For the Austrian School of Economics, the methodological foundation rests on Ludwig von Mises's concept of praxeology—the study of purposeful human action through logical deduction rather than empirical observation. According to Mises, every individual acts intentionally to reduce what he called "felt uneasiness," making purposeful action a universal characteristic of human behavior. Because this principle is considered self-evident and logically derived, Austrian economists argue that it does not require statistical validation or empirical testing. Critics, particularly those from the positivist tradition and mainstream economics, often challenge this approach, arguing that economic theories should be supported by measurable evidence. The author responds by suggesting that, if empirical examples are desired, history itself offers compelling cases.
Agorism as a Practical Expression of Praxeology
One such example is agorism, the libertarian philosophy developed by Samuel Edward Konkin III. In The New Libertarian Manifesto (1980), Konkin argues that society consists of varying degrees of state dependence and voluntary market activity. Rather than requiring a separate territory or political jurisdiction, agorists can live within existing states while choosing to conduct as many of their economic interactions as possible through voluntary, non-state-regulated exchange.
Konkin further suggests that individuals who participate in these voluntary markets naturally tend to build relationships with others who share similar values. Such cooperation is driven not only by philosophical agreement but also by practical considerations: trusted trading partners generally make commerce safer, more efficient, and more profitable. As these networks expand, participants increasingly rely on one another while reducing their dependence on state-controlled institutions. Konkin believed this process was already emerging, even if only on a small scale.
The author argues that while agorism has often remained largely a theoretical or philosophical concept in Western countries, the experience of Eastern Europe provides historical examples that resemble many of its core ideas. Under communist governments, extensive state control over economic life created persistent shortages, inefficiencies, and heavy regulation. In response, many people turned to informal or underground markets to obtain goods, exchange services, and conduct business outside official channels.
According to the author, these informal economies illustrate a broader praxeological principle. As government intervention becomes increasingly restrictive and begins to threaten people's ability to meet their basic needs, individuals naturally seek alternative means of voluntary exchange. Rather than requiring ideological commitment or formal instruction, these parallel markets emerge spontaneously as people pursue practical solutions to economic constraints.
From this perspective, the underground economies that developed throughout Eastern Europe demonstrate how voluntary market activity can arise organically when centralized economic systems become overly coercive or ineffective. While historians debate whether these systems should be considered genuinely "agorist"—since participants generally sought survival rather than advancing a libertarian philosophy—the author argues that they nevertheless provide real-world examples of the behavioral patterns predicted by praxeological theory.
From the Soviet Shadow Economy to “Goulash Communism”
To understand the development of modern market culture in Eastern Europe, the author argues that it is important to consider the region’s institutional and historical experience. The centrally planned economies of the Soviet Union and the broader Eastern Bloc have frequently been cited by Austrian economists as practical illustrations of Ludwig von Mises’s economic calculation problem—the argument that, without private property and market prices, central planners lack the information needed to allocate resources efficiently.
Across much of the socialist bloc, governments sought to replace market mechanisms with centralized planning. According to the author, this contributed to persistent shortages, inefficient production, and difficulties in coordinating economic activity. In response, unofficial markets and informal networks expanded across countries from Poland and Hungary to Ukraine and other Soviet republics, providing goods and services that were often unavailable through official channels.
Under these conditions, parallel or shadow economies became an essential part of everyday life for many citizens. These informal markets allowed individuals to trade goods, offer services, and obtain necessities outside the state-controlled distribution system, helping households cope with shortages and economic inefficiencies.
Hungary provides a particularly notable example. During the era often described as "Goulash Communism," the government gradually tolerated a limited degree of private enterprise and informal economic activity. Small-scale farming, private contracting, and side businesses were allowed to operate within certain limits, creating what became known as the "second economy." The author argues that these market-oriented practices helped improve living standards and reduced some of the economic problems associated with strict central planning.
Similarly, in the years following the collapse of the Soviet Union, cross-border trade, barter arrangements, and informal commerce played an important role in helping many people adapt to severe economic disruption. According to the author, these experiences left a lasting cultural legacy, fostering a widespread familiarity with decentralized exchange and a tendency to rely on informal markets whenever official institutions proved ineffective.
The Shadow Economy as a Market Adjustment Mechanism
The author then points to the work of Professor Friedrich Schneider, a leading researcher on the informal economy, who has documented the relatively large size of shadow economies in several Eastern European countries, including Bulgaria, Romania, and Croatia. Schneider's research suggests that informal economic activity has consistently represented a significant share of total economic output in these countries compared with many Western European economies.
From the author's perspective, these findings illustrate how informal markets can function as an adaptive mechanism when excessive regulation, taxation, or bureaucratic barriers limit activity in the formal economy. Rather than disappearing, economic exchange often shifts into unofficial channels where individuals continue trading voluntarily outside direct government oversight.
While economists differ on how to interpret the role of shadow economies—some emphasizing their flexibility and others highlighting concerns such as tax evasion, weaker legal protections, and reduced public revenue—the author views Eastern Europe's experience as evidence that voluntary exchange naturally expands when formal institutions become overly restrictive or fail to meet people's economic needs.
The author argues that the relatively large size of the informal economy in many Eastern European countries should not be viewed simply as evidence of economic underdevelopment. Instead, it is presented as a response to what the author sees as excessive government regulation, taxation, and bureaucratic constraints. From this perspective, the expansion of unofficial markets reflects people's efforts to continue economic activity when formal institutions become burdensome.
The author also highlights surveys indicating relatively low levels of public trust in legal and governmental institutions across parts of Eastern Europe. Examples cited include approximately 70% distrust in Ukraine and Croatia, 55% in Bulgaria, 54% in Poland, 50% in Montenegro and Serbia, 49% in Latvia, and around 40% in Slovenia and Slovakia. The argument is that, despite this institutional skepticism, commerce continues to function effectively through alternative mechanisms based on reputation and repeated voluntary exchange.
Rather than relying exclusively on government licensing or formal legal enforcement, many businesses in these environments depend heavily on personal trust, reputation, and long-term relationships. Informal agreements and business conducted outside rigid regulatory frameworks are described as practical survival strategies rather than ideological statements. In such markets, the author's view is that a merchant's reputation often carries greater value than official certifications, since future business depends primarily on whether customers and partners believe that commitments will be honored.
The Austrian Interpretation
The author concludes that Eastern Europe's historical experience provides empirical support for Ludwig von Mises's economic theories, particularly those presented in Human Action: A Treatise on Economics (1949). According to the Austrian School, economic laws arise from the universal principles of purposeful human action and cannot simply be overridden by government legislation. From this perspective, when regulations become sufficiently restrictive, individuals naturally seek alternative methods of voluntary exchange.
The author also revisits the long-standing debate within libertarian thought between Murray Rothbard and Samuel Edward Konkin III regarding agorism. Rothbard questioned Konkin's belief that a growing counter-economy could eventually replace or peacefully eliminate the state, arguing that such expectations were overly optimistic. The Eastern European experience, the author suggests, largely supports Rothbard's skepticism in this respect. Most participants in the informal economy were motivated by practical concerns—earning a living and meeting basic needs—rather than by a desire to advance a libertarian revolution or dismantle government institutions.
At the same time, the author contends that these historical examples reinforce one of Konkin's central observations: whenever governments impose extensive restrictions on economic activity, unofficial markets tend to emerge spontaneously. Regardless of whether participants share libertarian ideals, they often rely on voluntary exchange outside formal state structures as a practical means of preserving economic freedom.
The author therefore characterizes the shadow economy, or counter-economy, not as a revolutionary movement but as an adaptive market response. In this interpretation, informal markets represent the free market's ability to adjust to an environment of heavy state intervention, enabling individuals to continue cooperating voluntarily when official institutions become inefficient or overly restrictive.
Conclusion
The author concludes that Eastern Europe's historical experience offers valuable insights for libertarian thought, particularly for supporters of the Austrian School of economics. From this perspective, the region provides historical examples that challenge the criticism that Austrian or libertarian ideas are merely abstract theories with little practical relevance.
Rather than relying solely on philosophical arguments or hypothetical models, the author points to the lived experiences of millions of people who, under communist rule and during the turbulent post-Soviet transition, developed informal systems of voluntary exchange, private enterprise, and reputation-based cooperation. These institutions emerged not because people were following libertarian philosophy, but because they were adapting to economic shortages, bureaucratic obstacles, and ineffective state institutions.
According to the author, these historical developments closely resemble the kinds of decentralized social and economic arrangements described by thinkers such as Murray Rothbard and Samuel Edward Konkin III. Informal markets, privately recognized property rights, trust-based commercial relationships, and spontaneous economic coordination all developed without centralized planning or formal ideological guidance.
The author emphasizes that most participants in these informal economies had never studied Ludwig von Mises's Human Action or Austrian economic theory. Their actions were driven by practical necessity rather than philosophical conviction. Yet, in the author's view, they nevertheless behaved in ways consistent with Austrian concepts of purposeful human action and voluntary exchange. When direct confrontation with the state was impossible, people often found ways to work around official restrictions by creating parallel systems of cooperation that better satisfied their economic needs.
For the author, Eastern Europe's experience therefore represents more than a theoretical illustration—it is presented as a historical case study showing how decentralized markets and voluntary cooperation can emerge organically when formal institutions fail to provide effective economic coordination. Whether one accepts this interpretation or not, the author argues that the region's history demonstrates the remarkable capacity of ordinary individuals to create alternative economic institutions through voluntary interaction, adaptation, and mutual trust.
Credits: https://mises.org/mises-wire/domestic-agorism-eastern-europes-example-libertarianism-without-academic-guidance
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