Home » Uncategorized » Basics of Austrian Economics, as Smiling Dave Sees Them.

Basics of Austrian Economics, as Smiling Dave Sees Them.

Methodology. The way to understand economics is the way they did it in the old days of Mill and the like, by logical thinking. Think back to your high school geometry class. You started with a few first principles and used the rules of logic to deduce theorems. That’s how you do economics as well.

All the pages and pages of equations that dominate so-called economics nowadays are useless for several reasons. First, the models used to build up the equations make absurd assumptions that have no place in the real world. Second, they all have an abysmal record of failure.

Basic Conclusions of AE:

About free markets: A free market is always better for an economy as a whole than any other system. Marxism, socialism, central banking, govt interventions, mixed economies, minimum wage laws, anti trust laws, tariffs, a welfare state, licensing and patents and govt grants of monopoly, all give inferior results.

About govt: The govts role, if any, should be protection of private property, and protection from fraud. By its very nature, being paid for by taxes and not self supporting by selling things on the free market, any govt activity will be worse in all ways than if the private sector had done it.

About Marxism: The Labor Theory of Value, despite Adam Smith loving it, is false. What’s correct is the subjective theory of value. Also, the Marxist economy, where there is no private ownership of the means of production, is doomed to total failure by it’s very nature, even with the best intentions, because of the Calculation Problem [= no way to know if you are making or losing money].

About Keynes and his successors: Say’s law is correct, even in a money as opposed to a barter economy. Keynes stated it incorrectly. Monetary and fiscal policies are all doomed to failure as they do not address the root of the problem that causes recessions, and indeed will worsen the recession. Keynes had no clue what the problem was in the first place. Keynes’s separation of macro from micro was a big mistake. In particular, his fallacy of composition is fallacious.

About Causes of Recessions: The first cause is an inflation of the money supply. Which section of the economy this new money will destroy first, dragging all the others in its wake, and how exactly this destruction will occur, depends on the unique conditions of the economy at the time. A gifted economist can sometimes tell what will happen, but that is more an art than a science.

About Cures for Recession: Sadly, a recession takes time to fix itself, but fix itself it will. Any measures taken to help it along, other than rescinding previous govt meddling, will delay the cure, and possibly make it impossible.

About History: FDR did not end the Great Depression. Nor did World War 2.

About the Gold Standard: Without a gold standard, or better yet, total freedom for anyone to create any kind of money he wishes, like in the old days, there will be continuous impoverishment of the economy. Of course, other forces may overcome this force of impoverishment, but it will still be there, lowering the standard of living below what it would have been.

About Central Banks: Their very existence is bad for the economy, much less anything they do.

About the Euro: Long term, the Euro is doomed. The only thing it will succeed in doing is what its founders wanted in the first place, create constant inflation.

About Bitcoin: Bitcoin is a foolish fad, doomed to failure because it violates the Regression Theorem.

All these things can be proven rigorously.

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  1. […] posted by Smiling Dave on his site on January 25, […]

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