ECON104: Principles of Austrian Economics II

BEFORE YOU START THE COURSE, READ THIS FOREWORD. It is a brief primer on the conceptual framework and the theoretical aspects of the Austrian school of economics , and it puts the school's main views in context of the broader economics discipline

How does a business determine which combination of resources is best to make a product? The answer is prices. Without pricing for capital goods, investment is impossible since potential future outputs cannot be measured by any current standard. Austrian economics recognizes the critical role prices play in helping people allocate limited resources efficiently, which in turn benefits society. Watch this lecture to examine the role of economic calculation in an economy. In the video, Saifedean explores the calculation problem that socialist central planners encounter and explains the important role of capital markets in allocating resources.

Topics covered include:

• Market for capital
• The economic calculation problem (ECP)
• Modern academia's failure to understand the ECP
• Inability of central planners to rationally allocate resources

• Modern academia fails to understand the economic calculation problem.
• Lack of incentives is not the greatest problem faced by socialist regimes.
• Allocating capital sufficiently is impossible without a market for capital goods.
• If government owns all capital resources, there can be no market for capital goods.

Spontaneous order attempts to explain how human conventions and institutions emerge as the unintended consequences of the actions of a myriad of individuals, pointing to the limits of rationalism and the conscious shaping of social life. Watch this lecture to examine how spontaneous order is achieved through distributed knowledge on the market. In the video, Saifedean explores the concept of spontaneous order, focusing on the work of Friedrich Hayek and Vernon Smith.

Topics covered include:

• Distributed knowledge
• Rational constructivism and its shortcomings
• The important role spontaneous order fulfilled in the process of selection on the market

Key points

• Complex goods and even language are examples of things that emerge through spontaneous order
• Reason is good at providing variation but poor at selection, which is better left to ecological processes
• Spontaneous Order can be understood as orders and patterns that emerge out of human action and interaction, not through human designs

Spontaneous order attempts to explain how human conventions and institutions emerge as the unintended consequences of the actions of a myriad of individuals, pointing to the limits of rationalism and the conscious shaping of social life. Watch this lecture to examine how spontaneous order is achieved through distributed knowledge on the market. In the video, Saifedean explores the concept of spontaneous order, focusing on the work of Friedrich Hayek and Vernon Smith.

Topics covered include:

• Distributed knowledge
• Rational constructivism and its shortcomings
• The important role spontaneous order fulfilled in the process of selection on the market

Key points

• Complex goods and even language are examples of things that emerge through spontaneous order
• Reason is good at providing variation but poor at selection, which is better left to ecological processes
• Spontaneous Order can be understood as orders and patterns that emerge out of human action and interaction, not through human designs

Since you have watched the video lecture for unit 2, it's time to watch Saifedean moderate a discussion on the unit's theme by addressing questions asked by your fellow classmates. As you watch the discussion unfold, take notes to help you retain information. Make sure you watch the entire discussion seminar video; otherwise, you may skip over important points. To get the best learning experience and mastery of the major concepts covered in this unit, you'll want to watch all videos in their entirety.

Topics discussed include:

• Scientism and Historicism
• A deeper look into the work of Vernon Smith
• The shortcomings of the Standard Socioeconomic Science Model
• Problems that arise when economists propose regulations to fix market failures

What is the time preference theory of interest rates? In Austrian economics, time preference theory explains interest rates based on people's spending preferences today versus in the future. In other words, time preference looks at how people value current consumption over future consumption. Some believe that consumers prefer future goods. For example, a person may crave ice in summer and not in the winter. In this situation, it is not the ice itself that is good and is being compared since the physical property of the ice does not change; rather, the satisfaction ice brings in different weathers.  In the video, Saifedean explains the concept of time preference and how it impacts all aspects of human life.

Topics covered include:

• Bohm Bawerk's Positive Theory of Capital
• Time preference and how interest rates are formed
• How time preference impacts your life and society
• The importance of low time preference for prosperity in a society

Key points:

• Humans value present goods more than future goods
• Interest rates form spontaneously from human action
• Low time preference is crucial for prosperity in society
• Trades between your present and future self are the most important trades in your life

Since you have watched the video lecture for unit 3, it's time to watch Saifedean moderate a discussion on the unit's theme by addressing questions asked by your fellow classmates. As you watch the discussion unfold, take notes to help you retain information. Make sure you watch the entire discussion seminar video; otherwise you may skip over important points. To get the best learning experience and mastery of the major concepts covered in this unit, you'll want to watch all videos in their entirety.

Topics discussed include:

• Hard money
• Personal time preference
• How banks create money through debt
• Distinguishing between saving and investing

In general, Austrian theory assumes that social time preferences determine the relationship between total consumption and total savings, and thus the amount of total investment expenditure. Menger and Mises argued that individual time preferences determine interest rates. As a rule, current products are valued higher than future products. This is because creditors give up some of their current profits. So, the interest rate phenomenon is a cost that the creditor has to bear. Watch this lecture to examine how interest rates are formed on the market and the role of time preference in this process.

Topics covered include:

• Originary interest
• Profit vs. interest 
• The history of interest rates
• The capitalist's role in production
• The value of present vs. future goods

Key points:

• Interest is a naturally emergent spontaneous phenomenon
• Without someone providing the capital, no production could be possible
• Present money is worth more than present expectations of the same amount of future money
• Time preference manifests in originary interest: discount of future goods against present goods

Since you have watched the video lecture for unit 4, it's time to watch Saifedean moderate a discussion on the unit's theme by addressing questions asked by your fellow classmates. As you watch the discussion unfold, take notes to help you retain information. Make sure you watch the entire discussion seminar video; otherwise, you may skip over important points. To get the best learning experience and mastery of the major concepts covered in this unit, you'll want to watch all videos in their entirety.

Topics discussed include:

• Interest, deflation, and how this could impact productivity
• How Bitcoin's deflationary properties could impact capital markets • The effects of increases and decreases in the money supply in an economy
• How a mismatch in individual time preference causes lending and borrowing

Mises' theory of money and credit argues that money began as a solution to the problem of exchange. People needed a better means of exchange than directly exchanging one commodity for another. For Mises, money is basically anything that is used as a medium of exchange. Watch this lecture to examine the topology of money, the issuance of fiduciary media by banks, and the consequences thereof. The second half of the course explores how digitization is leading us to rethink the fundamental phenomenology of money.

Topics covered include:

• Types of money
• Fiduciary media
• The Golden Rule in banking
• The Solvency and Liquidity of banks
• Commodity credit vs. circulation credit

Key points:

• Fiduciary media is money substitutes not backed by money holdings
• The lending of fiduciary media increases the supply of the medium of exchange
• The lending of fiduciary media does not require anyone to forgo a present good
• Money is, in essence, a medium of exchange. Its other functions are derivative from this

Since you have watched the video lecture for unit 5, it's time to watch Saifedean moderate a discussion on the unit's theme by addressing questions asked by your fellow classmates. As you watch the discussion unfold, take notes to help you retain information. Make sure you watch the entire discussion seminar video; otherwise, you may skip over important points. To get the best learning experience and mastery of the major concepts covered in this unit, you'll want to watch all videos in their entirety.

Topics discussed include:

• The work of Antal Fekete
• The Bitcoin lightning network
• Can fiduciary media be created on top of Bitcoin?

Austrian Business Cycle Theory is an economic theory that describes how the business cycle works. According to the theory, the business cycle unfolds as follows: low interest rates encourage borrowing, which leads to increased capital spending financed by new bank loans. In this lecture, Saifedean explains what the Austrian Business cycle entails.

Topics covered include:

• Malinvestment
• Interest rates and economic calculation
• How the expansion of credit causes miscalculation
• The inevitability of a bust after an economic boom

Key points:

• Inflation expectations lead to less savings
• Illusory profits lead to increased consumption
• Collapse cannot be avoided; the boom should be avoided in the first place
• The essence of the credit-expansion boom is not overinvestment, but malinvestment
• Market interest rate is: Originary interest + entrepreneurial risk + price premium
• Austrian theory does not predict how long a boom will last, only that it will stop when credit expansion stops

Since you have watched the video lecture for unit 6, it's time to watch Saifedean moderate a discussion on the unit's theme by addressing questions asked by your fellow classmates. As you watch the discussion unfold, take notes to help you retain information. Make sure you watch the entire discussion seminar video; otherwise, you may skip over important points. To get the best learning experience and mastery of the major concepts covered in this unit, you'll want to watch all videos in their entirety.

Topics discussed include:

• The Cantillon effect
• Are we in or close to a liquidation phase of the ABC
• How the US "exports" its inflation to the rest of the world

For many years, economists have pondered the causes of business cycles and how to deal with them. For example, Keynesian economists believe that recessions are a symptom of a lack of aggregate demand, and it is the government's prerogative to stimulate aggregate demand through spending, consumption, investment, and exports. In contrast to the Keynesian view, which emphasizes the importance of periods of recession, the Austrian view is that the expansionary period of the business cycle is the beginning of the business cycle. In this lecture, Saifedean looks at the different stages of production and how malinvestment can lead to a boom, overconsumption, unsustainable growth, and disturbances in the labor market.

Topics covered include:

• The issuance of fiduciary credit
• The concept of the intertemporal structure of production
• The relationship between an individual's time preference and their propensity to invest
• The economic principle that involves deferring immediate consumption to foster greater production

Key points:

• There is a trade-off between consumption and investment
• Saving through deferred consumption increases early-stage production
• Overconsumption and overinvestment is unsustainable and inevitably leads to a bust
• An increase in fiduciary media leads to overconsumption, overinvestment, and malinvestment

Since you have watched the video lecture for unit 7, it's time to watch Saifedean moderate a discussion on the unit's theme by addressing questions asked by your fellow classmates. As you watch the discussion unfold, take notes to help you retain information. Make sure you watch the entire discussion seminar video; otherwise, you may skip over important points. To get the best learning experience and mastery of the major concepts covered in this unit, you'll want to watch all videos in their entirety.

Topics discussed include:

• Debt vs. equity for financing
• Other effects of fiat money on the economy
• The futures market as seen through an Austrian lens
• The correlation between savings rates and economic growth

Monopolies are usually bad for consumers. For example, AT&T was highly profitable as a legal monopoly in the 1970s, and in 1984, the company was broken up into seven regional telephone carriers due to government intervention. The breakup gave consumers access to more choices and lower prices.

Should the government have a monopoly on security? The challenge for citizens is the balance between security from those who do us harm and security from government agencies like the NSA, which has the right under the Patriot Act to check an individual's emails and phone messages. There is a case to be made for the privatization of security and defense. Watch this lecture to understand why it would be better for consumers if security and defense were privatized.

Topics covered include:

• Hobbesian myth
• Consequences of a government monopoly on defense • Arguments in favor of privatizing security and defense services

Key points:

• A monopoly in security is bad for consumers
• Private security is not only possible but will be far better for consumers
• The Hobbesian myth: In the state of nature, a permanent “underproduction” of security would prevail
• Constitutions don't fulfill their role in limiting governments because the government itself interprets and enforces the constitution

Since you have watched the video lecture for unit 8, it's time to watch Saifedean moderate a discussion on the unit's theme by addressing questions asked by your fellow classmates. As you watch the discussion unfold, take notes to help you retain information. Make sure you watch the entire discussion seminar video; otherwise, you may skip over important points. To get the best learning experience and mastery of the major concepts covered in this unit, you'll want to watch all videos in their entirety.

Topics discussed include:

1. Existential crisis and how humans react
2. Rivalry and excludability in public goods
3. How gun ownership relates to private defense
4. Security and Defence under different political and economic systems

Property may be defined as an exclusive right to control an economic good and is derived from scarcity. How, then, could it be possible to own an idea if it is not scarce? Watch this video lecture to understand the fundamental concepts of property rights and the problems caused by intellectual property laws.

Topics covered include:

• Challenges with patents
• Natural law vs. legislation
• Scarcity and property rights
• Elements of legitimate property
• Intellectual property controversy
• Libertarianism and the market economy

Key points:

• Patents stifle innovation and cause endless litigation
• Intellectual property laws are simply state grants of monopoly privilege
• First mover advantage provides enough motivation to encourage innovation
• Property comes from scarcity. It is the scarcity of a resource that urges individuals to declare property rights over it
• Libertarianism revolves around the idea that no man or group of men may aggress against the person or property of anyone else

Since you have watched the video lecture for unit 9, it's time to watch Saifedean moderate a discussion on the unit's theme by addressing questions asked by your fellow classmates. As you watch the discussion unfold, take notes to help you retain information. Make sure you watch the entire discussion seminar video; otherwise, you may skip over important points. To get the best learning experience and mastery of the major concepts covered in this unit, you'll want to watch all videos in their entirety.

Topics discussed include:

• The FDA system and its huge regulatory burden
• Would there be less innovation without government intervention?
• What would the legal profession look like without intellectual property laws?

Bitcoin and the Austrian school relate to each other in many ways. Watch this lecture as we discuss the characteristics of Bitcoin, especially its fixed and predictable supply. The now famous stock-to-flow model, as first described by PlanB, seems to be unexplainably accurate. Could it be that Bitcoin introduces the first constant in economic calculation?

Topics covered include:

• Money emergence on the free market
• Government-issued money and opportunity cost
• Bitcoin's stock-to-flow ratio as an economic constant

Key points:

• Bitcoin's supply is fixed and predictable
• Bitcoin is an example of how money can emerge on the free market
• The S2F model, based on Bitcoin's fundamentals, could be the first example of accurate economic modeling
• This predictability causes less uncertainty about the future and enables people to lower their time preference

Since you have watched the video lecture for unit 10, it's time to watch Saifedean moderate a discussion on the unit's theme by addressing questions asked by your fellow classmates. As you watch the discussion unfold, take notes to help you retain information. Make sure you watch the entire discussion seminar video; otherwise, you may skip over important points. To get the best learning experience and mastery of the major concepts covered in this unit, you'll want to watch all videos in their entirety.

Topics discussed include:

• Causation vs causality
• Human action vs. econometrics
• The Misesian view on data analytics
• Further clarification and questions about the S2F model