Hunter Hastings
hunterhastings.com mises.org
Professor Peter Klein’s list of 10 Austrian Principles From Principles Of Economics.
MENGER’S MANIFESTO
Value is in the mind of the individual
consumer – it’s a human
perception affected by emotion,
attitude and context.
Since consumers determine
value, and decide whether to buy
or not buy, they determine which
businesses are successful and
which are not.
The future can not be known
or predicted, since consumers’
choices between competing offers
are unknown in advance.
True premises develop a true
and valid conclusion. Understanding
principles that are true
enables economists to analyze
specific situations to understand
cause and effect.
All things are subject to the law
of cause and effect.
Production takes time. Capital is
committed at the beginning of
the process, in advance of consumption
and receipt of revenue
from sales.
From raw materials to machine
tools to final consumer goods,
the value at every point in the
chain is determined by the consumer’s
willingness to pay. When
market trends change, adjustments
must be made throughout
the chain.
Austrian
Principle
Why It’s
Important
How It’s Useful
For Entrepreneurs
Economics is not about numbers,
aggregates, indexes and charts.
It’s about people and their choices
and their hopes and dreams.
Entrepreneurs should always be focused on
customers as people, aiming to understand
them and their wants and needs, and how
to help them feel better.
Humanism
Individualism
Means and
Ends
Subjective
Value
Consumer
Sovereignty
To understand how people make
choices, it’s necessary to think of
them as individuals, not averages
or indexes or aggregations.
Individuals select from scarce
means which they believe will
help them achieve their chosen
ends.
As services become a 1:1 transaction, and
technology facilitates personalization and
customization, the Austrian mindset of individualism
helps entrepreneurs in thinking
about how to fit into each individual life.
Entrepreneurs can use means-ends analysis
to hone their value proposition. Important
to understand consumers’ most important
ends (often emotional and values-based) in
order to make the offered means relevant.
Entrepreneurs recognize that value is not
created by them – they can only facilitate.
A value proposition is an invitation to the
consumer to determine whether the entrepreneur’s
offering generates a valued
experience.
Continuous response to consumer preferences,
and flexible reallocation of capital
and resources as these preferences change,
is required.
Entrepreneurs are required to imagine a
possible future, and direct their resources
to brining it about, despite the uncertainty.
They exercise judgment, which is by definition
imperfect. They bear the burden of
uncertainty.
Entrepreneurs should strive to start from
true premises in developing their analysis
of opportunities. Call it intuition. They
can combine their deductive thinking with
empirical data from the market, testing,
research and sales results. Being deductive
is not the opposite of being empirical.
Understanding cause-and-effect linkages in
consumers’ ecosystem of economic ecosystem
choice – complex and infinitely varied –
is an ultimate goal of the entrepreneur.
Uncertainty
Deductive
Method
The Logic of
Cause and
Effect.
The Role of
Time in
Production.
The Division
of The
Production
Chain Into
Higher and
Lower Orders.
Once entrepreneurs commit resources to
the production process, they must recognize
that the pattern of consumers’ preferences
has already started to change and they must
be able to adjust. Dynamic flexibility in capital
allocation is required.
B2B entrepreneurs, just as much as B2C
entrepreneurs, must stay highly informed
about and responsive to change in consumer
preference. B2B entrepreneurs can help
their customers by monitoring trends and
helping to make adjustments.