Review of Economics for Real People
Gene Callahan Provides an Excellent Introduction to Basic Economics
With Economics for Real People: An Introduction to the Austrian School (Ludwig von Mises Institute, June 2004, ISBN ISBN 0-945466-41-2), Gene Callahan does an admirable job of making economic reasoning accessible to the layman, and of explaining the specific ideas of Austrian economics, an important school of economic thought. Along the way, he introduces the reader to prominent Austrian thinkers such as Carl Menger, Ludwig von Mises, Friedrich Hayek, Murray Rothbard, and Israel Kirzner.
Fundamental Economic Principles
He begins with the nature of economics itself. He explains the Austrian School’s approach, which rejects the idea that purposeful human action can be understood by mimicking the methods of natural sciences such as physics. Thus, the Austrian School eschews the use of complex mathematical models and instead focuses on reasoning out the implications and consequences of basic axioms about human beings and the nature of purposeful action itself, a method most commonly called praxeology.
Callahan starts by imagining the simplest scenario possible, a single isolated person. He uses this to illustrate the nature of subjective value, how preferences are revealed through action, the principle of marginal utility, and what it means to say that all economic choice is made “on the margin.”
From there, he adds a complicating factor, the fact that all human action takes place in time, rather than instantaneously. This allows him to explain the nature of saving, the distinction between capital goods and consumer goods, and the concept of time preference.
Next, Callahan expands from a single person to a group, bringing in the essential subject of exchange. With exchange come concepts such as specialization, division of labor, and comparative advantage. He also explains how market prices provide information that guides buyers and sellers and makes coordination possible without centralized direction of control, creating the famous “Invisible Hand” of Adam Smith.
More Complex Applications
From there, Callahan goes to topics such as the nature of money, the roles of land, labor, capital, and consumers, the causes and effects of inflation and deflation, and the nature of “roundabout” methods of production. Newly introduced concepts are built on the foundation created by simpler previous concepts, letting the reader see how they interrelate.
After explaining the workings of the unhampered market, Callahan moves on to the effects of interference in the market process. He examines the effects of government interventions such as product regulations, price controls, subsidies, and government manipulation of credit and the money supply. Callahan also explains why market prices are essential to rational economic calculation, and how government interventions distort or eliminate prices and the essential information they provide.
Finally, Callahan discusses the implications of the Austrian School of economics for government policy. He describes the social and political thought of prominent Austrian economists Ludwig Lachmann, Friedrich Hayek, Ludwig von Mises, and Murray Rothbard, and discusses how they reached their different conclusions.
Comments
Economics for Real People is an excellent choice for anyone who wants to gain a better understanding of economics and is looking for a place to start. Gene Callahan succeeds in making the subject intuitive to the newcomer, showing how basic ideas first derived in simple thought experiments apply to the complexity of the real world, and his sense of humor and cheerful, upbeat tone keeps things from getting dry or dull.
In addition, it is also recommended for those who already have some knowledge of mainstream neoclassical economics and want an introduction to Austrian ideas. Callahan describes the Austrian School’s differences from neoclassical economics and explains Austrian ideas on subjects such as economic method, praxeology, the business cycle, the importance of time, the heterogeneity and structure of capital, entrepreneurship, and the effects of ignorance and uncertainty among economic actors.
About the Author
Gene Callahan received his Masters degree in economics from the London School of Economics. He is an adjunct scholar at the Ludwig von Mises Institute and has written for periodicals including The Freeman, Reason, and the Review of Austrian Economics. He has also served as a lecturer for the Foundation for Economic Education.
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