How Economic Thinking Can Benefit Consumers, Managers, and Entrepreneurs | Part 3: The Economic Way Of Thinking

Barry L. Linetsky

Economist Ludwig von Mises argued for the importance of the proper study of economics as the most fully developed social science. Mises held that the virtue of economics was its particular capability in providing insight into the link between human values, human action and desired outcomes. His full argument is presented in his classic treatise Human Action and underpins all of his writings.

Mises advocated for a distinct economic way of thinking as a valid and necessary extension of logic, and therefore easily available to everybody. “Whether we like it or not,” he wrote in Human Action, “it is a fact that economics cannot remain an esoteric branch of knowledge accessible only to small groups of scholars and specialists. Economics deals with society’s fundamental problems; it concerns everyone and belongs to all. It is the main and proper study of every citizen.”

George Mason University economics professor Don Boudreaux recently noted that Mises believed it essential that everyone should understand the importance of basic economic thinking and apply its truths and teachings to further the chances, and reap the benefits of, successful human action. By grasping a basic understanding of an economic way thinking, Boudreaux states that Mises would want us to understand such things as, “for example, that using resources to produce more of good X requires the sacrifice of some of goods Y and Z (‘There is no such thing as a free lunch’), that intentions are not results, and that the ultimate goal of economic activity is to increase people’s abilities to consume over time and not to increase people’s need to work.” (Café Hayek, September 9, 2019.)  

We know from our own experience that it may turn out that when the actual outcomes of the trail of foreseen, unforeseen, and unseen rippling impacts upon human welfare are more prudently fully considered over time as compared to other viable alternatives, the initial actions pursued can cause considerably more harm than good and actually be counter-productive to the values and outcomes they purport to advance. 

With the ongoing pursuit of our goals in the light of new additional knowledge gained in time, we are able to observe, learn, recalculate, adjust, and re-act, hopefully with better results, in pursuit of our desired goals and values. This is the premise behind the Deming Circle of Plan, Check, Do, Act (PCDA), for example, and the popular adoption of agile techniques for rapid development through fast and frequent iterations. 

But the presumption behind taking action in the first place is that the action identified has been validated and justified as a valid and appropriate means to achieve a specified and defined desired goal.

With hindsight, it is often the case that things would have been better if we had just left well-enough alone instead of taking the actions we took. Breaking things in order to see if we can fix what we have broken can be a costly way to innovate and remove barriers to our desires. “Ready, fire, aim” too often proves to be a prescription to throw caution to the wind and to embrace recklessness. Some kind of pre-defined aimed-at target is needed in order to measure success.

While we want to avoid recklessness, we can’t avoid the unforeseen impacts of human action. We can’t and shouldn’t avoid what Joseph Schumpeter identified as the benefits of “creative destruction.” The focus of human action must be on effectiveness. As Peter Drucker wisely noted, “There is surely nothing quite so useless as doing with great efficiency what should not be done at all.” (“Managing for Business Effectiveness”, HBR, May-June, 1963.)

The essence of all purposeful human action is to transform the present into a better future. How we do that is always important when it comes to the advancement of human welfare. It’s about finding the appropriate means to achieve the desired ends and produce a profit-maximizing outcome.  

Further Learning:

“Opportunity Costs: The Parable of the Broken Window,” Dan Russell, Learn Liberty

“Unintended Consequences,” Russ Roberts, Café Hayek

“Ten Key Ideas: Opening the Door to the Economic Way of Thinking,” Russ Roberts

“Invisible Hands: How Economics Helps Us Understand Politics,” Foundation for Economic Education

© 2019, Barry L. Linetsky. All Rights Reserved. 

Barry Linetsky is a Partner with The Strategic Planning Group in Toronto, Canada, where he and his colleagues have been helping executives and owners align their business purpose with customer values since 1994. Barry is the author of the acclaimed book The Business of Walt Disney and the Nine Principles of His Success (Theme Park Press), and an Honorary Disney History Institute Historian. Barry is also a writer, photographer, researcher, and business strategy enabler. Read his blog and learn more at barrylinetsky.com. Follow him on Twitter @BizPhilosopher.