Handbook on Contemporary Austrian Economics - 1. Introduction

  • Repeat of the birth of Austrian economics with Menger and the marginalist revolution

The science of economics

  • Only individuals choose

    • Collective entities do not choose.

    • Economic analysis makes economic phenomena intelligible by basing it on individual purposes

    • Then trace out unintended consequences of individual choices

  • The study of the market order is fundamentally about exchange behavior and the institutions within which exchange take place

    • Catallaxy: analytical attention on the exchange relationships that emerge in the market

    • Greek origin: bringing a stranger into friendship through exchange

  • The "facts" of the social sciences are what people believe and think

    • Human sciences begin with the purposes and plans of individuals.

    • The goal is intelligibility, not prediction.

Microeconomics

  • Utility and costs are subjective

    • All economic phenomena are filtered through the human mind.

    • Alfred Marshall thought that cost is determined objectively

      • This is wrong, costs are subjective as well because they are determined by the value of alternative uses

    • Opportunity costs: the cost of any action is the value of the highest-valued alternative forgone in taking that action.

  • The price system economizes on the information that people need to process in making their decisions

    • Prices summarize the terms of exchange on the market.

      • Prices signal to market participants the relevant information.

    • If a price rises, I don't know if it's by supply or demand, but I will economize on that good.

  • Private property in the means of production is a necessary condition for rational economic calculation

    • Private ownership provides powerful incentives for the efficient allocation of scarce resources.

    • Socialism believes it can change human nature.

      • Even if this change took place, economic planners can't rationally calculate the alternative use of resources.

  • The competitive market is a process of entrepreneurial discovery

    • Competition is not a state of affairs (the general state of things), otherwise entrepreneurs would have no role.

    • The entrepreneur alerts unrecognized opportunities for mutual gain.

    • The gains from exchange moves the market system to a more efficient allocation of resources.

    • Prices are the guide.

Macroeconomics

  • Money is nonneutral

    • Money is the commonly accepted medium of exchange.

    • If gov distorts the monetary unit, exchange is distorted as well.

    • Monetary policy should aim to minimize these distortions.

    • If increase in money supply is not met by an increase in money demand, prices will increase over time.

    • Inflation is socially destructive.

      • Confiscates people's wealth.

      • Redistributes wealth, debtors gain at the expense of creditors.

      • People cannot perfectly anticipate inflation.

      • Prices adjust at different rates.

  • The capital structure consists of heterogeneous goods that have multispecific uses that must be aligned

    • Production is always for an uncertain future demand.

    • Production process requires different stages of investment.

    • The value of all producer goods derive from the value consumers place on products.

    • The production plan aligns various goods into a capital structure that produces the final goods in the most efficient manner.

    • Capital goods are heterogeneous and multispecific.

  • Social institutions are often the result of human action, but not of human design

    • Institutions are the by-product of action taken to achieve goals, they are not of direct design.