Dedication

To Carl Menger, Ludwig von Mises, and the

other giants upon whose shoulders I have the great honor of standing.

THE MISES INSTITUTE, founded in 1982, is an education and research center for the study of Austrian economics. In support of the school of thought represented by Ludwig von

Mises, Murray N. Rothbard, Henry Hazlitt, and F.A. Hayek, we publish books and journals, sponsor student and professional conferences, and provide online education. Mises.org is a vast resource of free material for anyone in the world interested in these ideas. We advocate a radical shift in the intellectual climate, away from statism and toward a private property order.

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Contents

Dedication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Preface. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Part I: Economics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131. What Economics Is . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Th e Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Th e Economic Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Economics as Understanding . . . . . . . . . . . . . . . . . . . . . . 192. Economic Th eory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Th e Starting Point . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Unpacking Human Action . . . . . . . . . . . . . . . . . . . . . . . . . 23

Th e Genius of the Action Axiom. . . . . . . . . . . . . . . . . . . . 253. How to Do Economics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Th e Meaning of Exchange . . . . . . . . . . . . . . . . . . . . . . . . . 28

Price and Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Price Mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Th e Step-by-Step Method. . . . . . . . . . . . . . . . . . . . . . . . . . 33

Economics as a Social Science . . . . . . . . . . . . . . . . . . . . . . 37

Part II: Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394. A Process, Not a Factory . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

A Coordinated Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Continuous Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Continuous Uncertainty. . . . . . . . . . . . . . . . . . . . . . . . . . . 475. Production and Entrepreneurship. . . . . . . . . . . . . . . . . . . . 51

Production to Overcome Scarcity . . . . . . . . . . . . . . . . . . . 52

Capital and Production. . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Th e Role of the Entrepreneur. . . . . . . . . . . . . . . . . . . . . . . 60

Entrepreneurs Make Mistakes . . . . . . . . . . . . . . . . . . . . . . 63

9

10 Per L. Bylund

6. Value, Money, and Price . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Th e Problem of Measuring Value . . . . . . . . . . . . . . . . . . . 67Th e Use of Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69Th e Emergence of Money. . . . . . . . . . . . . . . . . . . . . . . . . . 72Th e Importance of Money . . . . . . . . . . . . . . . . . . . . . . . . . 74Money Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76Fiat Currency and Price Infl ation . . . . . . . . . . . . . . . . . . . 79

7. Economic Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Th e Nature of a Productive Economy. . . . . . . . . . . . . . . . 84Th e Driving Force . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91Th e Production of Value. . . . . . . . . . . . . . . . . . . . . . . . . . . 94Entrepreneurship and Management . . . . . . . . . . . . . . . . . 99

Part III: Intervention. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1038. Monetary Intervention . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

Th e Boom-Bust Cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105Th e Rate of Return and Capital Investments. . . . . . . . . .106Th e Cause and Nature of the Artifi cial Boom . . . . . . . . .110Th e Turning Point . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .114Th e Corrective Bust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .118

9. Regulatory Intervention . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

Th e Seen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .122Th e Unseen. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .123Th e Unrealized. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .126

Conclusion: Action and Interaction . . . . . . . . . . . . . . . . . . . . 131Further Reading. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139