From Individual Human Action to Society and Exchange Interactions

Let us recall that when we talked about method, we saw how economic science is constructed. To construct it, we begin with the analytically simplest phenomena. The simplest of all is the axiom of human action. Then, we gradually introduce assumptions in our chain of logical-deductive reasoning, and we arrive at more complex laws. Up to now, I have presented two basic laws on which we are going to construct the entire edifice of the theory of prices—marginal utility and diminishing marginal productivity—one for consumer goods, the other for factors of production, and now we’re going to make an analytical leap to broaden our laws and make them more complex. Until now, we have imagined only one individual, isolated human actor, Robinson Crusoe on his island. To present these two laws, it is not necessary to bring in more people. When we construct economics, we start by supposing there is only one isolated human being, because that is the simplest approach, analytically speaking. We’ve studied human action, entrepreneurship, its components, the law of marginal utility, and the law of returns.