In the interest of greater knowledge, I spent some time in my “youth” – my time after high school – trying to crunch down economics in my head. I wanted to understand, on a more fundamental level, how the world really works. The result is a great deal of knowledge and a great deal of cynicism.

Today, I was inspired by a piece of unimportant stimulus to take another look at the “Austrian School” of economics, championed by Ludwig von Mises, author of Human Action. Years later, I can identify with great speed and vigor my main beef with his whole reasoning process. Mind you, I have concluded that people follow Mises mainly for his conclusions – that government sucks and shouldn’t intervene in the marketplace – rather than his logic.

In fact, logic is precisely where his theory breaks down: his whole thing about praexology is predicated on the notion that man is a fundamentally rational being who makes fundamentally logical decisions as to how to satisfy his wants and needs.

Look, let me be really blunt here.

Human beings do a lot of really stupid things.

Mises dismissed the notion of humans acting without logic because that would make us, let’s see… animals that merely react to stimuli out of instinct. Let me elucidate further:

Many human actions fall in the vast gray area between the perfectly logical and the perfectly illogical.

You’d think this is so obvious that it doesn’t have to be said, but it’s not.

Now, like I wrote above, I understand the motive of this: it’s laying out a framework whereby the collective wisdom of the market is far greater than any government bureaucrat, lacking complete information (since no individual can possess complete information) on how the market operates, and why, at any particular moment, thereby making the entire notion of state intervention seem like literal insanity. However, there really is no collective wisdom of the market, any more than there is collective wisdom in anything else.

Distilling a large number of opinions gets you the lowest common denominator of all these opinions, reducing everything to what all can agree on. The only wisdom that comes from a crowd is “conventional wisdom,” which is often not very wise. While I believe it is very important in strategy to know what the conventional wisdom is, this is mostly for the purposes of defying it; as Sun Tzu would say, seeing the sun and the moon is no proof of sharp vision. The examples of an unregulated market being filled with conventional wisdom that proved wildly mistaken are quite numerous, making the information that the logical, “acting man” is supposedly relying on, rather poor in quality.

Consequently, I do not think that markets are “smarter” than government. Instead, the real issue is that government is more stubborn. When markets make mistakes, they correct themselves; often, an “over-correction” takes place, but in the great scheme of things, markets do right themselves and allocate money to things that add to the productive capacity of society instead of things that do not. The mistakes of the market may be great, but they are finite; the mistakes of government can be great, but the damage of these latter mistakes can linger for a long period of time, deepening the resulting economic wound.

At any rate, any assessment of human behavior that views man as either wholly rational or wholly irrational is bound to fail. Sun Tzu would never have won a single battle if he relied on his opponents behaving in a perfectly logical manner; rather, he banked on the understandable and deeply ingrained tendency of the human eye to see what it wants to see, and to fixate on the obvious rather than on the hidden.

That’s why the book is “The Art of War” and not “The Science of War.” The planet is not populated by Spocks; there’s a lot of Kirk-like human emotion and irrationality to account for.

Advertisements