A Short Course in Economics

1. Ends and Means

The distinctive and crucial feature in the study of man is the concept of action. Human action is defined as purposeful behaviour.  All conscious humans are constantly acting.  The purpose of a man's act is his end or goal; the desire to achieve this end is the man's motive for instituting the action.  He will use scarce means to achieve ends.

The Axiom of Human Action is that human beings have ends that they act to attain.

Even when a man is not physically doing anything, he is choosing to do nothing to satisfy a certain end, and is therefore acting.

It is from this axiom that the entire body of Austrian economics is deduced.  That is to say, it is a category (the best-developed subdivision) of praxeology.

Consider the relationship between praxeology and other disciplines:

• Psychology - why men choose various ends.
• Philosophy of Ethics - what men's ends should be.
• Technology - how to use means to arrive at ends.
• History - what men's ends are and have been, and how men have used means to attain them.
• Praxeology - the formal implications of the fact that men act to attain various chosen ends.

The essence of human action is the transforming of elements of the actor’s environment into a new, more satisfactory arrangement.

With reference to any given act, the environment may be divided into two parts

• The means: elements of the environment which men can alter, or think they can alter
• The general conditions: elements which cannot be altered.

Human action therefore requires the employment of means to achieve ends.  Our brains are constantly making means-ends calculations.

Means are by definition scarce, since if a given means was abundant, it would not be considered by the brain when making calculations about ends and means.  In daily life, air is abundant – available anywhere with no effort – but water is scarce because some effort needs to be made to attain it.  Air does enter our daily means-ends calculations, but water does.  Air is therefore part of the general conditions, whereas water is a means, to be economized.

Means are referred to as goods, and they can be divided into two distinct types:

• Consumers’ goods – immediately and directly serviceable goods for the satisfaction of ends.
• Producers’ goods – goods which can be transformed into consumer goods at some time in the future.

For example, to satisfy the end of eating a ham sandwich, the ham sandwich at the point it is about to be eaten is the consumers good.  Action is required to transform elements of the environment to produce the ham sandwich at the desired place.  Labor is required to transform the ham and bread in the kitchen into a ham sandwich in the hands of the consumer.  This requires various producers’ goods: ham-in-the-kitchen, bread-in-the-kitchen, a knife to slice the ham, labor energy to make the sandwich and deliver it, and also time and land-as-standing-room.  These goods, which are transformed directly into the consumers’ good by the action, are called 1^st-order producers’ goods. 

Many of these 1^st-order producers’ goods are themselves produced beforehand, with the help of other producers’ goods.  These producers’ goods are in turn called higher-order producers’ goods.  In this case, the bread has arrived in the fridge through being bought and carried home.  Thus, bread-in-retail shop, along with labor, land and time, are second-order producers’ goods.

Thus, any process (or structure) of production may be analyzed as occurring in different stages.  In the earlier (or higher) stages, producers’ goods must be produced that will later co-operate in producing other producers’ goods that will finally co-operate in producing the desired consumers’ good.  In a developed economy, the structure of production can be very complex and involve many stages of production.  Each stage of production requires time.  Each stage also requires more than one factor of production.

Factors of production (other than time) can be divided into two classes:

• Produced factors – goods which have themselves been produced previously.  These are termed capital goods.
• Original factors – which are found already available in nature.  These can be divided into two classes:
  • Labor - human energy needed to carry out the action.
  • Land or Nature – the use of nonhuman elements provided by nature.

The original factors – labor and nature – are required at the every stage of production.  Capital goods are not required.  For any capital good, if we were to trace each stage of production back, we would eventually find the first stage, where only labor and nature are used as factors of production.

Also required for human action are:

• Ideas / Knowledge – human creativity thinking up goals, or ends, given the available means, and an understanding of how to use the available means to achieve the chosen ends (“recipes”).

The fact that humans are constantly acting implies that all humans are constantly dissatisfied with the current arrangement of their environment.  They come up with ends to transform their environment to make their circumstances more to their satisfaction.

Since time is scarce, and men have various ends, they must choose between them.  That is, they must choose to act towards achieving some ends and foregoing others.  This implies that at any given moment, every human being has a dynamic rank of preference – or scale of values.  The ends that a man values the highest on his ordinal scale (given his calculations regarding the means required to achieve them) are those he will act to achieve.

Men may, and often do, later find that an action was not worth doing.  Usually, we learn from experiences like this how to choose better ends, or how to use means more effectively to achieve our goals.  For example, if you went to see a movie which turned out be dull; now you wish you’d stayed at home and watched TV.  But at the time the choice was made, going out to watch that movie must have been at the top of the value scale.

An important implication of the Axiom of Human Action for the fields of ethics and politics is that human action can only be undertaken by individual "actors". Only individuals have ends and can act to attain them. There are no such things as ends of or actions by "groups", "collectives" or "States" which do not take place as actions by various specific individuals.

A fundamental and constant truth about human action is that man prefers his ends to be achieved in the shortest possible time.  The sooner any specific end is attained, the better.  Thus with any given end, the shorter the period of production, the better.  The duration of serviceableness of the consumers’ good also is an important consideration when choosing actions.

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