An Introduction to Economic Reasoning

David Gordon's An Introduction to Economic Reasoning is a short course in how an Austrian economist builds an argument. Its ten chapters begin with syllogisms and derive preference and marginal utility from purposeful action. They then take up demand and supply, Marx's labor theory of value, price ceilings and minimum wages, and close on money and the gold standard. A beginner meeting the school for the first time should start here, because Gordon keeps asking which premise carries each conclusion and applies that question to his own side. Exercise boxes press objections and sometimes open the problem the next section solves, so the reader practices the reasoning at each step.

The opening chapter separates valid inference from true premises. Gordon's diagrams show that Texans and Democrats can each overlap the class of tall people without overlapping each other, so "some Texans are Democrats" does not follow. He then applies the same test to economics. The claim that people choose among several goals, and must decide which end a versatile means serves, does not follow from the action axiom, since a Sisyphus repeating one action with fixed means is consistent with it. Gordon adds two subsidiary principles, a variety of goals and a variety of means. He also notes that some Austrians would fold these into the axiom, a view he doubts. The reader sees exactly where the deductive system takes on its assumptions.

Preference stays ordinal. Choosing ranks one end above the alternative forgone. Gordon warns against reading this as a numerical scale of satisfaction, and the ranking says nothing about whether the ends are selfish. His oranges make the marginal unit concrete. Five interchangeable oranges go to five ranked uses and a thief takes one. Whichever orange vanished, the owner drops the least valued use and moves another orange to cover a higher one. The result holds while the rankings stay fixed and the oranges stay interchangeable. A later section handles indifference with Rothbard's reply to Buridan's ass: starving is a third alternative, ranked below either bale of hay.

The price control chapter puts this machinery to work. With gasoline at $1.30 and preferences otherwise unchanged, a ceiling of $1.00 makes the quantity buyers demand at the legal price exceed the quantity sellers offer, and a shortage follows. Gordon mentions that preferences could shift until the two quantities match at $1.00, and he treats that case as unlikely. A ceiling of $1.60 does nothing in the static case, though Gordon adds that a ceiling expected to block a future price rise can change conduct now. He then refuses the familiar step from "ceilings cause shortages" to "governments should not impose them." He judges both statements true and shows that the inference needs an evaluative premise, such as "shortages are bad." Even that premise leaves the policy judgment open. Dentistry causes pain and pain is bad, yet the conclusion that dentistry ought to be outlawed fails, because good consequences can outweigh bad ones. An advocate of controls can count shortages as a cost worth paying for lower prices, or try to manage them through rationing. Gordon's exit comes from Mises. Those who complain that prices are too high, as Gordon presents them, do not regard shortages as an acceptable price for lower prices and contend that prices can fall without shortages. Economic theory shows a binding ceiling cannot deliver both, so the policy fails by the standard of its own supporters. That argument binds advocates who hold the goal Gordon attributes to them, and it estimates no magnitudes in any real market.

Money gets the same scrutiny. Some goods are wanted for what they will fetch in exchange, and Gordon presents Menger's account of traders converging on the most marketable ones. Valuing money by its purchasing power looks circular, so Gordon presents Mises's regression argument. People estimate today's purchasing power from yesterday's, which leaves room for its value to change. Tracing that chain backward reaches a day when the commodity was valued for nonmonetary uses alone. Gordon names that day one as the premise the argument needs and notes that Mises does not require gold. In this account fiat money exists, but it is parasitic on an earlier commodity money that gave people a starting estimate. Gordon also flags his move into "historical inquiry of a sort" when he asks which properties money tends to have, so readers who want the monetary record will need historical sources.

The gold standard chapter brings the argument back to price controls. Gold and silver can circulate together at a market ratio that shifts with supply. Suppose the state enforces 16 to 1 and new mines then lower gold's market value. The legal ratio now caps silver's price in gold. Silver dealers offer less, a shortage of silver and a surplus of gold appear at the enforced rate, and gold tends to become the exclusive medium of exchange. Gordon adopts Rothbard's statement of Gresham's law: money overvalued by the state tends to drive out money undervalued by the state. The legal ratio is the condition that the slogan "bad money drives out good" omits. Gordon grants that price adjustment and arbitrage take time, and he tells a reformer who calls that too slow to argue the point. He expects a free market to settle on a single metal for convenience, normally gold, and labels that expectation a prediction outside praxeological law.

The introduction addresses high school students and beginners, and the conclusion concedes that some of the reasoning is abstract. The jokes, which Gordon himself calls bad, are dated and sometimes partisan. Readers who want modern policy data or an impartial tour of rival schools should look elsewhere. This recommendation draws on the method, preference, price control and money chapters and the conclusion. The demand, labor value and minimum wage chapters are described here from the table of contents. Readers who work through the exercises will be prepared for Menger, Böhm-Bawerk, Mises and Rothbard, the authors Gordon's conclusion sends them to next. The Mises Institute publishes the official PDF of the 2000 edition.