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Book Review: Austrian Economics for Investors


Austrian Economics for Investors: Ludwig von Mises Goes to Wall Street
by Mark Skousen (Potomac, Md.: Phillips Publishing, Inc., 1995); 46 pages; $10.

Dr. Mark Skousen is that rarest of free-market economists. He cannot only write serious and original contributions to economic theory, he can also write popular works that explain the principles of sound economics as well as point out the fallacies and errors in alternative interventionist approaches. Moreover, he is able to apply these sound economic principles to the real-world problems of investment and moneymaking.

Every month, in his investment newsletter, Mark Skousen’s Forecasts and Strategies , he informs interested readers about where government policy is taking the economy and where they might wisely put their money for the greatest return, given what the government is doing. (Alas, being a poor college professor, I have never had the resources to personally find out if his advice pays off.)

While wearing his hat as an economic theorist, Dr. Skousen has written what must be considered one of the most important contributions in many years to the Austrian theory of capital and investment — The Structure of Production (1990). And his monograph Economics of a Pure Gold Standard (1988) presents a well-reasoned case for ending a government paper-money system and returning to a market-based commodity money — gold.

His book Economics on Trial: Lies, Myths and Realities (2nd ed., 1993) is a well-written and extremely clear, critical analysis of much of what passes for macroeconomics in today’s textbooks. I have used it as a supplementary text in some of my economics classes at Hillsdale College and have found that the students soon understand all of the errors and mistakes in Keynesian and interventionist economics.

In addition, Dr. Skousen has edited and contributed two essays to Dissent on Keynes: A Critical Appraisal of Keynesian Economics (1992), which brings together some of the best critical evaluations of Keynes and his economics that has appeared in many years.

Now Dr. Skousen, in less than 50 pages, offers one of the best encapsulated summaries of Austrian Economics for Investors that I have seen. Anyone who has been asked by friends or acquaintances what they might read to have a good overview of what Austrian economics is all about has seen the terror in their eyes when it is suggested that they go through Ludwig von Mises’ Human Action (885 pages) or Murray N. Rothbard’s Man, Economy and State (945 pages). It was for this reason that in 1991 I edited Austrian Economics: A Reader (Hillsdale College Press) so that the interested reader could have an easier introduction to the Austrian approach; but while the reader can pick and choose among the 34 chapters in the volume, the book is still 686 pages long.

Now, however, that problem has been solved. Dr. Skousen traces the Austrian school of economics from its founding in the 1870s by Carl Menger, through its early development by Eugen von Böhm-Bawerk and Friedrich von Wieser, to its 20th-century refinement in the hands of Ludwig von Mises, Friedrich A. Hayek, Israel M. Kirzner, and Murray N. Rothbard. Through the brief descriptions of each of these contributors, the reader is informed about the major contributions the Austrians have made during the past hundred years. At the same time, Dr. Skousen demonstrates, through a series of common-sensical and everyday examples, how paying attention to what the Austrians have had to say can make them wiser and maybe wealthier investors in the market.

What are some of these fundamental ideas that the investor should not lose sight of? First of all, don’t be taken in by either the seemingly quantitative precision of the mass of statistical data that fills the newspapers each day or the organization of that data into pseudoscientific models that presume to trace out the likely shape of things to come. Always remember that market prices and the relative amounts of the multitude of diverse goods produced and offered for sale on the market ultimately emerge out of the subjective (personal) value judgments of market participants who decide what they think is worth buying or selling in an exchange environment of continuous change. The truly successful investor is the one who anticipates better than others when the apparent market “trends” are going to change.

This requires reading the market, and reading the market is, in fact, something more than reading the statistical charts. Austrians like Ludwig von Mises always emphasized that the human actions behind all the phenomena of the market are guided by the intentions and purposes in the minds of those human actors. Hence, anticipating future market directions requires a more subtle and more qualitative process of getting into the heads of individuals and groups of individuals whose activities in the market are relevant to your own decisions. Mises referred to this as a psychological process of “understanding” the likely future actions of others. (See my articles “Expectations and Expectations — Formation in Mises’s Theory of the Market Process” in The Market Process ,” edited by Peter J. Boettke and David L. Prychitko, and “Cooperation in Anonymity” in Individuals, Institutions, Interpretations ,” edited by David L. Prychitko.)

In his earlier writings on production and money, Dr. Skousen has emphasized, as most other Austrians have as well, that the delicate balance between savings and investment in a dynamic market environment can only be maintained when the rate of interest is free from government manipulation. And this type of manipulation is almost always the result of the government’s mismanagement of the monetary system. He therefore gives the reader a concise but good summary of the Austrian theory of the business cycle.

Dr. Skousen makes it very clear that the investor who masters the essential outline of the Austrian theory of the business cycle will be better informed and a wiser manager of his own money in not being as easily taken in by what may be illusory, inflation-created profit opportunities, in which the investing of one’s money may only lead to possible financial ruin in the longer run.

Want to hand a friend an easy, brief, and insightful introduction to Austrian economics? Well, here it is.

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    Dr. Richard M. Ebeling is the BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel. He was formerly professor of Economics at Northwood University, president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).