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Perhaps, at some point, you have heard about the Austrian School of Economics, and are curious as to what it is. Or you may be discouraged by the economics you have encountered in textbooks and newspapers, and are searching for a more realistic view of economic life. The dominant school of economics, often referred to as the Neoclassical School, seems to describe people behaving in ways that are hard to relate to the human activity we see around us every day. The textbook humans seem robotic, rigidly obeying a set of equations that "maximizes their utility" based on a set of parameters. The equations themselves are said to "cause" supply and demand to meet at an equilibrium price—one that sets the quantity demanded equal to the quantity supplied. What place do humans have in such a system of equations? It seems difficult to relate those mathematical constructs to the world in which we live. How is the idea of man as a utility equation solver relevant to an Islamic revolution, to Mother Teresa, to Jimi Hendrix, or to your own decision to take a vacation that you "really can't afford," but really need?
Yet, you feel that economics ought to be relevant to real life. Doesn't it deal with jobs, money, taxes, prices, and industry: stuff of everyday existence? Why should the subject seem so obscure?
The Austrian School of Economics is an alternative to the mainstream approach. It places economics on sound, human basis. It avoids the traps that plague most of modern economics: the assumption of selfishness as the basic human motivation, a narrow definition of rational behavior, and the overuse of unrealistic models. This book is an attempt to introduce you to the main ideas of the School.
The Austrian School is so-named because most of its early members hailed from—you've probably guessed by now—Austria. The Nazi occupation of that country, however, scattered the practitioners. Today we can find prominent Austrian School economists all over the world. I will use "Austrian economist" to mean a member of the Austrian School, whether or not the person in question ever lived in Austria.
My focus will not be on the history of the School, although I have included an appendix with a brief overview of that history. Nor is my goal to convince professional economists of other schools to "convert." It is instead intended to be the proverbial "guide for the intelligent layman." While I have always tried to be precise, I have tried to avoid entering into the fine details of esoteric debates from the economics profession, which would only create a schizophrenic book.
The Austrian School is not monolithic, and there are disagreements among Austrian economists on various theoretical points. To complicate matters further, there is not even a universally accepted criterion for just who is an Austrian economist. There are "semi-Austrians," "Austrian fellow travelers," and even economists who call themselves Austrian but are denied the title by other writers. I have tried to give an overall view of the School's views, but the understanding of the subject reflected in these pages is necessarily my own.
Because of the nature of this book, it cannot explore Austrian economics in the same depth as do systematic treatises such as Murray Rothbard's Man, Economy and State or Ludwig von Mises' Human Action. If this book succeeds in interesting you in this subject, it will have done its job; I urge you to then pick up one of these masterworks on the topic. (There is also a bibliography at the end of the book recommending further reading.)
But there are advantages to the approach taken by this book. First of all, Rothbard's and Mises' tomes are huge: you don't really want to be hauling a book like that to the beach, now, do you? Secondly, most people are not attempting to become professional economists. You probably have a very limited amount of time and effort you are willing to put into the subject, at least until you sense of how it might benefit you to know more. Lastly, neither of those great works has anything about the hit TV show Survivor[1] in it, nor does either of them so much as mention the actress Helena Bonham-Carter. I guarantee that this book will be free of both of those flaws.
Speaking of Survivor (see, you didn't even have to wait long before I took care of the first problem!), I'm going to ask you to imagine a slightly different conclusion to the series. In the original television show, the winner—the fellow who "survived" the longest—was a guy named Rich. In our alternate universe Rich is still the winner, but, as the film crew packs up, they decide that they are fed up with his antics. Instead of transporting him home, they quietly slip off of the island while Rich is getting in a last session of nude sunbathing.
Rich arises to find that he is alone. He is now facing the most elementary human problem, how to survive, in the most basic of settings. What can economics say about his situation? Is our science rooted in man's nature, or is it just a creation of certain social arrangements that we can change at will? If someone isn't concerned with becoming as wealthy as possible, or rejects consumerism, is economics still relevant to them? These are some of the questions that this book will attempt to answer.
We will come back to Rich in Chapter Two, but first, we will examine the question of what, exactly, economics is.
1 For those who don't follow what's on TV, or who might be reading this book twenty years after its publication: Survivor was a show where a number of contestants were placed, by a TV network, on a desert island. Then they were presented with a series of "survival" challenges. A voting process eliminated contestants until only the winner was left. This turned out to be a fellow named Rich. The particular details of the show are unimportant to this book, as Rich is merely used as an example of an isolated individual and the economic problems he faces. (Hey, using Robinson Crusoe has become a cliché, so I had to think of something else.)