# Think Tank > Austrian Economics / Economic Theory >  Explaining Austrian Economics to the average person?

## ClayTrainor

I just got an email from one of my great uncles, asking me to explain to him what Austrian Economics is all about.  I'm not entirely sure why he's inquiring, but I want to give him the most informative answer that I can, while at the same time not confusing him. I was thinking about just linking him to a Mises article or something, but I think he'd be more interested in hearing it in my own words....  Here's what I have so far...




> Austrian Economics is most fundamentally the Science of Human Action, aka Praxeology.
> 
> The basis of all Praxeology is the Human Action axiom, meaning, Humans Act towards desired ends. It is an axiom because it is self-evident and cannot be disproven. An attempt to disprove Human Action is in and of itself a Human Action, and therefore validates the axiom.
> 
> Praxeological Methodology is different from the empirical sciences, like physics for example, because an atom does not have a mind of it's own (as far as we know) and will produce consistent empirical results. Human Action on the other hand is based on individuals who have subjective preferences, and therefore their behaviour cannot be consistently predicted through empiricism, like an atoms can. It logically follows that observation of how humans act in simple situations cannot predict how they will act in complex situations.
> 
> This fundamental difference is what separates Empirical Sciences from the Social Sciences. The Austrian Method (Praxeology) asserts that Economics is a social science, as opposed to an empirical science. This is not to say that Empiricism does not have value to the social sciences, because it absolutely does and can, but in order to properly understand the data we must reason from first principles. Austrian Economists reason from the principle of Human Action.


I'd be grateful for any further input and/or critiques.

Cheers!

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## hazek

A+ if your goal was to write an essay but I don't like it as much with the goal of explaining Austrian economics to your great uncle..

Perhaps a simpler approach could be more appropriate, you know, explain that Austrian economics is a way of thinking about economics and has nothing to do with Austria for example. Then maybe explain how this way of thinking differs from what's currently the status quo of economic thought - Keynesian economics

Hmm, maybe send him this video:

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## teacherone

sorry....waaaaaaaaayyyyyyyyyyy to esoteric for the common man (myself included).

i would just start with explaining the broken window fallacy in layman's terms and show how Keynsianism is this on the grand scale.

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## BuddyRey

Dude, you wrote a brilliant piece there, and if you were writing a grad school dissertation, I'd give that an A+.  But, IMHO, it seems a bit too verbose and heavily-loaded with additional terms (praxeology, empiricism, etc.) that would require many additional pages of explanation in and of themselves, to really reach a Joe or Jane Six-Pack who doesn't already have a basic familiarity with economic language.  Why not just link him to the first couple chapters of _Economics in One Lesson_, or explain the Broken Window Fallacy, and how most prevailing theoretical models of economics (particularly Keynesianism) fail to address the fallacy, or even worse, allow entire developed economies to be governed as if this fallacy were Gospel Truth.

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## The Gold Standard

The basics of Austrian economics:

Consumers divide their income in two areas, money for immediate consumption and money for future consumption (savings/investment). 

The ratio of money spent to money saved is what determines bank interest rates in a free market with a steady money supply.

These interest rates tell business what to invest in. If people are spending more money now, they need to meet more immediate demand. If they are saving more, they need to meet future demand. 

Since business knows what consumers want, they meet demand with little waste, prices come down allowing consumers to buy more, and everyone is happy.

When banks offer credit beyond the cash they have in reserve, it lowers these interest rates artificially, which confuses business of the real needs of the consumers, and causes investment in the wrong areas of the economy. This is the start of the Austrian business cycle.

As long as banks continue this expansion of credit businesses get by malinvesting and everything is ok. Once that new money reaches the consumer they spend it and prices increase you have the start of your boom.

Once too much of this money starts showing up in the marketplace, prices start getting higher than wages, standard of living drops, and people begin to distrust the value of the currency. To fix this the bank contracts the money supply, causing prices to fall, companies to lay off workers, wages to be reduced, and growth to stop while the malinvestment is liquidated from the economy. This is your bust or recession, the end of the cycle. The recession is crucial to clearing out the bad investment before you can start growing a healthy economy again.

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## MJU1983

Enjoy: http://www.tomwoods.com/learn-austrian-economics/

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## ClayTrainor

A lot of good advice to consider, already.  Thank you!

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## teacherone

would be kind of cool to dive right into the broken window fallacy as if you were telling a fable and then link it to our times.

might hook him in and ground the theoretical bits.

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## low preference guy

my advice: try to explain it without using praxeology

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## ClayTrainor

> my advice: try to explain it without using praxeology


Seems to be a consensus on that. 

Thanks!

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## Matthew5

How does he feel about rap?

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## romacox

> A+ if your goal was to write an essay but I don't like it as much with the goal of explaining Austrian economics to your great uncle..
> 
> Perhaps a simpler approach could be more appropriate, you know, explain that Austrian economics is a way of thinking about economics and has nothing to do with Austria for example. Then maybe explain how this way of thinking differs from what's currently the status quo of economic thought - Keynesian economics
> 
> Hmm, maybe send him this video:


Thanks for the information.  It works for me, and I am not an NT...I liked your signature...very insightful.

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## reagle

Gene Callahan - Economics for Real People
http://mises.org/books/econforrealpeople.pdf

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## Seraphim

The Broken Window Fallacy is a GREAT way to help understand a lot of core economic principles.

With that said, Austrian Economics is PRAXEOLOGY oriented. Praxeology assembles a team; Human behavior (behavioral psychology), flow of capital (resources and subjective value) and the way ANY policy, be it voluntary or State imposed, changes the fundemental reality that drives human behavior (society) to produce/consume (_economics_).








> sorry....waaaaaaaaayyyyyyyyyyy to esoteric for the common man (myself included).
> 
> i would just start with explaining the broken window fallacy in layman's terms and show how Keynsianism is this on the grand scale.

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## Diurdi

As said, the broken window fallacy is a great way to make them understand. I think it's the first chapter in Hazlitt's economics in one lesson as well. Just make him understand that Obama and Bernanke are the one's trying to break windows to create prosperity.

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## romacox

http://mises.org/daily/3804

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## Wesker1982

> my advice: try to explain it without using praxeology


lol +1. 

Clay,

What you wrote was good but probably too confusing for most people. I agree with the others here that the broken window is a good place to start. 




This isn't too confusing but still manages to be very informative:




I sent those two videos recently to someone who started to seem interested in Austrian Economics. They lead to more conversation.

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## NewRightLibertarian

I always just try to explain to people that the Fed are counterfeiters, why a gold-backed dollar makes sense and why precious metals are a better idea to store wealth in than government paper money. These are easier to explain in plain terms to a beginner than praxeology IMO.

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## FreeTraveler

There's a 30-minute animation I ran across not long ago that was really good. It was recent, but had kinda a 50's feel to it.

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## psi2941

I think the perfect book for this will be Peter schiff how an economy grows and why it crashes

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## KingRobbStark

The first rule you should know about teaching or explaining a theory to someone:

1). Don't show off

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## Seraphim

I typically agree with you on a lot of things - but I disagree here. See my post on the last page. Post 14.


Praxeology is quite simple in terms of what it encompasses. Once the components of what make it up are known, the sum total is MUCH easier to figure out.

There is no need to explain praxeology to the "layman" with complex details that are not integral to understanding the real core concepts/values.

Flow of capital and how social policies effect the decision making of humans. Pretty simple. 




> my advice: try to explain it without using praxeology

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## josh b

I always work on explaining these three concepts in simplest manner possible:

1. The broken window fallacy

2. Austrian Business Cycle Theory

3. Mises' calculation problem

The starting point is really important. You can branch out to everything else from here.

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## Mahkato

LearnLiberty.org might have some useful stuff.

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## Athan

I think I have a black belt in Praxeology...

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## Nielsio

How an Economy Grows and Why It Doesn't (by Irwin Schiff)
http://www.youtube.com/watch?v=bFxvy9XyUtg

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## teacherone

interested to know what you wrote clay...

you're a good writer

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