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Economic Principles

Introduction

Theories explain why things have happened in the past and why they will, with high probability, happen in the future under similar circumstance. But, sound theories rest on the foundation of accepted logical truths known as principles.

Principles consist of assumptions that provide the basis for sound economic reasoning. In terms of logic they amount to truths. Starting with these principles and using valid argument we can arrive at only sound propositions.

In this section we will discuss the fundamental principles of economics.

Economic Value

Value represents a fundamental core principle for any theory of economics. In spite of that, the principle remains greatly misunderstood.

At the heart of every economic exchange lies the principle of value. Actors make exchanges in order to receive something they value more than they give up. The existence of value plays an important role in economic theories advocated by many economic schools. But, the source and measure of value remains a matter of debate between all of these schools. We will discuss the measure and source of value in the section on economic theory.

Human Action

The axiom of human action acts as a fundamental principle within the Austrian School—and particularly the "Misesian" branch—of economics. I means that humans act with volition and with purpose. Those actions create the evidence economists need to explain all economic exchanges.

While you're sitting there reading this webpage you're performing an action. If you stop reading, you are also performing an action. Indeed, it is difficult — nay impossible — to not act. Your actions comprise the exchanges that you make throughout the day. Every action that you take is exchanging some result for another that you value less highly.

Although we cannot say why you act the way you do, your actions do leave evidence, and that evidence provides the material for economic investigation. Ludwig von Mises developed the connection between human action and the study of economics. He referred to the study of human action as praxeology.

In this section, we will examine the fundamentally important axiom of human action, and the study of praxeology.

We are in the process of assembling the information and resources the deal with the axiom of human action.

Exchange

Every action we take, and every interaction we have, during the day consists of an exchange. We exchange wakefulness for sleep. We exchange food for hunger. We exchange our labor for property (usually money.) And, we exchange our property (usually money) for goods.

The words "buying" and "selling" refer to exchanges. Buying and selling simply consist of an exchange viewed from the viewpoint of either one or the other party involved in the exchange. We "buy" the goods we receive; and we "sell" the goods we give up.

We will examine exchange from many different perspectives and from several different levels of complexity.

Bohm_Bawek

Eugen von Böhm-Bawerk -
Early Contributor to the Austrian School of Economics

 

Economic Reasoning