Free Market Economics

Economics got its start back in the 1600s with the followers of St. Thomas Aquinas - "The Scholastics" - who built on the ground-breaking observations of Aquinas to explain how inflation really works and how economic value accretes. "Free-market" economic theory was codified by Adam Smith who came up with the term "invisible hand" to describe the workings of the "marketplace." In the opinion of Murray Rothbard, Smith got it wrong however when he referred to the "wealth of nations" in his famous economic treatise of the same title. For Rothbard, it is the wealth of individuals, and nations have nothing to do with it.

What are certainly two of the most important laws of economics were developed by Jean Baptiste Say and Carl Menger - along with several other economists not identified with the Austrian school. Say proposed what is now known as "Say's Law." This simply states that supply and demand will reach equilibrium if allowed to adjust within a free market, and without interference. But the cleverness of Say's law lies in the perception that supply can stimulate demand as well as vice-versa.

Carl Menger is at least partially responsible for the concept that has become the dividing line between the static analysis of classical economics and the active analysis of neo-classical economics. The concept, known as marginal utility, states that the individual value of a unit decreases as the amount or volume of units increases. When we have more, what we have more of is worth less. Additionally, the market itself must make the calculation as to the exact worth of units "at the margin."

Ludwig von Mises, and later his students F.A. Hayek and Murray Rothbard, developed or expanded upon the concepts of human action and the business cycle - and today their work is continued to by organizations such as the Mises Institute. The business cycle, as defined in the modern day, is a primarily central bank-driven phenomenon. The central bank prints more money and injects more credit into the economy than is necessary. The volume of money leads to inflation which, in turn, stimulates a "boom." As the economy overheats, products and services that are an unnecessary outcome of the artificial boom become commonplace, leading to glut and, inevitably, to a collapse. During the boom, the central bank may artificially increase interest rates while also raising the amount of money available via credit and its printing plants. This gradually eases the economy (best case) into a "soft landing" - after which the cycle begins again.

In a free market, the business cycle would be radically reduced because gold and silver, dug out of the ground, would respond to market forces. Too much gold or silver in the economy and prices would go down, closing mines. Too little gold and silver and the prices would go up, stimulating mining production. If the government and the monetary elite would agree to allow gold and silver coins to circulate next to fiat money of all kinds, the world would soon be back on the only kind of money standard that truthfully can be called "honest" - the free-market standard of gold and silver.

For more information see www.vonmises.com