The course "Principles of Economics" offers a comprehensive exploration of economics from an Austrian perspective, which centers on the concept of human action. The Austrian school posits that economics should not be approached through abstract quantitative models but through the lens of individual choices made under conditions of scarcity. Unlike mainstream economics, which often relies on collectivist assumptions and quantitative models, Austrian economics emphasizes subjective value and purposeful behavior.
The Ineffectiveness of Quantitative Economics
Four main criticisms are levied against the quantitative approach in economics:
Economics lacks constants: Unlike physical sciences, economics has no constants that allow for precise measurements, making it difficult to create quantitative laws.
No replicable experimentation: Economics cannot conduct controlled experiments like natural sciences, so it cannot establish causal relationships through experimentation.
Conflation of measurable with causal factors: Quantitative economics often focuses on measurable aggregates at the expense of underlying causal factors like individual human action.
Mistaking accounting identities for causality: Macroeconomics, particularly, mistakes accounting identities for causal relationships, leading to misguided policies.
The Austrian Approach to Economic Questions
Austrian economists analyze economic questions such as the minimum wage by considering the actions and motivations of the individuals involved. For instance, a minimum wage law is seen not as a way to increase overall welfare but as a restriction that criminalizes employment for those whose productivity falls below the set wage, ultimately leading to unemployment and reduced opportunities for skill acquisition.
The Structure of the Course and Textbook
The course and the accompanying textbook are divided into five parts:
Fundamentals: Explains basic concepts like human action, value, and time.
Economy: Discusses individual acts of economizing, such as labor, property, and technology.
Market Order: Describes interpersonal exchange, trade, money, and markets.
Monetary Economics: Delves into time preference, credit, banking, and monetary expansion.
Civilization: Ties the economic principles to broader societal structures, including violence, defense, and the state's role.
"The goal of economic analysis is understanding... Austrian economics is all about establishing an understanding of economic phenomena and economic issues."
"Humans act purposefully because we are endowed with reason and are able to direct it to the meeting of our ends."
"The employer will only hire me if what I contribute to the business is higher than the wage that I ask for."
"After a century of aping physics, economics has failed to produce one quantitative law or formula that can be independently tested and replicated."
"Principles of Economics" is a course designed to equip individuals with the wisdom of Austrian economics, enabling them to make better economic decisions in their daily lives. The course challenges the conventional quantitative approach to economics, offering a deeper understanding through the study of human action. With this knowledge, students can navigate the complexities of economic theory and practice, fostering a more informed and rational approach to both personal and societal economic activities.