Preface to Revised Edition
One of the unhappy casualties of World War I, it seems, was the old-fashioned treatise on economic principles.
Before World War I, the standard method both of presenting and advancing economic thought was to write a disquisition setting forth one's vision of the corpus of economic science.
A work of this kind had many virtues wholly missing from the modern world.
On the one hand, the intelligent layman, with little or no previous acquaintance with economics, could read it.
On the other hand, the author did not limit himself, textbook fashion, to choppy and oversimplified compilations of currently fashionable doctrine.
For better or worse, he carved out of economic theory an architectonic, an edifice.
Sometimes the edifice was an original and noble one, sometimes it was faulty, but at least there was an edifice for beginners to see, for colleagues to adopt or criticize.
Hyper refinements of detail were generally omitted as impediments to viewing economic science as a whole, and they were consigned to the journals.
The university student, too, learned his economics from the treatise on its principles.
It was not assumed that special works were needed with chapter lengths fitting course requirements
and devoid of original doctrine. These works then were read by students, intelligent laymen,
and leading economists, all of whom profited from them. Their spirit is best illustrated
by a prefatory passage from one of the last of the species. I have tried in this book to state
the principles of economics in such form that they shall be comprehensible to an educated and
intelligent person who has not before made any systematic study of the subject. Though designed
in this sense for beginners, the book does not gloss over difficulties or avoid severe reasoning.
No one can understand economic phenomena or prepare himself to deal with economic problems
who is unwilling to follow trains of reasoning which call for sustained attention.
I have done my best to be clear and to state with care the grounds on which my conclusions rest,
as well as the conclusions themselves, but have made no vain pretense of simplifying all things.
Since the brilliant burst that gave us the works of Wickstede 1910, Towsig 1911 and Fetter 1915,
This type of treatise has disappeared from economic thought, and economics has become
appallingly fragmented, dissociated to such a degree that there hardly is an economics anymore.
Instead, we find myriad bits and pieces of uncoordinated analysis.
Economics has first been fragmented into applied fields, urban land economics,
Agricultural economics, labor economics, public finance economics, etc., each division largely
heedless of the others.
More grievous still has been the disintegration of what has been confined to the category
of economic theory.
Utility theory, monopoly theory, international trade theory, etc., down to linear programming
Banking and Games Theory, each moves in its sharply isolated compartment with its own
hyper-refined literature.
Recently growing awareness of this fragmentation has led to vague interdisciplinary admixtures
with all the other social sciences.
Confusion has been worse confounded, with resulting invasive forays of numerous other
I think it is fair to say that with only a single exception, Ludwig von Mises' Human Action, not one
The General Treatise on Economic Principles has appeared since World War I.
Perhaps the closest approach was Frank H. Knight's Risk, Uncertainty and Profit, and that was published far back in 1921.
Since then, there has been no book of remotely as broad a scope.
The only place where we can find economics treated with any degree of breadth is in the elementary textbooks.
These textbooks, however, are sorry substitutes for a genuine principles.
Since they must, by their nature, present only currently received doctrine,
their work is uninteresting to the established economist.
Furthermore, since they may only boil down the existing literature,
they must, of necessity, present to the student a hodgepodge of fragmented chapters,
each with little or no relation to the other.
Many economists see no loss in all this. In fact, they herald these developments as signs of the enormous progress the science has made on all fronts.
Knowledge has grown so vast that no man can encompass it all. Yet economists should at least be responsible for knowing economics, the essentials of the body of their discipline.
Certainly, then, these essentials could have been presented by this time.
The plain fact is that economics is fragmented precisely because it is no longer regarded
as an edifice, since it is considered a conjuries of isolated splitters, it is treated as such.
Perhaps the key to this change is that formerly economics was regarded as a logical structure.
Fundamentally, whatever the differences of degree or even of proclaimed methodology,
economics was considered a deductive science using verbal logic.
Grounded on a few axioms, the edifice of economic thought was deduced step by step.
Even when the analysis was primitive or the announced methodology far more inductive,
this was the essence of economics during the 19th century.
Since the treatise on economic principles, for if economics proceeds by deductive logic
grounded on a few simple and evident axioms, then the corpus of economics can be presented
as an interrelated whole to the intelligent layman with no loss of ultimate rigor.
The layman is taken step by step from simple and evident truths to more complex and less
evident ones.
The Austrian economists best perceived this method and used it most fully and cogently.
They were the classic employers in short of the praxeologic method.
In the present day, however, the prevailing epistemology has thrown over praxeology for
methods at once too empirical and too theoretical.
Empiricism has disintegrated economics to such an extent that no one thinks to look
and, paradoxically, it has falsified economics by making economists eager to introduce admittedly false and shortcut assumptions in order to make their theories more readily testable.
Alfred Marshall's distrust of long chains of deduction, as well as the whole Cambridge impetus towards such shortcuts, has contributed a great deal to this breakdown.
On the other hand, verbal logic in economic theory has been replaced by mathematics, seemingly
more precise, and basking in the reflected glory of the physical sciences.
The dominant econometric wing of mathematical economists also looks for empirical verifications
and thereby compounds the errors of both methods.
Even on the level of pure theoretical integration, mathematics is completely inappropriate for
any sciences of human action.
Mathematics has, in fact, contributed to the compartmentalization of economics, to specialized
monographs featuring a hyper-refined maze of matrices, equations and geometric diagrams.
But the really important thing is not that non-mathematicians cannot understand them.
The crucial point is that mathematics cannot contribute to economic knowledge.
In fact, the recent conquest of mathematical economics by econometrics is a sign of recognition
that pure mathematical theory in economics is sterile.
This book, then, is an attempt to fill part of the enormous gap of 40 years' time.
Since the last treatise on economic principles, economics has proceeded a long way in many
areas and its methodology has been immeasurably improved and strengthened by those continuing
to work in the praxeological tradition.
Furthermore, there are still great gaps in the praxeological corpus since so few economists
have worked at shaping it.
Hence the attempt in this book to develop the edifice of economic science in the manner
of the old-fashioned works on its principles, slowly and logically to build on the basic
axioms an integrated and coherent edifice of economic truth.
Hyper-refinements have been shunned as much as possible.
In short, Professor Taussig's quoted statement of intention has been mine also, with the
addition that I have felt it necessary to include, at pertinent points, refutation of
of some of the main opposing doctrines.
This was especially needed because economic fallacy prevails far more widely than in Taussig's
time.
I have indicated briefly that there has been one general treatise since World War I.
Professor Paul Samuelson has written rhapsodically of the joy of being under 30 at the time of
publication of Cain's General Theory.
I can say the same for the publication of Ludwig von Mises' Human Action in 1949.
For here at last was economics whole once more, once again an edifice.
Not only that, here was a structure of economics with many of the components newly contributed
by Professor Mises himself.
There is no space here to present or expound Mises' great contributions to economic science.
will have to be done elsewhere.
Suffice it to say that from now on, little constructive work can be done in economics
unless it starts from human action.
Human action is a general treatise but not an old-style principles.
Instead, it assumes considerable previous economic knowledge and includes within its
spacious confines numerous philosophic and historical insights.
In one sense, the present work attempts to isolate the economic, fill in the interstices,
and spell out the detailed implications, as I see them, of the Misesian structure.
It must not be thought, however, that Professor Mises is in any way responsible for these
pages.
Indeed, he may well differ strongly with many sections of this volume.
Yet it is my hope that this work may succeed in adding a few bricks to the noble structure
of Economic Science that has reached its most modern and developed form in the pages of
human action.
The present work deduces the entire corpus of economics from a few simple and apodictically
true axioms.
The fundamental axiom of action, that man employ means to achieve ends, and two subsidiary
Postulates, that there is a variety of human and natural resources, and that leisure is
a consumer's good.
Chapter 1 begins with the action axiom and deduces its immediate implications, and these
conclusions are applied to crusoeconomics, that much maligned but highly useful analysis
that sets individual man starkly against nature and analyzes his resulting actions.
Chapter 2 introduces other men and, consequently, social relations.
Various types of interpersonal relations are analyzed and the economics of direct exchange, barter, is set forth.
Exchange cannot be adequately analyzed until property rights are fully defined.
So Chapter 2 analyzes property in a free society. Chapter 2, in fact, marks the beginning of
the body of the book, an analysis of the economics of voluntary exchange. Chapter 2 discusses
the free market of barter, and the subsequent chapters treat the economics of indirect or
monetary exchange. Thus, analytically, the book deals fully with the economics of the
Chapter 3 introduces money and traces the patterns of indirect exchange on the market.
Chapter 4 treats the economics of consumption and the pricing of consumers' goods.
Chapters 5 through 9 analyze production on the free market.
One of the features of this consumption and production theory is the resurrection of
Professor Frank A. Fetter's brilliant and completely neglected theory of rent, that is,
the concept of rent as the higher price of a unit service. Capitalization then becomes the process
of determining the present values of the expected future rents of a good. The Fetter-Mises pure time
preference theory of interest is synthesized with the Fetter-rent theory, with the Austrian
One theory of the structure of production and with separation of original from produced
factors of production.
One radical feature of our analysis of production is a complete break with the currently fashionable
short-run theory of the firm, substituting for this a general theory of marginal value
productivity and capitalization.
It is a general equilibrium analysis in the dynamic Austrian sense, and not in the static
currently popular Walrassian sense.
Chapter 10 expounds a completely new theory of monopoly, that monopoly can be meaningfully
defined only as a grant of privilege by the state, and that a monopoly price can be attained
only from such a grant.
In short, there can be no monopoly or monopoly price on the free market.
The theory of monopolistic competition is also discussed, and Chapter 11 sets forth
the theory of money on the free market, along with an extensive discussion of the Keynesian
theories.
Having completed the theory of the purely free market, I then turn in the final chapter
to applying praxeological analysis to a systematic discussion of various forms and degrees of
coercive intervention and their consequences.
The effects of coercive intervention can be studied only after fully analyzing the construct
of a purely free market.
Chapter 12 presents a typology of intervention, discusses its direct and indirect consequences
and the Effects on Utility, and sets forth a necessarily brief analysis of the various
major types of intervention, including price control, monopoly grants, taxation, inflation,
and government enterprise and expenditures.
The chapter and the book conclude with a brief summary assessment of the free market, as
contrasted to interventionist and other coercive systems.
For this revised edition, I have decided to keep the original text and footnotes intact
and to confine any changes to this revised preface.
Professor Mises died in 1973, and the following year, as luck would have it, the Austrian
School of Economics that Mises had kept alive in an almost underground existence burst forward
into a spectacular revival.
It is no accident that this revival coincided with the virtual collapse of the previously
dominant Keynesian paradigm.
Keynesians had promised to steer the economy easily away from the recurring pitfalls of
inflationary boom and recession and unemployment.
Instead, they would ensure permanent and stable prosperity, bringing us full employment without
inflation.
And yet, after three decades of Keynesian planning, we faced a new phenomenon that cannot
even exist, much less be explained in the Keynesian paradigm.
Inflation combined with recession and high unemployment.
This unwelcome specter first appeared in the inflationary recession of 1973 and 1974 and
has been repeated since, the last time being the recession of 1990.
The Austrian revival of 1974 was also spurred by F.A. Hayek's receiving the Nobel Prize
for Economics that year, the first free market and non-mathematical economist to be accorded
that honor.
The economics profession's obsession with the Nobel reawakened interest in Hayek and
in the Austrian School, but this award to Hayek itself can be no coincidence since it
reflects disillusion by economists in Keynesian macro models.
Since 1974, the number of Austrians, books and articles by Austrians and interest in
the school has greatly multiplied.
It is a reflection of the difference in the quality of academia in the two countries that
But even though there are proportionately fewer Austrian school economists in Britain than
in the United States, Austrian economics is accorded a great deal more respect in Britain.
In British textbooks and surveys of thought, Austrian economics, while not often winning
agreement, is treated objectively and fairly as a respectable wing of economic thought.
In the United States, on the contrary, while there are a large number of sympathizers,
as well as adherence in the profession, Austrians are still marginalized, unheeded and unread by the bulk of economists.
Intellectual curiosity has a habit of breaking through, however, especially among college and graduate students.
As a result, the Austrian School has flourished over the last two decades despite severe institutional obstacles.
In fact, the number of Austrians has grown so large and the discussion so broad that differences of opinion and branches of thought have arisen, in some cases developing into genuine clashes of thought.
Yet they have all been conflated and jammed together by non-Austrians and even by some within the school, giving rise to a great deal of intellectual confusion, lack of clarity and outright error.
The good side of these developing disputes is that each side has clarified and sharpened its underlying premises and worldview.
It has indeed become evident in recent years that there are three very different and clashing paradigms within Austrian economics,
the original Misesian or praxeological paradigm to which the present author adheres,
The Hayekian Paradigm, stressing knowledge and discovery rather than praxeological action
and choice, and whose leading exponent now is Professor Israel Kirzner, and the nihilistic
view of the late Ludwig Lachmann, an institutionalist anti-theory approach taken from the English
subjectivist Keynesian G. L. S. Shackel.
Fortunately, there is now a scholarly journal, The Review of Austrian Economics, where the
reader can keep apprised of ongoing developments in Austrian economics, as well as other publications,
conferences and instructional courses of the Ludwig von Mises Institute.
The Mises Institute, founded on the centenary of his birth, keeps alive the spirit of Mises,
as well as the paradigm that he has bequeathed to scholarship and to the world.
For the latest on the three Austrian paradigms, the reader is referred to the Mises Institute
working paper by the present author, the present state of Austrian economics, November 1992.
My overriding intellectual debt, of course, is to Ludwig von Mises.
But apart from that, I can never fully express my personal debt.
His wisdom, kindness, enthusiasm, good humor, and unflagging encouragement of even the slightest
I can also never fully express my gratitude to Llewellyn H. Rockwell Jr., who, at a low
Finally, I must at least try to convey how grateful I am to another long-time colleague, Burton S. Blummert, of the Mises Institute and head of the Center for Libertarian Studies, Burlingame, California.
Self-effacing and indispensable, Bert is always there, with wit, wisdom, kindness and friendship.
It is impossible to list all the friends and acquaintances who, over the many years, have taught and inspired me in the area of Austrian economics, or in the wider arena of political economy, and in the nature of coercion of freedom.
I am grateful to them all. None of them, of course, are responsible for any errors herein.
Murray N. Rothbard, Las Vegas, Nevada, May 1993