A New Introduction to Austrian Economics
The Essential Austrian Economics
by Christopher J. Coyne and Peter J. Boettke
Fraser Institute, 2020
Christopher Coyne and Peter Boettke, both professors of economics at George Mason University, say
The purpose of this book is to present an overview of the key tenets of Austrian economics. In order to do so we draw upon and synthesize the insights from the aforementioned thinkers to present and discuss a set of eight topics that capture the core elements of Austrian economics.
By the “aforementioned thinkers,” they mean Carl Menger, Eugen von Böhm-Bawerk, Friedrich von Wieser, Ludwig von Mises, F.A. Hayek, Israel Kirzner, Murray Rothbard, and Ludwig Lachmann. They succeed very well in explaining the topics they cover in a way that students will find easy to follow. Naturally enough, there are points of detail which other Austrians might address differently, and I shall mention a few of these in what follows. (The most questionable statement in the book, oddly enough, does not concern economics at all. In their chapter “Spontaneous Order,” they say, “language emerges as people interact with one another and attempt to communicate” [p. 34]. Chomsky would reject that, and the view is quite controversial.) But the main problem with the book lies elsewhere, and this I shall address after a summary of the book.
Before they cover their eight topics, Coyne and Boettke briefly explain the marginal revolution.
The marginal revolution was a paradigm shift from the established labour theory of value to the marginal utility theory of value. The labour theory of value held that the value of a commodity is a function of the labour required to produce the item. The marginal revolutionists, in contrast, argued that value is not based on the amount of labour expended, but rather reflects how useful people perceive the commodity to be in satisfying their ends. (p. 1)
The new theory was able to solve the “diamond-water” paradox. Further, by proving that there are universally true economic laws, Menger refuted the German historical school.
The first of Coyne and Boettke’s eight topics is “Methodological Principles.” They explain in exemplary fashion the principle of methodological individualism: “Groups and organizations, which consist of people, do not engage in choice and do not have purposes and plans absent the individuals that constitute the group” (p. 5). It is precisely the purposes and plans of individuals which lie at the heart of Austrian economics, and, contrary to Alfred Marshall, the subjective nature of value determines not only the demand side of price, but costs as well.
As they note in “Economic Calculation,” the allocation in a developed economy of production goods to alternative uses requires market prices, and Mises used this fact to prove the impossibility of socialism. “Mises argued that without property rights in the means of production, which the socialists wanted to abolish, there could be no economic calculation because there would be no money prices” (p. 13). The attempts by Oskar Lange and Abba Lerner to incorporate some element of market pricing into socialism did not
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