Economics Basics: Action and Exchange

by Robert P. Murphy

I am pleased to announce that on October 17, we will begin a six-week Mises Academy course that offers an introduction to the Austrian understanding of action and barter exchange. This course, titled “Action and Exchange,” is the first of a three-part series that uses my Lessons for the Young Economist as the main textbook. Previously at Mises Academy I have offered a course titled “Principles of Economics” that covered just the highlights of Lessons. In this new series, we will go through the material much more methodically, covering everything from the textbook, as well as including supplemental discussion from the broader Austrian tradition.

The Scope of the Course

The weekly lectures will run from October 17 through November 21. We begin with an analysis of economics itself. Is it a science? Yes, but its methods differ from those of the natural sciences such as physics and chemistry. We walk through the Misesian understanding of economics as a subset of “human action” and explain how it’s possible to derive knowledge of objective reality through introspection and logical deduction. According to Mises, this is the way we discover economic laws — a method that is more analogous to geometry than to physics. Although we will use the discussion in Lessons for the Young Economist as a springboard, in the lectures we will elaborate by giving more specifically “Austrian” points to make sure the student understands what Mises was and was not saying. Although even some free-market fans of Mises think one can safely skip the “philosophical” part of his work, we will explain why he thought a solid foundation in economics was so important — just as it is in building a house.
After defining the scope of economic science and the procedure by which we “do economics,” we move on to some basic concepts and definitions, including consumer vs. producer goods, opportunity cost, and saving. We then walk through the basics of “Robinson Crusoe economics,” in which we illustrate fundamental economic principles in a hypothetical one-man economy. The economic principles or laws that we develop here — such as the fact that people make decisions on the margin — are true for all people, whenever they act. We merely keep things simple by illustrating the concepts in the fictitious scenario of a lone man on a tropical island.
Once we understand economic principles in the context of an isolated person, we then show the importance of private property in a world of multiple people. The institution of property is essential if society is to reap the advantages of the division of labor, specialization, and trade.
Finally, we will very rigorously explain how prices are formed in a barter economy, i.e., an economy in which people trade goods directly with each other, rather than using money. The specific example we work with is a small “market” made up of siblings who are trading Halloween candy.
By the end of the six-week course, the student who has read the text and watched the lectures will have a solid command of the foundations of economic science. He or she will understand why the institution of private property is essential for modern civilization. Finally, the student will really understand how it’s possible for subjective rankings of goods in the minds of individuals can yield objective trade ratios among goods in a barter economy. This was no small feat, as it eluded even the great classical economists. Yet this impressive result will be taught in an understandable manner so that even junior high students will understand it.

Structure of the Course

In a typical week of the course, I will give a live video broadcast on Thursday from 5:30–7:00pm Eastern time. I will spend the first 75 minutes lecturing on that week’s material, and then I will field questions from students for the remaining fifteen minutes. In addition, on Saturday I will have “office hours” at a varying time of day (in order to cater to different students each week), meaning that I will be available on a live video broadcast to answer questions from any students who tune in.
Note that the Saturday sessions are purely for the students’ convenience, and are not mandatory. Also, all broadcasts will be recorded and available to enrolled students, so that people who have a scheduling conflict can still take the class if they wish.
If a student wishes, he or she can simply “audit” the class. This has been a popular option for many adults who take Mises Academy classes to watch the lectures but, because of their work schedules, can’t keep up with the reading.
However, students may also take the class for a grade. These students will take a multiple-choice quiz each week, in addition to a midterm and final exam. Although the Mises Institute is not accredited, we will present certificates of completion and a formal grade at the end of the class to those students who desire it. Homeschooling parents in particular may decide that their child will receive excellent instruction in economic principles through this class.

Conclusion

The Mises Academy’s three-part series on “Basics of Economics” is appropriate for both working adults and homeschooling children. This opening section, on“Action and Exchange,” provides the foundation for the next two parts, which will cover such varied topics as the formation of money prices, the function of the stock market, the horrors of socialism, and the unintended consequences of various government interventions. Yet in order to fully appreciate these later sections, it’s necessary to learn what economics is, how it progresses, the benefits of trade, and how prices are formed in a barter economy (with no money). All of these topics are covered in this first course of the series, “Action and Exchange.” Register now to reserve your spot. I hope to see you in class!