• us-money

    Consumption, Savings, and Investment

    Calling all Austrian economists, free-market enthusiasts and advocates for economic prosperity! Join the Boston Austrian Economics Group as we meet to discuss Chapters 7 & 8 of Keynes’ “General Theory”, as well as Chapters 7 & 8 of Hazlitt’s line-by-line critique of it titled “Failure of the New Economics.” The readings are strongly encouraged, but not required to attend our meeting. See you then!


    The General Theory of Employment, Interest, and Money
    J.M. Keynes: Chapters 7 & 8

    Text is available online at: http://cas.umkc.edu/economics/people/facultypages/kregel/courses/econ645/winter2011/generaltheory.pdf

    The Failure of the New Economics
    Henry Hazlitt: Chapters 7 & 8

    Text is available online at: https://mises.org/sites/default/files/Failure%20of%20the%20New%20Economics_4.pdf


    1. According to Keynes, capital consumption and capital formation occur, under which circumstances, in the Austrian school?
    2. According to Hazlitt, how is equilibrium static, and which three examples are used?
    3. Which phenomenon, according to Keynes, is measured by changes in the quantity of money, and which other factor contributes to this phenomenon?
    4. How did Keynes distinguish between saving and investment, and what was Hazlitt’s critique?
    5. Which six factors influence the propensity to consume, and based on these, what is Keynes conclusion?
    6. According to Hazlitt, what contributes to an unreduced volume of sales at lower prices, and how does this apply to saving and investment?
    7. According to Hawtrey, why is output significant to entrepreneurs, and how does fixed capital play a role?
    8. According to Hazlitt, what is the villain in the world of Keynes?
    9. Keynes claimed sinking funds and depreciation allowances were the result of which phenomenon, and how are these provisions absorbed?
    10. According to Hazlitt, what is the critique Keynes has of entrepreneurial investment, and this equates to what phenomenon?
    11. What is the objective of all economic activity, and how does aggregate demand factor in to this dynamic?
    12. How does the capitalist perspective on savings differ from the laborer’s perspective?


    1. According to Keynes, how does a “first alternative” differ from a “second alternative,” and what role does consumption play in the loss of wealth?
    2. According to Hazlitt, why is today’s savings not necessarily tomorrow’s investment, or why may today’s investment not necessarily be yesterday’s savings?
  • oldfactory

    Austrian Capital Theory


    Garrison Lect-1. 1 Capital Theory
    Slides by Dr. Roger Garrison

    Garrison Lect-1. 4 Hayek and Friedman
    Slides by Dr. Roger Garrison

    Garrison Lect. 3 Hayek and Keynes
    Slides by Dr. Roger Garrison


    Austrian Capital Theory
    Lecture by Dr. Roger Garrison, Mises University 2013

    Hayek and Friedman: Head to Head
    Lecture by Dr. Roger Garrison, Mises University 2013

    Hayek and Keynes: Head to Head
    Lecture by Dr. Roger Garrison, Mises University 2013


    1. What (if anything) is the unit of capital?
    2. What are the differences between Knight’s and Hayek’s capital theorems?
    3. Why does Knight say that time is irrelevant? How does Hayek refute him?
    4. What happens to the structure of production when savings are increased? Decreased? Why?
    5. What is the role of maintenance in the capital structure? Is capital constant or permanent?
    6. In what sense does Friedman agree with Keynes when it comes to economics? In what ways do they differ?
    7. How do the Austrian School and Chicago School differ in their methodology? How does this affect their analyses?
    8. Why does Friedman dismiss interest rates as being a variable when describing recessions?
    9. What is the money velocity equation? Is this a valid concept?
    10. How does the Austrian School use statistics?
    11. What are the methodological differences between the “circular-flow” framework and the “means-ends” framework? How does the concept of equilibrium differ between the  two views?
    12. What causes the bust to occur in the Keynesian framework? How is this fundamentally different from the Austrian School?
    13. Keynes insisted that savings and investment are not influenced by the interest rate. Why is this rejected by Hayek (and the rest of the Austrian School)?
    14. What was the one graph included in Keynes’ General Theory? Why was this graph included?
    15. Why does Garrison separate consumption and investment in the PPF?
  • hayek

    Production: The Structure


    Chapter 5: Production: The Structure
    Man, Economy, and State, Murray N. Rothbard

    Chapter 5 Study Guide
    Study Guide to Man, Economy, and State, Robert P. Murphy


    5.01 Some Fundamental Principles of Action


    5.02 The Evenly Rotating Economy


    5.03 The Structure of Production: A World of Specific Factors


    5.04 Joint Ownership of the Product by the Owners of the Factors


    5.05 Cost


    5.06 Ownership of the Product by Capitalists: Amalgamated Stages


    5.07 Present and Future Goods: The Pure Rate of Interest


    5.08 Money Costs, Prices, and Alfred Marshall


    5.09 Pricing and the Theory of Bargaining



    1. How does Rothbard justify study of the ERE, when Austrians are so critical of unrealistic assumptions in mainstream economics? (pp. 322-23)
    2. Why is the ERE not only unrealistic, but indeed self-contradictory? (pp. 328-29)
    3. How would Rothbard Classify those goods that produce second order capital goods? (pp. 330-31)
    4. Describe the structure of production in a world of purely specific factors. (pp. 330-31)
    5. In the case of joint ownership, where the final product is a diamond ring, arrange the following in order of their respective waiting times to be paid: (a) the truck driver bringing diamonds to the jeweler, (b) the laborer in the diamond mine, and (c) the jeweler who sets the diamond on a ring (pp. 334-37)
    6. What is wrong with the “freedom-to-starve” argument (p. 339)
    7. How can a sale be costless (p. 341)
    8. What is the problem with so-called “cost-plus” pricing schemes for public utilities (in which the utility companies are allowed to charge consumers what their “costs” are plus a certain percentage markup)? (pp. 341-342)
    9. By what process does one pure rate of interest arise in the ERE? (p. 351)
    10. Can a landowner earn interest in the ERE? (pp. 351-353)
  • pricetag

    Prices and Consumption


    Chapter 4: Prices and Consumption
    Man, Economy, and State, Murray N. Rothbard

    Chapter 4 Study Guide
    Study Guide to Man, Economy, and State, Robert P. Murphy


    4.01 Money Prices


    4.02 Determination of Money Prices


    4.03 Determination of Supply and Demand Schedules


    4.04 The Gains from Exchange


    4.05 The Marginal Utility of Money


    4.06 Interrelations Among the Prices of Consumers’ Goods


    4.07 The Prices of Durable Goods and Their Services


    4.08 Welfare Comparisons and the Ultimate Satisfactions of the Consumer


    4.09 Some Fallacies Relating to Utility


    Appendix A: The Diminishing Marginal Utility of Money


    Appendix B: On Value



    1. What is the significance of the fact that the “number of markets needed is immeasurably reduced” in a money economy? (pp. 233-35)
    2. Why doesn’t every good have a purchasing power that consists of an array, i.e., what is so special about the money commodity? (pp. 236-37)
    3. What does it mean to “sell” money? To “buy” money?
    4. Why do individuals hold cash balances? (pp. 264-65)
    5. Why does Rothbard argue that buying more eggs will make the marginal utility of butter increase? (p. 266)
    6. Are money prices a measuring rod of subjective value?
    7. Why did economists before Mises find difficulty with a marginal utility explanation of money demand? (p. 268)
    8. How does Mises’s money regression theorem apply to fiat money?
    9. Can an individual really know the true cost of an action, even ex post? (p. 277)
    10. Dos the diminishing marginal utility of money prove that a progressive income tax would increase total social utility? (p. 302)
  • misesu2013

    Virtual Mises University 2014

    For almost thirty years, Mises Institute scholars have presented Mises University, a world-class, week-long, intensive mini-university in Austrian economics. Virtual Mises University is for students, professionals, business people, absolutely anyone, anywhere who is interested in the pursuit of economic truth.

    Key lectures will be streamed live on YouTube here. Basic live streamed lectures also will be recorded and posted for later viewing. Enrollment is not required to watch and listen free on YouTube.

    Anyone who desires a more in-depth experience can enroll in Virtual Mises University for $20. As an enrolled student, you can review and download lecture slides, utilize a fully hyper-linked list of all required readings (just like the on-site attendees), participate in dedicated social and academic forum (for lively interaction and discussion with fellow VMU students), and earn a certificate of participation.

    Click Here To Join the Virtual Mises University 2014!

  • Skyline of the Freest Market in the World

    Hong Kong: A Model of Free Market Success

    As the plane descended, I saw the spectacular coastline and mountainous region that make Hong Kong a destination of such natural beauty. This was my first time in Asia and hoped it would be one of many. Fifteen hours later, I was finally on the other side of the world.

    From the moment I landed there, it was nothing short of amazing. As a special administrative region of the People’s Republic of China, Hong Kong follows the “one country, two systems” model, referring to how its political system differs from the mainland. As a sovereign state, Hong Kong enjoys a high level of autonomy for the next 100 years as stipulated by the British government upon passing control back to China in 1997.

    Along the Avenue of the Stars

    Along the Avenue of the Stars

    The first weekend I was there, I toured Hong Kong and saw the famous city skyline of Kowloon. I walked along the Avenue of Stars under the beautiful night sky illuminated by the bright lights along the water. Modeled after Hollywood’s Walk of Fame, Kowloon pays tribute to some of Hong Kong’s most famous residents, such as the late Bruce Lee, Jet Li and Chow Yun-Fat.

    Statue of Bruce Lee in Kowloon

    Statue of Bruce Lee in Kowloon

    Halfway along the Avenue of Stars, Bruce Lee, Hong Kong’s most famous resident, is memorialized in bronze against the backdrop of the skyline. Serving as a sad reminder of his premature death, the statue depicts him striking his classic pose as seen in his 1972 movie The Fist of Fury.

    World renowned for its economic prosperity and high quality of life, Hong Kong is the world’s freest economy according to the Index of Economic Freedom. Jointly created by the Wall Street Journal and the Heritage Foundation, the index measures the degree of economic freedom in every country around the glob

    Implementing the belief that individual liberty results in greater prosperity for all of society, the index designates which nations are more conducive to economic prosperity. As a supporter of free markets and limited government, I witnessed Hong Kong’s economy firsthand in a program through Georgetown University.

    In conjunction with the Asia Institute for Political Economy, I spent the month of July studying Hong Kong’s economy and how it became a free market success story. Our professors covered various topics, including the theories of Austrian economists Ludwig von Mises, Murray Rothbard, Friedrich Hayek, Carl Menger as well as economic prosperity, free trade and the decline of the American dollar.

    One of our many important economic lessons

    One of our many important economic lessons

    Another component of this unique program was to hear from the leading political, business and economic experts in Hong Kong today. Memorable guest speakers included Richard Vuylsteke, president of the American Chamber of Commerce in Hong Kong; Thomas Easton, Asia business editor of The Economist; and Andrew Work, co-founder of the Lion Rock Institute, Hong Kong’s leading free market think tank.

    While there, I wanted to absorb the culture and interact with the residents, which I was able to do during our first out-of-class activity.  An exciting yet challenging assignment for our economics class was to negotiate for five items at the night market. Temple Street marks the location of Hong Kong’s longtime tradition of vendors lining the streets selling their goods at rock-bottom prices. The night market was bright, humid and crowded as I witnessed shoppers haggling with merchants in Mandarin.

    I spent a lot of time just wanting to get lost in Hong Kong and immerse myself into its customs and traditions. A lot of us spent time exploring Lan Kwai Fong, which is a section of cobblestone streets lined with numerous shops, restaurants, bars and clubs. Known for its nightlife, Lan Kwai Fong is home to the unique Balalaika Russian Ice Bar & Restaurant. Well known for its closed-in freezer ice bar, it can accommodate a small party and is stocked with a full bar, ice counters, ice seats and fur mats.

    Lantau Island’s scenic and quaint Tai O fishing village

    Lantau Island’s scenic and quaint Tai O fishing village

    While there, I wanted to see other parts of Asia, which prompted a weekend visit to China’s other administrative region, Macau, as well as Lantau Island. I also toured an old Chinese fishing village, sang karaoke, visited an interactive exhibit in the dark, went to a trolley party, ate dim sum, climbed the highest peak for a stunning view of Hong Kong, and got caught in a typhoon.

    Hong Kong was not the only destination to choose from, but I clearly picked the right one. Due to mainland China’s oppressive government and policies, I have had some people ask, “Why China?” Anyone who has been there would understand.

    Hong Kong felt like paradise with its tropical climate and stunning landscape. It is an enchanting place full of history, high-rise buildings, mountains, bays, parks, waterfalls, and sections reminiscent of a jungle. It is, after all, Asia’s Gateway City, known for its skylines, the ice bar and free markets.

  • MisesLibrary

    Never Before Seen: Ludwig von Mises Translations!

    Join us as we review two newly-unearthed English translations of works by esteemed economist, Ludwig von Mises: “Ideas about  the Post War Economy”, and “Comments about the Mathematical Treatment of Economic Problems”.

    Mises wrote “Ideas” for the Spanish-language publication, Cuadernos Americanos, and it has been translated by Austrian economist Andrew silva. Silva will be joining us at the event, and he will share tales of studying with and meeting famed Austrian economists, such as Ludwig Lachmann, Murray Rothbard, and others.

    The second essay is a new translation of a notable Mises work that came to us by way of influential Austrian economist, Bettina Graves.

  • MisesLibrary

    Newly Rediscovered Translations of Ludwig von Mises

    Thanks to economist Andrew Silva, the Boston Austrian Economics Group has two newly unearthed translations of Ludwig von Mises.

    The first, translated by Mrs. Helena  L. Ratzka, is “Comments About The Mathematical Treatment Of Economic Problems“, an article first published in Studium Generale VI, No. 2 in 1953. This article comments on the importance of using the correct methodologies for the different sciences. Mathematics may be appropriate for the physical sciences, such as chemistry and mechanics, but it is not applicable to human action.

    The other article, translated by Andrew Silva, is “Ideas About The Postwar Political Economy“, an article originally published in the July/August 1942 edition of Cuadernos Americanos. This article, written at the height of World War II, highlights the necessary conditions for peace in Europe, and elsewhere.

    Many thanks to Andrew Silva, who has provided us with these texts!

  • federal-reserve-dc

    What Is Austrian Business Cycle Theory?


    • The Austrian School is an under-respected economic school which unequivocally embraces free markets in favor of central planning.
    • Austrian Business Cycle Theory attempts to explain the business cycle through the actions of central banks.
    • Austrian Business Cycle Theory offers foresight into the effects of the Federal Reserve’s Quantitative Easing program.

    Austrian Business Cycle Theory

    abct-chartThe six main steps of the business cycle can be seen in my flowchart above.

    1. The first step to understanding an economic bust is knowledge of central bank policy prior to the bust period. The actions that explain the entire cycle are interventions undertaken by the central bank. For this example, we’ll use the fictitious island of Senyek. In the fictitious land of Senyek, central bank policy maker Eknanreb chooses to fix interest rates at near .1% to stimulate economic growth. Eknanreb can hold interest rates near .1% through an incredible inflation of the monetary supply.
    2. Eknanreb’s actions bring us to the second phase of the cycle, actions taken by banks in response to central bank policy. As the monetary supply increases rapidly under Eknanreb’s direction, more funds are able to be lent out. As more funds are able to be lent out, banks incentivize taking on a loan by offering a low interest rate.
    3. Once banks offer credit at low interest rates, businesses respond to the market signal and start to take on debt. Businesses then overinvest in projects with easy credit. The fundamental problem exists in that the credit offered at low interest rates by banks is not a real market signal. Sure, it’s a market signal in that it provokes another action, however, the origination of the market signal is inherently fake. In a free market, low interest rates arrive as a result of decisions made by market participants. For example, interest rates naturally reach low levels if market participants choose to save instead of borrow. As market participants stop borrowing and start saving, banks respond by lowering interest rates to incentivize borrowing. Decisions made by banks to lower interest rates in response to market signals from other market participants create real market signals as the signals represent actions of other market participants. Decisions made by banks to lower interest rates in response to policy directives from a central bank create false market signals, as the signals fail to come from the market.
    4. The next phases of the cycle can be explained by malinvestment. Malinvestment, the misallocation of resources, occurs once businesses have over-invested in projects with easy credit. A great way to explain malinvestment comes from Mises’s Human Action. Mises uses the example of a master builder who planned to build a large house. The builder, unaware that he doesn’t have enough bricks to complete the house, continues to build a house he can’t complete. The building of the house creates a great economic boom, and everyone involved in the project is thrilled. Once the builder reaches the last brick, he realizes what has happened, and the project comes to a grinding halt and an economic bust ensues. This example does a great job explaining what is happening on the island of Senyek. On Senyek, businesses are unaware of the false market signals driving their malinvestment. Likewise, the builder is unaware his great house has too few bricks. The builder has been fooled into allocating resources into building a giant house while Senyek businesses have been fooled into investing in projects derived from an artificial market signal. At last, the unsustainable boom period fueled by easy credit and fake market signals leads to a severe bust period. If only someone told the builder that he had too few bricks earlier, the fallout of the bust would be less severe. Likewise, if the central bank hadn’t created an artificial market signal, the economic bust period would be less severe.

    Applying Austrian Business Cycle Theory

    In the U.S., the Federal Reserve buys $65B worth of bonds every month. In accordance with the Austrian School, this fake stimulation is currently fueling malinvestment and overconsumption. Once the “Fed” completes the “taper” of Quantitative Easing, the current bond buying program, the master builder will realize the market signals he received were false, and his house will crumble. Likewise, the next catastrophe in the U.S. is not too far in the future. Actions taken by the Federal Reserve in response to the Great Recession have fueled a boom period characterized by overconsumption, and a severe bust will follow.

  • Student Loan Debt

    A Vicious Cycle Fuels The Massive Student Loan Bubble


    • A vicious cycle of government-backed loans fuels the massive student loan bubble.
    • Student loan debt is a drag on economic growth.
    • Too many young people go to college.
    • The student loan bubble resembles the recent housing market bubble.

    A Vicious Cycle & Its Impact On Growth

    student-loan-cycleThe student loan bubble begins with the government. Loans offered to students are guaranteed by the federal government. Colleges can then charge higher tuition rates if the government intends to back its own loans. The effect of government-backed subsidies and loans is staggering inflation. As seen in the image below, college tuition prices have easily outpaced benchmark inflation.

    tuition-pricesIn fact, college tuition prices have outpaced inflation every year since 1981. Secondly, college tuition increases at an average of 6% greater than benchmark inflation. One method of reducing prices would be to increase the supply of students, thereby lowing tuition costs. However, colleges choose to solve the problem by raising prices and will likely continue to do so. The effects of higher tuition costs are starting to impact the financial stability of students. Two-thirds of college students are in debt and the average graduate owes $25K. In total, student debt exceeds $1T. As a result of mounting debt, the student loan default rate is growing quickly. From 2003-2010, the student loan default rate more than doubled from 4.5% to 9.1%! To compound problems, student loans from the federal government are non-dischargeable. With non-dischargeable loans students cannot declare bankruptcy and rid themselves of student loan debt. Instead, students are only allowed to purchase essential items for survival as the federal government aggressively garnishes the wages of those in debt. An increasing number of consumers that can only purchase essentials serve as a drag on the U.S. economy.

    Too Many Young People Go To College & Similarities To Th> Housing Market Bubble

    It’s hard to argue with the statistics that indicate too many high school seniors go to college. For one, the U.S. has the highest dropout rate in the industrialized world. If the federal government didn’t guarantee student loans then fewer students would go to college. With fewer students attending traditional higher education, the runaway inflation of college tuition prices would be under control. A second effect of fewer students obtaining traditional higher education degrees would be the decrease of structural unemployment. Too many decent, well-paying vocational jobs go unfilled in the U.S. In other industrialized nations such as Germany, some students choose to attend job training programs offered by companies that are happy to hire dedicated, well-trained high school graduates. It’s healthier to both the individual and the broader economy to be a vocational worker with a $44,000 salary and no college debt than an unemployed humanities major with a frightening amount of student loan debt. In fact, half of humanities students obtain jobs that don’t require a college degree.

    That being said, a simple comparison of salaries indicates that it is unquestionably better to have a college degree than solely a high school degree. The issue is not higher education, it’s too many students pursuing higher education with a huge, government-backed loan. Similarly, too many people became “homeowners” and as household debt soared, the housing market bubble increased. Homeownership is a good thing, but becomes a problem when too many pursue it. Likewise, a college education is a good thing, but not when those who don’t need it pursue it. In both cases, the root cause lies with the federal government and its inflation fueling loans and subsidies. Just as the federal government encouraged home ownership in the years leading up to the housing market bubble, the federal government is actively pushing some students to obtain a potentially unneeded major. Even worse, as college tuitions rise, public pressure increases to increase loans and subsidies to college students! Politicians, responding to the wishes of the people then increase loans and subsidies. And in increasing government loans and subsidies, those in government only add fuel to a rapidly growing bubble that threatens to puncture growth.

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