Austrian Economics Applied To Mass Immigration

Mass immigration is a topic of intense controversy in the US today.  Donald Trump used it as an important pillar in all 3 of his election campaigns.  It is also one of the reasons that the Democratic Party has opposed him so vigorously.  The subject has also split the liberty movement in two.  Some libertarians have been at the forefront of conducting economic analyses to study possible economic benefits.  In many ways they follow the teachings of Ludwig Von Mises on the topic.  After all, he did write about the benefits of the free flow of labor, and how it improves economic efficiency.  On the opposite end of the spectrum there are libertarians like Hans Herman Hoppe and Lew Rockwell, who have written about the problems that mass immigration presents.

Part of the distinction between the two camps is that their stance is framed in different settings.  Mises, Kaplan, and others analyze immigration in the setting of organic flows of labor and goods in a free trade system.  Hoppe, Rockwell, and Rothbard analyze the issue within the setting of government immigration policy.  Ultimately, they encourage full privatization of public property, so that private owners get to decide who enters the country.  Whereas, in America today, we face a situation where the government sends money to immigrants and NGOs to subsidize immigration.

To better understand the “proper libertarian view”, it is important to assess the topic using Austrian economic principles.  Specifically, Say’s Law, the Law of Supply and Demand, the Cantillon Effect, and Ralph Raico’s commentary on the welfare-warfare state offer insights that libertarians of all types should consider.

First, it is helpful to analyze the subject through the lens of Say’s Law, which in short says that supply precedes demand.  Its conventional expression states that the first step for a market exchange is the production of goods.  The next step is that a person takes the value of the goods he produced to the market (supply) and seeks to exchange those goods for other goods that someone else produced (demand).  When applying the law with immigration in mind, today’s supply of goods in a nation is based on what was produced by yesterday’s population.  With no immigration, today’s demand is equivalent to yesterday’s production.  However, when adding immigration into the equation, the situation changes.

Say’s Law doesn’t say what happens next, but it does explain the relationship between supply and demand in an equilibrium.  If demand increases, it comes from a supply increase in the recent past.  When that equilibrium is disturbed, demand can change without a corresponding change in supply.  Then the Law of Supply and Demand is able to explain how prices change in response. They are different but intertwined economic laws.

Initially, mass immigration increases demand to a degree, while increasing supply to a lesser degree.  The overall result is an increase in prices.  Some of the goods whose demand is affected the most by increasing population are things like housing, medicine, education, food, social services, roads, and transportation.  For each of these things, it takes significant time and investment to increase supply, so it is inevitable that continuing mass immigration will lead to continuing noticeable price increases.   Though the cause is very different, the effect is similar to continual money supply inflation, a thing that virtually all libertarians oppose.

The labor market suffers from the same deleterious effect, but in the inverse direction.  Increasing labor supply increases competition for jobs, thereby decreasing the price of labor, all other things being equal.  Wages don’t decrease equally for all jobs, of course.  Most immigrants have a relatively low level of skills and education compared to the average American, so they mostly compete with lower-income classes.  It harms those most who are already struggling to make ends meet, which should at least cause us to consider our position.

That brings the discussion to the Cantillon Effect.  The classical framework says that money supply growth first affects the prices of goods that are purchased first with newly created money.  Along with that, prices increase more for goods where a greater amount of the new money is used.  As an example, if all the new money goes into student loans, then the price of tuition and fees which universities charge will increase before anything else.  In addition, the price increase will be larger compared to other goods and services unrelated to a college education.  New money enters the economy in specific places causing the biggest price effect and then “trickles down” over time affecting other prices in the economy in diminishing amounts.

When applying the same concept to mass immigration, a type of quasi-Cantillon Effect emerges, because there is a difference between injecting money and adding new workers.  Money is only a medium of exchange and therefore doesn’t result in more production.  Whereas, workers both produce and consume, affecting the economy in a more complex way.  The new workers enter the economy in specific sectors, decreasing labor rates in those sectors. Then over time excess labor will flow to other sectors spreading the effect over time and to a diminishing degree.  The new workers, as consumers, also increase prices for goods which others in their demographic demand.  What this means is that the resulting wage decreases and price increases are focused on lower-income workers.  In the US system, the government decides what types of workers to add and therefore directs the economic effects, not free market interactions.

So far, applying Say’s Law, the Law of Supply and Demand, and the Cantillon Effect has shown that mass immigration reduces wages in specific areas of the economy whose workers are at the low end of the scale.  The implications of these economic principles show us that three groups do benefit from mass immigration.  First, employers looking for low skill workers in areas like construction, child care, elder care, maid services, janitorial services, yard care, etc; who want to keep operating costs low. Second, political parties who promote immigration and provide financial assistance to new residents create a new voting bloc for themselves, not to mention the NGOs who are paid to make it all happen.  Last, owners of discount retailers and general merchandising stores receive more demand for their products, facilitating higher prices or maintaining the profitability of low margin items. 

Next, libertarians need to consider how state welfare programs fit into the equation.  As Milton Friedman said, “it’s just obvious you can’t have free immigration and a welfare state.”  Dr. Friedman recognized the problem that if immigrants can enter your country and immediately receive government assistance, then there will be a mass influx that will push government programs to the breaking point.  As usual, even though he was correct, he only saw half the picture. 

Fortunately, Ralph Raico saw the whole thing, writing about the intimate relationship between immigration and welfare in his book the “Struggle For Liberty.”  Raico¹ states that mass immigration isn’t just bad if welfare exists, but explains that it is used to fund the welfare-warfare state that we all loathe so much.  The issue isn’t their coexistence, but that the one feeds the other.

Further, Raico describes a never-ending cycle that needs to be broken.  It starts with the state engaging in war.  War puts social and economic stresses on a country’s citizens.  To ease the burden of those stresses, the state starts social safety net programs.  Now the government is spending money on multiple fronts, to build empire internationally and build loyalty domestically.  That isn’t sustainable, so the state must decide whether to reduce spending or increase revenue.  Consistently, governments push forward and increase revenue.  One way to do that is to encourage immigration through policy and subsidy. More workers means more taxes for them.  However, that causes significant social change in the country, which further burdens citizens by shifting political power and increasing competition for government largesse.  Overseas, more war means more refugees and destabilization, which results in more people seeking to immigrate to more secure countries like the US. Wash. Rinse. Repeat.

If we libertarians want to see an end to entitlement spending, we will have to starve it of resources, and to do that we need to understand Raico’s observations and respond accordingly.   Some immediate, practical ways to do this are to stop funding NGOs that facilitate immigration, close the borders, remove those here illegally, and reduce the number of Visas available.  Of course, the real libertarian solution is to privatize everything.  Social safety nets and charities should be private organizations with no government funding.  Private citizens should own all property.  No more public land.  Then and only then, will market forces determine immigration levels and what types of workers to bring in.

Once again, Austrian economics is a reliable tool for libertarians to use to better understand the critical issues of our day.  Applying Say’s Law, the Law of Supply and Demand, and the Cantillon Effect reveals that mass immigration can focus negative economic outcomes on Americans that are already in tough material circumstances.  Additionally, Ralph Raico’s history of political thought, The Struggle For Liberty, exposes just how necessary it is for building the U.S. state apparatus, while helping those in the ruling class solidify their positions of power and extract more value out of our society.

1. Ralph Raico, “Chapter 10: Classical Liberalism and the Welfare-Warfare State” in The Struggle for Liberty, ed. Ryan McMaken (Auburn, Alabama: Mises Institute, 2025), 237-258.

Source: https://libertarianchristians.com/2026/06/26/austrian-economics-applied-to-mass-immigration/