Notable Characteristics Of Praxeology Are Time And Causality And Human Action.

First we need to understand praxeology. It is the study of human action logic. It is action logic that takes into account time and causality. It is logic action in the passage of time. The notable characteristics of praxeology are time and causality and human action.

What emerges from this reflection is the consideration of the difference between a priori and a posteriori reasoning. A priori is from cause to effect, is based on something known – such as natural law – and it is valid independently of observation. A posteriori is based upon actual observation or upon experimental data, starting there and working back to their causes. Speaking about the power of science and the power of appropriate methodology, Mises says: “What makes natural science possible is the power to experiment, what makes social science possible is the power to grasp or to comprehend the meaning of human action.” [Ludwig von Mises, Money, Method and the Market Process (Kluwer Academic Publishers, 1990), Ch. 1, Section III.]

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Microeconomics Definition Emphasizing Entrepreneurship.

One definition of microeconomics that then emerges is as follows: it is a study of how individuals discover and react to information in the market as part of their division of labor to produce and to earn income, so as to meet their personal desires for goods and services.

Each experience in the series of knowledge gaining experiences is more competitive than the preceding period. In other words, we are constantly searching for ways to make things better for ourselves. And since competition and entrepreneurship are analytically inseparable these experiences act to stimulate our entrepreneurship. That is very good news indeed since releasing our potential, by changing our entrepreneurship from latent to active, leads to prosperity.

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Praxeology And The Seamless Economy!

What does it mean that the divine economy is seamless? Replying succinctly – the equilibrating power is always in operation throughout the economy, at both the micro and macro level.

Another way to answer the question is to recognize that there are no internal disciplines, no fields or subfields. There is no abstract separation from historical events or from politics; they are all happening within the economy. Nor is there a time zone where you enter the long run ‘time zone’ and leave the short run ‘time zone.” It is an all-inclusive continuum.

Since the economy is one whole, there are no non-integrated portions exclusively studied by ‘experts’ that require special tools or devices. Praxeology, a general theory of human action, is the universal tool that can be applied by novice or master to understand the economy.

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Interventionism Collectivizes The Human Spirit.

Economic intervention begins at the macro level and it trickles its way to the micro level and is very disruptive at both the macro and micro level. Interventionism starts at the macro level by interfering with the processes that bring order, or by obstructing the transformation processes. Not only that but laws are converted into legal codes for easy manipulation, and the attempt is to collectivize the human spirit when the economy is subjected to interventionism. These are all corruptions.

Artificially dissecting the economy into macro and micro is what makes interventionism possible. It follows the strategic plan of attack by the ego-driven enemy: divide and conquer! But macro and micro are one whole, inseparable. Separating them is a corruption.

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Entrepreneurs Facilitate All Of The Cooperation That Needs To Happen.

Capital is like a bridge spanning the time horizon and the structure of that capital bridge is heterogeneous. It is heterogeneous in the sense that capital in the form of capital goods stretches all the way from savings through production, and continuing through distribution to the end points – which are the final goods and services. It is the profit-seeking entrepreneur who finds the ways and means to facilitate all of the cooperation that needs to happen in the economy for production to be successful across the time horizon.

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Prices Are Stepping Stones Through The Unknown Complexities Of Demand And Supply.

The market process is a series of systematic changes in the interconnected network of market decisions. It is where prices act as the signals and are used to put things together. It is this market process that serves to overcome imperfect knowledge and uncertainty. Prices emerging from the market are stepping stones through the unknown complexities of demand and supply.

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What Do I Need To Know About Economics And The Market?

What are the market foundations? To state it in broad terms: one, the desires of the populace are infinite; two, production is ultimately for consumption; three, production takes time; four, an increase in goods leads to an increase in the standard of living; and five, an increase in capital goods leads to a future increase in the standard of living. And finally, making exchanges – as in trading – is made possible by and leads to specialization and the division of labor. 

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Commercial Aspect to Virtues - Mercy.

The world is a testing ground for our souls. Tests and difficulties exist and have to be dealt with.

How can we truly show that we care without a capacity for mercy? Those who feel blessed in plenteousness often show their feelings of mercy by contributing to or participating in some kind of charity. Charities channel peoples’ mercy to those who need it.

Mercy is one of the keys to prosperity. It is through the act of being merciful that one begins and continues to recognize the reasons to be thankful, and the act of being merciful also makes one feel prosperous. It is through mercy that those who are suffering are given their much needed sustenance which, too, is a prosperous feeling indeed.

Here we have the feeling of prosperity as an example of the ‘tangible goods and services’ emerging from mercy. By acquiring and practicing mercy the extremes of wealth and poverty will lessen and a greater sense of prosperity will be felt by all. Those who show mercy will be recognized for this noble and valuable trait. A price, a ‘premium'  in some form, can be ascribed to the practice ‘mercy.’ In other words, there is a commercial aspect to the virtue. It is a traceable market phenomenon.

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Commercial Aspect to Virtues - Assertiveness.

Nobody can read your mind. If you take it upon yourself to make sure that others know what is important to you then you can claim to be assertive.

The market is a dynamic process and it requires some assertive behavior to function properly. The alert entrepreneurs are actually assertive about the discrepancies that they find and they are assertive in applying their subsequent action.

It is this dispersal of knowledge that results from the actions taken by the entrepreneurs that keeps the whole system working and keeps knowledge flowing. Assertive and active entrepreneurs are, therefore, major contributors to the elimination of ignorance.

Here we have entrepreneurship as an example of the service emerging from assertiveness. By acquiring and practicing assertiveness the speed and accuracy of the flow of knowledge will improve, leading to the discovery of more opportunities. A ‘premium,’a price, is ascribed to the practice of the virtue, in this case ‘assertiveness.’ In other words, there is a commercial aspect to the virtue. It is a ‘traceable’ market phenomenon.

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Commercial Aspect to Virtues - Patience.

There is no way that everything can be understood instantaneously. Processing and understanding takes time. Those who are patient are known for their wisdom - a wisdom that comes from the practice of patience.

The same is true for production. It takes time. The goods and services that people want need to be generated. Those who can envision and nurture the production process patiently over time render a great service.

Everyone can participate in this patience-requiring production process by exercising patience themselves – exhibited in their lives by saving. This saving and investment then converts into the much needed capital used in production processes, which can be seen as the economic equivalent to patience since capital represents goods for the future.

Here we have capital as one example of the 'tangible goods and services' emerging from patience. By acquiring and practicing patience, errors from short-sighted decisions will decrease and the savings necessary for economic growth will more likely be available. A ‘premium,’a price, is ascribed to the practice of the virtue, in this case ‘patience.’ In other words, there is a commercial aspect to the virtue. It is a ‘traceable’ market phenomenon.

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Commercial Aspect to Virtues - Excellence.

As an expression of my will to live and love life, I show a particular keenness towards the things that I enjoy. It follows, then, that I will continue to strive for excellence in that pursuit, whatever it is.
 

Matching the right task with the right person to perform the task is one key to productivity and entrepreneurs are alert to this prospect. If those who are producing a good or service excel at it then everyone in the entire economy benefits, ultimately.

Imagine yourself having to choose between various products of similar prices but you happen to know that one company has a reputation for excellent production standards. This attribute is known as product quality and it is a major factor in decision-making. Of course you, as well as everyone else, will choose the best product.

Here we have product quality as one example of the 'tangible goods and services' emerging from excellence. By acquiring and practicing excellence there will be a more refined division of labor which will translate into greater productivity. A ‘premium,’a price, is ascribed to the practice of the virtue, in this case ‘excellence.’ In other words, there is a commercial aspect to the virtue. It is a ‘traceable’ market phenomenon.

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Commercial Aspect to Virtues - Courtesy.

No one is offended by being treated with courtesy. It inspires greater respect for oneself and, most definitely, greater respect for the courteous person.

Since the market is the embodiment of social cooperation, courtesies become the norm. If it is courteous to be on time that becomes the standard, ‘out of courtesy.’ And each time these courteous practices are applied the social relationships advance to new levels of mutual respect. As a consequence cooperation and coordination improves.

Here we have market cooperation and coordination as examples of the 'tangible goods and services' emerging from courtesy. By acquiring and practicing courtesy work relationships will change and there will be a tremendous increase in productivity since cooperation and coordination will increase. A ‘premium,’ a price, is ascribed to the practice of the virtue, in this case ‘courtesy.’ In other words, there is a commercial aspect to the virtue. It is a ‘traceable’ market phenomenon.

 

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Commercial Aspect to Virtues - Flexibility.

Each of us knows that having flexibility as a part of the order of things makes life much more enjoyable. Flexible order in our lives makes it easier for us to adjust to changes – the inevitable changes that occur in our lives.

Employers who provide an environment that incorporates flexibility will tend to have a ‘happier’ workforce that most likely will translate into a more productive and a more stable workforce. Also, customers appreciate having flexible and various options available to them if a product doesn’t exactly meet their needs.

Flexibility incorporated into the production process - providing more options to employees and customers - leads to higher productivity and customer satisfaction, both of which are good for business. A ‘premium,’ a price, is ascribed to the practice of virtue, in this case ‘flexibility.’ In other words, there is a commercial aspect to the virtue. It is a ‘traceable’ market phenomenon.

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Rational Self-Interest Leads To The Well-Being Of All.

Because human beings know things that are physical and know things that are spiritual both are seen as realities. Interestingly, as the lower aspirations – which tend to be physical needs – are fulfilled higher aspirations are sought. The higher aspirations like love, loyalty, and friendship are not physical things; nevertheless they are the realities, the realities of human beings who are in a state of higher aspirations.

Methodological dualism defines the seemingly insurmountable bridge between “the external world of physical, chemical and physiological phenomena and the internal world of thought, feeling, valuation and purposeful action.” [Mises in Human Action, Fourth Revised Edition (San Francisco: Fox & Wilkes, 1996), p. 18] The cusp of social sciences is always near this enigma. The exploration of the human mind is the task at hand and it will be a task of primary importance for the foreseeable future.

Consider one evident manifestation of dualism: the act of rational self-interest that ultimately leads to the well-being of all. This is the very essence of the divine economy! As you can see the divine economy must be profound indeed!

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Profit Motive - Agent Of Continuous Economic Progress.

In the unhampered free market we have individuals, demand and supply, prices, production, and profit and loss all working beautifully to allocate limited resources to meet the unlimited wants as best as possible. Ultimately then, it is the profit motive of the profit seeker that acts upon the market process, stimulating production to increasingly meet the needs of the consumer. Therefore it can be said that the profit motive serves as an agent of continuous economic progress.

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The Fantasies Of Empirical Economists Are Destructive.

Those who are removed from the market and who are out of touch with how production needs to change to meet the demand cannot contribute anything. These are the empirical economists! They assume away the essential characteristics of how demand really operates in the market – that it is intimately tied to subjective valuation. That erroneous fantasy is the starting point of their arbitrary and destructive economic intervention.

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Why Tolerate The Destruction of Profit - The Prime Generator Of Income?

Since profit is the prime generator of other incomes the destructiveness of monetary economic intervention on interest rates and on both entrepreneurial profit and the purchasing power component of profit have repercussions and reverberations throughout the economy.

Other types of economic intervention (e.g. regulations) also constrain prices or production causing either shortages or surpluses that cannot be remedied by the natural market processes because of the coercive characteristics of the intervention. This is what happens in the unnatural condition of a hampered economy because it is being subjected to this type of political corruption of the economy.

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Know The Three Profit Components.

Profit has three components. The pure interest component is shared alike by production for profit and by other investments earning interest. What is expected for sacrificing present consumption for future consumption is the pure interest component. It is an expression of the natural time preference. No action would be taken if this pure interest component is not present.

The second component is entrepreneurial profit which comes about because the future is unknown. Ex ante estimates for production and price are guesses with a certain amount of entrepreneurial profit potential. Astute entrepreneurial perception may lead to a lessening of the risks taken despite the uncertainty faced. Alertness then to the market reaction – ex post – is mostly where the entrepreneurial profit component is captured. For instance if excess demand is discovered early in the selling period a raising of the price would lead to increased profits making the entrepreneurial component of the profits larger. Of course also, a lack of entrepreneurial perception could lead to losses.

The third profit component is the purchasing power spread. This element is mostly seen nowadays as a phenomenon of monetary intervention which causes the purchasing power of the currency to decrease due to inflating the money supply. A profit margin has to be built into the ex ante price because it takes time before the product reaches the market. Ex post the purchasing power will have declined when there is inflation making real profits significantly less than nominal profits.

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Production Is Always A Prime Candidate For Investment.

Why take the risk? The margin between the selling price and the per unit cost of a product, the price spread, is enticing as long as it is equal to or greater than other opportunities, such as earnings from investing in financial assets instead of production. Since production is the most basic of all endeavors it is always a prime candidate for investment. Potentially, profits emerge from production.

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Investors Prefer Profitable Firms.

Market demand is out there. The profitable firms hold onto consumers’ demand by the means of product differentiation, and they innovate, lowering costs and prices. All of this catches the attention of investors. Since investors prefer profitable firms more capital is made available to them. Alert firms that command sufficient capital funds will be the ones that fill the market demand gaps.

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Profit Seeking Advances The Tendency Towards Homogeneity!

Profit seeking has a revelatory effect in the economy. Seeking profit opportunities by examining them relative to each other, reveals what people want. This continually directs resources towards the production of those particular goods and services. The reason differential profits are possible in the real world is because not all firms are equally innovative or even able to mimic the innovation of others. In the real world innovation is an advantage, yielding differential profits because there is a lag time before others can catch up. The talents and creativity within firms is not equal and so part of the competitors’ strategy to catch up with the innovator is to lure away key personnel, along with intensifying both market research and product research and development.

As a consequence, profit seeking advances the tendency towards homogeneity, ironically offsetting the tendency for product differentiation. Necessarily, the tendency is for the rate of profit among close competitors to become equalized. Economy-wide profit-seeking leads to the tendency for profits in all of the different fields of endeavor to equalize in the market.

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Profit Seekers Create The Possibility Of Greater Cooperation.

In the real world it is the producer who most often takes on the role of perceiving and making changes, motivated by profit opportunities. Many of the opportunities for more efficient use of resources simply go unnoticed by non-producers because only those who are involved in the production process actually encounter them or understand them. Often these opportunities are the result of imperfect coordination between transactions in the resource markets and in the product markets. By involvement in the market process profit seekers create the possibility of greater cooperation between otherwise disconnected segments of the economy.

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The Profit Seeker Is A Risk Taker.

Profit seeking is just that – seeking. There is no guarantee. The profit seeker is a risk taker that uses market prices to determine what to produce or what can be produced more efficiently. The risks taken to initiate new production or improved production will yield various outcomes such as: lower price, better quality, and/or product differentiation.

The enticing wonder of the discovery of a profit opportunity, which keeps the entrepreneur coming back and entering into the market process, is the discovery of something obtainable for nothing at all. It is the same as the quest of the explorer and the artist and the scientist and the philosopher – to discover something never known before. The profit seeking motive is this same motivation, this same human phenomenon. Therefore as you can see, the profit seeking motive is part of the human operating system, something to be appreciated – not to be condemned as an evil.

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Actions of Profit Seekers Benefit Everyone.

We humans, endowed with the propensity for alertness and classified as Homo agens, act upon the information about what is valuable. Some are passive, only finding ways to increase their own happiness. Others are out there as profit seekers, and their actions benefit everyone.

These profit seekers try to identify the relevant ends-means framework and how to make it more efficient. Through their efforts to discover price differentials throughout the economy and along the time horizon they bring to the surface market knowledge. Their actions benefit themselves but also everyone else.

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Profit Maximization Is A Fleeting Thing!

It is inaccurate to describe human beings as merely profit maximizing economizers! First of all, decisions made by humans are not simply monetary. There is a psychic cost, the lost ‘utility’ of the next best alternative that one has to forgo, to every action taken. And there is a psychic revenue that results from the increase in happiness that comes from the action chosen.

In this sense profit is purely subjective and cannot be measured. Even if we were speaking about both monetary and non-monetary profit, profit maximization is a fleeting thing since the real world is always in a state of disequilibrium, never really reaching equilibrium.

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There Is Nothing Evil About Profit.

In the real world of uncertainty and imperfect knowledge there are no guarantees. The market process ultimately determines the selling price and the market price determines all costs. (Remember the backward reaching effect of derived demand? If not, contact me and I will explain.)

In the end the result may be a profit or it may be a loss. And since production can continue only if it yields positive results (i.e. yielding a profit) there are limits to production. Unequivocally, it must be clearly stated that there is nothing evil about profit. It is what motivates production despite the uncertainty!

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Consumers Are Often Passive Entrepreneurs.

There is a seamless nature to production. Everyone along the way contributes, everyone along the way is a ‘middleman.’ The process of production includes every step, all the way up until the good is consumed, including making the consumer aware of the availability of the product and the desirability of the product. Everywhere along the production line someone playing this particular role of a middleman will perform this service. All of these ‘selling costs’ are all a part of the process.

Since consumers are often passive entrepreneurs it is the producer who must complete the production process by taking active steps to get the potential customers to know about these purchase opportunities. Producers reduce the uncertainty of the total supply on the market by product differentiation but this then suggests that the producer needs to educate the consumers about the product.

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Use-Value Production.

There are three types of production for use-value. The first one is production for a more useful form. The second is production for the place more preferred or more valued. And finally there is production that is made available at a more desirable time. Capital and especially the combination of capital and storage make time production feasible. Producers’ goods are examples of time use-value.

Due to the equilibrating power of arbitrage the economy operates and is characterized by the tendency towards the principle of uniformity-of-profit. This is what keeps in proper balance the production of all types, and of all of the different items that are directly or indirectly necessary for our survival.

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Halting Of The Competitive Process In Disequilibrium.

If in any one period the competitive process comes to a halt it does not mean a failure of the process. Disequilibrium – the real world condition – is characterized by widespread ignorance, meaning that despite all the alertness that market participants have they still are unaware of all of the opportunities that exist. In this sense the competitive process is in a ‘potential’ state but as soon as the opportunities are perceived they will be pursued in a most competitive way.

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