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Maybury

The Road to Wisdom and Profits

Praxeology

By Richard J. Maybury

"To learn more about praxeology, and its insights about liberty and free markets, Google it, and read anything related to it by Mises, Hayek or Murray Rothbard, or published by the Mises Institute.  Most important is Mises’ 1949 masterpiece Human Action."
Richard Maybury


From the May 2008 EWR

Investment analysis is not the study of charts, graphs and equations, it’s the study of people.  The economy is not a machine, it’s an ecology; it’s not physics, it’s biology.

Investments are not things, they are forms of human action.  To study changes in interest rates, stocks, bonds, gold, oil and so on is to study the decisions of individuals, millions of them.

Even something as simple as my bank CD is, at bottom, nothing more than a promise by certain individuals that they will fulfill their contractual obligations and give me back my money at the stated time.

Will they?  How do I know?

I don’t.  We are talking about human behavior, and it’s a mighty fuzzy subject.  There are no guarantees.  Humans change their minds.

Why EWR is different

If you’ve played much chess, you know why game aficionados say there are two types of games:  chess, and everything else.

The comment we hear most often about EWR is that no one else does what we do; there’s EWR, and everything else.

In my opinion, the reason is our approach to the social sciences.  We think Mises was right about praxeology. 

The word is from the Latin praxis, meaning action or practice.  According to my Merriam-Webster dictionary, praxeology is the “study of human action.”

Ludwig von Mises (Mee-zis, 1881-1973) was the leading light of the “Austrian” philosophy of economics  — “Austrian” because most of the early leaders were from Austria.  His protégé, Friedrich Hayek, won the 1974 Nobel Prize in economics.

For our purposes here, the most important point about praxeology is that it sees a human and his or her behavior as a unified, organic whole, not a collection of parts.

This flies in the face of all other social sciences.  In mainstream thinking, human behavior is divided into all sorts of categories, such as economics, sociology, psychology, history, ethics, art, cultural anthropology, law, military affairs, politics, and religion.  These are further divided into sub-categories such as labor economics, sociology of work and leisure, and history of western civilization.

I call this the slice-and-dice model of human behavior.  Millions of experts specialize in each category and sub-category.  This is due to the custom in colleges, of dividing the world into subjects, which are taught by departments — the economics department, history department, etc.

There is no evidence that the human mind is divided into these departments, but the colleges are, so we are all raised to see human behavior as a thing divided into these categories. 

In the physical sciences, divisions make sense.  But humans are more than collections of molecules.  No two humans are identical, nor is any human the same from one moment to the next. 

What part of a person’s behavior is economic, and what part is historic, sociological, or legal?

Praxeology assumes there is no economics, sociology, etc., there is just human behavior, period. 

To look only at one part of human behavior is like training a medical doctor by teaching about the heart, and never looking at the lungs or kidneys. 

Like the body, the mind is an organic whole, with all parts connected and interdependent.  We are not economic creatures one minute, historic the next, then military, then legal.  We are just people, all the time.

The parts of the elephant

My wife and I met when she was 17 and I was 18.  We’ve been married 40 years, and often joke at how we have become a single personality, wired together through the ether. 

We often feel we can read each other’s minds, and we think so much alike that it’s impossible to know where her opinions end and mine begin.  Every day we go to lunch at nearby restaurants, and have long, fascinating conversations about every imaginable topic.  (The fruits of these conversations are no small part of this newsletter’s content. As John Deere says, "everything we’ve learned goes into everything we do".)

One reason for this closeness is that right at the beginning of our marriage, we were ridiculously young and naïve about geopolitics.  No one had ever gone to the trouble of teaching us anything about the true results of the government’s foreign policies.

We were middle class sun-and-fun California beach babies, Frankie Avalon and Annette Funicello, who strolled hand in hand into two shooting revolutions in Central America, plus other life-and-death close calls.

We grew up fast.  Ever since, the primary rule of our marriage has been, any day we are together is a success, regardless of what else happens.

My point is, if my wife and I are so close that it’s impossible to separate her thinking from mine, then how can anyone separate my economic decisions from my sociological ones, or my financial decisions from those that are political or historic?

Yet, as far as I know, no college teaches the science of human action — praxeology.  They all use the slice-and-dice approach, with departments of economics, sociology, law, history, art, etc., granting degrees in these specialties.

The news media follow their lead, so the whole world is in the position of the blindfolded men touching parts of the elephant.  One touches the tail, and thinks it’s a snake, another the leg and thinks it’s a tree.  Only the praxeologist sees the whole animal.

That’s why, as far as I have been able to tell, the only Americans who were not caught by surprise when the World Trade Center went down were the readers of this newsletter.  For months afterwards, the great refrain was, no one saw it coming, not even the FBI or CIA. 

They were all touching different parts of the elephant.  That’s what they were taught to do in school.

Look at any analysis…

… in the mainstream press, including investment analysis, and you will find the slice-and-dice approach.  A report about human behavior is a report about finance, economics, law, history or some other subject, but never a combination of them all.  It’s always a fragmented view, never integrated, never cohesive.

I cannot study all the facets of human behavior in the same depth that the specialists do, but I can do with the facets what they don’t; I connect them.

Galileo didn’t discover the rings of Saturn by having super human eyesight, he did it by having a new tool, the telescope.  If you have the EWR Archive, you’ve probably read my articles all the way back to the fall of the Soviet Empire, and been amazed.  It’s not because I’m super human, it’s because I’m using a better tool, praxeology.

One thing that’s a great mystery to me is…

… that the slice-and-dice model is not used in the study of animal behavior.  There are no chimpanzee economists, or dog historians, or horse attorneys.  There are just behaviorists.  None of them would dream of trying to separate a wolf’s psychology from its sociology, or its politics from its economics.  But we do that routinely with the behavior of humans, then wonder why we are continually blindsided by nasty surprises.

It’s as if every social science is a stencil.  An economist sees through the openings of the economics stencil, the attorney sees through the openings in the legal stencil, and so on. 

Rarely does an economist look through a legal stencil, or an attorney look through an economic stencil, so they don’t know what they are missing.

The more stencils you have to look through, the more you see.

Prior to 9-11, I often warned…

… that in the Mideast, religion is politics.  The greater truth is that religion is politics everywhere, and always has been.  It’s also economics, art, psychology, etc. because all these are the same subject, human behavior.  They aren’t separable.

We all know human behavior is a unified, cohesive whole.  No parent ever tries to understand the child by viewing the child’s behavior according to the slice-and-dice model.  It never even occurs to us to see a child’s economic decisions as a thing separate from his or her history, ethics, religion, or sociology.

We also know from watching current events that human behavior is a unified, cohesive whole.  Anyone who thinks economics and investments are separate from politics and history must have been born yesterday.

But, how often have you seen a financial plan that began with a political analysis?

The way I got into seeing things via the praxeological view was…

… by accident

I returned to college in the early 1970s, after my stint in the Air Force.  The early ‘70s turned out to be some of the most revealing years in all of world history for studying business and economics.

Each day the class would read a chapter in the textbook or hear a lecture telling us, for instance, that the US would never depart from the gold standard, or wage and price controls were too destructive to be used in anything but a national survival emergency, or it’s impossible to have inflation and recession both at the same time. 

I’d take the tests, give the “right” answers, then a few days later read headlines saying the impossible had happened.  One day it would be something like “US Departs From Gold Standard,” another day, “Wage and Price Controls Enacted,” and then “Inflation Accompanies Recession.”

On top of that, all my professors had been trained in Keynesian economics, and were doing their best to convince us that Keynesianism was the latest and greatest “New Economics.”  But many of the students in those days were veterans, some just back from Vietnam without all their body parts.  Keynesian prescriptions required us to trust the government.  Our reaction was, are you nuts, we nearly got killed for a pack of lies, and here you are telling us the government can be trusted?!

I remember one red-faced prof backed up against the chalkboard sputtering “but, but, but….”  He kept glancing at the door, as if he wanted to run from the room to avoid being lynched.

We realized that we weren’t being taught economics at all, we were being taught politics — the politics of the professors, statism.  That’s what the profs had been taught when they were our age.

College is where I began to understand that government-controlled schools are an even greater threat to liberty than a government-controlled press.  The press is read mostly by adults, who have some real world experience.  Schools do their work on people who don’t know anything.  By age 16, most kids are good little statists, incapable of thinking outside the box.  They trust the authorities and believe political power is wonderful stuff.

I went on memorizing the Keynesian drivel, and got my degree in it, but fully realized these people didn’t know what they were talking about.  They had traded breadth for depth.

Depth is good, it brings knowledge.  Breadth brings wisdom.  You can see this throughout the writings of Hayek and Mises. 

My search for something more realistic led me to Austrian economics and praxeology.1

Perhaps the most valuable aspect of the praxeological view is that each category of study is a check on the others.  For instance, in writing articles for EWR, I often say to myself, this analysis makes sense from a financial standpoint, but does it also agree with what we know about history, economics, sociology, religion, etc.?

After I was deeply into praxeology, I decided that if it really was superior to the slice-and-dice method of studying human behavior, then it ought to be a better way to earn money.

And so far, it has been. ♦

 

1 I use an unusually broad definition of praxeology, including in it subjects such as psychology and art, that others might not.  To me, the more the merrier; if it is at all connected to human action, it belongs in praxeology.