Essay:List of terms used differently by economists than by laypeople
This is a list of terms used differently by economists than by laypeople.
The word "investment" is used differently in economics than in finance. In economics, "investment" refers to using resources to produce more capital goods. In finance, "investment" means buying any resource or product with the intent to profit, either by using it to produce consumer goods, or by selling the resource or product later, when the price has risen. Thus, a purchase of a gold bar that one hoards until a day when supply and demand have resulted in a price rise that enables it to be sold for profit, would be a financial investment, but would not be an economic investment. This is because gold bar has not been modified in any way to be a good of a lower order than what it was.
Economists use the word "rational" in a different way than the general public. To the latter, it usually implies "sensible," "judicious," "chosen in accordance with wisdom or prudence; likely to be of benefit" and the like. Economists use it to mean simply "purposeful." Thus, for example, a person can think that, based on the evidence he has seen, enforcing a minimum wage will help the poor. Economists would state that this action is rational but contrary to purpose. Thinking is an action in and of itself, and since all thinking is purpose-driven, aimed at increasing satisfaction, therefore all thinking is rational. As for the choice of goals, Mises points out, "The characteristic mark of ultimate ends is that they depend entirely on each individual's personal and subjective judgment, which cannot be examined, measured, still less corrected by any other person. Each individual is the only and final arbiter in matters concerning his own satisfaction and happiness."
In the wake of mass shootings, people often state that the killer must have been crazy. Mises argues to the contrary: "The murderer whom a subconscious urge (the Id) drives toward his crime and the neurotic whose aberrant behavior seems to be simply meaningless to an untrained observer both act; they like anybody else are aiming at certain ends. It is the merit of psychoanalysis that it has demonstrated that even the behavior of neurotics and psychopaths is meaningful, that they too act and aim at ends, although we who consider ourselves normal and sane call the reasoning determining their choice of ends nonsensical and the means they choose for the attainment of these ends contrary to purpose." This concept of what is and is not rational is so fundamental to precise and objective praxeological reasoning that it appears in the fourth paragraph of a several-hundred-pages opus on human action.
- " What Do Austrians Mean by "Rational"?" by Rozeff, Michael, 26 July 2006
- von Mises, Ludwig. "The Temporal Character of Praxeology". Human Action. http://mises.org/humanaction/chap5sec1.asp. "Logic and mathematics deal with an ideal system of thought. The relations and implications of their system are coexistent and interdependent. We may say as well that they are synchronous or that they are out of time. A perfect mind could grasp them all in one thought. Man's inability to accomplish this makes thinking itself an action, proceeding step by step from the less satisfactory state of insufficient cognition to the more satisfactory state of better insight."
- von Mises, Ludwig. "Theory and History". pp. 13. http://mises.org/th/intro.asp.
- Ludwig von Mises. "Purposeful Action and Animal Reaction". Human Action. http://mises.org/humanaction/chap1sec1.asp.