The hobbyist is back with another book review. Let’s dive into this latest book by Saifedean Ammous
HOW DID I FOUND OUT ABOUT THIS BOOK?
I knew this book was on the way after buying and completing the Fiat Standard which you can find a review of Here. As the book was being released, Saife went on many bitcoiner podcasts to promote the book. Once it became available on Amazon for pre-sale I placed my order.
BOOK DETAILS
Pages: 394 Store: Amazon.com Cost: $30.00
Normal size font. Some pages have charts and graphics and Saife uses a lot of quotes from authors of books about Austrian Economics.
Summary
Saife uses this book to teach his theories about Austrian economics and critique the mainstream economic theory/pseudoscience that is prevalent today. Where Saife really shines is in his ability to narrate his ideas in a clear and concise way. Many people across the globe can pick up this book and get a basic understanding of Austrian economics. Having never studied Austrian economics previously, I have learned after reading this book that economics is a study of human action and how humans use capital to maximize their time alive. All of the equations, models, and metrics that are used by prominent economists using the prevailing economic theory (Keynesian economics) are completely broken and nonsensical. Trying to relate human action to mathematical formulas as if economics is a hard science is objectively ridiculous. Human action can not be simplified into a system of equations that can predict how one will act in the market. Each and every one of us are motivated by different factors thus will make decisions that make it nearly impossible to predict. Saife goes into many different topics applying his theories and coming up with logical conclusions. Overall this book changed my perspective on economics as it exists today.
My favorite excerpts from the book with personal commentary:
Page 11: “Mises believed proper economic reasoning and analysis of economic phenomena must be based on analyzing human action, rather than analyzing material objects and their properties, or analyzing aggregate and abstract units”
Right from the start Saife is setting the tone for the entire book. Economics should be a study of human action not all the nonsense they we are fed today. For example the metric of Gross Domestic Product (GDP) is one of the major data points the status quo uses to gage economic activity. But what does this value even mean? Is it a good measure of human action? The bulk of the inputs that are used to derive this GDP value come from the federal government.
Page 12: “In writing Principles of Economics in 1871, Carl Menger pioneered marginal analysis of economic questions. This “marginal revolution” provided a starkly different alternative to the previous methods of analyzing humans.” Rather than analyzing history based on the will of God, nature, or through nation, race, or church, marginal analysis showed that human society is better understood by analyzing its prime driving forces: individual human choice and action. The Austrian school of economics emerged around Menger in Vienna
This is historical context on how the Austrian school of economics was birthed. The focus shifted to more on what do humans want and more importantly how to they behave to achieve the things humans want. To rational people this makes a lot of sense but this idea did not make it to mainstream. As current economics is all about aggregate demand absent of what humans this points out value is set at the margin. Think of it as water versus gold in the desert. If you are thirst the marginal value of that water goes up tremendously versus the value of gold.
Page 17: “ But the objects of study of the social sciences are the ideas and actions of humans, which are immeasurable and non-quantifiable. Experimentation with ill-defined units of irregular phenomena cannot yield comparable and reproducible results, and so experimentation will fail to produce quantitative laws because there are no units in which these laws can be expressed.”
See comment about GDP. Saife lays it out beautifully here since humans aren’t in a controlled closed system where you can carefully monitor the inputs and outputs it is almost impossible to build empirical models about how an economy will perform. Even as globalists usher in a Central Bank Digital Currency they system will still lack the data needed to successfully manage the economy. Humans are too complex!
Page 20: “There are no mechanisms in macroeconomics to experimentally establish causality as is possible in the natural sciences. Keynes’ equations attempting to predict the impact of one aggregate metric on another bear no relation to real-world cause and effect, because there is no way of measuring, testing, and verifying any of it.”
Very strong quote here. A good explanation of why we are living in today’s economic hell scape! (SEE GDP above)
Page 25: “They assume humans will just adjust their actions to ensure these laws are upheld. However, in reality, humans adjust their actions to optimize for their own well-being, not to satisfy bureaucrats.”
This is 100% accurate. When the government makes a change people review and adjust their behaviors accordingly to make sure they are getting the maximum benefit from said change. Just look at the tax code. The 45th of the United States Donald J. Trump gloated about not paying taxes because he knew the loopholes in the system. This is just one of many examples of this statement being true.
Page 30: “Value cannot be a constant property of objects it’s a conscious phenomenon in our minds “
This is so true. Saife uses a great example of oil. Before the Industrial Revolution the finding of oil on ones land was disastrous. This meant the land was not farmable and the land owner would have to pay someone to get rid of the oil. Now it is liquid gold! The value of oil skyrocket to where empires/kingdoms have been built on the selling of oil.
Page 35: “There is an intuitive appeal to the notion that labor determines value. We can see that economic goods always require some element of labor to make them satisfy human needs. Even fruits that grow in the wild require man to expend the labor needed to pick and eat them before they can satisfy his need.
It is not possible to conceive of goods that satisfy human needs without any labor being expended on them, and this drives the proponents of the labor theory of value to conclude that it is labor that gives value to goods, and that value can be measured by the amount of labor contributed. However, this is an untenable notion.
Goods are only valued because of their ability to satisfy our needs. A buyer is not interested in how much time and effort went into making a product when he purchases it, but only in the services and utility the product provides him.”
This statement blew my mind! I was always in the camp that labor does drive value. Someone spending a long time crafting something original would have great value than something that came off an assembly line but after this passage my thinking is way off. But this also strengthens my disagreement about certain goods and services are a human right like houses, healthcare, and energy. A person who forgoes consumption and uses their time laboring to bring a good or service to the market is highly unlikely to give it away for free. The marginal value of such good is not zero since people want these goods and services thus it is not a right that should be given to people for free.
Page 71: “But unemployment is as much a normal part of the labor market as burning crops is a part of the food market. As will be discussed in Section IV of this book, inflationary credit expansion and minimum wage laws are the root cause of unemployment. “
This is an interesting statement here. When I think about it sure it make sense business slows down you need to lay off workers but because of minimum wage someone may not be unemployed if you adjusted their pay to reflect the revenue of the business. But calling it the “root” cause seems to abandon the human action deal. Sometimes people just do not want to work for whatever reason.
Page 78: “ The production process requires the worker to dedicate his time, but it requires the capitalist to contribute capital, which can only be acquired through previous work and can only be retained through continuous deferral of consumption throughout the entire production process. Without compensating the capitalist for thier decision to delay gratification and invest, there would be no capital, and the worker’s productivity would decline significantly. The capitalist does not exploit the worker by taking part of his output forcibly; the worker willingly pays part of his output to the capitalist in exchange for securing a much higher productivity level.”
This is something that often goes ignored in today’s discussion about the wealth gap. Socialists and communists seem to forget for capital to accumulate someone is forgoing consumption. From cars to computers people forgo consumption to bring products to the market. But as capital accumulates at the top and the threat of competition decays greed and the incentive to spend the capital becomes non existent thus a major wealth gap is able to form.
Page 97: “ Extreme poverty today exists only where capital is scarce, and people need to work daily to survive. With modern capital, on the other hand, most workers can produce several multiples of their food needs every day, providing them a considerable margin of safety to protect them from destitution and starvation and allowing them to consume many other goods.
To understand the importance of capital, try to perform your job without any capital, and measure the change in your productivity. If you are a farmer, try farming with only your bare hands and no tractor or shovel to help. Try hunting without a rifle, spear, or bow and arrow. Try to be a taxi driver without a car. Try to survive a winter without the capital equipment we use to build our modern homes, warm them, and protect them from storms. It is accurate to think of poverty as the lack of capital.”
I agree with this. It is all about allocation of capital and for the people to have the knowledge to use the capital efficiently to increase productivity. When people are living hand to mouth it is hard to accumulate capital thus productivity gains are non existent. Think about those locations that have to haul water every day the time it takes for that basic need is the opportunity cost to provide labor to a productive task.
Page 111: “ Technology is akin to a recipe for cooking a meal; it is not a physical part of the meal, but the cognitive knowledge that brings it all together. Ideas, recipes, and technology are forms of capital, in that they increase the productivity of the production process.”
Capital is more than just money! Capital is deep and takes many forms. The more you are able to acquire capital and utilize it properly productivity rises thus unlocking goods and services to improve the life humans have on this earth.
Page 115: “ We will never “run out of jobs,” because we can always use more humans making more scarce products to meet other humans’ ever-increasing wants. Scarcity can never be eliminated, because time is always scarce. Work can never end, and man can only choose which tasks to prioritize. The more tasks he can delegate to machines, the more time he has to perform many of the infinite number of tasks he would like to carry out but cannot because of the scarcity of his time.”
This statement from page 115 really think about this jobs concept. Living in the current times every advancement in technology is met with a fear of job loss. My own bias and coming from a rust belt city (Detroit, Michigan, Cleveland, Ohio are examples of rust belt cities) makes this statement hard to believe. In the pure human action sense this makes sense but in practice I just can’t see it. Especially when you have large number of people on a tiny land mass like an island. Would have been nice to see an example of this applied in the real world.
Page 121: “ A society of 100 million people will have many more people able to devise new ideas like the wheel than a society of 100 people. Imagine if one out of 100 people comes up with an innovation every year. The smaller society would have one innovation every year to improve their productivity, while the larger society would have 1,000,000 innovations every year. Since these are non-rival, everyone in the society could copy them and benefit from the increased productivity they entail.”
Yup! This is why I like cities more than rural areas. The ideas are endless!
Page 122: “ The last bastion of human freedom will always be the thoughts humans hold in their minds, which no force on Earth can overrule.”
Agreed as we enter this digital hellscape our thoughts are the last true place for absolute privacy.
Page 139: “ To begin with the most obvious of energy sources, the sun alone showers the Earth with 3,850,000 exajoules of energy every year. That is more than 7,000 times the amount of energy humans consume every year. In fact, the amount of solar energy that falls on Earth in one hour is more energy than the entire human race consumes in one year”
The sun is all the energy we need. I like how Saife debunks this idea that energy is scarce. I really like how this book points out that human time is the thing that is scarce. Energy is unlimited it is human time and capital that is limited in capturing solar energy. This is something I agree with 100%.
Page 374: “ The output of a modern society is not something that can be produced by one controlling mind it requires billions of people worldwide to voluntarily work in a free market, using prices to calculate the costs and benefits of alternative options to decide which is the most productive and profitable. No coercive authority could replicate this. Individuals must be free to own the fruits of their labor and suffer the consequences of their mistakes.”
A nice way to wrap up what this book is about. All humans act in their best own interest based upon the information they have access to.
THE BITCOIN HOBBYIST MAIN TAKEAWAY
Saife did a good job explaining the core tenants of Austrian Economics. I do not agree with everything I read in this book but I do think this method of economics makes more sense than the economics we are taught in western schools. I like the practical no nonsense approach to define his position. A part of me wonders how life would be if our “elites” abolished central banking and planning and just let humans be free and work toward their best interests.
RANKING and RECOMMENDATION
⭐️⭐️⭐️⭐️
Bitcoin isn’t mentioned much in this book. If you are curious about Austrian Economics and want to a book that is easy to understand then I highly recommend this book I did not give it a perfect score because it is hard for me to see how some of these concepts can be applied to real life. Plus It doesn’t explain the human. condition in its totality. Not saying that was the goal of this book but humans are still way more complex then just how we organize in an economic sense/model.
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Hobbyist Out!
