Austrian School/Simple economic theory

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Simple economic theory[edit | edit source]

Let's borrow an idea from the book, Economics for Real People, and say that we have a man named Rick, who is trapped on an Island. The first thing Rick has to do is choose an end: will he stay, leave, or doing something completely different? Let's pretend that Rick is a Jainism follower and it is against his religious principles to harm living creatures. Now, Rick will find a few plants to eat, but will not survive because of the lack of food. Is Rick behaving irrationally? To some schools of economics he is, however, to the Austrian School the simple answer is "no." Rick is following the values he holds highest, which is to follow Jainism.

Now, imagine that, instead of starving to death, Rick decides his end will be to survive. He'll need food, water, shelter, and rest. There is some food scattered around the island, springs of fresh water on parts of the island, and Rick has no shelter. Since Rick must employ yet other means to acquire food, water, shelter, and rest, they become subsidiary ends. Food is a means toward the end of survival, but an end sought by employing the means of rat hunting. The same good can be a means from the vantage point of plan A and an end from the vantage point of plan B.

Rick must now "economize" his time and conserve his resources. He can't hunt for rats all day just to have the meat spoil. Even after choosing to survive, he must now choose how he is to achieve his goal. Economics isn't concerned with how Rick arrives at his values. To economics, it is a given that what is valued more is chosen, and what is valued less is forgotten.

The idea that we choose what we prefer might seem too extreme. For example, you might say "I don't prefer to go to the doctor, but I go anyway." In everyday speech this is fine, but to economics it is much more detailed. By going to the doctor you have weighed your options of not going to the doctor against the costs. The fact that you ultimately decide to go to the doctor implies that you prefer your health to the alternative costs of health issues.