 So, I was trying to come up with the best analogy for how economics is presented to the public, and I've narrowed it down to two. The Wizard of Oz and the Latin Bible. Bear with me. Whether or not you study or are even interested in economics, you will know one thing. It's complicated, and that's an understatement. But does it need to be as much as it is? Imagine economists as the Wizard of Oz, a giant, powerful, all-knowing talking head filled with some sort of ascended wisdom that the riff-raff are far too stupid to understand. Using incredibly obscure jargon, mathematical equations, convoluted models, and a PhD to back it all up. But in the end, it turns out to be mostly a big contraption of smoke and mirrors, and the economists are revealed to actually be the man behind the curtain. Just a regular mortal, like you and I, however, ruling by a deceitful and fake façade. Or when the Catholic Church decreed that the Bible must only ever be written and spoken in Latin, and the educated kings had the time of their lives knowing that the uneducated and unwashed masses would have no way to tell if their translation of Scripture is true or total lies that the king recites to justify abuses of power. Such are mainstream economic doctrines. At its core, the economy is not the stock market, currency exchange rates, interest rates, booms and busts, or flashy charts that you see on Bloomberg and MSNBC. They are a part of it, but the economy is not the sum of these parts. The core of an economy is people and the choices they make. In fact, the definition of an economy is a system for the allocation of a society's scarce resources, not numbers moving up and down on a screen. One wise phrase that I got from one of my lecturers is that finance studies money, economics studies stuff. But economics is presented as finance to the public, like it's some sort of niche, scientific study of money and wealth. Economics is the study of people. We are people. The economy is us. Economics is a social science, not a hard science. Ludwig von Mises perfectly summed up why this is by saying that a human's actions are unique and non-repeatable. Whereas with a hard science like physics, you can use laboratory conditions to adequately measure environmental variables such as air temperature, pressure and object mass to calculate how quickly a hammer will hit the ground once it's dropped. What you absolutely cannot objectively measure is how humans will react to various changes, because humans are the most unpredictable things you could ever imagine trying to study. If there is one phrase that is used more than any other bioconomist, it is ceteris paribus, which is Latin for all other things remain in constant. So it can be said, ceteris paribus, a small amount of firms brings about higher prices. So you have two economic variables here, firms and prices, but explicitly ignore the immeasurable amount of factors that work in an economy in real time alongside them that can't be turned off and on by a switch like in a laboratory. My Latin Bible analogy works perfect here because those two words give economists a get-out-of-jail free card to make absurdly sweeping claims and then base their actions off of them. And you might have heard the name Pareto before and likely him being given lots of praise. Wilfredo Pareto had a funny name, but was originally an engineer who brought mass appeal for merging mathematical engineering concepts into the field of economics, and as such he is the bane of my existence. Pareto tried to turn the social science into another kind of engineering and laid that foundation stone for Keynesian and neoclassical doctrine, which are the current mainstream, to base themselves off this false equivalency between social and hard sciences. Just as you would expect any mixing of two completely incompatible solutions, this mixture has been a disaster. Typified by inflation, bubbles, tyranny, and mass wealth redistribution from the poor to the rich. If that's true, then how the hell have we let it go on for nearly a hundred years? Well, it is a self-protecting disaster as the ones who commit it shroud their actions through what is an impenetrable mystery of numbers, equations, and meaningless terms for the layman. The truth is that economics can be adequately explained and understood by barely using any of them. If you want to study economics, of course you'll need a high level of mathematical and analytical skills, but to understand what an economy is and what economic institutions like central banks do, you just need to be an adult with common sense and time to read about it. But, like the Latin Bible, this new economic language is maintained to hide the doctrines that harm you so greatly. If the Keynesians of the world actually spoke English instead of using fraudulent terms to describe concepts that already have words, society would see them for the snake oil merchants that they truly are, peddlers of a dud product for their own enrichment and empowerment at your expense. These fake wizards use their fake knowledge of the arcane to just tell politicians what they want to hear. Do this and it will give you more power. One day I'll make a video decoding Keynesian terms back into real English so you can see that their fanciful theories make little actual sense and in fact sound terrible when they can't dress it up and rephrase words to hide their true connotations. And for neoclassical economists, there is no more joy for them than sitting at a desk all day trying to think of what they call market failures so they can publish a book that other neoclassical economists will buy and then scurry off like rodents to tell their politicians, look master, another opportunity for conquest. This whole process is even more of a farce as neoclassicals base these so-called market failures against what they call perfect competition. Once again, an economy is a group of humans and humans are not and never will be perfect. So they go about searching for imperfections all day long amongst a gathering of imperfect humans and when they inevitably find them, they go to another group of imperfect humans and tell them to plug the hole. But of course the plug is imperfect so it ends up creating a much bigger problem than there was before. Let me give you an example with the most egregious of their market failures and the one which is their most popular, what they call imperfect information. Imperfect information is not a market failure, it is literally a market feature otherwise called specialization. The so-called market failure of imperfect information says that the seller of a product normally knows more about the product than the buyer, therefore the seller can rip them off and that's a failure of the market. The market feature of specialization says through practice an individual becomes more skilled in a given field than his peers and can perform it better. If your goal as a seller is to sell goods for a higher price and you can do it then congratulations you're well specialized as you should be. If you in fact mislead a customer or sold them a faulty product then you've committed fraud and just to remind the neoclassicals we knew what fraud was long before you put your massive brains together to come to our rescue. But there is one school of economic thought that demystifies the artificial barriers to understanding what an economy is, why it works and why it crashes. It doesn't rely on models to prove its validity, it recognizes that economics is a social science first and that mathematics makes sense in analysis but not in explanation, it recognizes humans and their institutions for the imperfect beings that they are and says that they are overall far more rational than the elitists give them credit for and if they are left to work things out themselves they will not only find a way they will find the best possible way that is the Austrian school of economics. The Austrian school is demonized by the mainstream because it completely undermines the ivory towers that they enjoy, it makes the understanding of economics accessible to everyone and it makes brilliant sense all the way through from start to finish whether you've never taken an interest in economics before in your life or you've been studying it for decades. It describes economics not as a category of engineering or mathematics but one of praxeology meaning the study of human action. All the factories in the world won't do anything unless humans act upon them. Humanity is responsible for all economic activity ever to happen, without our actions there would be no production. Chalking all subjective human action up to concrete rules of behavior is so ridiculous that only the intellectual class would have the naivety to do it. So remember the talking heads for the naive sicker fans that they are, remember the economy doesn't start with thousands of charts but starts with us and our choices and remember that governments are not benevolent but are made up of humans just as flawed if not more than everybody else. These are the very first keys to understanding what economics actually is, how economies work and how they can be manipulated against you. This video will serve as my preamble for a series I will start working on explaining the basics of the Austrian School of Economics so use this mindset daily, keep it in mind and take it easy. Hello and welcome to my first video in a series where I will endeavour to explain the basics of the various concepts that make up the Austrian School of Economics. I've already done an informal preamble to the series in a video called Demystifying Economics where I talk about how to open your mind as to what economics actually is and that it is not some sort of arcane mystery only understood by members of Mensa. Economic theory can be understood by anyone when it's presented as a string of logical concepts about how humans behave. So if you find yourself feeling intimidated at the prospect of trying to understand the Austrian School of Economics go ahead and watch that video and hopefully it can put you more at ease and get you motivated to learn. So to introduce the school we have to outline where it comes from aside from Austria obviously, understand what it stands for, some of its definitions, learn the key thinkers and their contributions and then in the next episode we will begin exploring the subjective nature of value. So yes as the name suggests you can probably tell that the Austrian School started in Austria but ironically it began as a resurrection of various French Enlightenment ideas. The founding of the school is considered to be with the publication of Karl Menger's book The Principles of Economics. Menger was born on February 23rd 1840 in what was then Galicia, a region of the Austrian Empire but is now in modern-day Poland. In his early professional life, Menger worked as a journalist reporting on and providing analysis of financial markets. During his time as a reporter he increasingly realised contradictions and how the classical economists explained where prices and value come from and how people actually behave towards them. Up until then the price of a good was mostly believed to be derived from the cost of creating it. Also on the rise was the Marxist labour theory of value that any value a good has comes directly from the amount of labour a worker puts into it. Menger shattered these views in what he called a rediscovery of the subjective theory of value and marginal utility from French liberal thinkers such as Richard Cantillon, Anne-Robert Jacques Turgot, Jean-Baptiste, Antoine de Stoutetrasi and Frédéric Bastiat. And I have no idea if I pronounced any of those correctly. But to cut it short, Menger espoused that any claim of an item's objective value is impossible as every individual person values everything differently and uniquely and it is therefore subjective. This notion, when accepted and fully realised, halts in its tracks any ideas that an economy can or must be planned in its production, because people have to choose for themselves what they will buy and that tells producers what it is they should be producing. Choice is not just a civil convenience to Menger, it is an economic necessity. Profit and loss are signals of what consumers are willing to buy and this process is what steers the famous invisible hand of Adam Smith. Menger's marginalist ideas helped restore economics to its status as a social science, a study of human action based on deductive logic and not a hard science as it was coming to be viewed, something to be calculated and planned by the intellectuals of society rather than left to work on its own devices. It's an absolute tragedy that if you study economics today, you will probably never even hear of Carl Menger. His contributions flipped the table of all economic thought and started what is known as the marginal revolution. One of the earliest and most important concepts you'll be taught in economics is marginal utility and indifference, and it would not be this way if not for him. But thankfully for us now, his groundbreaking economic ideas found many contemporary followers, and he taught many other influential members of the early Austrian school such as Friedrich von Weisser and Jürgen Bumberwerk, who went on to be the Finance Minister of Austria-Hungary and who famously applied the Austrian theory of price determination amongst other ideas to utterly rebuke Karl Marx's economics and exploitation theory in his works Capital and Interest and Karl Marx and the close of his system. One particular student of Bumberwerk was the titan of Austrian economics and perhaps its most acclaimed member who expanded the school significantly greater than any of those who came before him, Ludwig von Mises. Mises' contributions to the school make up a very long and very revered list. Chief among them are the Austrian business cycle theory, the regression theorem of purchasing power, the evenly rotating economy concept, economic epistemology, an even more brilliant and utterly crushing rebutal of socialism using the now famous economic calculation problem, refining deductive economics into praxeology, and along with his even more famous student Friedrich von Hayek successfully predicted the Great Depression of the 1930s. Mises was a total academic powerhouse. His breadth of knowledge was marvelous and he brought it all back to reinforcing the Austrian school in its methodology, analysis, a priori and a posteriori justifications and its empirical truth. His early writings were so powerful that he finally broke the Austrian school out of Austria, giving the school and himself great recognition around the world, especially in America and Britain, as the major Austrian school works were finally translated into English. He and his contemporaries had to flee Austria in the 1930s as the Second World War approached. Hayek left for England and Mises went to Switzerland, where he started writing his masterpiece Human Action, which is widely considered to be the premiere cornerstone of the entire school. Meanwhile in London, Hayek found himself incredibly preoccupied with being the prime intellectual opponent of the economist John Maynard Keynes and his many followers. Keynes's ideas had completely taken over the whole economic discussion in Britain after his involvement with FDR, the New Deal and the Great Depression. Keynes saw the boom and bust cycle as being driven by crashes in consumer demand and being an inherent flaw in the market economy system that governments had to regulate and smooth out. Given that alongside Mises, Hayek had successfully predicted that government intervention of credit and the money supply would cause the Great Depression and claimed that the boom and bust was almost entirely the fault of external meddling in the market, it's safe to say that Hayek posed a substantial threat to Keynes and subverted almost everything he stood for and had become so famous for. The Austrian and Keynesian battle of these two men almost solely shaped how all economic thought would develop in the rest of the 20th century. Yet even still, this is perhaps not what Hayek is most famous for. His 1944 book The Road to Serfdom is perhaps the most widely recognized book published by any Austrian school author and set the stage for all libertarian thought that came after it. It was even the first libertarian book I ever read and is so often my first recommendation to new readers. It's described as a warning of the danger of tyranny that inevitably results from government control of economic decision making through central planning and it rescued the idea of capitalism from the encroaching jaws of Marxist socialists and nationalist socialists who were literally tearing the world apart at the time. After the war's conclusion, Hayek went to the University of Chicago, not long after they took on the massively famous Milton Friedman and Mises went to New York and found himself in the company of even more outstanding students, the primary two being Henry Haslett and Murray Rothbard. His name lives on today in the Mises Institute which Rothbard co-founded. I have gushed over Rothbard so many times on this channel and it's always for good reason. Murray Rothbard took Mises's already phenomenal views and managed to improve on them, permanently solidifying the Austrian school into a school far beyond economics and into an entire political and philosophical view on the nature of humanity, our rights, our actions, and our future. Rothbard can safely be known as Mr. Libertarian for his unprecedented efforts in continuing to expand the already vast field to even greater heights. He published his own masterpiece of a treatise, Man, Economy and State in 1963, which encapsulates perfectly how Rothbard mantled and improved all of Mises's ideas and gave the world its first extensive justification and defence of anarcho-capitalism. And our final character in this star-studded line of tutelage stretching back to Menger's founding, we arrive at Rothbard's own student, Hans Hermann Hopper. The thing that Hopper is most known for is his almost extreme culturally conservative views of libertarianism, but anyone who views him as just that is doing themselves a heinous disservice. Hopper gave the Austrian school argumentation ethics, his philosophical determination for the proof of self-ownership through private property and not only as acceptable or moral, but as an objective truth. Just as Mises made the economic calculation problem, the prime weapon against the encroachment of 20th century socialism, I believe Hopper's argumentation ethics must be our prime weapon against our society's current encroachment of post-modernism. He is after all an Austrian economist through and through and has continued the Misesian principles of praxeology and methodological individualism to great effect. So it's clear from this history that the Austrian school of economics is a free market capitalist one and arguably the most free market economic school ever devised because it takes the notion very seriously. Somebody who would describe themselves as pro-free market would believe that government intervention in the economy such as high taxes, price controls, over-regulation and so on are detrimental to human prosperity and liberty. But have they ever considered the nature of whether or not government is fit to control and regulate money itself? Economic monetarists stemming from Milton Friedman and people like him would say that they are and they inadvertently say that free market principles work for what people use their money on but the principles don't work for the very money itself. This is one example of an area of free market thought that the Austrian school stands firm on where others do not. These convictions come from many places but often it only takes a cursory glance at history to see why they view capitalism as a good force and government as a bad one. Consider this chart showing how world poverty has plummeted since the early 19th century. The 19th century is when most people believe that western capitalism, that being in the United States and United Kingdom, had too much power, that it was making the rich richer at the expense of the poor becoming poorer, being exploited in almost slave-like conditions just so the fat cat robber barons can use the profit from their labor to go on exploiting and pillaging even more. But how can this mental image of early capitalism be true if at its supposed peak of exploitation the poverty curve was already falling dramatically? From this derogatory narrative we know that governments weren't intervening in the economy, so it obviously wasn't government regulation or welfare that was making poverty a thing of the past was it? The narrative is self-defeating as the empirical evidence alone tells us that capitalism by its own nature makes all participants wealthier, only that some become wealthy quicker than others. But when the poorest of society were for the first time in all of history able to begin climbing out of poverty, the idea that capitalism is exploitative and unjust makes no sense at all. And then what about the 20th century? Well from the millennium up until the end of the Second World War we see a clear stagnation in the curve. Humanity's first ever global industrialized wars obviously helped hold poverty where it was, but this is also the period in the West known as the Progressive Era. The two people who most signify the Progressive Era are Presidents Woodrow Wilson and Franklin Roosevelt. Aside from both of these men taking the US into the world wars, they also shared similar societal visions. They looked at capitalism, this system which is the only one ever in human history that was able to make more than a dent in human poverty and did it just by letting spontaneous agreements be made between people and they didn't like it. They believed humanity needed plans from above, society needed engineering to achieve aims of equality, never mind that all people, no matter if they were financially unequal, were becoming more prosperous with every passing year. Wilson created the Federal Reserve to give the government the ability to plan the economy's money supply and created the income tax, claiming to be helping the poor while simultaneously taking money away from them. After the American government gave itself a monopoly over the money supply, the Great Depression happened and somehow everyone was surprised. FDR came into office and brought in the New Deal, and instead of asking if the depression was a government-made problem, he went out and spent like a drunk sailor on shore leave with a limitless credit card and was praised for ending the depression despite the fact that it didn't recover until after the New Deal was over and done with. To the Austrians it is no surprise at all that the grand social engineering and planning policies of these men stalled poverty improvements. But later, after the Second World War, we have the Cold War, a period where socialism and capitalism were fighting on the world stage. Socialism was losing the fight from the very beginning, and the largest socialist countries in the world, such as the USSR and Communist China, either collapsed entirely or moved to more market-focused economies before it was too late. The second half of the 20th century saw socialism falling and capitalism becoming the norm for the entire world, and as this happens poverty goes into a nosedive and this is not by coincidence. There is one constant and unavoidable theme when you view this chart with the hindsight of economic history. Free market capitalism eliminates poverty, everything else either stalls or creates it. Yet there are many people who hate it and they have many reasons why. Often the reasons they give are a direct cause of government intervention, or any alternative they suggest for a particular problem has already been proven to in fact make the problem worse. This is where the Austrians introduced themselves. Throughout my series of videos it will become clear how Austrian theories don't even stumble in the face of all anti-capitalist arguments and always have a counter-argument to come back with. Capitalism is good and the Austrian school is the total realisation of capitalism. So I hope this introduction has served you well, if you enjoyed it please subscribe and click the bell icon to be informed of when I upload the coming videos in this series which I will always attempt to make approachable and easy to follow so you have the full basic understanding of the school and can read the great treatises like man, economy and state with no trouble. Thanks again for watching and take it easy. Since the study of economics began one of the most perplexing questions on all of the minds of thinkers was how is a good actually worth something. At the time of the classical economists like Adam Smith and David Ricardo the most widely used example for the seemingly nonsensical formation of prices was the difference in price between water and diamonds. Every human being needs water to live. It is completely essential to life even more so than food. So why does nearly a whole weeks worth of this vital resource only cost £2.10 from Tesco even coming in a convenient plastic bottle so you don't have to drink directly out of a stream? When a standard white gold and diamond-encrusted wedding ring from Goldsmiths cost £2,250. That's the same price of over 1000 weeks worth of water or almost 20 years. You can meet one of your most important survival needs across two decades for the same price as some shiny rocks to go on your finger which you could lose forever at any time and that don't literally keep you alive like water does. On paper this seems to make no sense doesn't it? Well humans don't live on paper, we live on earth. So in all of this confusion nobody had a clear answer but the one that people most often gravitated to was the labour theory of value. This theory says that goods have value because a worker put their labour into it. That a diamond in the ground isn't objectively worth anything until a worker pulls it out, another transports it, another refines it, another cuts it, and then another sells it. This process is known as the division of labour and it is incredibly crucial but we can see it still doesn't explain the high price of the diamond as there's no way that this process is objectively equivalent in labour to 20 years of survival in the form of water. Well if you watched my previous video in this series where I laid out the brief history of the Austrian School of Economics you'll remember I went to great lengths to praise Karl Menger due to him founding the school in 1871 with his publication of Principles of Economics in which he finally put the contradictions and confusion to rest with a world-changing realisation. All value is in fact subjective and is determined by the individual. It is impossible to place an objective, definitive and undeniable value on any single thing because no two people will perceive every possible good at the exact same level of value. Everything means something different to everyone. Think of the term beauty is in the eye of the beholder and change to value is in the eye of the beholder. There is no objective measurement of beauty because everyone views it at least slightly differently and as such there is no objective measure of value. Not the labour that went into a good, not the intrinsic human usefulness of it, not the costs incurred in production, it is simply impossible to objectively define because it grants different utility in its use to different people and that is the ultimate source of value, individual utility. But prices obviously still exist so if there is no objective measurement of value why are there literal price tags on goods that you have to pay in order to receive them? The subjective theory of value does not say that prices are just the work of fiction, prices and value do exist, it just only exists on an individual level until all of the possible values of a good congregate together in a marketplace and get matched up with all the possible amounts of goods that can be provided at various prices through which the amount between the producer and consumer of a good is met. What I just described there is the process of supply and demand and I'm sure you've all heard of it. When the largest amount of people decide on a particular value for a good and the producer can supply the amount required to fulfil this demand you've reached the equilibrium price. There are other factors involved such as elasticity of demand and economies of scale but we don't need those for this video. Every individual's subjective valuation of a good is their individual demand. Every individual's demand scale on a group of goods is guaranteed to be different and the market system works by satisfying the most amount of people's values at the lowest possible price. Taking an aggregate demand curve by adding up all the valuations in an economy is not an objective measure of value because demand is also affected by the available supply. You can't have an objective standard of value that is constantly subject to the change of people's personal valuations, that's simply impossible. The market equilibrium price is not meant to be viewed as a good objective value as such a thing does not exist. It is simply the most efficient price at the given time, depending on the technological limitations of the producers and the current demand of the consumers. The labour theory of value cannot truly reconcile itself with supply and demand and price formation as a constantly shifting level of value cannot be called objective precisely because the aggregate value level is simply just the most widely appealing price among a collective of subjective valuations. And within an individual's value scales, not even the same good is held at equal value twice. Another concept pioneered by Manga called marginal utility demonstrates how an increasing lack of scarcity makes a good less valuable. Taking utility to mean usefulness or happiness, let's say you come across a bar of chocolate for a mere 50 pence. That sounds like a great deal and you really fancy some chocolate at the moment so you buy it. Once you've eaten that bar of chocolate, how likely are you to go straight back for a second? Obviously some people are absolute chocolate fiends and will keep going back until the sunset but I'm willing to bet most people wouldn't even go back a single time. The consumption of one bar of chocolate has satisfied your utility, your human wants for now. The amount of personal utility decreases with every additional good consumed until it provides no more utility for you or at the very least any utility gained is not worth the disutility in return which could be the amount of money you've spent or the amount of weight you've gained in your chocolate binge. The real equilibrium price in an economy is the price where the most utility is achieved across the board. At a forced higher rate of supply the producer begins to take on higher disutility as their marginal revenue begins to decline and at a forced lower supply which creates a higher price due to higher demand fewer consumers can obtain the good as the disutility of cost overtakes the utility of consumption. Now let's think back to the diamond water paradox. After you drink a litre of water you will not be keen to start chugging down another litre and because you know that water will be easily accessible the next time you need it you're not in a rush to enter a bidding war for it. It's precisely the fact that you can't pick up six packs of diamond rings at Tesco that makes them so expensive. Their relative scarcity is beyond comparison and while water fulfills a human need diamonds fulfill a human want. The monetary sum of all of the water in the world would be an astronomical figure totaling a much higher amount than all of the total diamonds in the world even if one diamond ring can buy you 20 years of water. Diamonds are incredibly scarce and this scarcity plays on our subjective valuations to drive its value higher and if you're thinking to yourself there's no way I would ever pay that much for a ring detach from yourself for a moment and imagine how many people you personally know that would especially if they had the means at their disposal. Say's law can also come into place here if you imagine that the price of diamond rings fell low enough their supply could create its own demand as you can essentially give away anything to anyone if the price is low enough regardless of the personal utility one might receive from a good. The available supply of a good is determined in part by the scarcity of its compounding resources. Air is not a scarce resource because outside of extremely exceptional circumstances like on Mount Everest where it's very thin you do not need to sacrifice one end in its use i.e. you don't need to give up breathing to light a fire even though they both require the consumption of air. We'll go into this more in a later video on opportunity cost. So then if you've done any conventional economic study at school you'll probably realise that you might already know most of this stuff except it may be worded a bit differently that's because subjective value, marginal utility and price determination are the main areas of the Austrian school that have been completely adopted into the mainstream economic zeitgeist but have been done so entirely without credit and without any consideration to the continuing ideas of the Austrian school that came from this. It's convenient for the economic powers that be to adopt the subjective nature of value because it already fits into the basic models of supply and demand economies of scale, division of labour and such that they were already using. These models were first conceptualised by the classical economists but they half-heartedly rested them upon an inconclusive labour theory of value so Menge's marginal revolution was the missing piece of this puzzle. However it's very depressing to realise the innumerable implications that subjective value has to the macroeconomy that the Austrian school has realised but the mainstream has ignored because it's simply inconvenient to their status quo. The chief example I have in mind here is the Austrian business cycle theory, another upcoming topic. When we get into it you'll see that this Austrian theory of value and prices inevitably lead to the conclusion that supply and demand, time preference and value assessment all apply to money and credit just as much as they apply to goods and if that's the case the very existence of central banks and any form of government currency manipulation cannot be justified and will inevitably interrupt and falsify the market process causing it to repeatedly build bubbles and inevitably burst into recessions. Menge started a new chain of impeccable logic which has largely gone ignored except for the first link of the chain because that particular link just happened to fit into the pre-existing chain, the chain which forms the whip of statist economic tyranny. So at around the same point in time as Menge was revolutionising the concept of value away from the fruitless pursuit of objectivity, Karl Marx grabbed the labour theory of value with both hands and used it to create his theory of capitalist exploitation. Marx's interpretation is very complicated, the least of reasons among them being that he contradicts himself at many times and changes definitions almost at will, seemingly whenever he hits a logical snag to make a quick work around. So while I won't intend this segment to be a refutation of his theories, it's at least a start. Assuming the LTV to be true and the use of labour time being the creator of a good's intrinsic value separate from its market price, Marx states that any good traded for a good of lesser labour value is an objectively unequal transaction and the person selling short in this exchange is being exploited out of their labour. I tackled this towards the end of my video debunking arguments against the statement taxation is theft but I'll reiterate it here. In the Marx's theory of exploitation, if you make a chair for four hours and your labour is worth, in air quotes, £10 an hour by some objective standard, the chair must cost at least £40 and you must be paid exactly £40. If you are instead paid £30 and the chair sells for £40, that missing £10 is called your surplus value, which the evil greedy bourgeois capitalist pig has stolen from you and taken as profit despite the fact that you agreed to receive this hourly rate and you can't be consensually stolen from because that's obviously an oxymoron. But deeper than this, what happens if there is not enough demand for a £30 chair and the chair in fact doesn't sell? Rather than making a £10 profit, this evil greedy bourgeois capitalist pig has instead taken a £30 loss, losing triple the value that he otherwise stood to gain. The risk to reward ratio here is 3 to 1, which seems a terrible proposition for the capitalist, but how would you know? You still have that £30 in your back pocket. If you directly flip this logic of exploitation, you getting paid a wage for a good that doesn't sell is actually you exploiting the capitalist and that makes you the evil one. You've engaged in a transaction weighted three times in your favour, far more unequal than when you made a chair and the capitalist made a £10 profit. But of course this all obfuscates other factors of Marx's theory such as the nature of capital, distinctions of value types and price, and so on. To keep it concise, Marxism views the formation of value and prices through a skewed lens by asserting its moral stance long before its economic one, and essentially ends up assuming that market prices are abstract and meaningless, but like an atom has a definitive make up of protons, electrons and neutrons, a good has some sort of intrinsic and scientific bearer of value, which is labour time. There is of course immense importance in moral discussion and I do my fair share of it too, but the horrendous economic track record of socialism makes a lot of sense when you consider its introductory assumptions, however let's not also forget the condition of its moral track record as well. So to summarise this video, fundamentally value is in the eye of the beholder. Markets and their process of finding prices are always the best way to realise the collective values of a society and it enables equilibrium production by fully realising individual utility through supply, demand and the many factors which go into those two behemoths of human interaction in order to continually satisfy the greatest possible utility through competition and cooperation. This is another thing that will be continued in its own video on what is certainly the biggest nail in the coffin for socialism, the economic calculation problem. The view behind socialist economics, which inherently see prices as not very important and certainly not comparable to labour and surpluses, is a catastrophic misalignment of priorities and is what dooms socialism to always fail no matter how many times it's tried. I'm not too sure which topic I'll tackle next in this series so at least that can be a nice surprise for you when it comes out, but I doubt it will be the economic calculation problem just yet, so I'm sorry if that little teaser got you quite excited for it. But for now, take it easy. So in the last part I talked about very basic price theory, that being how prices are formed through a good supplier's ability to satisfy the most demand and the equilibrium price. And this leads us nicely onto price mechanisms, namely how prices are signals sent out from the market to indicate supply and demand levels between buyers and sellers, and this is what's known as economic calculation. It's incredibly important to us because Ludwig von Mises really put the Austrian school on the map when he devised this process in his 1920 essay, Economic Calculation in the Socialist Commonwealth, which was absolutely the nail in the coffin for socialist economics. Precisely because without the property required to have a free market and free formation of prices, like you have in socialism, organizing an economy requires a central planner to extract all of the consumer demand and then put the pieces in place to satisfy those demands. Simply put, that is impossible. The ECP as it's known is the fundamental reason why you shouldn't say socialism has failed every time it was tried. You should in fact say socialism will fail every time it's tried. But we're going to get back to the economic calculation problem after we explore economic calculation in a capitalist system, which in fact is not a problem at all, it's the shining grace of it. As we established previously, prices always tend towards the market equilibrium as that is the point where the most producers and the most consumers of a good are satisfied. This is an act of immense cooperation between these two categories that sum up the entirety of economic action and it's important that you try to reconcile how massive that implication is. When you pick up a birthday card in a store and pay £3 for it, within that £3 is the price of cutting down a tree, transporting the tree, refining it into paper, transporting the paper, printing ink onto it, having it folded and packaged, transported to the warehouse, transported to the store, put on a shelf and then finding its way into your hands. In each stage of that process, workers had to be paid, ties and oil had to be produced in this whole process themselves to then be changed on the trucks which also needed to be fuelled, ink has been produced and transported to the right place, chainsaws have to be made and maintained and all of these processes have their own prices tending towards equilibrium through mutually beneficial agreements between buyers and sellers. The sign of any good economist is someone who can observe how many millions of microscopic inputs go into making a birthday card of all things, that each one of those inputs has an input process going into itself, thousands of people are involved, yet you just pick up the card and pay for it. Then you send it in the mail and this whole process starts again. Then when the recipient throws it in the bin and it has to be transported, processed, recycled, made back into paper and begin its new life in this ginormous merry-go-round once again. To sum all of that up, the economy is such a complicated machine that requires the brain powers of millions of people acting in tandem to fulfill their desires. Now imagine handing that massive thing over to the government that can't even keep track of its own nuclear missiles and expecting it to go well. Only organic and spontaneous action can facilitate this process and the actors need to have some skin in the game, namely their property. These processes all have the element of risk and reward in them as well, and if things go well, everyone is rewarded, even if one person makes a bad decision and makes a loss, everyone else has still gained by going to a competitor as clearly they had a more preferable choice. The role of the entrepreneur in this is to assess consumer demand and find areas to satisfy it greater than others. If people are paying a higher price than they'd consider reasonable for battery packs, someone could start making them in their shed and selling them on eBay at a price that undercuts larger manufacturers. If the quality is good, they could soon afford to invest in capital goods to speed up the process, increasing their revenue, expanding into a warehouse, employing workers and so on until now they are an established firm too, constantly innovating in order to keep their prices low so that their market share isn't taken by some young upstart like they were not too long ago. The way to make money is to make people happy. If you want to be a millionaire, help a million people. In all facets of these processes, all the participating parties are benefiting as workers and entrepreneurs alike are fulfilling their desire to have an income and consumers are fulfilling their desires for goods at the best possible price. The best possible price can only be known when all of these factors are taken into account in forming prices organically by allowing all of these people the ability to choose their most preferred outcome that's possible for them. If a worker feels underpaid, they can look elsewhere and if a competing firm agrees with them, they will take them on for a higher wage as this firm will benefit from having higher skilled labor by providing higher quality goods and being able to make more revenue from that. If consumers feel cheated, they can put their money where their mouth is and go to someone else, now being better off than they were before. You should see from this explanation that with the labor theory of value already being disproven, any Marxist claim of capitalist exploitation of workers is just laughable. Capitalism only exists by making as many people as possible as well off as possible. It's very easy to point the finger and say, this person isn't earning enough money. When their wage is incorporated into the giant structure of trade that I outlined before, no single person can ever decide what price is the best, let alone what price is evil or not. The very nature of an economy is the thing that dooms the economic planner. The process of production and consumption must inherently be decentralized and unpetrified to allow competition to work and grant innovation, making all market participants better off each year. This is what gave us the hockey stick growth of wealth after the industrial revolution, and is the only thing that can allow it to continue. And in the 20th century, we saw the rejection of this process most notably of course in Russia and then China, as socialism gripped about half of the world. That would have been a frightening prospect unless you listened to Mises. Then you wouldn't have been surprised one bit when the Soviet Union collapsed and China took on just enough capitalism to not collapse and at the very last minute. The new trend for the reinvigorated socialists of our time who give out the meme real socialism has never been tried, is to lord so-called market socialism, trying to take some of these aspects and apply it to their system. Except that was tried in Yugoslavia for a while until Tito realized not even that was working and put a stop to it. Then we had IRL Fortnite, fantastic track record for the market socialists, because when all actors are not able to make organic choices on how things must cost, including the price of labour, you don't have a market at all, you're just lapping as one. If prices cannot be freely formed, then the market is obviously not free, and if the market is not free, then it is planned, and no single body of humans can plan the most intricate network humanity will ever see because it is the network of humanity, of infinite individual actors acting in accordance with each other. It should be blatantly obvious how trying to centralise all of this into one office with one head who talks to the supreme leader is only going to end in catastrophe. To perfectly illustrate this, let me give you some examples. A Soviet nail factory was given a quota to produce a given amount of nails, so they produced thousands and thousands of tiny nails so that they technically beat their quota but the nails were useless. Then the government changed the quota to be based on weight output. The factory started producing massive and unwieldy nails. When told to make male shoes, shoe factories would make ridiculous amounts of boys' shoes because you use less material than men's shoes so you can meet quotas much quicker. However, the most relevant example for us lies with a factory in Tambov that made capital goods for producing tyres. The machines they were producing were outdated, but they were adequate for the job. The government proposed that they switch to producing a new kind of technology and gave them a fixed sales plan, saying how many they should produce and how much they'll make for the year of 1968. However, when the factory took into account the government's prices for the following year in 1969, they found that they would make half of the revenue than if they just stuck to the old machines. With naturally formed prices, it's a sure bet that switching over to machines that are quicker for you to make and more efficient for the end users would be a very profitable move to make, and through the mechanism of finding prices through satisfying wants, you and everyone else would be better off doing it. But when the prices for the whole economy are arbitrarily chosen by a committee who holds no risk, nor gives input into the market, of course the results are going to make as little sense as anything else the government does. This ridiculous, top-down, centralised and thoroughly artificial system is literally the exact opposite of what an economy is supposed to be, and it leaves little to the imagination for why socialist countries became destitute, had to invade their neighbours to acquire wealth because they couldn't make it themselves, and ultimately fail. Yaron Brooke has an example I love when explaining to young adults the necessity of a free market. He holds up his smartphone and asks the room if they all have one, to which they say yes. He admires the beauty of it, its colour, the design, shape, the computing power it has, the clarity of the screen, the many cameras and so on. Then he asks you to imagine what a smartphone would look like if the government made it, and the room shudders. You know you can't count on the government to do anything half as well as an entrepreneur who has both something to gain and lose in the pursuit of satisfying your wants. A government has no risk or reward, you must take what you're given or else they'll put you in prison. Doesn't sound like a great deal. The fictional economic committee in charge of designing phones gets a marginal bonus for doing well and next to no punishment for doing badly. Leaders will be appointed purely depending on their political power and not their ability. None of them have to put their own money on the line as an investment and when the government starts making something they ban any competition and make themselves the monopoly. So yeah if Apple was nationalised and monopolised you can so easily picture the iPhone 13 being a vomit inducing beige being the size of a brick having one camera barely ever any signal and of course being bugged by the NSA to track every single thing you do. Now imagine the entire economy becoming nationalised like that. It's the stuff of nightmares. So to summarise economic calculation you need the economy to be decentralised in order for actors to determine where resources are best allocated and this is done according to consumer demand. Prices are the signals for resource allocations when demand increases for a good the price will rise indicating increased resources are necessary the profit motive will bring more resources in through entrepreneurs and then return the price to equilibrium. A central economy probably could have made an iPad in the 1950s if it brought every single one of the resources at its disposal together. Great now you have an iPad but it cost the entire GDP of your country and now nobody has any water. Good job allocating those resources probably should have left it to the market. A centralised body cannot have the economic rationale required to calculate prices and allocate resources to their most effective point and market socialists aren't free market at all because they don't want a market for labour and especially credit due to their magic skyfairy determining that an abstract labour theory of value meaning that none of the prices down the line from labour are organic so no prices are it's just dressing up a planned economy as a market try to make yourself look better but you're not if you're an anarchist market socialist you're even worse because you expect this abstract value to be held up without a government yeah good luck with that anyway people thank you for watching this installment of Austrian economics basics next time around we're going to have the Austrian business cycle theory which takes some lessons learned here about economic calculation and applies them to money itself take it easy time for a pop quiz what do Ron Paul Peter Schiff and Bob Murphy all have in common no it's not that they all have the figures of a Greek god though I get where you're coming from rather it's that they all predicted with astounding accuracy the 2008 financial crisis years before it happened while the rest of the world was left either scratching their heads or buying beans and guns in preparation for the collapse of civilization how did they do it by using the Austrian business cycle theory the purpose of any business cycle theory is to explain why it is economies seem to explode and implode at seemingly random intervals which is obviously no small task considering how unpredictable such a spontaneous decentralized network of action an economy is by its own nature but in my mind out of the entire crown that makes up the Austrian school the abct is the jewel as always it uses impeccable a priori logic through the method of praxeology to discuss human behavior and apply it to economics this time casting a much more empirical claim than the Austrian method normally does thereby opening itself up to be conclusively verified which is nearly every economic crisis in modern history can be attributed to the problems I'll lay out here so let's cut to the chase and talk about what they are so what I'm going to try and do here is give you my briefest explanation possible before reassessing my own explanation and expanding upon it and also comparing it to a competing business cycle theory because for a complete understanding of the abct you need an already intermediate understanding of economics as a whole as well as the Austrian school to really grasp the broadest implications that it has so I'll give my most basic explanation with the prior knowledge that people already versed in this topic will find flaws in it but then I'll try to go back over them using terms which people might not even understand if their only knowledge of economics is this basic video series so if that sounds like you and for episodes into this you still haven't read any books by Murray Rothbard or even listened to several Mises university lectures you really should start doing that about now my personal summary is the rate of interest can be seen as the average cost of borrowing or lending out money when you save cash and put it in the bank the bank loans out that cash to people who want to borrow it for a price which is interest and in return for offering up this money that you don't want to spend you get a little bit back when left to the market an interest rate is just as affected by supply and demand as any other good if lots of money is being held in a bank fault not doing anything the bank will charge a low rate of interest in order to attract more borrowers with a lower price if there are lots of people wanting to borrow but not much money to go around the interest rate will obviously be made higher as it tends towards the new equilibrium with low supply and high demand problems specifically arise when the market doesn't control the interest rate and when a central bank does by changing the amount of new money entering the money supply in order to regulate the amount of money held by banks and therefore adjust the rate of interest themselves by now it should be clear to my viewers why a single state controlled entity controlling the price of an entire good will create massive disequilibrium for it these central banks like to keep interest rates lower than they otherwise would be in order to keep spending high and saving low boosting the growth of GDP and keeping constant inflation which they believe is justified for creating higher employment and GDP plus employment are the only two factors politicians care about because it's what gets them easily elected so by the central bank manipulating the price of money to lower than what it should be and creating a cycle of over investment and over consumption all of the prices downwind of this will be at least somewhat distorted away from their equilibrium price but as we know prices always tend towards equilibrium so when the market experiences some sort of monetary shock all the prices at once try to return to the true market equilibrium the entire economy becomes a bubble due to being grossly overvalued and bursts at once creating a recession the harsh yet obvious fix is to stop manipulating the interest rates let the market decide the equilibrium and stop perpetuating this cycle but what we instead see is when the bubble bursts central banks double down on this practice dropping interest rates lower than they were before the crash in order to create more short-term investment and spending and stop the fall but the fall is simply a correction of the previous manipulation so this artificial bubble is instead just swallowed up by a new and even bigger artificial bubble and this is how Ron Paul perfectly called it a few years after the dot-com stock bubble burst that the housing market would be next the dot-com bubble was created in part due to cheap money from the Federal Reserve and when it did burst they made money even cheaper to stop the bursting but instead all they did was push the bubble into the future and make it even bigger for the next time round by incentivizing continued malinvestment in the future by stopping price correction in the present Ron Paul among others realized that the housing market would be the next victim of this malinvestment and of course that meant that the ramifications this time wouldn't just be a shock to the stock market but the entire country which went on like a domino effect around the entire developed world and when you have this view in mind and you look back at business cycles throughout history you'll see that not even the fixed exchange rates of the gold standard could stop the government manipulating the interest rates during times of war governments would suspend the gold standard by not requiring banks to exchange notes for gold reserves meaning the banks could print unlimited money for a temporary period in order to give it to the government to fund their wars but while they have this privilege of literally printing as much money as they want they used it on private investment for short-term profits and after the gold standard is resumed all the prices go haywire and you have the great depression the answer here is blindingly obvious it wasn't that the gold standard imposed too much of a limit on government spending and malinvestment it's that not even the gold standard is enough to limit it and that the creation of money just like any other good should only be done by the free market there should be no central bank all banks should be completely independent measured by market competition in order to provide the best quality of money possible which would be likely to be 100% reserves of precious metals such as gold and silver and for supply and demand to work on setting the interest rates according to the supply of money on hand in banks and the demand to borrow of consumers and producers when lots of people are putting their savings into banks they are telling the market that they want to spend less money now in order to spend more money later as this lowers the interest rate it tells producers to take out a loan now while it's cheap in order to build a long-term project when consumers want to spend again as consumers are thinking more in the long term this relationship is symbiotic and this is why savings are so incredibly important in an economy the rate of saving is another price signal which informs entrepreneurs where resources are to be most efficiently allocated and especially when this is what malinvestment truly means it's not as simple as i made it sound earlier that there is just too much investment it's that there is too much in all the wrong places the investment is going into projects not demanded as much by consumers as producers would think it is because the price signal of money is being lowered and so they're getting the wrong signals the entire market is meant to work in synchronization with itself but just as rent control desynchronizes the price of housing away from the equilibrium so do artificial interest rates away from the equilibrium price of money which is going to have near infinite consequences for the whole economy at large the direct opposite of this business cycle theory is obviously that of the kinsians who say all crashes are simply a phenomenon hard coded into markets by their own nature and rather than question if government currency manipulation is the culprit they instead see it as the solution by using aggregates as large kinsians do such as measuring the total investment in an economy and just taking it for granted that bigger number equals more good with no regard to where that investment is going they don't care if a crash in investment is the market's hangover after getting wasted the night before on cheap money all they care about is getting that line on the chart back up to where it was before by any means necessary it's curing a hangover with a shot of tequila the austrian understands that obviously not all capital is equal and homogeneous but most is in fact heterogeneous and only to be used for one specific purpose if there were eight car factories and two cake bakers in a town a kinsium might say brilliant this town has 10 units of capital while neighboring ones only have six they're obviously doing great but an austrian would say is eight car factories for a small town where you can walk to most places actually sustainable how long are these factories going to stay in business and wouldn't it be a good thing if some of them were instead freed up for producing shoes aside from the uses of capital we also consider the order of goods from producer only goods at the highest level and consumer only goods at the lowest with a good bit of crossover in between simply put because the kinsium model reduces the complex human network of markets to just numbers and charts it completely goes over their heads how they're tampering only makes these problems so much worse in a free banking system there would still be peaks and troughs of prices but most likely only localized to specific areas where a firm has made an error and very brief as prices return to equilibrium then continue their little nature of tug-and-war but when there are 100 banks controlling the economy's interest rate instead of just one the risk of economy-wide money misallocation is reduced by 100 times this is in exactly the same way that if there was only one wine manufacturer providing wine for millions of people and someone accidentally spoils a batch all the wine drinkers in the country are at risk of death compared to if there were a thousand winemakers and just one of them made one mistake the ramifications for the health of wine lovers everywhere would be comparatively tiny but every single person uses money so one mistake from the one money supplier affects every single person the worst part is that the money supplier has managed to convince themselves the public and academia that their poisoning of the wine is in fact good and that it's your adverse response to ingesting poison that is bad and it's all because of this one man this is why we hate keens so damn much as this video has been made in the middle of the coat in the middle of the coof crisis and the subsequent total meltdowns of government policymakers across the world what do you think will happen now that interest rates are once again fallen through the floor in order to supercharge short-term spending with no consideration for the long-term effects well let's remember the definition of insanity and finally it's only just dawned on me that i've gone this far without promoting the amazing Austrian economics discord server which has a channel dedicated to every topic you can imagine with huge lists of sources pinned for you to read out of your own interest or to find material backing up claims that i make as i don't list sources in my videos because they're all off the top of my head from books and articles i've already read and take some snippets from these aren't essays after all but recommended reading here is meltdown by tom woods for the 2008 financial crisis and america's great depression by moro rothbaard for obviously the great depression take it easy okay so this is going to be the final full installment of my austrian econ basic series it is opportunity cost and time preference rolled into one and i realize i should have covered these topics a lot earlier both of them are completely relevant to literally all economic action as they are some of the more sociological backbone of the economic theory that we've covered so far rather than explaining how people act these topics explain why people act in particular ways they're also very basic in their explanations so this will be much shorter than the others and most of the work here will be on you thinking of how to apply the principles in the real world and i'll give you some hopefully relatable examples to ease you on your way opportunity cost is very straightforward it is the implied cost of performing an action compared to the next best alternative not a monetary cost that you can measure in cold numbers despite the name so if you go back to your childhood when your parents gave you 50 pence cents or whatever to go and buy yourself a treat from the store you can buy two packs of haribo at 25p each or one snickers bar for the whole 50 the monetary cost will always be 50p but the opportunity cost here is the essentially imaginary cost that you are taking on by choosing one of the options over the other as the rational individual that i'm sure you are you're likely to pick whichever option that grants you the most utility but the utility lost by sacrificing the other option is your opportunity cost think about this in regard to every possible trade-off that there is if you go to university you do so because you hope your degree at the end of it will mean you can earn more money in your career but aside from the monetary cost of tuition you also take on an opportunity cost of three years of work experience and wages while you study that you could have otherwise gained it's up to you to decide if it is worth losing those three years to defer wages now for higher wages later and that segues us perfectly into time preference time preference can be summarized as patience in an economic sense if by going to university you defer wages now to achieve higher wages later you are using patience and are displaying what we call a low time preference low time preferences are to pardon the pun generally preferable a person who is able to show constraint and delay gratification is more likely to be wealthy and there are other interesting empirical findings correlating low time preference to high IQ and asking which leads which and time preference doesn't strictly have to be economic at all you are more likely to give your child a better quality of life by waiting until you are married have a house and a stable career than trying to raise a child at 19 while you're earning very little money and have no assets to your name you can show low time preference by being choosy with your romantic partners rather than having high time preference by going to the club and leaving with the first person that offers but hey if life was all low time preference all the time it would be pretty boring right so while you can apply these principles to just about everything I personally love to talk about it in just economic terms because it has really interesting implications regarding investment and especially when expanding upon the business cycle theory that we covered in the previous episode so remember back then how I said that low interest rates give off false market signals causing investors to read these false signals and put their investments in places where they aren't demanded as much as they seem such as promoting short-term investment where it isn't needed well this all falls under time preference a market rate of interest would be a direct signal of consumer time preference in this market interest rate system the lower the interest rate means more money is being spent at the moment meaning time preference is currently high and investors should be planning for the short-term and build fidget spinners or something but when the interest rate is high lots of people are saving therefore deferring consumption now in order to be able to consume more later and of course that tells investors to plan for the long term like beginning housing projects so did that send off a light bulb in your head as to why low interest rates in the 2000s caused a housing crisis in this sense those low rates showed investors that people wanted to buy houses right now so less money went into developing new houses while more went into funding mortgages and not caring about how stable they are before you know it you have that scene from the big shorts where the stripper has six properties and just keeps remortgaging them then pop goes the housing bubble misreadings of time preference are the primary cause of the business cycle and interest rates are supposed to be the best indicators of time preference but the central bank just dances rates around like a trained monkey with absolutely no regard for time preference which is literally its whole entire purpose it just makes you realize how fucking stupid this Keynesian system that we have is and thankfully this is just one of those days where it makes me want to laugh at the absurdity rather than cry so there we go I really should have included this earlier down in the line and applied it to the topics covered as it went along but hey this is my first time trying anything like this and I hope you've enjoyed it as always with this series I leave it up to you to both read further and apply your own critical thinking to scenarios that the topics are applicable to and with these ones you have basically infinite options to do that the curtain isn't quite fully drawn yet on this series as I'm going to do a conclusions video where I will also list the main sources for each episode I'll then compile all of the episodes into a single supercut and I'll start planning on how to deliver a further Austrian econ live stream where I can briefly go over some of the intermediate and advanced topics without all the exposition that I've put into these videos so once again I hope you've enjoyed the series because I sure have take it easy so now we come to the end of the Austrian econ basic series and along with it a way to show the world that you are now an official basic Austrian economist with this stylish new mug and sticker set that will make you the talk of the town for the low low price of seven dollars and seventeen cents call now to reserve your order of this luxury item so if you want to commemorate finishing this series with a little memento a link to the teespring store will be in the description below now let's recap firstly on what this series was then recap on the crucial points made in every episode the starters this was called Austrian econ basics for a very specific reason this is just for you to know what the Austrian school is what it's comprised of what it stands for and what you need to know before you go on to embark on a journey to learn more this is not meant to be a comprehensive series that tells you everything there is to know it really only just scratches the surface and gives you the quickest explanation of each chosen area that's possible after my recap here of each episode I'm going to tell you the sources I obtained my knowledge from for each particular subject some of which are books others are online articles and I expect you to at least do some more research into them you will now have the footing you need to pick up any book included in an Austrian school reading list and be able to understand where it's coming from but if you don't read any of them you'll be missing out on so much and wasting the foundation you've gained here so off we go with the recap episode zero demystifying economics the field of economics seems like you need to be a student at Hogwarts to be able to understand all of its jargon mathematics and models and seems an insurmountable task for the average person but you can also ask is economics so advanced and inaccessible that only bona fide geniuses can hold the knowledge required to understand how an economy works and why it moves well if economists are that smart why does the economy regularly crash and burn so terribly surely these self-proclaimed geniuses must be doing something wrong and we can find what that is by going to the very roots and asking what economics as a profession is supposed to be at its core economics is a social science and the most tangible form of praxeology which means the study of human action an economy is simply the sum of thousands millions or billions of actions undertaken by various individual actors with various goals human action is spontaneous unique and left organically is technically unrepeatable as no two people will have the exact same goals at all times and people move change their priorities and some die while others are born human action itself is an ever-changing set of values in just one person let alone an entire economy and where the economic establishment goes so drastically wrong is trying to treat humans like controlled variables that can be quantified and calculated like heat and pressure can be in the study of physics this imposition of the use of overly complicated models functions and approaches can be called physics envy as economists try to pose themselves as hard scientists rather than the social scientists that they actually should be treating humans as these empirical variables immediately sets up mainstream economics for disaster and by changing the fundamentals of economics back to a social science we can get a much clearer view of what an economy is at the end of the day an economy is people and people do not have a predetermined path of behavior that can be modified and manipulated to achieve the aims of a handful of bureaucrats this demystification of economics from the land of witchcraft and wizardry back to reality makes economics much easier for the average person to understand and that's not because this Austrian view is in quotes simple at its highest levels it can become just as advanced as any other but the reason that it's so easy to pick up is because it is intuitively correct no matter how good any economic analysis is if it starts on incorrect assumptions it is going to fail but as we experience economic collapse again and again the wannabe physicians in charge of our economies never stop to ask if their assumptions are wrong and because the austrian school puts extreme emphasis on being rigorous in building its assumptions before it tries to draw conclusions we have an unbeaten track record of predicting how why and when economic crashes will occur sources man economy and state by Murray Rothbard this book will be in every source list economics in one lesson by Henry Haslitt how an economy grows and why it crashes by Peter Schiff human action by Ludwig von Mises individualism and economic order by Friedrich von Hayek economics for real people by Jean Callahan economic science and the Austrian method by Hans Hermann Hopper episode one the history the Austrian school started unsurprisingly in Austria officially with the publication of principles of economics by Karl Minger mega realized that more often than not economies did not act according to the assumptions laid down by the classical economists such as Adam Smith and David Ricardo the chief example of this was in the way that humans understood value which the classical scholars didn't have clear answers towards often avoiding the question of value theory entirely or concluding that the value of a good was objective and achieved by labor mega took inspiration from the at the time overlooked Spanish and French scholastics such as Richard Cantillon and Jean Baptiste say and concluded that value was a manifestation of an individual's utility and that utility is subjective to that individual think of your favorite food maybe as pizza tacos burgers or anything else is that your dad's favorite food your neighbors if not why not but because you simply enjoy it more than they do due to your own personal preferences and therefore it can be expected if all else remained equal such as all parties having the same amount of disposable money that you would be willing to pay a higher price for it than they would but mega didn't just revolutionize this concept of value he introduced one of the most fundamental principles that you will be taught if you ever study economics officially utility and therefore value is marginal let's say your favorite meal is pizza when you're really hungry you might be willing to pay 20 pounds for one but after you eat that pizza you're not hungry and so if someone offered you another pizza for 20 pounds you'd very likely say no what if they dropped the price to 10 pounds the pizza is exactly the same but now it might be worth to you half the price that it was just a few minutes ago and someone who is still hungry might still value that exact same pizza at 20 pounds but the total utility or enjoyment that you'd get from one more pizza would be vastly lower than it was at the time when you bought the first one so you would only pay a vastly lower price for it or just not buy it at all and this principle of course works between people as being given a one pound coin means something entirely different to a homeless person as it does a billionaire mega truly changed the entire field of economics and you'll probably never hear his name outside of Austrian school circles as everything that follows from mega's foundation contradicts so much of what the mainstream economic schools go on to say while the Austrian school maintains intellectual integrity and doesn't contradict itself for personal gain and power this is typified greatly by a quote from the next economist I'll mention just for this recap Ludwig von Mises to paraphrase something he once said to his wife I'm going to study money but I won't make a lot of it meanwhile his contemporary John Maynard Keynes studied very little about the history of money yet decided he just knew how it all worked and by saying things that corrupt bureaucrats want to hear he became the most powerful and influential economist the world has ever seen Mises became an absolute machine of a scholar in praxeology and economics and devised many ground shaking theories such as the regression theorem of exchange rates the economic calculation problem the evenly rotating economy and the Austrian business cycle theory among others two of those mentioned were given their own episodes in this series all Austrian economics that followed Mises rests upon the shoulders of this giant he also taught and then worked alongside Friedrich Hayek who broke the Austrian school out of Austria and into the UK America and beyond writing the landslide anti-authoritarian book the road to serfdom and later going on to win a Nobel Prize for his work with Mises on the Austrian business cycle theory however this remains a contentious topic for those in Austrian circles as this award was granted to Hayek only a year after Mises died while Mises was known for being stubborn as a mule Hayek was more willing to compromise with mainstream economists such as Milton Friedman and this is believed to be a factor of bias on behalf of the prize being awarded to Hayek the torch was then passed to the great Murray Rothbard the man most known for being an unrelenting economist and historian who applied the Austrian methodology so unendingly that he determined that not only is government intervention in an economy unjust but the entire existence of a government is itself unjust and he created anarcho-capitalism if I even try to list Rothbard's accolades this recap will go on longer than the whole series so I will simply mention that he founded first the Cato Institute and then the Mises Institute when he found that Cato was not Austrian enough these institutes have continued to go their separate ways and the MI stands tall and proud as the world's premier outlet of all things Austrian school almost all of the books that I list as sources can be accessed completely free in digital form from their website as well as great prices for physical copies and the quarterly journal of Austrian economics outstanding scholars who are current members of the MI are Robert Murphy, Ron Paul, Thomas J. DiLorenzo, Walter Block, Pear Bailand, Judge Andrew Napolitano and many more without a doubt the most accessible economics program currently in existence is Mises U a several-day long annual event for students of which they make many talks and lectures available on YouTube and I can't tell you how many hours I've spent listening to them seriously get on it it's free and it's brilliant sources man economy and state by Murray Rothbard the Austrian school market order and entrepreneurial creativity by Jesus Huerta de Soto published online by the Institute of economic affairs the Austrian school of economics a history of its ideas ambassadors and institutions by Jürgen Maria Schulach and Herbert Intercuffler episode 2 value and prices in my history recap I already explained the subjective theory of value and marginal utility to emphasize the massive yet completely uncredited importance that the Austrian school has on the entire field of economics but when the subjective values of different people meet at the intersection of what can be produced we have the famous supply and demand supply and demand tends towards the equilibrium point where the most consumers and the most suppliers can be satisfied at a given price with all else remaining constant such as resource abundance technological innovations pull the price from suppliers down as the production becomes more efficient requiring less time labor and resources and new products supersede old ones at either lower prices or provide enough additional utility to consumers to justify a higher price which still gets pulled down over time by production innovation and competition consumer demand is always pulling prices down as people always want to spend less money and less supply is decreased in which case the new scarcity of goods adjusts the price higher a concept worth mentioning here is the inefficacy of price controls in an all too common scenario where a local government of a built up urban area over regulates the production of houses therefore making it more expensive that same government prevents suppliers from charging more despite the increased cost this removes the incentive to provide houses for people who need them or at least the incentive to provide good houses now most of a whole city is left with poor housing and the politicians who caused this blame capitalism and demand more tax money while letting capitalism just do its job of increasing quality and lowering prices would have avoided this problem entirely minimum wage is identical to rent control in this way and subsequently halts any increases in job quality and real wage rates that would otherwise naturally occur sources man economy and state by Murray Rothbard economics in one lesson by henry haslett human action by Ludwig von Mises competition and entrepreneurship by israel kersner why austrian school economists have a better understanding of goods and services by pair byland published digitally on the Mises wire prices and production by Friedrich von Hayek episode three the economic calculation problem markets and their prices are the most efficient possible way to allocate resources and perhaps the only effective way in the long term this is because the prices formed by the supply and demand model when left unmolested are signals that tell producers where resources are most efficiently allocated according to the economy which as we established is the some decision making of the entire population other economic systems such as socialism require resources to be allocated by a committee to meet political ends rather than organically decided upon by all actors involved this economic planning committee faces two impossible tasks having all of the consumer information that the entire population does at any one time and then holding the economic rationale to determine where resources are best placed at any one time this attempts to centralize into a single bureau what is fundamentally the most decentralized organic and individualist display of human action that can ever exist the economy this inability for one entity to emulate an infinitely scalable process is why the ussr collapsed spectacular china is now basically fascist ugo slavia turned into pub g and cuba is somehow still managing to hang on by a thread and i know us foreign policy had a huge hand to play in most of these events but it's self-evident that during the cold war america was never going to implode the way that the soviet union did despite the equal amounts of espionage sabotage and much more and that is precisely because one was socialist and the other wasn't sources man economy and state by murray rothbard economic calculation in the socialist common wealth by ludwig von mesas calculation and socialism by joseph t soleno delivered at mesas u 2019 the use of knowledge in society by friedrich von hayek from the american economic review a theory of socialism and capitalism by han terminal per episode for austrian business cycle theory leading on from the previous explanation of prices as organic signals of demand and corresponding resource allocation we have to ask whether or not money itself is affected or exempt by this mainstream economic schools will try to justify the latter that money can't be treated and examined like a consumer good but their explanations for why are riddled with circular logic and straight up falsehoods the fact is that money does have its own supply and demand the demand to own it is simply savings savings stored in bank vaults would be loaned out to wanting borrowers and the demand to borrow money is represented by the bank's rate of interest which it charges the borrowers and then passes someone to save us to thank them for their business but enter the central bank a bureau created by governments to allocate interest rates to meet arbitrary economic goals does that sound familiar to the reason why socialism is doomed to fail then you see exactly why central banking is doomed to fail however important to an economy the issuance of money and credit is the fact is that it's only one component of an economy so by deliberately applying the economic calculation problem to banking it's absolutely no surprise that every five to ten years the banking system collapses just as socialism did in the late 20th century however because it wasn't the entire economy that collapsed so spectacularly the remaining capitalist part can pick up and carry on just for the central bank to show its appreciation by bringing it all down again the reason that this happens is because governments are incentivized to keep interest rates low by making inflation constant this means savings lose their value over time incentivizing constant consumption and viewing savings as nothing but a drain on GDP growth interest rates being low would normally be a signal to investors that spending is currently relatively high and investors should make short term and generally riskier investments as a result this malinvestment creates speculative bubbles that will burst in only a matter of time and when the market crashes as a correction to this bubble the government implements countermeasures money printer go that just put inflating the next bubble into overdrive continuing the process in perpetuity thanks government sources man economy and state by Murray Rothbard america's great depression by Murray Rothbard what has government done to our money by Murray Rothbard monetary theory and the trade cycle by Friedrich von Hayek the paradox of saving by Friedrich von Hayek episode five opportunity cost and time preference this is going to be an extremely short recap because it was a very short episode and is probably still fresh in your minds opportunity cost is the perceived cost of choosing to implement one action over the next best alternative if you do not pick your best possible option then your opportunity cost is higher than it would otherwise be as what you gained either in utility or monetary terms is comparatively lower based on your subjective values time preference is a view of patience and you can most often expect that being patient or having low time preference will sacrifice a lower gain right now to achieve a higher gain in the future this can be in the form of not buying a model of car now when you expect a newer and better model will be released in a year or not withdrawing any investments because you expect them to appreciate and having that money held as just cash will depreciate due to inflation or any other example lower time preference actions are generally more successful and wiser than height than higher time preference action but this is only a guide and certainly not to be viewed as a rule sources man economy and state by Murray Rothbard economic science and the Austrian method by Hans Hermann Hopper so there we go curtain draw once again i really hope you've enjoyed this little project of mine and that it wasn't too all over the place and confusing and if I inspire you to go out and learn more than my objective is complete take it easy