In Human Action, Mises states a principle that a number of students of Austrian economics dislike. In the years I have taught Human Action at the Rothbard Graduate Seminar, the same objection to Mises’s principle often comes up. It is a valuable objection to discuss in a column about philosophy, because it rests on a ...
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In Human Action, Mises states a principle that a number of students of Austrian economics dislike. In the years I have taught Human Action at the Rothbard Graduate Seminar, the same objection to Mises’s principle often comes up. It is a valuable objection to discuss in a column about philosophy, because it rests on a logical fallacy.
What is the principle that rouses so much opposition? Mises first contrasts a possible world with our own world:
In a world in which labor is economized only on account of its being available in a quantity insufficient to attain all ends for which it can be used as a means, the supply of labor available would be equal to the whole quantity of labor which all men together are able to expend. In such a world everybody would be eager to work until he had completely exhausted his momentary capacity to work. The time which is not required for recreation and restoration of the capacity to work, used up by previous working, would be entirely devoted to work. Every nonutilization of the full capacity to work would be deemed a loss. Through the performance of more work one would have increased one's well-being. That a part of the available potential remained unused would be appraised as a forfeiture of well-being. The very idea of laziness would be unknown. Nobody would think: I could possibly do this or that; but it is not worthwhile; it does not pay; I prefer my leisure.
Mises then describes our own situation:
In our actual world things are different. The expenditure of labor is deemed painful. Not to work is considered a state of affairs more satisfactory than working. Leisure is, other things being equal, preferred to travail. People work only when they value the return of labor higher than the decrease in satisfaction brought about by the curtailment of leisure. To work involves disutility.
Psychology and physiology may try to explain this fact. There is no need for praxeology to investigate whether or not they can succeed in such endeavors. For praxeology it is a datum that men are eager to enjoy leisure and therefore look upon their own capacity to bring about effects with feelings different from those with which they look upon the capacity of material factors of production. Man in considering an expenditure of his own labor investigates not only whether there is no more desirable end for the employment of the quantity of labor in question, but no less whether it would not be more desirable to abstain from any further expenditure of labor.
Because we are interested in praxeology in analyzing the world we live in, Mises proposes to add to praxeology the principle of the disutility of labor. This would supplement the concept of action with an auxiliary empirical assumption. Once this assumption is introduced, reasoning proceeds a priori using it as a premise, just as does reasoning from the concept of action. But conclusions that depend on it as a premise won’t be a priori true, because they employ an empirical premise.
Now we are ready for the objection. The objectors—let’s call them the Austrian remonstrants—point out that labor has diminishing marginal utility. Since, by definition, leisure foregone is the opportunity cost of labor, the diminishing marginal utility of labor is equivalent to the increasing utility of leisure. It is then a priori true that leisure is a good, i.e., that labor has disutility, because this has been directly deduced from the law of diminishing marginal utility, which is a priori true. It is thus unnecessary to add the disutility of labor as an auxiliary empirical assumption.
The Austrian remonstrants, I suspect, are thinking of this sort of case. Someone values both apples and oranges and he has a choice of consuming units of each one. Here the opportunity cost of consuming an apple is consuming an orange, and vice versa. As the person continues to consume apples, the utility of doing so will diminish, and this is equivalent to an increase in the utility of consuming oranges, and vice versa.
The problem with this argument is that it assumes as a premise what it claims to prove. To say that leisure foregone is the opportunity cost of labor is to take as given that leisure is a good, exactly what is at issue in their dispute with Mises. The purported demonstration from the law of diminishing marginal utility fails, because all the law shows in this case is that the application of additional units of labor will have diminishing utility. But, for all the Austrian remonstrants have shown to the contrary, the process of adding additional units of labor could continue as long as it was physically possible for the laborer to do so.
The case of labor versus leisure as goods is not likes the example of apples and oranges. In that case, we are given that the person values both apples and oranges, and this cannot be applied to the case of labor and leisure without begging the question. The labor-leisure case is instead like this case: Someone has a choice between apples and rotten oranges. He has no use for rotten oranges, so although he applies each additional unit of apples to uses he values less on his utility scale, it isn’t the case that the opportunity cost of rotten oranges rises.
There is a passage in Human Action where a careless reading suggests that Mises has himself joined the remonstrants, but in fact he has not done so. Mises says:
The fundamental praxeological insight that men prefer what satisfies them more to what satisfies them less and that they value things on the basis of their utility does not need to be corrected or complemented by an additional statement concerning the disutility of labor. These propositions already imply the statement that labor is preferred to leisure only in so far as the yield of labor is more urgently desired than the enjoyment of leisure.
In the last sentence of this passage, Mises isn’t conceding that leisure is the opportunity cost of labor. In saying that “labor is preferred to leisure only in so far as the yield of labor is more urgently desired than the enjoyment of leisure,” he does not assume that leisure is enjoyed, to some extent or other. The statement remains true if the enjoyment of leisure is nonexistent. The fact that leisure is enjoyed is an empirical assumption, and Mises thinks it is necessary to add it. As usual, he is right.