by Richard Martin, President, Alcera Consulting Inc.
Economics, at its core, is about human action. It is the study of how individuals make decisions and allocate resources to meet their needs and desires. However, many economic theories drift into abstraction, invoking impersonal forces or collective entities that seemingly act on their own. These abstractions, while useful in some contexts, often obscure the real drivers of economic activity—individuals. Austrian economics, particularly as articulated by Ludwig von Mises and his followers, offers an alternative: a “concrete” economics that is grounded in the real-world actions of individual people. This approach not only provides clarity but also a more optimistic and empowering view of economic life.
Understanding the Limits of Abstraction
Before delving into the concrete, it’s important to understand the role that abstractions play in economics. Abstractions like “forces of production,” “relations of production,” and “financial aggregates” are often used to explain broad economic trends. Similarly, collective abstractions like “society,” “class,” and “nation” are used to group actors into manageable categories for analysis. While these abstractions help simplify complex phenomena, they present a fundamental problem: they lack agency.
No abstraction—whether it’s “the market” or “progress”—acts on its own. These are not self-aware or decision-making entities. They are mental constructs used to classify and analyze trends. When economists or social theorists invoke abstractions as if they have independent influence, they obscure the true nature of economic activity. The reality is that only individuals have agency. While trends, theories, and narratives can influence individuals, it is the concrete actions of these individuals, responding to their particular circumstances and motivations, that drive economic outcomes.
Concrete Economics: A Focus on Human Action
Austrian economics, which can be aptly described as “concrete economics,” avoids the pitfalls of abstraction by focusing on the tangible actions of individuals. At its core, Austrian economics is guided by three key principles: subjectivism, methodological individualism, and methodological singularism.
- Subjectivism asserts that value is not inherent in goods or services but is determined by the subjective preferences and judgments of individuals. What something is “worth” depends entirely on the person evaluating it in that specific moment.
- Methodological individualism insists that only individuals act. There are no collective entities like “the market” or “society” making decisions. While individuals can coordinate and cooperate, their actions remain individual decisions.
- Methodological singularism emphasizes that every action is unique and context-specific. Each decision occurs within a specific set of circumstances and cannot be fully understood through broad generalizations.
This framework allows Austrian economics to maintain a focus on the real world. It is a method that integrates individual perspectives, contexts, goals, values, and constraints into a holistic, nuanced understanding of economic activity. By doing so, it provides a concrete, grounded approach to analyzing human action.
Why Concrete Economics is Optimistic
This concrete approach to economics also provides a more optimistic view of human action. In many economic theories, individuals are depicted as being subject to impersonal forces like “history,” “progress,” or “market trends” that seem to dictate their behavior. This perspective can be disempowering, as it suggests that individuals have little control over their own lives and decisions.
Concrete economics, however, rejects this deterministic view. By focusing on individuals as the primary actors, it reinforces the idea that people have agency. There are no mysterious forces guiding human action. Instead, each person makes decisions based on their own subjective understanding of the world around them. This view is empowering, as it places responsibility and control back in the hands of individuals.
This method also reveals that change is always possible. Because individuals, not impersonal forces, drive economic outcomes, there is always room for innovation, adaptation, and improvement. Markets, societies, and economies are dynamic because they are the product of countless individual decisions, each responding to changing conditions in unique and creative ways.
The Utility of Abstractions like Supply and Demand
It’s worth noting that not all abstractions are misleading or problematic. Some abstractions, like supply and demand, are economically useful because they represent the implicit underpinnings of market exchange. When individuals engage in transactions, they assume that there is a supply of goods available for exchange and that there is demand for those goods, whether through barter or monetary transaction.
However, as useful as supply and demand are for analyzing markets, it’s important to remember that no individual thinks in terms of “supply” or “demand” when making decisions. These are abstractions that help us simplify and understand the complex reality of countless individual exchanges. They are not forces acting independently of human decision-making; rather, they are tools for understanding how individuals respond to the conditions of scarcity and opportunity in the marketplace.
Conclusion: The Power of Concrete Understanding
By focusing on individual action and rejecting the notion that abstractions have agency, concrete economics provides a powerful tool for understanding economic phenomena. It allows us to move beyond vague generalizations about “market forces” or “social progress” and instead engage with the real, tangible decisions that shape economic life.
Moreover, it offers a more optimistic and empowering view of the world. Individuals, not impersonal forces, drive change. This recognition opens up a world of possibilities, where people have the power to shape their own economic destinies, and where the future is not dictated by abstract trends but by the concrete actions of real human beings.
© 2024 Alcera Consulting Inc.
Discover more from Exploiting Change
Subscribe to get the latest posts sent to your email.
