The vast majority of textbooks taught in universities today are in the mainstream Keynesian-Samuelsonian economic tradition, which confuses students more than it informs them. I have taught these university textbooks for years and witnessed droves of intelligent students leave class with more questions than they entered it with, struggling to understand the significance of the obscure equations they studied, or to see any convincing reason to believe their outputs.
Over the years, I have spoken to dozens of highly intelligent students and graduates who report a similar experience: They did what they had to do to get the grade they wanted, but none of the material made sense to them. They incredulously try to convince themselves to undertake the astounding leaps of logic necessary to make sense out of the irrelevant equations in order to pass exams, never to consider the ideas of the course again. If students learn from the mainstream textbook, they learn to understand theoretical models with only a tenuous link to reality. Success in the courses consists of understanding the models, not reality.
While teaching economics, I would include insights from the Austrian school of economics. Students invariably found these to be the most practically and intellectually interesting parts of the course, and the one that provided them lasting value beyond securing a degree. Austrian ideas are almost entirely ignored in most of today’s universities. Modern textbooks rarely ever mention the Austrian school, let alone elaborate their ideas. I had to constantly resort to a variety of readings on various topics. The most prominent Austrian textbooks and treatises, such as Mises’ Human Action and Rothbard’s Man, Economy, and State, are difficult for most modern readers to digest, and, sadly, they spend far too much time attempting to argue with mainstream thinking, which after a point impedes clarifying the Austrian perspective.
I always wanted a clear, concise, and readable treatment of the main economic ideas in the Austrian tradition, culminating in an understanding of the civilizational importance of the extended monetary market order.
I began developing the outlines of such a textbook for graduate and senior courses I taught at the Lebanese American University. After publishing The Bitcoin Standard and finding a receptive readership that appreciated my writing on economics, I decided to turn my attention extensively to writing the textbook that I had always wanted to teach. In 2019, I decided to leave my university job and start teaching and publishing independently, on my website saifedean.com. In 2019 and 2020, I developed two Principles of Economics courses, ECO11 and ECO12, which further developed the ideas that would grow into this book.
Teaching and interacting with hundreds of students from around the world, and being liberated from the academic publication mill’s increasingly arcane and esoteric journals and publishers, I could now focus on writing for the reader, not committees of academics. After two decades of studying and learning economics at university level, this book represents the knowledge of economics I would like to have had when I was 17. It is what I hope my children will read when they become curious about economics.
This book forms an introduction to the principles of economics, and the economic way of thinking—a powerful tool of mental planning useful for everyone to understand. In a university, I would teach this book over two Introduction 3 semesters, to introduce students to a broad view of the topic of economics and the economic way of thinking. More than just a university textbook, this is a book written for a general audience of anyone interested in economic ideas. Even if you are not studying economics at a university, you are making economic decisions every day of your life. For this reader, I hope this book offers a concise and actionable summary of the most useful insights of the economic way of thinking, which would be helpful in personal and business decision-making.
This book is unapologetically Austrian in its approach. It uses the plain written word to explain what many economists throughout history have found to be the most powerful methods of understanding economic phenomena. It applies the human action approach to explaining the most important concepts and topics in economics, building on the work of the economists of the Austrian school. It tackles major economic concepts and topics independently, but in a logical sequence aimed at delivering the reader an understanding of economics at an individual and societal level, and the widespread implications of economics as a topic. The first part of the book introduces the foundational concepts in economics and the Austrian method of this book. The second part of the book, Economy, introduces the actions that individual humans perform to economize. Part III, The Market Order, examines economizing in the social context, why the capitalist economy develops, and the role of money. Part IV, Monetary Economics, examines time, interest, and monetary and financial economics. Part V, Civilization, examines the economics of violence and security, and what they imply for the possibility of advancing human civilization.
Each chapter of this book discusses an important economic concept, and can be read as a standalone essay on the topic. But the book is also structured as a monograph narrative, laying out these concepts in a logical sequence. The first chapter introduces the Austrian methodological approach to economics, and provides an example, as well as a comparison with the methodological approach of the natural sciences. Chapter 2 introduces the foundational concept of value, and explains its subjective nature, as well as the concepts of utility and marginal analysis, based on the work of Carl Menger, father of the Austrian school. Chapter 3 introduces the importance of time in economics, the unique nature of economizing time, and how all economizing acts can be understood as attempts to increase the quantity and subjective value of our time on earth.
This chapter also introduces the pivotal concepts of opportunity cost and time preference.
The second section of the book introduces the main actions humans carry out to economize individually. In each of the chapters of this section, a key concept is introduced and analyzed in terms of the reasons humans engage in it, the problem it solves, and how it helps them economize on time. The first and most basic concept is labor, the topic of Chapter 4.
Chapter 5 explains the economics of property, why it emerges and the problem it solves, and the concept of self-ownership. Chapter 6 introduces a particular type of property, capital, which consists of goods used for the production of other goods, and discusses the cost of capital, its productivity, and its connection to time preference.
Chapter 7 discusses technology as an economic concept, why it increases labor productivity, and its unique status as a non-material economic good that is non-scarce. The chapter concludes with a discussion of the concept of intellectual property, and how the non-scarce nature of information makes it differ from other productive goods.
Energy, the topic of Chapter 8, is not a conventional topic in most economic textbooks. However, I believe that understanding the economics of energy is essential to understanding economics, particularly as the modern capital-intensive and technologically advanced market economy would not be possible without substantial increases in modern humans’ power—the ability to wield large amounts of energy in short periods of time. Moreover, approaching economics through the Austrian method, through marginal analysis, is essential to understanding the realities of energy production in the world today.
Whereas the second section of the book examines individual economizing acts, the third part of the book looks at economizing in a social context, introducing other people into the analysis and exploring the implications. As soon as another person is present, trade becomes possible, and both parties have an incentive to engage in it, as it benefits them both.
Chapter 9 explains the rationale of trade, its benefits, and the implications of the growth of the market in which the division of labor takes place.
Chapter 10 introduces the concept of money, explaining the problems it solves, how these problems shape the characteristics that are desirable in money, and how money helps humans economize and increase the value and productivity of their time. The chapter explains how money is a product of the market, and not the state, as is commonly but erroneously taught in economic textbooks. While this chapter introduces money, the broader discussion of monetary economics will be left to Part IV, so it can follow the discussion of capital markets, an essential topic in monetary economics.
The social order in which individuals peacefully engage in all the aforementioned economizing acts is called a market order.
Chapter 11 examines how individual preferences and economizing acts result in the formation of prices, whose essential significance to the market process is explained. Chapter 12 explains the term capitalism in the Misesean tradition, and how it is an entrepreneurial system inseparable from private property and economic calculation. We examine Mises’ litmus test for determining whether a society has a market economy, and how it can help us understand economic history.
Part IV, Monetary Economics, approaches the topic of money from an Austrian perspective, and so Chapter 13 begins with time preference, and its relationship with saving, money, and capital accumulation, which is what makes credit and banking possible, the topics of Chapter 14, which also explains interest rates and whether they can be eliminated. Chapter 15 examines the Austrian understanding of the business cycle by examining its underlying cause, monetary expansion via circulation credit issuance.
As the earlier parts illustrate the function and form of a capitalist market economy, and how it can only work in a system of respect for private property, the fifth and final part of the book, Civilization, examines the viability of capitalist civilization against the threat of violent aggression. Chapter 16 examines the economics of violence, in both its private and governmental forms, while Chapter 17 examines the economics of defense, and shows how this is just another market good, which today is predominantly provided on the market.
The book’s final chapter discusses the concept of civilization from an economic perspective. Civilization is viewed as an order that emerges when a society can remain peaceful, productive, low time preference, cooperative, and innovative enough to sustain intergenerational improvements in living standards. The costs of this monumental enterprise are discussed, as well as the chances for the continuation of capitalist civilization in the face of the formidable threats it faces.
This book is supplemented by its webpage, saifedean.com/poe, where you can find a full bibliography with live links to the readings listed in this book.
Since the internet has become so pervasive, I decided it would make sense to optimize the paper copy of this book for the reader experience by eliminating urls from references, and keeping a live full bibliography on saifedean.com/ poe. After concluding this book, I will be offering another online course on saifedean.com to study this material in more depth.