Praxeology / Austrian Political Economy
Parent article: Econ-Politics: Why Prices Cannot Be Replaced
Praxeology
Science of human action as such. Founded by Ludwig von Mises in Human Action (1949). Basic principle: all human action is purposeful (seeks to move from a less satisfactory to a more satisfactory state), occurs in time and under uncertainty, and uses scarce means to achieve ends. Praxeological truths are derived a priori from the nature of action, not from statistical observation.
Related: methodological individualism, human action, apriorism, teleology Cross-references: Agent-Based Modeling (ABM), Social Sciences / Behavioral Economics Key work: Mises, L. von (1949). Human Action: A Treatise on Economics. Yale University Press.
Ordinal value
Value as an ordering of preferences, not as a measurable cardinal magnitude. “I prefer A to B” is a valid and verifiable praxeological proposition. “A is worth twice as much as B” is not, because value has no objective cardinal scale. Consequence: the valuations of different individuals cannot be summed or aggregated. This is the basis of both Mises’ calculation argument and Arrow’s impossibility theorem.
Related: subjective value, preferences, ordinal utility, cardinality Cross-references: Social Sciences / Behavioral Economics Key work: Mises, L. von (1920/1935). Economic calculation in the socialist commonwealth. In F. A. Hayek (Ed.), Collectivist Economic Planning. Routledge.
The economic calculation problem (Mises, 1920)
Logical impossibility of rational economic calculation without market prices based on private property. Not a problem of information (which could in principle be solved with more data) or computational capacity (which could be solved with more processing). A problem about the nature of value: subjective, ordinal, and revealed only through voluntary exchange under real scarcity. Eliminate the exchanges and the information disappears.
Related: price, private property, coordination, dispersed knowledge Cross-references: Artificial Intelligence / Machine Learning, Complex Systems / Network Science, Information Theory / Science and Technology Key work: Mises, L. von (1920/1935). Economic calculation in the socialist commonwealth. In F. A. Hayek (Ed.), Collectivist Economic Planning. Routledge.
Tacit knowledge (Hayek, 1945)
Knowledge that cannot be explicitly articulated or centrally transmitted: “the knowledge of the particular circumstances of time and place.” Example: an entrepreneur knows that their usual supplier will be slower this week; that information is not in any database. Prices are the mechanism that aggregates and transmits this knowledge without requiring it in explicit form.
Related: dispersed knowledge, price signals, epistemology, local knowledge Cross-references: Information Theory / Science and Technology Key work: Hayek, F. A. (1945). The use of knowledge in society. American Economic Review, 35(4), 519–530.
Arrow’s impossibility theorem (1951)
There is no procedure for aggregating individual ordinal preference rankings into a collective social preference that simultaneously satisfies five minimum fairness conditions: unrestricted domain, unanimity (Pareto), independence of irrelevant alternatives, non-dictatorship, and transitivity. Not a result about computational limits: a theorem about the logical structure of ordinal preference aggregation. Converges with Mises’ calculation argument from the mathematics of social choice theory.
Related: social welfare, social choice, welfare function, Condorcet paradox Cross-references: Artificial Intelligence / Machine Learning, Social Sciences / Behavioral Economics Key work: Arrow, K. J. (1951). Social Choice and Individual Values. Wiley.
Catallactics / Catallaxy (Hayek)
Term Hayek preferred to “economics” to describe the order that emerges from voluntary market interaction among many individuals. From the Greek katalattein: to exchange, but also to admit into the community, to turn an enemy into a friend. Emphasis: the market does not allocate resources toward predetermined ends; it generates outcomes nobody anticipated and nobody could have planned.
Related: spontaneous order, cosmos, market process, competition Cross-references: Complex Systems / Network Science, Systems Engineering Key work: Hayek, F. A. (1976). Law, Legislation and Liberty, Vol. 2: The Mirage of Social Justice. University of Chicago Press.
References
Arrow, K. J. (1951). Social Choice and Individual Values. Wiley.
Hayek, F. A. (1945). The use of knowledge in society. American Economic Review, 35(4), 519–530.
Hayek, F. A. (1973). Law, Legislation and Liberty, Vol. 1: Rules and Order. University of Chicago Press.
Menger, C. (1871/1950). Principles of Economics (J. Dingwall & B. F. Hoselitz, Trans.). Free Press.
Mises, L. von (1920/1935). Economic calculation in the socialist commonwealth. In F. A. Hayek (Ed.), Collectivist Economic Planning. Routledge.
Mises, L. von (1949). Human Action: A Treatise on Economics. Yale University Press.