This is an attempt to map some of the more basic premises of Mises’ Action Axioms. It is my hope to expand these and link to more comprehensive analysis and discussion of each.
- Starting point and true by definition
- To dispute it would require an action
Based on the given that humans act, Mises defined further axioms in his determination to clearly define economics from an individual actor’s perspective (this is not a complete list):
Corollaries to the action axiom
- All actions are based on a decision to take the action. They are therefore purposeful.
- Only individuals actors make decisions.
- An action is only taken if the intended outcome is of greater perceived value than the current condition.
- Choosing not to act is an act as it was determined by a decision. (I would change this to: One cannot choose not to act, only to continue on the current course of action)
- Value is the subjective relative difference in importance between things or actions.
- The cost of an action is the subjective difference in value between the action taken and the next most important one.
Scarcity – limited time, space and resources
- An action can only be taken at one place at any given time.
- No two actors can occupy the same space at the same time.
- An actor can only choose one action from all possible actions at any given point in time.
- There are only a limited number actions that can be performed over a lifetime.
Risk, risk-aversion and knowledge
- Since a decision precedes taking an action and is based on a purposeful intention, there can be no guarantee that the desired outcome will be attained. There are various levels of risk whose value may be anticipated but cannot be known for certain.
- Subjective risk factors for the same action are ranked differently by different actors and will be reflected in their respective decisions.
- New knowledge pertaining to a decision will be incorporated into the decision-making process and may alter the action taken or reduce anticipated risk.
Law of marginal utility
- The value to an actor of each additional unit of an interchangeable items decreases. If I only have $1 to live on, every penny is valuable but if I have a million dollars each additional dollar is much less valuable to me. This is something with which nature would want to imbue all living things in order to keep them from forever pursuing the first thing they determined to be important and never being able to get to the second. It happens naturally with the decision-making cycle.
Interaction between two or more actors
- An exchange can only occur when each party decides that the action is of highest personal value at the moment. If I buy your shoes for $5, your shoes are perceived to be more valuable to me than the $5, and the $5 is considered more valuable to you than the shoes you are giving up. Or, if you decide to talk to me and I respond back than we have both valued conversing with each higher than walking away. In any other combination it won’t happen.
- Time preference: All other things being equal, an actor that values something positively will assign a higher value to having it now than in the future. If I feel I need a car now but do not have the money and you have money that you don’t need to spend then I will be willing to pay interest on the money but only as much as the value I assign to having it now. You will only lend it to me for the value you believe it is worth taking the risk and waiting.
- Since some value the same thing subjectively more than others they are willing to give up more to attain it. Inversely if they value what they are giving up less than others they will be willing to give up more of it in exchange. If I will only value your shoes for $5 and someone else offers you $10, all things being equal you will sell them for $10 even if you were willing to sell them for $5. The person who gave you the $10 will either value the shoes much more than you or value the $10 less than you.
We now have a direct line from decision to value to action to the law of supply and demand. For example, if more people value a scarce product, then the owner of it can maximize his return by exchanging it only with those who are willing to give up what the owner values the most for it. It applies in both economic as well as social interactions.