Mises AcademyAustrian Econ I:

Praxeology Through Price Theory

Robert P. MurphySpring 2011

Lecture 2May 4

Austrian Econ I1. The Marginal

RevolutionII. The Law of ReturnsIII. Specificity and ConvertibilityIV. Labor Pains

V. Crusoe Economics VI. Costs VII. Praxeology & Econ

I. The Marginal Revolution

See mises.org/journals/jls/20_1/20_1_3.pdf.

II. The Law of Returns

Factor Yb Units

Factor Xa Units

Total Productp Units

Average Unit

Productp/a

Marginal ProductDelta p / delta a

33333333

01234567

04

101830404549

0456

7.58

7.57

…468

121054

III. Specificity and Convertibility

●General law: A change in the value of the product causes a greater change in the value of the (relatively) specific factors than in the value of the (relatively) nonspecific factors. (p. 40)

IV. Labor Pains

●“Leisure as consumer good” is first reliance on empiricism (not just action axiom), per fn 27.

●“Leisure is consumer good” = disutility of labor

V. “Crusoe Economics”

A. Saving & Investment

B. Capital

●“He who possesses capital is that much further advanced in time on the road to the desired consumers’ good.” (p. 52)

● Importance of maintenance (gross investment)

●Possibility of “capital consumption”

VI. Costs

Definition: The cost of an action is the subjective value (or utility) placed on the next-best alternative that can NOT be achieved because of the action. (p. 71)

� Costs are never “realized” but are always anticipated.

VII. Praxeology & Economics

Praxeology: formal study of the fact that people use means to achieve ends (without commenting on the ends themselves).

Economics: Studies action of isolated individual and of interpersonal exchange (aka “catallactics”). (p. 74)