Economic Reasoning - Chapter 2 - Action and Preference

Having covered deductive logic, Dr. Gordon turns to the foundation of economic science. The foundation, he argues, is the action axiom; man acts.

Action is conscious, purposeful behavior directed towards a goal. Action does not require physical movement. For example, one can remain seated to vote against a proposal. Still, most actions involve physical movement.

How does one know the axiom is true? According to Gordon we know it’s true because it is common sense.

That economics is based on an axiom understood to be common sense makes it different from the natural sciences. These sciences rely on controlled experimentation and observation because we do not know the underlying structure of natural phenomena; we must guess at it based on observation. On the other hand we, being acting humans, can understand what action is without having to experiment or observe.

Many economists reject the notion that one can develop economic science using deduction. Premises cannot be accepted because they are self-evident. One must work backwards starting with observable reality and formulating premises that explain it. If these premises predict an outcome that is eventually observed, then they are sound.

Having established the action axiom as true, Dr. Gordon next discusses what must follow from it. What first follows is that action is directed toward obtaining something. If we already possessed that which we wish to obtain, we would not act. The actions we employ to obtain something (our goal or purpose) involve means.

The structure of action involves the use of means to achieve a goal. From his one must acknowledge the goal will not come about without action. More precisely, one must not believe that one can obtain a desired goal no matter what action one takes. This must be distinguished from the idea that one cannot be certain of achieving a goal despite the action one takes. This is a much more powerful statement. It suggests a completely uncertain future. According to Gordon, it is also false. If you wish to reach a point across the room, and you know that if you walk there you will reach it, then the future is not uncertain. The forgoing distinction is subtle, but important. Some economists claim the future is “radically uncertain” and that actors can know very little about the outcome of their actions. If economics were the study of ignorant actors, it would not be of much use.

Dr. Gordon also states a corollary to action; one of ‘inaction’. One must not believe a goal will not be achieved no matter what one does. An actor will not act to achieve what they believe is impossible.

Next Gordon discusses the subjects of preference and utility. When one acts to fulfill a goal, one prefers this goal to some other goal. Some economists claim that one prefers one goal to another because it maximizes their utility, or increases there satisfaction. This notion adds nothing to the understanding of action; that is one acts to fulfill a goal one prefers versus another goal. In fact, acting to increase satisfaction suggests that actors are motivated to fulfill their goals based on the pleasure or pain they derive (or do not derive) from them. This is a psychological theory known as hedonism.

It is here that Dr. Gordon clarifies what economists mean by utility and welfare. These terms refer to the fact that an actor prefers one goal to another, not to any sensations these goals might elicit. The idea that people seek pleasure and avoid pain is known as hedonism. Reference to ‘hedonism’ is concerned with how or why people act. Whether it is true or not, hedonism has no place in economics. Economics is concerned only with the implication of actions.

Action not only involves choosing the best means to achieve a goal, but also choosing from various goals. Note that these facts do not follow from the action axiom. The axiom could apply to a single goal with a single means to achieve it. That economics is a science deduced from action, however, does not mean one cannot introduce other principles that are not derived from the axiom. Thus, Gordon argues the above principles can be introduced to derive a science of economics. Like the action axiom, they are common sense principles and require no explanation. (Dr. Gordon does note that there are economists who argue that these new axioms can be derived from the action axiom).

Gordon has now introduced 3 axiomatic principles as the basis of economic science (1) Man acts (2) Man has a variety of goals from which to choose (3) Man has variety of means from which to choose to achieve a goal.

Man has different goals; which does he choose? He chooses his most highly preferred goal. This goal is subjectively ranked against other goals, not measured. (Measurement implies an account of satisfaction and suggests hedonism). As the economist Lionel Robbins noted, utility, welfare, or satisfaction, in the sense Gordon specifies is like love. It is expressed as a comparison, not measured. In the next chapter Gordon addresses the status of preference; whether it is axiomatic or deduced from the principles noted above.