In this introduction to the basics of Austrian-school economic analysis, Joseph Salerno introduces a number of basic concepts including utility, exchange, psychic cost, choice, and marginal value.
All action is exchange, even forced exchange like slavery, taxes, eminent domain and conscription, where only one party gains. The Law of Marginal Utility tells us how many exchanges will be made.
What principles determine the formation of prices on the free market? The equilibrium price between supply and demand determines prices according to the value scales of sellers and buyers and their elastic or inelastic positions.
The immediate effect of price controls or any government intervention upon the market is shortage of goods. Price controls discourage production just when it is needed most. The economy approaches full socialization. Rent control is the easiest way to destroy a city besides bombing it.
Capitalist-entrepreneurs must anticipate supply and demand conditions of future market conditions. It is the future price - the appraisement – that must be compared to the costs of factors of production (land, labor, and capital).
Factors of Production are economic goods: scarce means used to achieve an individual’s ends. They are land, labor and capital. Each is examined. Incomes are earned by factor owners as production takes place. There is no separated production and distribution.
All action takes time. Humans use time as a tool. Time preference ranking is now, not later, although time preferences will differ over time and for different people, like children who want things right now.
Naturally occurring monopolies do not last long. Competition emerges to upset them. The sovereignty of the individual defines the free market. The only monopolies that do persist are those maintained by government interventions.
Barter – direct exchange- is inefficient because of the lack of a double coincidence of wants. Some third medium was sought to solve this. It is called money. Exchanges are not equal, they are win-win, with each party gaining more than he is giving or the exchange would not be made.
Loan banking is non-inflationary. Interest rates on loans are merely reflective of price spreads. All speculation, on the free-market, is self-correcting and speeds adjustment, rather than cause economic trouble.
