Fundamentals of Economic Analysis: A Causal-Realist Approach

What determines market prices? Buyers and sellers must know of feasible trades. They can learn from their mistakes. They prefer higher profits to lower profits. They think in discreet terms. Both participants win in market exchanges.

Prices allocate resources to their highest uses. It is welfare-maximizing in any meaningful way. Prices are signals. Prices provide feedback to entrepreneurs about the quality of their forecasts.

The...

Factors of Production are economic goods: scarce means used to achieve an individual’s ends. They are land, labor and capital. Each is examined. Incomes are earned by factor owners as production takes place. There is no separated production and distribution.

Consumer goods and producer goods are subjectively determined by how they are used.

Factor pricing is by the Austrian theory of imputation.

To Austrians, all costs are oppor...

As with all government intervention, price controls do not achieve what their originators think they will. Trying to maintain a supply of milk by putting a price control on it will cause shortages, which are the very situations the price manipulators said they wanted to avoid.

Rent control seems great to the snug renter, but it will assure that no new building or renovations will be undertaken by entrepreneurs. Shortages follow. A...

Time preference says that individuals prefer satisfaction now to later, present to future. This explains the loan market. In the structure of production, the capitalist pays wages now, despite the fact that he himself does not get paid until the final stage when the product actually comes to market.

Consumption, saving, investment and spending occur in every production stage – across time. The interest rate is the rate of price sp...

Causal-realist analysis allows imaginary constructs like the ERE — Evenly Rotating Economy — in order to isolate certain factors like interest.  There would be no profit or loss in the ERE, because those can only exist under conditions of uncertainty.

Klein explains profit as a category, not a line item. The entrepreneur’s function is to experiment with combinations of factors of production to find those t...

Competition can mean rivalry or freedom. All firms must serve the preferences of consumers in order to exist. Monopoly has historically been an artificial privilege granted by the state.

Monopolies do not last for long in free markets unless maintained by government interventions. Antitrust policies were generally not demanded by consumers, but created by jealous competitors. Antitrust laws are insensible and wasteful.

The eighth...

In the history of money, bartering was awkward because wants were not divisible. Direct exchange depended upon a double coincidence of wants. Demand for a medium of exchange grew until a general medium of exchange emerged, like gold and silver.

A medium of exchange should display these characteristics: must be generally acceptable, widely demanded for non-monetary uses, easily portable, homogeneous, highly divisible and highly dur...

We have today a hybrid of two forms of banking — loan banking (non-inflationary) and deposit banking (inflationary if not 100% reserve holdings). The cause of booms is the credit expansion by central banks that is not backed by pools of private savings.

The longer the inflation-driven boom continues, the worse the inevitable clearing bust must be. Austrian policy is to leave everything alone to permit all the adjustments needed. K...