Austrian economics is a framework for understanding human action. It is built around certain propositions as to how we should interpret an analyze the results of human interactions (namely the world around us). The study of human action is not a policy recommendation but rather what Steve Horwitz of St. Lawrence University calls a “set of claims as to how things work”. Policies such as “classical liberal” or “free market economics” work best under Austrian propositions but they are not a framework for analysis, but rather represent a policy.
Borrowing from Horwitz and Peter Boettke, who wrote a great synthesis of the propositions of Austrian Economics in the Library of Economics and Liberty , I have attempted to summarize the propositions of Austrian Economics below:
About Economics in general
Proposition 1: Only individuals choose (not Governments or firms), and they do so purposefully.
Proposition 2: Trade is mutually beneficial and institutions/rules matter in shaping exchange and market order.
Proposition 3: There are limited uses for statistics when talking about human action.
Proposition 4: Utility and costs are subjective.
Proposition 5: Prices are knowledge (information) incentives and serve as “knowledge surrogates” about changes in preferences and resources.
Proposition 6: Private property in the means of production is a necessary condition for rational economic calculation.
Proposition 7: The competitive market is a process of entrepreneurial discovery. It is a “spontaneous order”.
Proposition 8: Money is non-neutral. Under inflation wealth is constantly being redistributed to those “closest to the source”.
Proposition 9: The capital structure consists of heterogeneous goods that have multispecific uses that must be aligned. In other words, GDP is a very faulty measure that does not include all the capital that is consumed in roundabout production.
Proposition 10: Institutions are the result of human action, not of human design.
The first proposition leads one to discuss morality and social organizing principles. Hence, Austrian economics is always in the realm of what was once called “Political Economics”.