Economics For Real People: An Introduction To The Austrian School [Englisch] [Taschenbuch]

This book provides an introduction to Austrian economics which is sometimes funny to read.

The first parts lay the philosophical (logical) foundations of Austrian economics and build up a picture of the market economy. This is done by looking at a person living alone on an isolated island (like Robinson Crusoe). Later more people, goods, and money are introduced. In my opinion, this is one of the best explanations of Ricardo's "Law of Comparative Advantage" and the history of money.

According to Austrian economics, the market process does never establish a general equilibrium. Sure, there will sometimes be equilibria in distinct markets, but these cannot last for long. The price informs entrepreneurs of new profitable undertakings, thus destroying the equilibrium. New data will have the same effect. The price will cause entrepreneurs to gradually adjust to their customers' wishes. There is thus no need for a general equilibrium (nor does is actually exist) as in conventional economics for the market process to be beneficial. Unlimited information, perfect competition, and instantaneous action aren't necessary either. The market process consists of learning, discovering opportunities, and adapting to new information. Austrian microeconomics is much more realistic than neoclassical models. (You might guess from this that there are no figures of demand and supply curves within this book. Your guess is correct.)

Later parts introduce the government and show its role in manipulating prices and money, regulations, minimum wages, etc. Callahan's explanation of inflation and deflation is much better than in conventional economics textbooks. The market process will destroy monopolies, because their profits attract new competitors. Only monopolies privileged by the government will survive. Therefore, Austrian economics rejects antitrust laws.

The "Austrian Theory of the Business Cycle" states that recessions are caused by central banks via manipulation of interest rates. Artificially low interest rates cause entrepreneurs to think that there are a lot of savings which they can use for investments. Later on, the central bank detects an "overheating economy" and raises the interest rates, thereby initiating a recession during which unemployment is likely to occur. According to Austrian economics, all agents (consumers, capitalists, workers, and entrepreneurs) have a time preference which causes aggregate savings and investment to equal in the loan market. The resulting price for time is the interest rate. If the central bank alters the interest rate, the capital structure of the economy (consumption today versus future consumption via investment) is distorted and does not correspond to consumers' wishes any longer. The subsequent recession merely restores the normal structure of capital. Thus the problem is the artificial boom and not the inevitable bust following it. Callahan considers critics of the "Austrian Theory of the Business Cycle" and refuses them by pointing to their fallacies. In my opinion, the "Austrian Theory of the Business Cycle" seems to be correct. It is much better than the conventional theories we discussed at university.

I recommend this book to all readers interested in economics. It is especially illuminating for students of economics.