Best Austrian Economics Books To Read

Austrian Economics is a heterodox school of economic thought that has seen a recent resurgence in popularity, particularly in the cryptocurrency world. The Austrian School of Economics is characterised by a focus on processes of adjustment and changing conditions, rather than static or equilibrium states of affairs.

Carl Menger's 1871 text, 'Principles of Economics', is considered the founding text of Austrian Economics. Other essential readings in Austrian Economics include works by F.A. Hayek, Ludwig von Mises, Israel Kirzner, and Henry Hazlitt.

This introduction will recommend the best books on Austrian Economics, as well as providing an overview of the key principles and contributions of the Austrian School.

Ludwig von Mises' 'Human Action'

Ludwig von Mises' "Human Action: A Treatise on Economics" is widely considered his magnum opus. First published in German in 1940, the book is an extensive defence of laissez-faire capitalism, based on Mises' method of understanding the structure of human decision-making, which he called praxeology.

Mises' work argues that market-generated money prices are essential for determining the most valuable use of resources to meet consumer demands. He demonstrates the inconsistencies of political intervention in the market economy and the negative effects of political control and manipulation of the monetary system. Mises believed that government interventions that distort market prices always result in misdirection of resources, including labour, and malinvestment of capital, leading to inflation and economic downturns.

Mises also believed that the market economy was the only system that provided freedom and personal choice to all members of society, while generating the means to coordinate the actions of billions of people in the most economically rational manner. He saw monetary manipulation by central banks as one of the most disruptive distortions to the process of economic calculation.

The book covers a wide range of topics, including the role of ideas, exchange within society, the imaginary construction of a socialist society, the impossibility of economic calculation under socialism, the problems of taxation, and the economics of war.

"Human Action" is considered a masterpiece and the best defence of capitalism ever written. It covers basic economics through to advanced material, and is considered a must-read for anyone wanting to learn about economics.

Friedrich Hayek's 'Individualism and Economic Order'

Friedrich Hayek's "Individualism and Economic Order" is a collection of essays originally published in the 1930s and 1940s, discussing topics ranging from moral philosophy to the methods of the social sciences and economic theory to contrast free markets with planned economies. Hayek, a recipient of the Medal of Freedom in 1991 and the Nobel Memorial Prize in Economics in 1974, taught at the University of Chicago, the University of London, and the University of Freiburg.

In his book, Hayek presents his vision of individualism as a cornerstone of economic and social theory. He argues for the defence of "true individualism", a social philosophy rooted in the intellectual traditions of British thinkers like John Locke, Adam Smith, and Edmund Burke. Hayek contrasts this with a different form of "individualism" influenced by Cartesian rationalism, which tends to evolve into collectivism or socialism. True individualism, according to Hayek, is not about isolated individuals but recognises that human nature is shaped by society. It values the limitations of human knowledge and emphasises minimal coercion, advocating for decentralised power, local autonomy, and voluntary associations.

One of the key chapters in the book is "Economics and Knowledge", which was delivered at the London Economic Club in 1936. In this chapter, Hayek discusses the role of knowledge and foresight in economic analysis, particularly within the context of equilibrium theory. He writes about the importance of understanding the assumptions made about what individuals know and how they foresee the future, as these are crucial in understanding economic equilibrium. Hayek also criticises the traditional equilibrium analysis for confusing subjective data (what individuals know) with objective data (real-world facts).

Another important chapter is "The Facts of the Social Sciences", in which Hayek discusses the nature and scope of the social sciences. He argues that the focus should be on understanding and classifying individual behaviour rather than explaining it. Hayek writes that social theory is fundamentally connected to history, providing a framework to understand and explain historical events and patterns.

"The Use of Knowledge in Society", published in the American Economic Review in 1945, is another significant contribution. In this chapter, Hayek discusses the dissemination of knowledge in society and how it affects economic planning and decision-making.

Hayek's "Individualism and Economic Order" has had a major impact on both economics and political philosophy. His arguments have been cited by many leading economists, including Nobel laureates like Elinor Ostrom, James M. Buchanan, and Milton Friedman, who have used his theories to shape their work. The book is widely considered a classic of libertarian thought and has influenced the thinking of many libertarians who continue to use his concepts when arguing for individual freedom in modern economies.

Carl Menger's 'Principles of Economics'

Austrian economics is a heterodox school of economic thought, with some of its adherents making developments that are used in modern economics. One of the foundational texts of Austrian economics is 'Principles of Economics' by Carl Menger, first published in 1871. The book is considered to be the founding text of the Austrian School and is credited with starting the Marginalist Revolution, which corrected the theoretical errors of the old classical school.

In 'Principles of Economics', Menger elucidates the precise nature of economic value, rooting his theory in the real-world actions of individual human beings. He advances the theory that the marginal utility of goods is the source of their value, rather than the labour inputs that went into making them. This theory solves the diamond-water paradox that had puzzled classical economists: why diamonds are considered far more valuable than water, even though water is far more important. Menger's theory implies that the individual mind is the source of economic value, marking a departure from classical economic thought.

Menger also covers property, price, time, production, and wealth in his book. He explains that money originates not in social contract or legislation but within the framework of the market economy. The economist also stresses uncertainty in economic decision-making, deviating from classical and neoclassical economic thought, which assumes a 'homo economicus' or a fully informed, rational decision-maker. Menger asserts that perfect knowledge never exists, and therefore, all economic activity implies risk. The role of entrepreneurs, according to Menger, is to collect and evaluate information and act on those risks.

Time, according to Menger, is the root of uncertainty in economics. As production takes time, producers cannot be certain about the supply or demand for their products. Consequently, the price of a finished product does not reflect the costs of production, as these costs represent market conditions at different points in time.

'Principles of Economics' has stood the test of time, with economists still considering it one of the best introductions to economic logic and a seminal contribution to the field. Ludwig von Mises, for instance, credited the book with turning him into a real economist.

Henry Hazlitt's 'Economics in One Lesson'

"Economics in One Lesson" by Henry Hazlitt is a classic introduction to the basics of economic theory, defending capitalism and the free market from economic myths that persist to this day. It is considered a fundamental influence on modern libertarianism and is based on Frédéric Bastiat's essay "Ce qu'on voit et ce qu'on ne voit pas" ("What is Seen and What is Not Seen"). Hazlitt, considered among the leading economic thinkers of the Austrian School, wrote this book in 1946, bringing his ideas to the American scene.

The "One Lesson" is stated in Part One of the book:

> The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

Part Two consists of twenty-four chapters, each demonstrating the lesson by tracing the effects of one common economic belief and exposing it as a fallacy. Hazlitt argues that the shortest and surest way to understand economics is through a dissection of such errors. He acknowledges his indebtedness to Frédéric Bastiat, Philip Wicksteed, and Ludwig von Mises, whose ideas influenced this work.

Chapter 1, "The Lesson", explains that economics is filled with fallacies due to the inherent difficulties of the subject and the special pleading of selfish interests. Every group has economic interests antagonistic to other groups. Another factor is the tendency to overlook the secondary consequences of a policy, focusing only on its immediate effects on a specific group. Hazlitt emphasizes that the difference between good and bad economics lies in the ability to look beyond the immediate effects and consider the longer-term and indirect consequences for all groups.

Chapter 2, "The Broken Window", uses the example of a broken window to demonstrate what Hazlitt considers the fallacy that destruction can be good for the economy. He argues that while the broken window may create work for the glazier, the shopkeeper's money spent on the window means they cannot spend it elsewhere, such as on a new suit from a tailor. Thus, the potential business for the tailor is lost, and the community is worse off overall. Hazlitt stresses the importance of considering all parties involved in an economic transaction, not just those immediately visible.

Chapter 3, "The Blessings of Destruction", discusses the persistent fallacy of the broken window, often used to justify the benefits of destruction, particularly in times of war. Hazlitt points out that destruction may lead to a need for rebuilding but does not necessarily lead to increased purchasing power or effective demand. He also highlights that wartime inflation, perceived as good economic results, can be produced just as well by peacetime inflation.

Chapter 4, "Public Works Mean Taxes", examines what Hazlitt considers the fallacy of government spending as a solution to economic problems. He argues that every dollar of government spending must be raised through taxation, and that public works built primarily "to provide employment" are problematic. Hazlitt concludes that for every public job created by a government project, a private job has been destroyed somewhere else.

Chapter 5, "Taxes Discourage Production", argues that taxes have a negative impact on the economy, affecting the actions and incentives of those from whom they are taken. High taxes discourage risk-taking and entrepreneurship, resulting in fewer new jobs and less economic growth. While some taxes are necessary for essential government functions, excessive taxes are counterproductive and discourage private production and employment.

Chapter 6, "Credit Diverts Production", discusses the dangers of government "encouragement" to businesses in the form of direct grants or guarantees of loans. Hazlitt focuses on government loans to farmers, explaining that proposals for more credit are really proposals for increased debt. He argues that government lenders take risks with taxpayers' money that private lenders would not, and that government lending policies spring from shortsightedness: looking only at the standpoint of borrowers and the first half of the transaction.

Hazlitt's work provides a concise and instructive guide to economics, offering a critical analysis of economic fallacies that have become a new orthodoxy. His focus on non-governmental solutions, a strong anti-deficit position, and general emphasis on free markets and economic liberty make "Economics in One Lesson" a valuable contribution to economic thought, as relevant today as when it was first published.

Israel Kirzner's 'Competition and Entrepreneurship'

Kirzner argues that it is more useful to look to price theory to help understand how the decisions of individual participants in the market interact to generate the market forces that compel changes in prices, outputs, and methods of production and in the allocation of resources. Kirzner's insights can be applied to crucial aspects of centrally planned economic systems as well.

Kirzner criticizes the methodology of Robbinsian equilibrium analysis, in which a competitive market is a situation in which buyers and sellers have perfect knowledge and in which decision-making is mechanical and its solutions given. This analysis, according to Kirzner, eliminates all consideration of the competitive process and of entrepreneurship. Kirzner sees the entrepreneur as always alert to information and propelling the system forward by seeking out price discrepancies as opportunities for profit. This process depends not on impulses from technology or genius; rather, every market participant is a potential entrepreneur who can exploit a situation, which depends on a lack of perfect knowledge among the market participants.

Kirzner's work is a model of scholarly engagement between Austrians and neoclassical economics that enabled Austrian ideas to be taken seriously by the broader profession.

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