A Beginner’s Guide to Austrian Economics

For years I had noticed how some of the smartest people I know all tell me that they find economics very difficult to understand. Doctors, engineers, businessmen, and many other highly intelligent people would all share a similar story: “I took a few economics courses in college and did well, but I didn’t understand anything/forgot it all.” It pains me to see these people think the problem is that they are not intelligent enough, that economics is somehow too complex for them to comprehend, or that they did not study hard enough, when the reality is that the problem is not in them, but in the nonsensical brand of Keynesian and mathematical economics that is taught in most of the world’s universities today.

Economics in the Austrian tradition is as different from the mainstream economics of university textbooks as astronomy is different from astrology. While they both ostensibly talk about the same topics, the questions they ask, the methods they use, and the conclusions they reach are very different. As I was writing The Bitcoin Standard, I tried to explain the economic ideas relevant to Bitcoin in the most simplified and intuitive way, using the work of economists in the Austrian tradition. While that might have helped readers understand Bitcoin, it is in no way a sufficient explanation of economics in general. One of the most common questions I have gotten from people who have read my book concerns further reading on Austrian economics. So I have decided to write an annotated bibliography and introduction to some of the most important works in the Austrian school of economics for the interested readers. All the works mentioned here are available online for free. Just search for the title and the author name and it will turn up.

For a general reader looking for an easy and quick read that covers the most important topics in economics and the Austrian perspective on them, it is hard to beat Henry Hazlitt’s Economics In One Lesson. Hazlitt was a supremely gifted writer, with a blessing for incisively communicating the essence of complex ideas in a simple and mind-opening way.

If you are interested in a thorough, comprehensive, and systematic treatment of economics, there is no better book than Murray Rothbard’s Man, Economy, and State, as well as its sequel Power and Market. With about 1,500 pages between them, you cannot finish reading them without understanding every important question in economics. Ludwig von Mises’ Human Action is another great read, and although significantly shorter than Man, Economy and State, Mises’s work might prove a more cumbersome read than Rothbard’s, given that Mises’ work is older, and that his first language was German. Although Mises was perfectly fluent in English, he thought in German and translated the words to English, making reading it not very intuitive to the average English speaker. Menger’s Principles of Economics is the canonical work, of course, but it is almost 150 years old and not the smoothest read for the modern reader.

For a discussion of money, a good brief layman’s introduction is Murray Rothbard’s What Has Government Done to Our Money? A more technical, although shorter, article, is Rothbard’s The Austrian Theory of Money, which is essential reading in my opinion. A more detailed treatment with a grounding in legal theory and history can be found in Jesus Huerta de Soto’s Money, Bank Credit, and Economic Cycles. The founding work of Austrian economics on the topic is Menger’s essay On the Origins of Money. Mises’ most important work might be The Theory of Money and Credit, which he completed when he was only 30. A century later, many economists have written books on money, but practically nobody has added much that is useful to what Mises wrote.

Although not an economist or academic, the late Swiss financier Ferdinand Lips has written a masterful volume on monetary history entitled Gold Wars, which was enormously influential in shaping my understanding of the topic and my discussion of it in my book. It is inexplicable to me how few people have heard of this book or read it. Friedrich Hayek’s Monetary Nationalism and International Stability is a must-read for a sober explanation of the gradual way in which money moved from being a free market institution to a government controlled monopoly, and an astonishingly prescient explanation of the problems with that. This, unfortunately, is possibly the least known of Hayek’s works.

An excellent book on political economy and political philosophy is Hans-Hermann Hoppe’s masterpiece Democracy: The God That Failed. This book contains the best treatment of the topic of time preference I have come across, and was a major influence on my own thinking and writing on the topic. The philosophical foundations for Anarcho-capitalism were laid in Murray Rothbard’s masterpiece The Ethics of Liberty. A more popularized treatment of the topic can be found in Rothbard’s For a New Liberty. Hoppe also edited The Myth of National Defense, a good collection of essays on the question of security and defense, and why a government is not needed for these functions, and how a free society can provide them.

One of the most important contributions made by Austrian economists to economic understanding is the Austrian theory of the business cycle, which, to be frank, is the only business cycle theory worthy of being studied. Whereas mainstream economists have produced heaps of worthless mathematical masturbation on the topic, the only value of that work has been to further their careers and confuse people trying to understand the real culprit behind business cycles: interest rate manipulation. An excellent brief treatment of the topic can be found in Rothbard’s essay Economic Depressions: Their Cause and Cure.  A more thorough treatment can be found in the first four chapters of Rothbard’s America’s Great Depression, during which Rothbard also takes to task the alternative excuses of theories presented by various economists. Though written in the 1960’s, the reader will find in them a comprehensive refutation to all the newest fancy mathematically-sophisticated theories which pretend to be new, when in fact they do nothing but rehash the same old arguments that have for long served to further government-paid academics’ careers and confuse readers. Naturally, since business cycles are inseparable from their monetary causes, Jesus Huerta de Soto’s aforementioned Money, Bank Credit, and Economic Cycles, also contains an excellent treatment of this topic.

Friedrich Hayek’s work is very valuable for understanding the nature of markets as emergent phenomena, and not the outcome of rational design. Possibly the most eye-opening single paper on economics is his The Use of Knowledge in Society, a brief paper worth re-reading over and over for the insights it contains. Hayek’s Nobel Prize acceptance speech, titled The Pretense of Knowledge, is also very important and a complete demolition of any delusions of scientific respectability any Keynesian economist might harbor. On this same topic, the more recent work of Vernon Smith is also extremely important, particularly his distinction between constructivist rationalism and ecological rationalism, which he summarized very well in his Nobel Prize speech Constructivist and Ecological Rationality in Economics. Understanding this distinction between things that are rationally constructed by the human brain, and things whose rational order emerges out of human action without deliberate design, is one of the most important steps towards understanding how markets and human societies function, and an essential step to rejecting top-down planning for the destructive insanity that it really is.

Hayek’s work on the philosophy of science is also extremely important, though not very well-known. His book The Counter-revolution of Science: Studies on the Abuse of Reason will make you reevaluate a lot of the things you have taken for granted, and help you develop a very strong immunity to the kind of science by press release which dominates the world today. He has two volumes with eye-opening essays on this topic: Studies in Philosophy, Politics, and Economics and New Studies in Philosophy, Politics, Economics, and the History of Ideas.

All of these Hayekian works are also very relevant to the topic of socialism and the inevitable failure of central planning. The Austrians have written extensively on the topic, starting with Mises’ 1920 book Socialism. Perhaps the best summary of the entirety of the debate, however, is in a paper written in the 1990’s by Rothbard under the title The End of Socialism and the Calculation Debate Revisited. Anyone who reads this and remains a socialist cannot read.

I hope to have provided a good starting point for readers to get into the topic and start to explore the questions they find most relevant and interesting. This is of course not a comprehensive list of works in Austrian economics, and I am sure I have left out some very important works. Please mention any important works I left out in the comments.

5 thoughts on “A Beginner’s Guide to Austrian Economics

  1. lesdikgole says:

    Richard Cantillon’s Economic Essays is missing. Given that modern Keynesian economists basically ‘stole’ and ‘misappropriated’ his thorough analysis on market cycles, he is probably the first to read when one wants to ‘cut’ through the ‘mathematical’ fluff that Keynesians write.

    I stayed away from Austrian economists such as Hayek and von Mises for a long time because their writings seemed unnecessarily verbose. I have never trusted large/long works… It usually means the author has nothing new to say.

  2. Bobby (@bobbysimon16) says:

    Enjoyed your book. Besides strengthening my foundational knowledge of the economics of bitcoin, it has piqued my interest in regards to the Austrian School of Economics. I’m currently taking 300 level university Macro Econ classes, and it is reassuring to hear you verbalize many of the thoughts that have went through my head regarding these classes. Thank you for your book, and also for this list, I am excited to start learning real economics.

  3. bill foord says:

    what do you think Saifedean about this comment from Martin armstrong (thank you for you book “the bitcoin standard”- i read it 2X in a row)

    The Gold Standard Fell As All Currency Pegs Do
    Blog/Foreign Exchange
    Posted Aug 21, 2019 by Martin Armstrong
    COMMENT: Dear Marty,
    In your recent blog about BREXIT, and. “Remainers acting in self-interest”, you produced an ONS graph showing UK’s growth rates before and after joining the EU (previously known as the Common Market), and concluded: “Britain has NEVER received a fair deal since joining the EU”.
    Surely you have overlooked a groundbreaking event in the early 1970s, which has shaped economic cycles and led us to where we are today: Nixon’s fateful decision to ditch the Gold Standard?
    ANSWER: No, the two are not connected. Bretton Woods collapsed on August 15th, 1971. The peak in Britain’s GDP came in 1973. Nixon closing the gold window was by no means discretionary. To the contrary, there was no alternative.
    The gold standard failed as it always does. You simply CANNOT FIX the value of money. It was stupid to create Bretton Woods with a fixed exchange rate. Once again, people argue currency manipulation for trade when the free markets control the value of currencies today. China has tried to support the yuan, not suppress it for trade benefits.

    The government cannot fix the money at some arbitrary value and then spend whatever they want, thereby increasing the supply of the currency while keeping the value to gold fixed. A grade-school child could figure out the inevitable collapse. I was called into the ERM Crisis for they overthrew Maggie Thatcher to try to take the pound into the coming Euro. They fixed the pound at absurd levels and they created Black Wednesday. I was called because again I warned this would fail but only Maggie would listen. They tried to fix the pound in the European Exchange Rate Mechanism and it blew up in their face.

    Currency pegs all face the same fate. The British attempt to fix the pound after World War I was absurd. On September 20, 1931, Britain abandoned the gold standard. It was an event that has scarred political memories for two generations, for the financial crisis which preceded it led to the fall of the minority Labour administration and the decision by its leader, Ramsay MacDonald, to form the National Government with the help of the Conservatives. Electoral catastrophe followed for Labour, and many within the party never forgave MacDonald. Labour’s suspicion of the international banking community, which played a part in the government’s fall, dates from this experience, too.
    The Swiss tried to peg the currency against the euro and that blew up. There is no exception in history. The fate of pegs is always the same because there is this thing we call the business cycle.
    Categories: Foreign Exchange
    Tags: Bretton Woods, Gold Standard, peg

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