Exchange economy

An excellent post (actually an excerpted chapter from a book) on the Mises blog on how markets function that uses Crusoe-nomics to make its point. Somewhere in the middle of the article, the author says-

Exchange does not arise from a “propensity to trade.” In order for an exchange to take place, both parties must feel that they will be better off after the exchange. That is the prerequisite for all action — the actor must feel that the action will improve his state of satisfaction when compared to not acting. He is attempting to move from what is to what ought to be.

Both Hayek and Adam Smith seem to have placed less emphasis (understatement) on human rationality in their theories. I presume that’s what Callahan hints at with that paragraph of his. There is always a “purpose” behind all exchange, all human actions. Like Mises says in his Human Action (I am lifting the following from a comment of mine on another post)-

Human action is purposeful behavior. Or we may say: Action is will put into operation and transformed into an agency, is aiming at ends and goals, is the ego’s meaningful response to stimuli and to the conditions of its environment, is a person’s conscious adjustment to the state of the universe that determines his life. Such paraphrases may clarify the definition given and prevent possible misinterpretations. But the definition itself is adequate and does not need complement of commentary.

[…]

Many champions of the instinct school are convinced that they have proved that action is not determined by reason, but stems from the profound depths of innate forces, impulses, instincts, and dispositions which are not open to any rational elucidation. They are certain they have succeeded in exposing the shallowness of rationalism and disparage economics as “a tissue of false conclusions drawn from false psychological assumptions.” Yet rationalism, praxeology, and economics do not deal with the ultimate springs and goals of action, but with the means applied for the attainment of an end sought. However unfathomable the depths may be from which an impulse or instinct emerges, the means which man chooses for its satisfaction are determined by a rational consideration of expense and success.

[…]

Human action is necessarily always rational. The term “rational action” is therefore pleonastic and must be rejected as such. When applied to the ultimate ends of action, the terms rational and irrational are inappropriate and meaningless. The ultimate end of action is always the satisfaction of some desires of the acting man. Since nobody is in a position to substitute his own value judgments for those of the acting individual, it is vain to pass judgment on other people’s aims and volitions. No man is qualified to declare what would make another man happier or less discontented. The critic either tells us what he believes he would aim at if he were in the place of his fellow; or, in dictatorial arrogance blithely disposing of his fellow’s will and aspirations, declares what condition of this other man would better suit himself, the critic.

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