Author Archives: Matthew John Hayden

Austrian Economics Part Six – Money


Matthew John Hayden

Economics is the human response to scarcity, a response which takes the form of bidding prices, which are just exchange rates – or ratios – of one good against another. This means the value of one good is stated in units of another. Certain goods undergo a mutation to become a generally accepted medium of exchange, which we now call money. The origins of money and the reasons people value it are already explained by the guys at the Mises Institute, but let’s lift the lid here also. It’s a vital linchpin to contemporary economics, and a paramount prerequisite to studying applied economics.

Money is a medium of exchange. From the previous description of exchange it is apparent that exchanges without money are subject to what economists call the problem of the double coincidence of wants which can easily scupper potential exchange in a moneyless environment. This is because the chances of both parties to a potential exchange having something the other wants can be very low. If Person A offers a pillow and wants a birdcage while Person B offers a birdcage but wants a heap of sea shells, then no trade will take place, as only one party can get want they want.

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Austrian Economics Part Five – Prices


Matthew John Hayden

Human action is goal oriented behaviour, which leads me – a human who acts – to set goals and then make effort (work) to achieve those I find most achievable according to their relative difficulty of attaining. Each individual sees from their own unique frame of reference and so arrives at their own valuations, making value subjective. Trade takes place when two parties identify an opportunity for mutual profit. Yes, mutual profit. If either party doesn’t value their state after the exchange more than their state before they won’t enter into the exchange. This offers the groundwork from which to theorise as to the origin and nature of prices.

At the most basic mechanical level any particular price is just a ratio, or an exchange rate, between one good and another, usually expressed as the number of units of an accepted money currency needed to exchange for the good in question. But that’s just exchange rates. Money is not some magical or neutral stuff sitting outside of an exchange; it’s just a good like everything it can be exchanged for. This is why prices are just ratios; three spears to one pair of boots; two bags of M&Ms to six Cadbury’s Creme Eggs, et cetera. This does not tell us why people want prices they can understand at a glance. And why are prices delineated in units of currency rather than practical, useful goods? Why won’t I price a tractor in lawnmowers rather than dollars?

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Austrian Economics Part Four – Exchange


Matthew John Hayden

Value is the sentiment we place upon the utility we will or will not gain by achieving certain possible states, such as cuddling with a lover, having a long soak in a hot bath, taking a walk, playing a video-game, or the act of wandering from shop to shop buying things as retail therapy. This makes value bigger than utility, though it includes utility. Utility is actual satisfaction arising from the change of state from less satisfying to more satisfying that we achieve by acting. It is entirely a mental phenomenon. It exists only in the mind and thus is subjective to the individual. If this seems offensive to any Marxist or other objective value theory advocates, sorry, but reality dictates that value is subjective. It’s over.

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Austrian Economics Part Three – Value


Matthew John Hayden

Scarcity is the inescapable frame in which human life resides. Our limited minds and bodies subject us to incomplete and halting control over the environment around us. In the face of this we order – in our minds – the different ends we could pursue and the means we could employ to attain them. We order our wants by the utility we feel we’ll get from satisfying each of the wants in question. With these scarcity calculations come the scarcities inherent in ourselves. First is our own limited stamina which finds expression as the disutility of labour, or the lack of motivation without external incentive to take action. Second is time. We can only use any given moment in time to actively satisfy one goal at a time, productivity aids and delegation notwithstanding. We’re also mortal; our time will someday run out.

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Austrian Economics Part Two – Scarcity


Matthew John Hayden

An Austrian method can show us the nature of our madness. We act to transfer from a present, less satisfying state to a future, more satisfying state. We do so continually, because no sooner have we arrived at one satisfaction we realise there is more to do. And that holds true until death, for better or worse. This has all been established already, so now it’s time to attempt to understand how humans respond to scarcity, being as that is one of the two conditions placing constant and variable limitations upon what can be enjoyed or achieved at any given time and place during our finite lives. This formless all-thing called scarcity is what makes us economise and so is the basis of economics itself. Scarcity is defined economically as the condition in which each use of a resource has the effect of impairing subsequent uses of that resource in some way. Read more

Austrian Economics Part One – Action


Matthew John Hayden

Economics rather sucks. Not because of some deficiency of the impulse to understand human action, but rather because the vast majority of economists have little time for any real human actions at all amidst their vast anonymous modelling of group behaviours without reference to the actual people in those herds. This might be why the economics establishment stared at their feet when the Queen asked them why they didn’t see the late crisis and recession coming. As to the great work at hand, and the struggle it represents, it behoves one to remember the basis for our worldview, to remember that it is something that has been arrived at through philosophical rationalism, that is mental deduction. This makes us a tribe of rationalists rather than empiricists. The positivism of the economic mainstream and of Post-Keynesianism can seem very scientific – it is the method of natural science after all – but for social science it is utterly inadequate for one simple reason. It hasn’t proved or disproved anything. Verification and falsification are not enough when there is no laboratory in which to repeat experiments. We will have to turn elsewhere. Read more