Mindless Economic Collectivism

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Rainer Fassnacht argues that current findings from psychology and brain research show that economic collectivism is mindless.

The Principles of Economics by Carl Menger is the birth certificate of Austrian Economics. There we read in the third chapter that “value is the meaning which concrete goods or quantities of goods acquire for us by the fact that we are conscious of being dependent on the disposal of them in the satisfaction of our needs.”

In other words, value is not something that is attached to the good. Even if a great deal of labor was required to produce a good, its value can be low. Goods without which we cannot survive are not ‘automatically’ more valuable than other goods. High prices for diamonds or low prices for water illustrate this fact.

Although the labor theory of value is incorrect, conclusions based on it, such as the exploitation of workers, the evil capitalist, or the bad profit, still have many adherents both in society in general and in economics in particular.

It is one of the fundamental insights of Austrian Economics that value springs from the individual, subjective and situational evaluation of people. Human action, the linchpin of economics, results from the different valuations of individuals.

Austrian Economics builds on this foundation. The later far-reaching contributions of the Austrian School can all be traced back to this basis. From the division of labor to time preference, money or the meaning of freedom, private property, or the role of entrepreneurs: it all boils down to this important fact of Menger’s.

These insights are even confirmed from recent research efforts in psychology and brain research. As Lisa Feldman Barrett, a professor of psychology at Northwestern University, put it in the MIT Technology Review, “the brain also has to decide which sensory data is relevant and which is not by separating the signal from the noise. Economists and other researchers call this decision the problem of ‘value.’ Value itself is another abstract, constructed feature. It is not inherent in the sense data that emanates from the world and therefore cannot be detected in the world. Value is a property of that information in relation to the state of the organism that perceives it – yourself.”

The belief in a collective value or the possibility of being able to make the ‘right decisions’ for other people shatters on this cliff. Neither well-intentioned politics nor various expert councils or economic experts succeed in avoiding the problem. Anyone who contrasts an individual, subjective and situational evaluation of individual people with an ‘objective evaluation’ is claiming something which impossible, is, indeed, committing a pretense of knowledge.

As Barrett also adds further, “consider what would happen if you had no body. A brain born in a vat would have no body systems to regulate. It would have no bodily sensations to make sense of. It could not construct value or affect. So a disembodied brain would have no mind.” If we apply this insight to economics, interventionism and collectivist economic planning correspond to this ‘brain without a mind.’ Since the human being as a corporeal individual – i.e., the economic actor who has senses and a mind, can make evaluations and carry out actions – is disregarded, the result of such ‘efforts’ can only be mindless.

Even the attempt to use surveys, statistics, mathematical models or artificial intelligence to gain the knowledge that results from individual actions on the basis of decentral available information and the exchange actions on the market cannot succeed.

This impossibility becomes apparent, for example, when a survey shows a declining interest in meat consumption while it is actually increasing. Since the individual evaluation is based on different alternatives in each case, logically inadmissible ‘simplifications’ are applied or apples are lumped together with pears when determining data for statistical evaluations, mathematical models or the input for the AI.

The time delay adds to this. By the time the data reaches the decision-makers, it is no longer up to date. The market process works with actions based on individual assessments, without the problems described. The failure of ‘socialist planning for the good of the people’ in the GDR and other countries with powerful collectivists confirms this in practice.

Through the use of mathematics, mainstream economics gives the impression of being comparable to natural science. However, in doing so, it inevitably comes into contradiction with logic and the nature of human beings. It becomes obvious that mainstream economics in all its variants is built on false assumptions. Planned economy and interventionism, the undermining of private property or the orientation towards common good goals must fail because they start from inconsistent premises.

Menger’s Principles, Mises’ The Economic Calculation in the Socialist Commonwealth or Hayek’s Nobel Prize speech have explained economic relationships correctly without contradicting logic or human nature. A politically directed, or collective goal-oriented society collides with logic and ignores the human being. It does not matter whether the adherents of such ideas derive their justification from left-wing, right-wing or other ideologies.

We have the choice between the inhuman collectivist mainstream or the human individuality-based Austrian Economics. Current findings from psychology and brain research show that economic collectivism is mindless.


  • Rainer Fassnacht

    Rainer Fassnacht holds a degree in economics and writes for various print media and online platforms in Germany and abroad. The main topic of his articles is the preservation of individual freedom.

The views expressed on austriancenter.com are not necessarily those of the Austrian Economics Center.

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