A Map of The Austrian Economics Framework (Public Scheme)

Download

The above cycle diagram is a map of the Austrian Economics Framework. This diagram attempts to capture all the aspects of the Austrian Economic view. Working as a cycle, an interruption as indicated by the red connectors, illustrates a blockage of the entire economic cycle. The implication of this cycle demonstrates reform of any economic system must involve this cycle as a whole. The following reviews each of this cycle's components:

Private Property:

Private property serves as the initial substance of the Austrian Economic Framework. Rothbard in Justice and Property Rights argues how private property is the root of all human economic activity. Without private ownership there is no incentive to gain more property and the whole economic system slows down.

Comparative Advantage:

Private property produces inequality. This inequality produces differential opportunity costs. Hayek writes in Social or Distribute Justice, "The greater productivity of [the Great or Open Society] rests on a division of labour extending far beyond the range any one person can survey." It is our inequalities that attract human beings toward enterprise and trade relationships.

Entrepreneurship:

Kirzner discusses in Uncertainty, Discovery, and Human Action how discovery of error and alertness to opportunities for pure profit inspire entrepreneurial activity. Comparitive advantage fosters errors and opportunites. If all prices were fixed their would be no opportunity to arbitrage. If all beared the same opportunity costs there would be no incentive to profit from the goods and services of others.

Trade:

Entreprenuership inspires all manner of trade. Trade is the activity resulting from entrepreneurial awareness. They are inseparable. Without trade there is no incentive to entrepreneur. Trade capitalizes on the comparative advantage of two parties so that both can acheive greater together than the sum of their individual production.

Profit/Loss:

Profit and loss discplines and teaches the entrepreneur the appropriate use of society's resources. Von Mises writes in Profit and Loss that the role of profit and subsequently loss is to reward the entrepreneur for their efforts in creating products and services that the consumer values.

Profit results in a creation of value of existing inputs of production. Society communicates to the entrepreneur that it agrees with the entrepreneur's use of existing resources. Losses, conversely, punish the entreprenuer for using existing resources in a wasteful manner.

Welfare:

Profit increases the ability of a party to acquire more resources for their welfare. Conversely, loss reduces this ability. Welfare is the end to the means of human commerce and economic activity. Increase in welfare incentavises a gain in more private property which feeds more into the cycle.

Modulators of the Economic Flow Cycle

Rule of Law:

Property right protection nurtures and protects the entire cycle. Without property right protection the entire system breaks down.

Common/State Ownership:

With common or state ownership, there is no incentive to utilize property for greater profit or value creation.

Tariff/Quota:

Tariffs and quotas reduce previously existing comparative advantages.

Subsidies:

Subsidies affect comparitive advantage. They communicate to society that certain products and services are more valuable than their real market appraisal.

Social Justice/Equality:

Equalizing all members of a market reduces differential opportunity costs between potential traders. This reduction in differential opportunity costs reduces differences in comparative advantage which serves to reduce trade.

Taxation:

Taxing profits reduces their value.

The Anomaly of Anti-slavery Legislation

How do we explain the need for government to impose regulations on such an atrocity while protecting free trade? Was William Wilberforce of the English Parliament against free trade by working to abolish slavery in the empire? What is the true role of government in economic enterprise?
This issue brings us back to our discussions regarding private property and the rule of law. It is government's charge to steward the rule of law and protect private property. The issue of slavery abolishment is not an impingement on free trade. It is government's duty to protect private property. Slavery is the most obscene private property violation in human history. Let government lay down its firm hand to abolish it, even if it costs the economy.
I believe the argument in the previous paragraph stands alone sufficient to argue for government intervention in antislavery. However, I would like to propose a hypothesis. If one were to research the archives of economic activity in the West Indies, I believe you would find high cost per unit of sugar production by using slave labor. I suspect that, as my professor, Dr. Howard Baetjer suggested once in a class, that companies utilizing slave labor would suffer from poor productivity. Their prices would not be as competitive as more honorable labor practicing companies. Looking at parliamentary archives would reveal these slave based companies need to protect their product through government regulation. If this were true, I suspect if the regulations favoring the slave based companies were lifted, natural selection would have worked its course. The higher productivity companies utilizing honorable labor practices would have choked out slave based labor. It would have no longer been a viable economic option.