundamental ones of propositional logic and of Junctors (“and,” “or,” “if-then,” “not”) and Quantors (“there is,” “all,” “some”)—are a priori true propositions about reality and not mere verbal stipulations regarding the transformation rules of arbitrarily chosen signs, as empiricist-formalists would have it, becomes clear. They are as much laws of thinking as of reality because they are laws that have their ultimate foundation in action and can not be undone by any actor. …
In each and every action, an actor identifies some specific situation and categorizes it one way rather than another in order to be able to make a choice. It is this which ultimately explains the structure of even the most elementary propositions (like “Socrates is a man”) as consisting of a proper name or some identifying expression for the naming or identifying of something and a predicate to assert or deny some specific property of the named or identified object. It is this which explains the cornerstones of logic: the laws of identity and contradiction. …
And it is this universal feature of action and choosing which also explains our understanding of the categories “there is,” “all,” “some,” “and,” “or,” “if-then,” and “not.” One can, say, of course, that something can be “a” and “non-a” at the same time, or that “and” means this rather than something else. But one cannot undo the law of contradiction and one cannot undo the real definition of “and.” Simply by virtue of acting with a physical body in physical space we invariably affirm the law of contradiction and invariably display our true constructive knowledge of the meaning of “and” and “or.” (Ibid, p. 71)
Praxeology is thus a foundation of logic. ADD THE THREE LAWS OF LOGIC
QUOTE GORDON
Praxeology is also the foundation of arithmetic. The laws of thought are integrated with the concrete reality because all our reasoning requires purposeful actions where we have to at least seek knowledge how to relieve our uneasiness. When we repeat our action we get the second action and the third, etc. From the fact that we can repeat our own action follows the rule or repetition that is the foundation of all arithmetic. After all, number two is just a handy way to describe one twice, number three thrice, etc. From this follows all the laws of mathematics. In action where thereby calculate not only our own actions but simultaneously also time and objects. The world becomes more intelligible.
Similarly, the ultimate reason for arithmetic’s being an a priori and yet empirical discipline, as rationalists have always understood it, now also becomes discernible. (Ibid. p. 71)
Arithmetic and its character as an a priori-synthetic intellectual discipline is rooted in our understanding of repetition—the repetition of action. More precisely, it rests on our understanding the meaning of “do this—and do this again, starting from the present result.” Also, arithmetic deals with real things: with constructed or constructively identified units of something. It demonstrates what relations hold between such units because of the fact that they are constructed according to the rule of repetition. (Ibid. p. 73.)
3. Laws of nature
Just like praxeology is the foundation of arithmetic so is it the foundation of geometry and physics. Protophysics includes all aprioristic presuppositions of empirical physics that search for laws of nature.
Further, the old rationalist claims that Euclidean geometry is a priori yet incorporates empirical knowledge about space becomes supported, too, in view of our insight into the praxeological constraints on knowledge. Since the discovery of non-Euclidean geometries and in particular since Einstein’s relativistic theory of gravitation, the prevailing position regarding geometry is once again empiricist and formalist. It conceives of geometry as either being part of empirical, a posteriori physics, or as being empirically meaningless formalisms. That geometry is either mere play or forever subject to empirical testing seems to be irreconcilable with the fact that Euclidean geometry is the foundation of engineering and construction, and that nobody in those fields ever thinks of such propositions as only hypothetically true. Recognizing knowledge as praxeologically constrained explains why the empiricist-formalist view is incorrect and why the empirical success of Euclidean geometry is no mere accident. Spatial knowledge is also included in the meaning of action.
Action is the employment of a physical body in space. Without acting there could be no knowledge of spatial relations and no measurement. Measuring relates something to a standard. Without standards, there is no measurement, and there is no measurement which could ever falsify the standard. Evidently, the ultimate standard must be provided by the norms underlying the construction of bodily movements in space and the construction of measurement instruments by means of one’s body and in accordance with the principles of spatial constructions embodied in it. Euclidean geometry, as again Paul Lorenzen in particular has explained, is no more and no less than the reconstruction of the ideal norms underlying our construction of such homogeneous basic forms as points, lines, planes and distances which are in a more or less perfect but always perfectible way incorporated or realized in even our most primitive instruments of spatial measurements such as a measuring rod. Naturally, these norms and normative implications cannot be falsified by the result of any empirical measurement. On the contrary, their cognitive validity is substantiated by the fact that it is they that make physical measurements in space possible. Any actual measurement must already presuppose the validity of the norms leading to the construction of one’s measurement standards. It is in this sense that geometry is an a priori science and must simultaneously be regarded as an empirically meaningful discipline because it is not only the very precondition for any empirical spatial description, but it is also the precondition for any active orientation in space. …
Euclidean geometry as [is] a necessary presupposition of objective, intersubjectively communicable measurements and in particular of any empirical verification of nonEuclidean geometries (after all, the lenses of the telescopes which one uses to confirm Einstein’s theory regarding the non-Euclidean structure of physical space must themselves be constructed according to Euclidean principles) …
Following the lead of Hugo Dingler, Paul Lorenzen and other members of the so-called Erlangen School have worked out a system of protophysics, which contains all a prioristic presuppositions of empirical physics, including, apart from geometry, also chronometry and hylometry (i.e., classical mechanics without gravitation, or rational mechanics).
Geometry, chronometry and hylometry are a priori theories which make empirical measurements of space, time and material “possible.” They have to be established before physics in the modern sense of an empirical science, with hypothetical fields of forces, can begin. Therefore, I should like to call these disciplines by a common name: protophysics. (Lorenzen, Normative Logic and Ethics, p. 60)
(Hans-Hermann Hoppe. The Ethics and Economics of Private Property, p. 288-289)
With protophysics Euclidean geometry becomes the foundation of observing non-actions while praxeology makes it possible to understand actions.
[T]he status of geometry as an a priori science is ultimately grounded in our understanding of action and in so far praxeology must be regarded as the more fundamental cognitive discipline.. Praxeology is for the field of action what Euclidean geometry is for the field of observations (non-actions). As the geometry incorporated in our measuring instruments constrains the spatial structure of observational reality so praxeology constrains the range of things that can possibly be experienced in the field of actions. (Hans-Hermann Hoppe. The Great Fiction, p. 81-82.)
4. Laws of action
From the action axiom follows not only all the laws of logic but also the laws of action. When and individual feels uneasiness he first realizes that he as a subject exists in a spatial continuum where the objects have quantities and qualities. He utilizes the laws of logic and tries to gain knowledge of objects. Immediately he realizes their scarcity. Things cannot just be willed to existence out of nothing but must be gathered and/or produced. Mere desire and will to satisfy the desire is not enough. The individual must work. If he values life so much that he is willing to work he starts by making a plan how to manipulate physical reality in order to remove uneasiness and find satisfaction. This becomes his goal. From the action axiom it follows that a goal has subjective value for the individual or otherwise it would not be chosen as goal. If it ceases having value then it stops functioning as a goal.
The individual also realizes that in this physical reality satisfaction requires the fulfilling of many goals. The existence of many goals does not directly follow from the axiom of action. It is conceivable that an individual could become totally satisfied by fulfilling only one goal. However, in practice our physical reality and the existence of humans is such that survival requires the fulfilling of many goals.
Since all goals cannot be satisfied simultaneously some goals are more important than others. Moreover the ordering of these goals in order of importance is totally subjective. The individual can even decide to want to starve or otherwise kill himself. However, in practice most people want to live. This is why usually the first goal is to avoid starvation, the second goal to find shelter, etc. Usually these goals are organized according to Maslow’s hierarchy of needs but it is very important to realize that these needs do not determine our actions. Rationalism emphasises that despite our biological needs we still have a free will. We ourselves choose and order our goals. Some might not want to live at all and starve themselves or some might move to a tropical island and live without shelter, etc.
Anti-rationalist relativists dismiss praxeology by claiming that we do not really behave rationally. Historicists claim that we are sort of semi-crazy artists who not really under strict control of reason. In psychology historicism tends to degenerate into postmodernism which denies the very existence of society and social science. Everything is relative and there are not laws of logic and action. Empiricists in turn often claim that we are really reactive animals. In psychology empiricism tends to degenerate into behaviorism which sees society as a sort of laboratory. There are no deductive laws of logic and action but everything must be tested.
MASLOW CHART
From the rationalist perspective an individual always decides how he values and organizes his different personal goals. He might be unsure how to attain them but he still hopes to attain them somehow in the future. He creates a value scale from the most important goals to less important goals. However, he does not calculate their value/utility in mathematical cardinal fashion but in ordinal fashion trying to satisfy as many of his goals as possible and by giving preference for the most important goals. From this axiomatic fact follows the fundamental praxeological law of action: The law of value/utility maximization.
Many errors in discussions of utility stem from an assumption that it is some sort of quantity, measurable at least in principle. When we refer to a consumer’s “maximization” of utility, for example, we are not referring to a definite stock or quantity of something to be maximized. We refer to the highest-ranking position on the individual’s value scale. (Murray Rothbard. Man, Economy and State. p. 305)
The difference between cardinal and ordinal utility is huge. The adoption of cardinal utility analysis opens the gates of empiricist anti-rationalism by seeing man more as a robot than a human. It sees man not as an individual but as an object and leads to social engineering where society is tyrannically controlled and engineered like a machine. Individuals are dehumanized into manipulated screws and bolts.
4.1. Law of marginal utility
Planning goals and value scales is not enough for the individual. The next step is to put the plans in action. This requires the understanding of causal relations between objects. It is imperative to find such objects which causally fulfill the goals. For example, an apple becomes a means that causally fulfills the goal of avoiding starvation. The apple/means is now a consumer good that creates subjective utility for the individual because it is expected to help fulfill a valued goal. Often the individual wants more units of the specific means in order to help fulfill more of his goals. However, the utility of each additional unit of a means diminishes because they can serve less highly valued goals. For example, the first apple is used to avoid starvation and thus has higher utility than the next apple that is merely used for enjoyment. Each additional unit of a means has a diminished utility and vice versa. From this axiomatic fact follows the law of marginal utility which has two sides: The law of increasing marginal utility and the law of diminishing marginal utility.
The greater the supply of a good, the lower the marginal utility; the smaller the supply, the higher the marginal utility. This fundamental law of economics has been derived from the fundamental axiom of human action; it is the law of marginal utility, sometimes known as the law of diminishing marginal utility. Here again, it must be emphasized that “utility” is not a cardinal quantity subject to the processes of measurement, such as addition, multiplication, etc. It is a ranked number expressible only in terms of higher or lower order in the preferences of men. (Murray Rothbard. Man, Economy and State. p. 27-28)
The individual never calculates in cardinal utils but in ordinal goals. He only has more or less utility never an exact number of utils that could be added and subtracted. For example, the first class of water does not have 20 utils and the second 15 utils and so on. Speaking about total utils is anti-rationalist and dehumanizes individuals. But this is precisely what anti-rationalist scientists want to do. Nowadays almost all economists are social engineers working for the state and mega-corporations that want to socially engineer humanity.
4.2. The law of supply and the law of demand
In order to survive Robinson must use his time to find means to satisfy his goals. For example, Robinson must somehow feed himself, build shelter and try to stay healthy. All these practical activities can be studied by applying the laws of logic and action such as the laws of increasing and diminishing marginal utility. However, to investigate his actions in even more detail it is necessary to introduce two subsidiary postulates. First, there is diversity in nature and humans. Second, leisure is a consumer good.
Actually, despite the “extreme a priori” label, praxeology contains one Fundamental Axiom–the axiom of action–which may be called a priori, and a few subsidiary postulates which are actually empirical. Incredible as it may seem to those versed in the positivist tradition, from this tiny handful of premises the whole of economics is deduced–and deduced as absolutely true. Setting aside the Fundamental Axiom for a moment, the empirical postulates are: (a) small in number, and (b) so broadly based as to be hardly “empirical” in the empiricist sense of the term.
To put it differently, they are so generally true as to be self-evident, as to be seen by all to be obviously true once they are stated, and hence they are not in practice empirically falsifiable and therefore not “operationally meaningful.” What are these propositions? We may consider them in decreasing order of their generality: (1) the most fundamental–variety of resources, both natural and human. From this follows directly the division of labor, the market, etc.; (2) less important, that leisure is a consumer good. These are actually the only postulates needed. (Murray Rothbard. In Defence of Extreme Aprioriorism. p. 3)
By integrating these most realistic postulates into the chain of praxeological deduction it is possible to utilize the laws of increasing and diminishing marginal utility in more practical way by calling the former the law of supply and the latter the law of demand. In practice the law of increasing marginal utility especially relates to the creation of commodities and the law of diminishing marginal utility to their consumption. We can emphasize this practical point by calling the law of increasing marginal utility the law of supply and the law of diminishing marginal utility the law of demand. For example, when Robinson has to give up units of labor to build a ladder to get more apples he would then be under the law of supply because the more labor he has to give up the more valuable each unit of labor. The more he works the less likely that he will continue to work. There is therefore a tendency to increase labor only sparingly. Similarly, when he is consuming the apples he is under the law of demand. The more apples he consumes the less utility he gets from each additional apple. This diminishes his demand. There is an inherent “break” in both the law of supply and the law of demand though it is much more stronger in the law of supply.
4.3. Law of returns
It is not enough for actor such as Robinson to understand the causal relations but one must also know when and where to causally interfere to satisfy a need. The situation is further complicated by the fact that there are always many alternative courses of action to satisfy needs with means. For example, there are many ways to satisfy hunger such as eating apples, berries, etc. One has to evaluate the opportunity cost of obtaining an apple. Will it be a long arduous travel to find an apple tree? Would it be better to collect berries which are located in the opposite direction? If one or the other course of action has to be chosen then the opportunity cost is either the lost berries or the lost apples.
Furthermore, how much labor and what combination of producer goods (seeds, stick, ladder, etc.) one should use to get the apples? One has to choose between different production strategies. Obviously there is always an optimum combination of means though it is very difficult to know what it is exactly. This axiomatic fact is called the law of returns one instance of which is the law of diminishing returns.
The law of returns states that with the quantity of complementary factors held constant, there always exists some optimum amount of the varying factor. As the amount of the varying factor decreases or increases from the optimum, pa, the average unit product declines. … If there were no optimum, the average product would increase indefinitely as the quantity of the factor X increased. … there must be more than one factor at each stage of production. Accordingly, the very existence of various factors of production implies that the average return of product to each factor must have some maximum, or optimum, value. (Murray Rothbard. Man, Economy and State. p. 35-36.)
4.4. Law of positive time preference
It is not enough to plan and realize the goals by combining producer and consumer goods since causality itself requires time. Even if everything went perfectly one has to wait for the the satisfaction. The longer one has to wait the less the satisfaction. An apple today is always more valuable than an apple one year from now. Future apply trades at a discount relative to present apple. This is because an individual always wants satisfaction earlier than later. This is called the law of positive time preference and it gives rise to the interest rate.
A fundamental and constant truth about human action is that man prefers his end to be achieved in the shortest possible time. Given the specific satisfaction, the sooner it arrives, the better. This results from the fact that time is always scarce, and a means to be economized. The sooner any end is attained, the better. Thus, with any given end to be attained, the shorter the period of action, i.e., production, the more preferable for the actor. This is the universal fact of time preference.
At any point of time, and for any action, the actor most prefers to have his end attained in the immediate present. Next best for him is the immediate future, and the further in the future the attainment of the end appears to be, the less preferable it is. The less waiting time, the more preferable it is for him. …
Time preference may be called the preference for present satisfaction over future satisfaction or present good over future good, provided it is remembered that it is the same satisfaction (or “good”) that is being compared over the periods of time. Thus, a common type of objection to the assertion of universal time preference is that, in the wintertime, a man will prefer the delivery of ice the next summer (future) to delivery of ice in the present. This, however, confuses the concept “good” with the material properties of a thing, whereas it actually refers to subjective satisfactions. Since ice-in-the-summer provides different (and greater) satisfactions than ice-in-the-winter, they are not the same, but different goods. In this case, it is different satisfactions that are being compared, despite the fact that the physical property of the thing may be the same. (Murray Rothbard. Man, Economy and State. p. 15-16)
4.5. Law of profit maximization
It is not only that time forces man to wait for the satisfaction but even more importantly it makes future uncertain. Even the best plans can go awry and there is always the risk of a loss. Each individual is an entrepreneur in the sense that each action aims to fulfill a goal and if it succeeds there is a satisfying profit and if it fails there is a loss. Profit and loss are always possible in each and every action. Moreover, a loss always has serious consequences since individual always prefers a profit over loss. Otherwise he would not even have started acting. In fact, individual tries to fulfill his goal as well as possible so that he would gain the maximum satisfaction. Value and profit maximization are two sides of the same coin. They are the start and the end of an action. It is axiomatic law of action that man always tries to attain a maximum profit.
In the most fundamental sense we are all, with each of our actions, always and invariably profit-seeking entrepreneurs. Whenever we act, we employ some physical means (things valued as goods) — at a minimum our body and its standing room, but in most cases also various other, “external” things — so as to divert the “natural” course of events (the course of events we expect to happen if we were to act differently) in order to reach some more highly valued anticipated future state of affairs instead. With every action we aim at substituting a more favorable future state of affairs for a less favorable one that would result if we were to act differently. In this sense, with every action we seek to increase our satisfaction and attain a psychic profit. “To make profits is invariably the aim sought by any action,” as Ludwig von Mises has stated it. (Mises, 1966, p. 289)
But every action is threatened also with the possibility of loss. For every action refers to the future and the future is uncertain or at best only partially known. Every actor, in deciding on a course of action, compares the value of two anticipated states of affairs: the state he wants to effect through his action but that has not yet been realized, and another state that would result if he were to act differently but cannot come into existence, because he acts the way he does.
This makes every action a risky enterprise. An actor can always fail and suffer a loss. He may not be able to effect the anticipated future state of affairs — that is, the actor’s technical knowledge, his “know how” may be deficient or it may be temporarily “superseded,” due to some unforeseen external contingencies. Or else, even if he has successfully produced the desired state of physical affairs, he may still consider his action a failure and suffer a loss, if this state of affairs provides him with less satisfaction than what he could have attained had he chosen otherwise (some earlier-on rejected alternative course of action) — that is, the actor’s speculative knowledge — his knowledge of the temporal change and fluctuation of values and valuations — may be deficient.
Since all of our actions display entrepreneurship and are aimed at being successful and yielding the actor a profit, there can be nothing wrong with entrepreneurship and profit. Wrong, in any meaningful sense of the term, are only failure and loss, and accordingly, in all of our actions, we always try to avoid them. (Hans-Hermann Hoppe. The Ethics of Entrepreneurship and Profit.)
It is thus possible to deduce all the basic concepts of action from the axiom of action. First, the categories of thought/logic are the building blocks of physical reality: Space, quantity, quality, causality and time. Second, the categories of action transform reality: Scarcity creates goals, causality allows means, interference requires choices, sequence forces to wait and uncertainty makes income risky. From these action categories can then be deduced all the laws of action with the help of two realistic subsidiary postulates. This chain of axiomatic deduction is realistic since the thought and action categories and thus apriorism and praxeology are two sides of the same realistic coin. Both try to remove uneasiness and ultimately to survive in this universe.
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