my take on austrian economics

fakename posted on Wed, Jul 1 2009 3:55 PM

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So here's what I've learned so far, is there any thing (s) you'd like to add?

The Action Axiom: People act since to argue against it is to act.  The Postulates: 1) different factors of production 2) leisure is a consumption good, 3) People act in their own self-interest (could be an axiom?).

If people act then people choose (opp. cost), if people choose then people have a lower-valued alternative they didn't choose, this means that people have value scales, if there are value scales then by definition action takes place on the margin, valuation is an action, so valuation takes place on the margin (marginal utility).  Marginal utility is applied to marginal units which are subjectively defined by the actor and it applies only to homogenous goods. 

When people trade, trade is only possible because there is a double inequality between what person 1 values and person 2 values in order for there to be an incentive to exchange.  Because of uncertainty profits result when entrepreneurs discover new ways to satisfy consumption. Uncertainty exists because if it didn't than there would be no reason for action and so no action.  Therefore the market never reaches an equilibrium but always tends towards it.  Time-preference (the preference for 1 unit of a good now over 1 unit of a good later) exists because if it didn't then it would make sense to never act at moment 1,2,...etc.  Because of time preference interest rates exist.  In a world without uncertainty there would still be interest rates because of the passage of time it takes to produce a good.  An instantiation of time-preference also exists in wages because wages are just investments in a certain factor of production which pay an interest at the end to the time of production to the capitalist who advances them. 

Because of all of these considerations government interference will never achieve it's stated goals (unless the goal is to destroy society).  For instance price setting and minimum wages cause a discoordination between production and how much is needed for consumption because the double inequality is raised for one person and lowered for the other so the market tends even less towards equilibrium.  The ultimate example of skewed incentives is the calculation problem since profit and loss calculation allows people to allocate resources to their most valued ends, and since privately owned property is the only thing capable of being lost or profitted on, then a socialist economy -where all or some property is under state direction -will be unable to allocate resources effectively because the fate of the people is not directed by profit and loss.

Also, when people act they believe they will profit because if people act in their self-interest, and they take any arbitrary action, then this action must be in their self interest -so when they act they believe they will profit (a little circular ?).  This means that all gov. intervention can never increase the utility of action and in fact it decreases it by making people act according to their lower valued alternatives. Therefore utility itself is only categorical and cardinal it cannot be numerically analyzed as in mathematics.  Also this means that the free market always increases utility. 

THE END