Action: Dissatisfaction, Benefit, Cost, Profit and Loss

Ideas collected from Gene Callahan, Economics for Real People: An Introduction to the Austrian School, 2nd edition, The Ludwig von Mises Institute, 2002, 2004, Chapter 1, Kindle Book. If in parentheses, we have a direct quote. Otherwise we have my own way of expressing what I found in the book.

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An action is purposeful behavior. We only act if we are not totally satisfied with the way things are – and believe that we are capable of making them better by interfering with them.

“If we are completely satisfied with the way things are at [any given] moment, we have no motivation to act – any action would only make matters worse!”

So, we only contemplate a given course of action if we believe it can bring us a benefit. But we know that this benefit always has a cost. (That’s the meaning of “there is no free lunch”. ) Benefit and cost, however, are not necessarily monetary or financial. They can be expressed in terms of increase or reduction of well being and/or mental or emotional satisfaction.

Thus, what we, in economics, call a profit does not need to refer to monetary or financial gain: it can also refer to gain in well being and/or mental or emotional satisfaction.

Our action brings us a loss if its cost exceeds its benefit. Loss is not necessarily monetary or financial either. It can be purely emotional. The cost of breaking up a relationship may exceed the expected benefit it will bring us.

So, to really act, to transform the action we contemplate into a deed, we need to evaluate its benefits and costs – we must make what is called a “cost/benefit analysis”.

Example 1:

I am lying in a hammock resting, and I hear an annoying buzz, I must determine, first, what is causing the buzz (let us suppose it is a mosquito), and, second, if the buzz is sufficiently annoying to justify me leaving the comfort of the hammock in order to kill the mosquito that is causing it. The benefit, in this case, is the restored quietness. The cost is the effort to get out of the hammock and chase the mosquito.

Example 2:

I look at myself in the mirror and I see that the muscles in my arms and legs are a bit flabby and my abdomen is a bit oversize – not a very satisfying situation. I know for sure that if I lift weight and exercise regularly I can gain muscle tone and lose excess fat in my around my waist.

“For mortal man, time is the ultimate scarce item. Even for Bill Gates, time is in short supply. Although he can afford to charter private jets to both Aruba and Tahiti on the same morning, he still can’t fly to both places simultaneously! To be human is to know that our days on Earth are numbered, and that we must choose how to use them. Because we live in a world of scarcity, the use of means to pursue an end involves costs. To me, the cost of spending my time weight training [and exercising] is determined by how much I value the other ways I could spend that time”.

In São Paulo, on Sunday, June 8th, 2014

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