ECON103: Principles of Austrian Economics I | Saylor Academy

COURSE INTRODUCTION

Time: 24 hours
Free Certificate

The Austrian school of economics has for a century and a half maintained a rich tradition and a unique methodological approach to economics, which sets it apart from other traditions. Unlike other economic schools of thought, the Austrian School acknowledges that there are no constants in human action. Accordingly, the methodology used for economic analysis is different to that employed in natural sciences such as physics. Rather than positing hypothetical relationships between statistical aggregates that break down when scrutinized, the Austrian School treats the actions of individual humans as the ultimate causal explanations of economic phenomena, and analyzes them using deductive methods. The Austrian School does not advocate a particular political programme – it was described by Mises as “value-free” – it merely aims to help humans to understand the consequences of action. Although not currently a mainstream school of economic thought, there has been a resurgence of interest in the Austrian School since the 2008 Global Financial Crisis (which many mainstream economists failed to predict) and the invention of bitcoin.

As an introductory course to Austrian economics, the content draws heavily on some of the school’s defining texts authored by Carl Menger, Ludwig von Mises and Murray Rothbard. It touches on the ideas of Nobel Prize Winner F. A. Hayek, who was a proponent of the Austrian School and strongly influenced by the work of Menger and Mises. Although not covered in this course, Nobel nominees such as Israel Kirzner were also influential figures in the school’s modern development. Students will learn about some of the Austrian School’s most important concepts including time preference, marginal utility and the subjective theory of value.

The starting point of this course is understanding that all value is subjective, and dependent on the individual making the valuation. With this foundation laid, it becomes possible to understand how people willingly engage in trade. The second part of the course then describes how humans economize, by focusing on some of the most important economizing actions: labor, property, capital, technology, trade, and money. Students will explore the economic motivation and rationale behind each of these topics, along with its impact on human time. The third section of the course introduces the market economy and the capitalist system as the social order in which individuals are able to engage in the aforementioned economizing acts. We study how individual decisions translate to a market-wide price. The Misesian conception of the capitalist system as an entrepreneurial system is then explained, along with the concept of economic calculation, and how free market prices, and free enterprise with private property are the motivator and coordinator of economic activity.

The final section of the course examines the economic impact of violent intervention in the market order, and the introduction of coercive imposition on exchange. The course will explain the theoretical and logical reasons such economizing acts will have a different impact from those that are conducted peacefully. The course concludes with a critical assessment of the meaning of economic growth.

After completing this course students will have the methodological grounding required to undertake sound economic reasoning in the Austrian tradition. They will also be well-positioned to undertake further study of some of the more complex ideas of the Austrian School, such as Austrian business cycle theory and capital-based macroeconomics.

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Select activity Course Syllabus

Course Syllabus Page
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Foreword Page

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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

Unit 1: Economic Value

In the first unit, we cover the fundamental basic building blocks of the Austrian school's approach to economics, beginning with addressing the basic questions: what is a good, what is utility, and what is value? The starting point of Austrian economics is the insight of economist Carl Menger that all value is subjective. There is no value without the individual making the valuation. We also discuss the concept of marginal analysis and what it means, how human economic decisions are taken at the margin, and how this can help us resolve the famous water-diamond paradox, which asks: if water is so essential and valuable to humans, how come it is so much cheaper than diamonds, which are not essential?

Completing this unit should take you approximately 3.5 hours.

Select activity Upon successful completion of this unit, you will ...
Upon successful completion of this unit, you will be able to:
Understand the difference between subjective and objective definitions of value.
Differentiate between economic goods like education and non-economic goods, like air.
Describe scarcity, why economic goods have opportunity costs related to scarcity, and how humans economize due to scarcity.
Explain how subjective value enables trade to take place.
Explain how subjective valuation happens at the margin and how it differs from objective valuation in the aggregate.
Describe the law of diminishing marginal utility.

1.1: Goods, Value, and Scarcity Lecture
- Select activity 1.1: Lecture
  
  1.1: Lecture Page
  
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  Watch this lecture to examine the concept of a good and the centrality of scarcity to understanding human action. In the video, Dr. Saifedean describes the difference between economic and non-economic goods, and explains the importance of scarcity and why humans must value economic goods. Topics covered include: Economic goods • Non-economic goods • Opportunity cost • Economizing • Subjective value • Value and free exchange • Ordinal valuation • Cardinal valuation • Marginal analysis • Law of diminishing marginal utility
- 1.2: Goods, Value, and Scarcity Discussion
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    1.2: Discussion Page
    
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    Since you have watched the video lecture for unit 1, it's time to watch Dr. 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,
- 1.3: Goods, Value, and Scarcity Review
  - Select activity 1.3 Review: Introduction to the fundamental concepts of economics
    
    1.3 Review: Introduction to the fundamental concepts of economics Page
    
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    This resource contains a summary of some of the key concepts discussed in unit 1. Don't skip ahead - the information on this page is easier to understand if you have watched the video lecture and discussion seminar video in their entirety. Bookmark this resource to keep it handy during studying.

Unit 2: Human Action

In the second unit, we introduce Ludwig von Mises' concept of human action, and how it is the basis for our analysis of economics. Human action is defined as purposeful behavior directed at the attainment of ends in the future. Only humans act, because humans are endowed with reason. The real mover in the affairs of the world is the action of humans, and according to the Austrians, economics can only be understood if the unit of analysis is individual action.