Week 2 of the Mises Institute’s Home Study Course in Austrian Economics includes one audio lecture and readings from three books.
- “The Marginalist Revolution” by Joseph Salerno: This lecture from the 2001 Mises University explains the discovery of the law of marginal utility around 1870 by three economists working independently of each other. Of the three, Salerno focuses on the Austrian Carl Menger and his major work Principles of Economics, which became the foundation of the Austrian school. (I’ll be re-reading Principles eventually as part of Reisman’s program.) Salerno explains the value paradox that stumped the Classical economists–why do many extremely useful things command such a low price, while other merely ornamental things command a high price?–and the significance of Menger’s solution.
- “Carl Menger: The Founder of the Austrian School” by Joseph Salerno (Ch. 6 of Randall Holcombe, ed., 15 Great Austrian Economists): At 30 pages, this is the meatiest of the readings for this unit. Not surprisingly, its content overlaps significantly with Salerno’s lecture. Here’s a good quote: “Menger’s greatest achievement . . . [is] the demonstration that prices are no more and no less than the objective manifestation of causal processes purposefully initiated and directed to satisfying human wants.”
- “Eugen von Böhm-Bawerk: Capital, Interest, and Time” by Roger Garrison (Ch. 8 of Randall Holcombe, ed., 15 Great Austrian Economists): Apart from having the most delightful name of any economist I’ve heard of, Böhm-Bawerk is extremely important for his development of capital theory and his explanation of the phenomenon of interest. Garrison explains how mainstream economics has an unsatisfactory explanation of capital, treating it as a more or less homogeneous mass. Böhm-Bawerk’s insistence on the accounting for elapsed time in the structure of production (in contrast to the mainstream, which often implicitly treats production and consumption as occurring simultaneously) made his theory much more robust (and, incidentally, enabled him to destroy Marx’s theory of exploitation).
- Chapter 2 of Gene Callahan, Economics for Real People: In this chapter Callahan focuses on Austrian methodology, first arguing that, contrary to the beliefs of some, “the fact that humans learn makes exact prediction in the social sciences impossible.” There’s a great discussion here about the facts of human choices resulting in action.
- Chapter 4 of Thomas Taylor, An Introduction to Austrian Economics: This chapter focuses on the subjective theory of value, a key element of Menger’s thought. Taylor assigns blame to the Classical school’s belief in objective value of economic goods for the rise of the notion of “economic man.” This erroneous concept “depicted every participant in the market economy as relentlessly seeking at every turn to maximize his monetary position.” In fact, “what people actually seek in every action is a maximum psychic or subjective profit.” [emphasis mine] I’ve been in discussions with people hostile to economic thinking who liked to throw the “economic man” straw man at me whenever I suggested that efficiency is a reasonable objective in a world of scarce resources. Taylor’s discussion is useful for anyone wishing to develop an answer to such people.