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KOL430 | An Insider’s Introduction to Austrian Economics, Bastiat Society—Houston


Kinsella on Liberty Podcast: Episode 430.

This is my presentation, “An Insider’s Introduction to Austrian Economics,” Bastiat Society—Houston, American Institute for Economic Research, The Briar Club, Houston Texas (May 2, 2024). From their shownotes:

Join AIER’s Bastiat Society program in Houston for an event with Stephan Kinsella, libertarian writer and registered patent attorney in Houston.

Mr. Kinsella is both an internationally recognized scholar on libertarian legal theory and a former Senior Fellow with the Mises Institute. The Mises Institute’s purpose is to promote teaching and research in the Austrian school of economics in the tradition of Ludwig von Mises and Murray Rothbard. In the foreword to Stephan’s most recent book, Legal Foundations of a Free Society, the great Austrian economist Hans-Hermann Hoppe said, “Henceforth, then, all essential studies in the philosophy of law and the field of legal theory will have to take full account of the theories and criticisms expounded by Kinsella.” Stephan will be introducing Austrian economics that is in part shaped by the rare insights one can only get as a scholar and insider.

This is my first talk on a purely economic topic. I tried not to dumb it down but also not talk over people’s heads, but I only had 45 minutes. This is the recording I made on my iphone.

My notes:

An Insider’s Introduction to Austrian Economics
Stephan Kinsella
The Bastiat Society—Houston, American Institute for Economic Research
The Briar Club, Houston Texas
May 2, 2024

  • Some of you may have heard in recent years of “Austrian economics”
    • Used to be relatively obscure
    • Now most people into Bitcoin are into it
    • Most libertarians are into it
      • Most Austrians happen to be libertarians too
      • But they are distinct: you can be an Austrian and not a libertarian, but it’s rare; or a libertarian and know nothing about economics
    • Ron Paul has been promoting it for decades
      • “End the Fed!”
    • Recently it’s making more of a surge
      • For example, recently the Brazilian UFC fighter Renato Moicano, after winning a recent UFC fight, shouted out: “I love private property and let me tell you something, if you care about your country, read Ludwig von Mises and the six lessons of the Austrian economic school”
      • How did I get interested in it
        • I am not an economist, but I’ve studied Austrian economics for 30 years
        • Had to take an introductory course in economics as an engineer
          • Immediately saw the problems with the Phillips curve
            • Why would all the homeless or unemployed people dying overnight necessarily imply price inflation? Made no sense to me
            • The professor: well the curve would just shift.
          • I read Ayn Rand.
            • Jerome Tuccille: It Usually Begins with Ayn Rand.
            • In her Capitalism book, she recommended books by Mises, and other books like Henry Hazlitt, Economics in One Lesson, so one thing led to the other
          • Over the years I’ve focused on developing libertarian legal theory but I have relied heavily on Austrian economics thinking
          • For example, my new book Legal Foundations of a Free Society rests heavily on Austrian economic thinking

Economics as a Science

  • Austrian economics views economics as a science
  • What is science? A systematic study of a type of phenomenon, of a realm of phenomenon
    • We nowadays think of “science” as basically physics and the “testable” empirical sciences
    • But there are axiomatic-deductive sciences, like the laws of applied logic—where propositions are not “tested”
    • And then, there are empirical sciences, like physics: where the “scientific method” is followed: scientists see results, they provide a hypothesis about the possible underlying causal factors, and come up with experiments that can confirm or falsify the hypothesis, the proposed explanation.
    • We are nowadays used to thinking of science only as the empirical or causal sciences, and relegating philosophy and other fields to the “humanities”: not real science.
      • e. we are used to thinking of science now as physics, or technology
    • This shows the dominance of the idea of logical positivism, for perhaps the last 70 years or so
    • But consider psychology, law, philosophy and logic, and the older conception of economics. They were considered sciences though not “testable.” Just different. Different domains of application.
      • e., you study every phenomenon with methods appropriate to the nature of the thing being studied.
      • Humans are not the same as animals, or atoms!
      • Unlike atoms, we have free will, purposes and goals
      • Unlike animals, we have conscience and high-level conceptual understanding
    • In fact the word science just means knowledge, from the Latin scientia. Think of words like “conscience”—with knowledge—or “scienter” in the law.
      • In fact the original Copyright Clause of the US Constitution authorizes copyright law (books) to protect the “sciences” and patent law (inventions) to protect the “arts.”
        • “Science” back then meant knowledge, or books
        • The “arts” meant inventions of “artisans.”
        • So the meaning then was backward to current usage, where science means technology and STEM, and “the arts” means books, plays, and so on
      • The rise of what Hayek criticized as scientism in the mid-1900s is why people now think of science only as applying to the natural sciences, like physics and chemistry, and relegate other fields of study to the humanities or liberal arts.
        • Think of the Covid crisis: “follow the science”
      • And yet philosophy itself is prior to the scientific method itself
      • Consider: when Karl Popper and his logical positivist followers say that the only meaningful and scientific statements are those that are falsifiable by experiment, —what is their proof of this very statement itself? After all, it is a foundational approach, it is not itself subject to empirical testing. By its own terms, it is unscientific.
      • So the scientific method itself has to rest on philosophical principles which are not themselves testable, they are not subject to the scientific method itself
      • What this means is that basic philosophy has to precede inquiry in the natural sciences. Physics rests on philosophical foundations. Philosophy must come first. An axiomatic, apriori, and deductive system underlies all of empirical enquiry.
      • Philosophy and the natural sciences are all important but philosophy is primus inter pares: first among equals.
    • The reason we think of “science” now as restricted to the natural sciences, is because of the logical positivism revolution in the 1950s.
    • Mainline economics started rejecting its apriorist and deductivist roots and attempted to adopt or “ape” the methods of physics to seem “scientific,” since the conception of what “science” was had changed.
    • They said that the only meaningful or “scientific” statements are those that are testable, falsifiable, refutable in an experiment or with data
    • And so you will hear that some economist has come out with a paper that shows that actually, increasing the minimum wage does not cause unemployment at all.
    • Any economist worth his salt knows this is wrong. We know supply and demand. Price controls lead to shortages. Minimum wage necessarily causes unemployment. The higher the minimum wage, the more unemployment that is caused.
      • We know this by reason, not by experience or data
      • Imagine a $100 per hour minimum wage! For this reason the proponents of minimum wage rarely ask for a very large minimum wage. They seem to realize that at a certain point, it would cause so much economic devastation that people would wake up.
    • Consider also the very idea of exchange. A and B exchange things. They must both think they are better off by doing the trade. Otherwise they would not trade.
      • That is where “profit” comes from. Each values the thing obtained from the other more than the thing he gave up. A merchant who sells a cake values the money he receives more than the cake he gave up. The customer has the opposite preference ranking.
      • After the trade, each one has more wealth, i.e. is richer. More wealth has been created in the world just by virtue of a trade, even though no one created any new product or thing.
      • How could any empirical study falsify this? It’s inherent in the nature of exchange and human interaction.
      • Economics looks at the actor’s purpose and goals to explain each actor’s actions by talking about their goals or ends or purposes—that is, teleologically: by reference to their purposes.

What is Economics and why does it matter?

  • “Economics has been defined in a variety of ways. In the nineteenth century it was typically defined as the science of wealth or exchangeable wealth. In the twentieth century, it has typically been defined as the science that studies the allocation of scarce means among competing ends.”
    • From Reisman’s definition of wealth in Capitalism, https://www.stephankinsella.com/reisman/
    • See also Adam Smith: The Wealth of Nations
    • By the we need to be clear on what wealth is: is the the availability of means to satisfy human desires.
      • Wealth is not money.
      • Money can be a measure of wealth but it is not wealth itself.
      • Increasing the supply of food or houses makes people wealthier. Increasing the supply of money just increases prices. Money is not wealth. It is a unique type of good. For capital goods, or consumer goods: the more, the better. Not so with money.
    • In other words, we live in a world where people live together and interact, trade and exchange.
      • There is a division and specialization of labor
      • There is money, so that we can avoid the probems of barter.
        • The probems of barter are two-fold: The double-coincidence of wants problem; and the inability to engage in rational economic calculation.
      • There is commerce. There is capitalism.
      • There is wealth, prosperity.
      • Economics, by studying the implications and consequences of human interactions, seeks to explain where wealth and prosperity come from
    • Most of us by now are used to the basic “laws of economics,” such as supply and demand
      • These are different types of laws than moral laws, laws of logic, laws of nature (causal laws, physics), and legal laws, but thought of as laws nonetheless
        • Austrian methodology can be summarized by answering four questions: What is the object of study of the economic science? Human action (Mises, 1957, pp. 1–2; Hoppe, 1995, pp. 31–44). Who carries out this action? Individuals; and that is why Austrians use methodological individualism to study the logic of action because only individuals act (Mises, 1949, pp. 41–42). What is the motive for acting? Unsatisfied human wants that change constantly (Menger, 2007, pp. 82–83). Therefore, individuals continuously act to change their present state of affairs for a more favorable one. As Mises (1962, p. 2) phrases it: “Man acts because he lacks the power to render conditions fully satisfactory and must resort to appropriate means in order to render them less unsatisfactory.” And last, how do individuals value? On the margin, because means are scarce. The individual uses the units of a means to satisfy those ends that will remove a greater uneasiness first (Mises, 1949, pp. 119–20).
          • Philipp Bagus & Eduardo Blasco, “Will the Antagonism Between the Mainstream Theories and the Theories of the Austrian School of Economics Continue to Exist in the Future or Will More Ideas of the Austrian School Be Incorporated in Mainstream Economics?,” in Annette Godart-van der Kroon & Joseph Salerno, eds., The Austrian School of Economics in the 21st Century: Evolution and Impact (Springer, 2022)
        • Notice that the law of supply and demand does not need empirical testing
          • It is intuitively obvious that when there is a greater supply of a good, then people demanding the good do not need to pay as much for it
          • This law could never be empirically falsified.
          • Is it even possible to imagine a situation where people pay more for a good that is in greater supply?
          • We understand the law of supply and demand from our reason, not from conducting experiments.


Schools of Economic Thought

  • There are various “schools” of economic thought, or approaches, including
    • Classical, mercantilist, and so on
    • According to one economist: “mainstream economics can be divided into the following schools: the Neoclassical, the New Keynesian, and the Neoclassical-Keynesian Synthesis”
    • Other schools: Marxist
    • Chicago or monetarist
    • There is also the “public choice” school associated with James Buchanan, game theory, and so on
    • Some “schools” of economics are associated with geography, just as in physics we hear of the “Copenhagen interpretation” of quantum physics
    • Likewise in economics there are the Austrian, or Vienna; and Chicago schools of economics
      • Chicago: associated with Milton Friedman who won the Nobel prize and helped usher in the “logical positivist” tendency of modern ecnomics, with his famous essay
      • “Austrian” school: So-called since its main proponents came from Vienna in the late 1800s/early 1900s: Menger, Mises, Wieser, Bohm-Bawerk, Hayek, and so on.
      • Austrian economics does not have anything to do with the economy of Austria, as the hapless and clueless CEO of ING said once in a debate with Tom Woods when he complained that Austria was not relevant because of its small GDP. Woods replied that we may as well say we shouldn’t listen to Milton Friedman, since the GDP of Chicago is pretty low…
      • Free market versus statist/collectivist
        • Austrian, Chicago, Public choice are more or less free market
        • Keynesian, Marxist favor more government or collective control
      • But the main difference is in methodology
        • Only the Austrians still hew to the original idea of economics as a deductive science, not one trying to mimic the methods of physics
        • In other words, the Austrians have a different conception of “science,” and of logical positivism, than other schools of economics

Marginal revolution late 1800s

  • https://en.wikipedia.org/wiki/Marginal_utility#Marginal_Revolution
  • Jevons, UK, Carl Menger, Vienna, Walras French/Swiss, and American John Bates Clark
    • Simultaneous invention often happens at the same time, because the background knowledge is available
    • Jevons more positivistic and influenced Wieser
  • Solved the “diamond paradox”
  • Value is on the margin
  • Individual choice

The Historial Origins of the Austrian School

  • Carl Menger was the progenitor of the Austrian school which focused on
    • Marginalism, that is, subjective value theory
    • Methodological individualism
  • Austrian theory diverged in two directions:
    • Wieser, then Hayek and others such as Israel Kirzner
      • More focused on dispersed knowledge and the market as a process
    • Bohm-Bawerk, then Mises
      • Mises systematized this
        • He developed “praxeology” and used it to study “catallactics”
          • Most times neologisms imply crankism
          • For a serious scholar, I say they get one
          • For a big-time genius, like Mises, they can have two
            • Briefly explain praxeology and catallactics
          • Followers such as Murray Rothbard, Hans-Hermann Hoppe, Joseph Salerno, Guido Hülsmann, et al.
        • The dehomogenization debate starting in the 1990s spurred on by Salerno’s introduction to the reprint of Mises’s 1920s attack on central socialist economic planning
          • Hayekians emphasize knowledge problems as the problem with central economic planning
          • Misesians emphasize property, price, and calculation problems
            • Explain the calculation debate next—


  • We have already talked about Carl Menger and the Marginal Revolution. Now let’s talk about some of Mises’s contributions
  • The Great Socialist Calculation Debate
    • Salerno used this to distinguish the Misesian branch from the Hayekian branch.
    • Started with Mises, Economic Calculation in the Socialist Commonwealth(1920)
    • Mises pointed out that without free market prices for not only consumer goods but for capital goods, the means of production, there is no way for central planners to know what projects to pursue.
    • The only way to know this is to have free market money prices generated on the free market that reflect the subjective values and preferences and knowledge of market actors so that economic actors can be guided by this price array to use resources as efficiently as possible.
    • Without free market prices, rational economic calculation is literally impossible.
    • And you cannot have free market prices without private property rights in the means of production.
    • In other words, economic calculation under a true socialist system is literally impossible
    • In 1989, after the fall of the Soviet Union, democratic socialist Robert Heilbroner, admitted Mises was right: “Less than seventy-five years after it officially began, the contest between capitalism and socialism is over: capitalism has won.” In another article, he wrote “It turns out, of course, that Mises was right.” Robert Heilbroner, After Communism, New Yorker, Sept. 10, 1990, p. 91, 92.
  • Austrian Business Cycle Theory
    • Unique view of depressions and deflation
    • Explain the theory
    • Hayek won the Nobel Prize for this in 1974, after Mises died in 1973
      • Conspiracy theories about this
      • Mises at MPS: “You’re all a bunch of goddamned socialists.”
    • Fractional Reserve Banking Debate
      • Origin of Money
        • “Regression Theorem”: the value of money
          • Remember again, money is not wealth itself
        • Misesian-Rothbardians vs. “Freebankers”
          • The Great Fractional Reserve/Freebanking Debate
          • Any supply of money is optimal
          • Because money is not wealth
            • It is “sui generis”
          • Applicability to Bitcoin
            • Nature and function of money
            • Barter
            • indirect exchange
            • medium of exchange
            • monetary premium
            • calculation and barter problems solved

Conclusion: The Purpose of Economics

  • So the purpose of economics is to understand the implications of human choice and interactions and to understand the cause and nature of phenomena such as:
    • Trade/barter
    • The emergence and nature of money
    • The division and specialization of labor
    • The production of wealth
  • Another purpose of economics is to be used in normative theory to recommend or critique policy (law)
    • Economics itself is wertfrei
    • Given shared goals or values, economics can inform us as to what policies we ought to prefer or oppose
    • As Mises says, anyone who favors peace, prosperity and human cooperation, understanding basic economics laws, ought to favor private property and free markets, since they are means to the more basic and evaluative ends or values that most humans share
  • Austrian economics is humble:
    • It does not pretend to be a science like physics, and does not pretend human values can be quantified or predicted
    • But it it a science, of its own type
    • It realizes the limits of human design and especially central economic planning
    • It realizes the order and harmony and cooperation and wealth can emerge from the unplanned interaction of free individuals operating within a private law context


Austrian Economics

Recommended Reading

Stephan Kinsella



  • Human action is the attempt, by an actor, who is uneasy about what he envisions the future to be, to intervene by acting: that is, using his body, over which he has control, to manipulate external means of action (that is: scarce resources; physical things; things that are causally efficacious at affecting other things), guided by knowledge (knowledge about: causal laws; contingent facts about the world) to change the future that is coming
    • “Whenever we act, we employ means to achieve a valued end. This end is a state of affairsthat the actor prefers to the actual (and impendingstate of affairs. Both states of affairs, at the beginning of action and at its conclusion, are constellations of means (goods) at an actor’s disposal, describing the circumstances or conditions under which he must act.” —Hans-Hermann Hoppe, The Great Fiction, ch. 17 (emphasis added)
  • The result of this action is either success (profit) or failure (loss)
  • Thus the fundamental economic categories according to Austrians are implied in the praxeological concept of action: ends, means, value, utility, scarcity, profit, loss, opportunity cost, uncertainty, risk, and so on.
    • Explain opportunity cost
    • Implied also by the marginal revolution
  • Marginal value theory
    • Diamonds vs. water
  • Regression theorem: Money value
  • Calculation debate (critique of socialism)
    • Nature of money: to solve the problems of barter:
      • Double coincidence of wants
      • Inability to calculate
        • Because heterogeneous goods cannot be compared
        • So profit cannot be forecasted or accounted for
          • (theory and history)
        • Austrian business cycle theory
          • Developed by Mises, elaborated by Hayek
          • Mises died 1973; Hayek won the Nobel prize for this in 1974
          • The opposite of conventional explanations, such as that of Keynesians and Chicago
            • These schools oppose “deflation”
            • Not so, Austrians
          • View of money and banking
            • Opposed to fractional-reserve banking, central banks, and inflation
              • Even Friedman/monetarists favor a central bank that inflates at a constant rate
              • Many Hayekian-influenced Austrians favor fractional-reserve banking, e.g. George Selgin, Larry White, Steve Horwitz, etc.
            • Distinction between theory and history


  • Key Austrian, especially Misesian contributions
    • Methodological individualism
    • Subjective value theory
      • Values are ordinal, not cardinal
      • Can only be expressed or demonstrated in action
        • Demonstrated preference
      • Apriorism and dualism
      • Skepticism of the ability to predict the future and to model matters empirically
        • Rejection of logical positivism
          • The idea that the only meaningful statements are those that are testable or falsifiable
          • Milton Friedman’s “The Methodology of Positive Economics”
          • Tried to mimic or “ape” the methods of the natural sciences, e.g. physics
          • So one difference: how we view (say) the minimum wage
            • Friedman would say you have to test this
            • Austrians say you can know apriori that, ceteris paribus, if you impose a minimum wage you will cause unemployment
            • Likewise, if you impose price controls, it has predictable effects
            • Not the amount or exact form, but the tendency
          • Austrian economics reasoning is verbal, not mathematical, qualitative, not quantitative
          • It is not anti-science at all, though it eschews math, and indeed views economics as a science—a systematic realm of knowledge
        • Rule of thumb: when someone coins a new term, the odds are they are a crank. For serious scholars, we give them one. For a super genius, we can give them two. Mises had both praxeology and catallactics.
          • Praxeology:

>>>causal? REALISM****

Menger: prices based on marginal value or utility not the costs of production. Instead on the means of consumers and their subjective valuations, imputed backwards onto the prices of producer’s goods

Explains diamond paradox

Unlike Jevons and Walras, Menger gave a realistic account of this. The others did a “fictitious” account because they thought it could not be “falsified”; their positivism creeping in. Menger: the consumer actually values the individual units of a good about which the choice was being made. Menger explains values and prices by a descriptive theory, elements of reality; not a fictitious hypothetical situation. The way humans really are: they are humans with needs, of different importance and ranking; different goods satisfy these needs differently so have different importances to the actor. They value not classes of goods but individual units. That’s a realistic context to explain what really happens in the actual market.

Methodological Dualism:

distinguish between the methods appropriate to the natural/causal sciences, and those to teleological phenomenon (purpose, choice)

For causal phenomenon, scientific method

But even this has apriori aspects


For human action and conduct—teleology—we know certain things apriori, or as Randians would say, “axiomatically,” that is, propositions that are self-evidently true and their denial leads to self-contradiction. In philosophy (Rand’s axioms): existence exists; consciousness exists, and so on. In economics: Mises: humans act. This has various implications: means and ends, time preference, profit and loss, opportunity cost, supply and demand, marginal utility, and so on.

How we apply these apriori insights: we make some assumptions to make it “interesting”:

See Kinsella, “Mises: Keep It Interesting,”

“Essentially, economic analysis consists of: (1) an understanding of the categories of action and an understanding of the meaning of a change in values, costs, technological knowledge, etc.; (2) a description of a situation in which these categories assume concrete meaning, where definite people are identified as actors with definite objects specified as their means of action, with definite goals identified as values and definite things specified as costs; and (3) a deduction of the consequences that result from the performance of some specified action in this situation, or of the consequences that result for an actor if this situation is changed in a specified way. And this deduction must yield a priori-valid conclusions, provided there is no flaw in the very process of deduction and the situation and the change introduced into it being given, and a priori—valid conclusions about reality if the situation and situation-change, as described, can themselves be identified as real, because then their validity would ultimately go back to the indisputable validity of the categories of action.” —Hans-Hermann Hoppe, TSC p. 142


  • What is economics, then?
    • “Essentially, economic analysis consists of: (1) an understanding of the categories of action and an understanding of the meaning of a changein values, costs, technological knowledge, etc.; (2) a description of a situation in which these categories assume concrete meaning, where definite people are identified as actors with definite objects specified as their means of action, with definite goals identified as values and definite things specified as costs; and (3) a deduction of the consequences that result from the performance of some specified action in this situation, or of the consequences that result for an actor if this situation is changed in a specified way. And this deduction must yield a priori-valid conclusions, provided there is no flaw in the very process of deduction and the situation and the change introduced into it being given, and a priori—valid conclusions about reality if the situation and situation-change, as described, can themselves be identified as real, because then their validity would ultimately go back to the indisputable validity of the categories of action.”– Hans-Hermann Hoppe, TSC 142
      • “All true economic theorems consist of (a) an understanding of the meaning of action, (b) a situation or situational change—assumed to be given or identified as being given—and described in terms of action-categories, and (c) a logical deduction of the consequences—again in terms of such categories—which are to result for an actor from this situation or situational change.” Hoppe, Hans-Hermann, Economic Science and the Austrian Method (Mises Institute, 2007), p. 63.


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