If you’re like me, you may to an extent be a nerd when it comes to economics. Like many who have studied economics, I am the type of guy who will watch a movie like Cast Away or Mad Max and start doing an analysis of the economic systems the characters use or how they trade and survive. Occasionally I will watch a movie like Godzilla or The Avengers and when destruction happens, I am the kind of person who will call the antagonists Keynesians. So you could say I like economics.

Some people don’t typically care for economics, for various reasons. Some write it off as a “dismal science,” some don’t like it because it conflicts with their ideology or the policies they advocate, and some because it doesn’t fix their problems or don’t think it applies in their day to day life. Is this true?

You may not realize it but it actually affects most — if not all — the individual choices we make. In some cases it may appear not to be true since you may not be engaged in activities that appear “economical,” yet it is, nonetheless. To understand more, one doesn’t need to look much further than basic methodology.

Economics is a branch of praxeology, which is a science of human action that begins with a few basic a priori propositions from which the rest of economics is deduced. We start with “man acts” and deduce logically from there. At this point, we can deduce subjective value theory, ordinal preferences, time preference, indifference, opportunity cost, marginal utility, and so on. The [Austrian] definition of action — deliberate action — implies purpose, a goal, and an action being a means to that end. We deduce from this that acting man employs means (via action) to achieve ends (the aim of his action). From there we can deduce that he will only act if there exists in his mind a future more satisfactory to him than the future he believes will come about without action. Otherwise he wouldn’t act. Only by acting can he bring about that future. From there we say that given many possible ways to improve his situation, he will act to satisfy the most urgently felt uneasiness.

Many reading may wonder what this has to do with everyday basic activities, so let’s illustrate using an example we can all relate to. Most of us love Netflix. Having a collection of movies a click away, Netflix series, and so forth. With Netflix, stores like Blockbuster went the way of the dodo.

So how does economics (and praxeology) apply? Well, take a look at a basic example such as marginal utility. Marginal utility tells us individuals use their means for the most important ends first. If they have to give up a unit of their stock, they will continue to satisfy the more important ends. The satisfaction provided by the marginal unit is called marginal utility. So in the case of Netflix, it’s “cheaper” to watch shows on Netflix than on network TV because you can watch them whenever you like, so it keeps pressure on producers to crank out quality. If you’re going to spend money to make new content, you want it to get as much revenue as possible, and the more competition there is for those eyeballs, and the better that competition is, the better your own content needs to be. Whereas with cable TV, you’re generally only competing against the shows in your timeslot, with Netflix you’re competing against every show. On the other hand, time is less scarce in that you don’t have to be present at a certain time to watch it.

Let’s assume it is a lazy Sunday, nothing on your agenda, and you decide to cozy up on the couch or wherever, now you just need to decide on a show when here comes praxeology all of a sudden:

  • Subjective Value:

Subjective theory of value is a principle of value that promotes the concept that the value of a good is not based on any inherent property of the good, nor by the amount of labor required to produce the good, rather value is based on the importance an acting individual places on a good for the achievement of their desired ends — its utility. Further, subjective value is demonstrated by your choices, which show the cost/benefit analyses you make. So in the case of Netflix, you value the service you are getting more than the money you are giving up. How subjective value applies when deciding on a show is if you’re deciding between watching Unbreakable Kimmy Schmidt and Daredevil, the cost of watching one is not watching the other. In the same moments, at least. Time is the scarce good being traded. More so, someone may get a tiny, tiny, net benefit killing time by watching a show, or they may be extremely dedicated to a show and want to do anything to see it. In the former case, they wouldn’t watch the show if they had something else better with which to occupy their time.

  • Time preference:

Time preference is the assumption that, all else being equal, people prefer a given end to be achieved sooner rather than later. So, if you’d rather watch a great show next week than crappy show today, there is no conflict. Now, where an apparent problem comes in is if I would rather watch “the same” show next week rather than tonight, in order to let anticipation build. Not just that but to also not be bored next week, every bit as much as one might not want to be broke next week. Time preference applies to everything. One common thing amongst Netflix goers is “binge watching,” which is when a show is released and a multitude of episodes are watched in a row. Time preference applies, especially once the show is done, it’s done, as opposed to the anticipation cable builds, making you wait for a week for the next installment. If people want to binge watch, they will pay for it. If they don’t, they won’t. If they’re paying for binge watching, they’re paying for time preference.

  • Indifference:

A very basic way of defining indifference is an economically identical substitute good, “economically identical” being in the eye of the actor. Two means equally suitable to the attainment of the same end. Switching gears from Netflix for a moment to help understand, let’s first look at it being applied elsewhere. The Austrian position on indifference is about ends, not means. Pretend you need a shirt. Regardless of color, you find two distinguishable shirts to be equally serviceable to the satisfaction of your end which is not the case with a shirt and a pair of pants, for example, as they are different goods achieving different ends. That is, you are not indifferent between two ends. You have only one end, and for your purposes each shirt is a unit of the same good, like picking a can of tuna off the grocery store shelf when they’re all the same, except that there’s a detectable, but irrelevant-to-you, difference between the shirts. To apply this to Netflix [is], let’s say comedies are what I feel entertained by the most (my ends), so Unbreakable Kimmy Schmidt may be economically identical to The Office for my purposes. Whereas if I am not into horror, Unbreakable Kimmy Schmidt may not be economically identical to Hemlock Grove. In many cases your ends are something you figure out for yourself. Might just be to unwind, distract yourself, pass the time, relax, keep up with your friends, whatever. I choose comedies because horror series don’t serve those ends as well for me.

As you can see with some of these basic concepts, praxeology plays a role in something as simple as watching a show on Netflix. This even applies if you have not even purchased Netflix. Consider, for instance, ordinal preferences. Ordinal preferences would be, simply put,the various ends and/or means an individual can choose between. In other words, the various conditions which you can act towards; one’s preference towards an end, with the most preferred being at the top, followed in descending order by each next-most urgent outcome as they elicit your desire.

As Rothbard states in Man, Economy and State:

“All action involves the employment of scarce means to attain the most valued ends. Man has the choice of using the scarce means for various alternative ends, and the ends that he chooses are the ones he values most highly. The less urgent wants are those that remain unsatisfied. Actors can be interpreted as ranking their ends along a scale of values, or scale of preferences. These scales differ for each person, both in their content and in their orders of preference. Furthermore, they differ for the same individual at different times.”

Keep in mind, obviously, that time is scarce, thus needs to be factored in since there is only 24 hours in a day to achieve your ends. Since all your actions must take place throughout time, time is a means that you must use to arrive at these ends. Now, let’s assume you don’t have Netflix, it is a lazy Sunday, and you are reading a book and have other activities that you want to do which are:
1. Continue reading book
2. Go to the dog park
3. Go to brunch with friends

You would like to do all of these things, yet your means (time) is insufficient. Thus, you must choose; only one end can be satisfied, while others go unfulfilled. Let’s say that you decide on option 1. This is an obvious indication you have ranked the satisfaction of end number 1 higher than the satisfaction of ends 2 or 3.

Where it gets a bit more interesting is a new end might have been introduced at some point, like you purchase Netflix, so you may enjoy watching some movies and shows you did not have access to before, which may change your value scale to the following:
1. Watch Netflix
2. Go to dog park
3. Go to brunch with friends
4. Continue reading book.

The obtainment of Netflix outranks the other choices, in this case you would choose to stay home and watch it. The choice of where they are ranked and which ends to include your value scale establishes the course of value judgment. Each time you rank and choose between numerous ends, you are making a judgment of their value to yourself.

All of the concepts I described such as subjective value, indifference, time preference, and so on are just a few examples of what is involved in choosing something as simple as Netflix, and you didn’t even have to get off your couch. Imagine what takes place when you decide on things such as going to a concert, going on vacation, or even buying a house. Whether it is on the micro level or the macro level, economics studies purposeful human behavior, human reasoning in a world with scarce resources, limited time, and unlimited wants.

I love economics. I have argued elsewhere that economic arguments are more convincing than moral arguments when persuading non-libertarians. It is to be found in most — if not all — the individual choices we make. If one doesn’t stop to think about it, they may not realize how it influences us when we are doing everyday routines such as going for a walk, housework, or even watching Netflix. Sure, when it comes to something like sitting at home watching Netflix it may not come off as “economic-y,” in that it doesn’t necessarily evoke thoughts on the monetary side of things. But remember, it’s Austrians like Rothbard who constantly remind the individual actor that satisfying an end by economic means does not solely mean a monetary end, but also includes psychological factors that cannot be ignored. I like to think that economics is overlooked with how captivating it is — just how sometimes we don’t realize how beautiful the stars are because we don’t stop to look once in awhile. Not only do I love it for the reasons I just described, but also because, as Jeffrey Tucker says about anarchy, economics “is all around us.” Where I see even greater value in economics is akin to how others could be attracted to libertarianism. In the beginning it can take only one passion of theirs such as foreign policy, the war on drugs, or immigration that introduces them to our ideas. With economics, libertarians can do the same thing and relate to other peoples passions by describing how economics plays a role in their lives with the things they love to do. By starting with individual human action and what can be deduced from there, it is a great tool in achieving this end.

 

 

 

Further suggested reading:

 

The Methodology of the Austrian School Economists by Lawrence White

Economics for Real People:An Introduction to the Austrian School by Gene Callahan

Man, Economy, and State by Murray Rothbard

 

Human Action by Ludwig von Mises