What is Austrian Economics

Austrian economics is a way of thinking about how economies work that focuses on individual choices, the role of prices, and the importance of letting markets operate freely without much government interference.

TLDR: Think of Austrian economics like a big market where everyone is trading. Each person decides what they want to buy or sell based on what’s important to them. Prices adjust based on demand (how much people want things) and supply (how much is available).

Austrian economists believe this market works best without too many rules or a central authority telling people what to do. They also think the market is more stable if it uses sound money (like gold), rather than fiat money that can be printed in endless amounts.

Basic ideas of Austrian Economics

People make choices

Austrian economics starts with the idea that the economy is made up of individuals making choices based on what they value. Every economic decision comes down to individual preferences and actions.

Value is personal

Things are valuable because people want them, not because of how much work went into making them. For example, some Pokemon cards are valuable not because it's costly to print, but because people desire it a lot.

Small changes matter

The value of something changes depending on how much of it you already have. For example, the first slice of pizza when you're hungry is very valuable, but by the fourth slice, it's not as exciting (valuable).

Future vs. present

People prefer to have things now rather than later. This preference for present goods over future ones affects how much people save and invest.

Prices send signals

Prices in a free market tell us a lot. If prices are high, it means something is in demand. If prices are low, it means there's plenty of it. This helps businesses decide what to produce.

Booms and busts

Austrian economists believe that when the government messes with interest rates (the cost of borrowing money) by printing money, it can cause economic bubbles (booms) and crashes (busts). They think it's better to let the market set these rates.

Understanding money with Austrian Economics

How money started

Money wasn’t created by governments. It started as a common agreement among people. For example, if everyone in a village starts using shells to trade because they’re easier than bartering goods directly, those shells become money.

What money does

Money makes trading easier. Instead of swapping goods directly (barter), people use money as a middle step (medium of exchange). Money is also a way to keep track of value and save it for the future.

Real money

Austrian economists like the idea of “sound money,” which means money that holds its value over time, like gold. They’re sceptical of fiat money that governments can print more of, because that can lead to inflation (where money loses value).

Central banks and problems

They’re critical of central banks (like the Federal Reserve in the US) because they believe these banks can create problems by controlling the money supply and interest rates. Austrians think this leads to an unfair monetary landscape that benefits the few at the expense of the many.