Austrian Economics Made Obvious | Mises Institute

Each person has a different makeup, a different history, different information, and different understandings. In short, each person lives a different life than other people live and, as a result, knows many things that other people don’t know. Each person sees and decides differently than other people see and decide.

Unless isolated, each person depends on other people through social cooperation and exchange. Various people have some similarities in their knowledge and decision making, so multiple people find that some similar actions add value. Because of this, even though each person controls his own actions and doesn’t control other people’s actions, intricate patterns of individuals’ actions emerge.

Austrian economics helps us by addressing unrealistic assumptions and preventing further mistakes based on unreal presuppositions.

People’s actions are obvious. When people’s actions are taken as the starting point, Austrian economics analyses of those actions are revealed to be obviously true. Below, I largely follow the pattern in which Murray Rothbard systematically presented Austrian economics in Man, Economy, and State and Power and Market. I list specific economically-consequential human actions, and I pair each with quotes from the associated Austrian economics understanding.

People act. According to Mises,

Human action is purposeful behavior. Or we may say: Action is will put into operation and transformed into an agency, is aiming at ends and goals, is the ego’s meaningful response to stimuli and to the conditions of its environment, is a person’s conscious adjustment to the state of the universe that determines his life.

People trade. Rothbard wrote in What Has Government Done to Our Money?,

An exchange is an agreement between A and B to transfer the goods or services of one man for the goods and services of the other. Obviously, both benefit because each values what he receives in exchange more than what he gives up.

When producing, and when shopping, people often use money. Regarding money, Mises wrote,

Money is a medium of exchange. It is the most marketable good which people acquire because they want to offer it in later acts of interpersonal exchange.

When producing, people choose asking prices. When shopping, people choose quantities. Mises writes,

The real bosses, in the capitalist system of market economy, are the consumers. They, by their buying and by their abstention from buying, decide who should own the capital and run the plants. They determine what should be produced and in what quantity and quality.

When producing entrepreneurially, people choose inputs. On the entrepreneur, Rothbard asks,

What function has the entrepreneur performed? In his quest for profits he saw that certain factors were underpriced vis-à-vis their potential value products.

When working and then shopping, people earn, save, and invest. According to William Smart in the translator’s preface of The Positive Theory of Capital by Eugen V. Böhm-Bawerk,

The origin of capital is due to two factors, Industry and Saving, both being indispensable. 

When shopping, people determine value subjectively. When producing, people earn according to the subjective preferences of consumers. Mises wrote,

The consumers determine ultimately not only the prices of the consumers’ goods, but no less the prices of all factors of production.

When producing entrepreneurially, people create. Mises explains the source of any entrepreneurs profits,

The only source from which an entrepreneur’s profits stem is his ability to anticipate better than other people the future demand of the consumers.

When producing, people collaborate. This involves the division of labor,

The fundamental social phenomenon is the division of labor and its counterpart human cooperation.

When producing, people often gain advantages, but they are temporary. Writes Mises,

First of all we must realize that entrepreneurial profits are not a lasting phenomenon but only temporary. There prevails an inherent tendency for profits and losses to disappear.

When working in banking without government force, people help others save and help others borrow. Banking also facilitates further exchanges between individuals. In The Theory of Money and Credit, Mises wrote,

Banking is negotiation between granters of credit and grantees of credit. Only those who lend the money of others are bankers; those who merely lend their own capital are capitalists, but not bankers.

Given government force, people block others from choosing asking prices and quantities. In Omnipotent Government, Mises wrote,

The prices set on the unhampered market correspond to an equilibrium of demand and supply. . . . If the government, without a corresponding increase in the quantity of goods available for sale, decrees that buying and selling must be done at a lower price, and thus makes it illegal either to ask or to pay the potential market price, then this equilibrium can no longer prevail. 

Given government force, people block others from producing. Defining monopoly coherently, Rothbard wrote,

. . .monopoly is a grant of special privilege by the State, reserving a certain area of production to one particular individual or group. Entry into the field is prohibited to others and this prohibition is enforced by the gendarmes of the State.

Given government force, people take others’ property, changing others’ actions. Rothbard writes in the Ethics of Liberty and Man, Economy, and State respectively that,

The state uses its coerced revenue, not merely to monopolize and provide genuine services inefficiently to the public, but also to build up its own power at the expense of its exploited and harassed subjects. . .

The individual who is coerced into saying or not saying something or into making or not making an exchange with the intervener or with someone else is having his actions changed by a threat of violence.

Given government force, people crowd out others from producing and shopping as they choose. Writes Mises,

. . .a government can spend or invest only what it takes away from its citizens and. . .its additional spending and investment curtails the citizens’ spending and investment to the full extent of its quantity. While government has no power to make people more prosperous by interference with business, it certainly does have the power to make them less satisfied by restriction of production.

Given government force, people inflate money, leading others to malinvest, causing booms and busts. Joseph Salerno writes, 

. . .the artificial reduction of the interest rate falsifies the profit calculations of entrepreneurs and distorts their investment decisions, generating an unsustainable real investment boom—or “bubble” in contemporary jargon—followed inevitably by a bust when the interest rate rises again. It is during the recession that the cluster of malinvestments is revealed and liquidated and the production of capital and consumer goods is readjusted to the quantity of voluntary savings.

People’s actions and voluntary social cooperation advance civilization. According to Jesús Huerta de Soto,

. . .the essential coordinating act amounts to the creation and transmission of new information which necessarily modifies among all of the entrepreneurs involved the general perception of ends and means. This change in turn gives rise to the appearance of an unlimited number of new maladjustments, which spark new opportunities for entrepreneurial profit, and this dynamic process spreads, never comes to a halt and results in the constant advancement of civilization.

And again,

Menger’s subjectivist conception, based on the human actor, explains, through the idea of an evolutionary process in which countless people act, each one equipped with his own small, exclusive store of subjective knowledge, practical experience, desires, feelings and so on, the spontaneous, evolutionary emergence of a series of behavior patterns (institutions) which in the spheres of law, economics and language make life in society possible. … Menger and the rest of the Austrians believe that this very field should constitute the main focus of economic research.