Austrian Economics

We (Lara and Murphy) are adherents to the “Austrian” School of Economics. Nowadays, the name has nothing to do with the economy of the country of Austria, but instead is a historical legacy from the fact that the School’s founders were from Austria. Indeed, many of today’s most prominent Austrian economists were born in the United States.

The Austrian School was founded in 1871 by Carl Menger, whose book Grundsätze (translated as Principles of Economics) was part of the so-called marginal revolution in economic thought. This marked the transition from the classical labor theory of value into the modern, subjective value theory of market prices. Some of the most important intellectual descendants of Menger are Ludwig von Mises, Nobel laureate Friedrich Hayek, Murray Rothbard, and Israel Kirzner. (See our list of Great Austrian Economists.)

The Austrian School is known for its focus on the individual and the market process; Austrian economists do not explain economic events using equations of aggregates or statistics. The Austrians are skeptical of government intervention in the economy, arguing that it often produces results that make the original situation even worse. What makes the Austrians unique is that they apply this logic even to money and banking. Indeed, the great Austrian economist, Ludwig von Mises, blamed the familiar boom-bust cycle not on laissez-faire capitalism, but instead on artificially low interest rates fostered by governments and central banks. Especially since the worldwide central bank injections of liquidity in 2008 and beyond, the Austrian theory of the business cycle is more relevant than ever.

Recommended Resources

It is crucial for today’s investors and financial professionals to understand the basics of how a market economy operates. We believe that the layperson’s time in this arena is best spent absorbing works in the Austrian tradition, as this is the quickest path to essential economic knowledge. The following books teach Austrian economics to different types of audiences, and we highly recommend them for the appropriate reader:

  • Lessons for the Young Economist (2011), by Robert P. Murphy. An introductory textbook aimed at junior high students, but also applicable to adults who have never studied economics and wish to start at the ground level. Perfect for homeschoolers. (Free online version here, as well as teacher’s manual.)
  • Economics in One Lesson (1946), by Henry Hazlitt. This short and eminently readable volume has taught basic economics to millions of people. Hazlitt was a journalist by trade and—contrary to most economic thinkers—could actually write. This book teaches the reader to “see the unseen” ramifications of apparently beneficial government policies. Hazlitt destroys the “broken window” approach to prosperity as well as other fallacious ideas.
  • What Has Government Done to Our Money? (1963), by Murray Rothbard. Available for free here, this short booklet lays out the problem of government intervention in money. It explains that government is the source of inflation and the business cycle, and that the market’s money (gold) was much better than modern “fiat money” which is backed up only by the virtue of political officials.
  • Choice: Cooperation, Enterprise, and Human Action (2015), by Robert P. Murphy. A mid-size book that boils down the essentials of Mises’ long treatise, Human Action, in accessible prose that assumes no prior knowledge of economics. It is aimed at undergrad economics majors, but is appropriate for any reader who wishes to truly understand Austrian economics. It concentrates on the areas of money, banking, capital, and interest, culminating in a comprehensive statement of the Austrian theory of the business cycle. Available on
  • How Privatized Banking Really Works (2010), by Carlos Lara and Robert P. Murphy. This work integrates Austrian economics with the Infinite Banking Concept (IBC) as developed by Nelson Nash. Rather than a work in pure economic theory, it places the essentials of free market economics in the context of the United States’ tradition of political liberty, and the financial crisis of 2008. Available here from the Nelson Nash Institute.
  • Man, Economy, and State (1962), by Murray Rothbard. Murray Rothbard was a prolific economist as well as a political theorist, who was one of the pioneers of American libertarianism. He originally set out to write a more accessible guide to Mises’ Human Action, but ended up producing a new treatise in its own right. Man, Economy, and State is a long work, but it provides a comprehensive education in Austrian economics with a discussion of the related literature. Rothbard not only relays the insights of his predecessors (notably Mises), but he also develops innovations in economics such as his approach to monopoly price. (Free online version here, as well as Murphy’s study guide.)
  • The Austrian Theory of the Trade Cycle and Other Essays (1978), edited by Richard Ebeling. Available for free here, this collection draws on some of the leading Austrian economists to explain (from their varying perspectives) how government intervention in banking can cause an artificial boom which must inevitably end in recession. Appropriate for those versed in mainstream economics, who wish to relate other approaches to the Austrian School.
  • Human Action (1949), by Ludwig von Mises. The classic treatise that marked the rebirth of the Austrian School in the wake of the worldwide embrace of Keynesian economics in the 1930s. Although the language is formal and assumes some familiarity with economics, Mises writes for a general audience, not for other economists. In addition to teaching pure economic theory, Mises gives a comprehensive defense of the power of reason and the importance of liberty. (Free online version here, as well as Murphy’s study guide.)

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