Difference between revisions of "Austrian school of economics" - New World Encyclopedia

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The '''Austrian School''' is a school of [[history of economic thought|economic thought]] that advocates the adherence to strict [[methodological individualism]]. As a result Austrians hold that the only valid economic theory is one that is logically derived from basic principles of human action.   Alongside the formal approach to theory, often called [[praxeology]], the school has traditionally advocated an interpretive approach to history. The praxeological method allows for the discovery of economic laws valid for all human action, while the interpretive approach addresses specific historical events.
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{{History of economic thought}}
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The '''Austrian School''', also known as the “'''Vienna School'''” or the “'''Psychological School''',” is a school of [[history of economic thought|economic thought]] that advocates adherence to strict [[methodological individualism]]. As a result Austrians hold that the only valid economic theory is logically derived from basic principles of human action. Alongside the formal approach to theory, often called [[praxeology]], the school has traditionally advocated an interpretive approach to history. The praxeological method allows for the discovery of economic laws valid for all human action, while the interpretive approach addresses specific historical events.
  
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This [[Aristotelian]]/[[rationalist]] approach differs both from the currently dominant [[Platonic idealism|Platonic]]/[[logical positivism|positivist]] approach of contemporary [[neo-classical economics]] and the once dominant [[Historicism|historical approach]] of the German [[Historical school of economics]] and the [[Institutional School|American Institutionalists]].
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While the praxeological method differs from the method advocated by the majority of contemporary economists, the Austrian method derives from a long line of deductive economic thought stretching from the fifteenth century to the modern era and including such major economists as [[Richard Cantillon]], [[David Hume]], [[Anne Robert Jacques Turgot, Baron de Laune|A.R.J. Turgot]], [[Adam Smith]], [[Jean-Baptiste Say]], [[David Ricardo]], [[Nassau Senior]], [[John Elliott Cairnes]], and [[Claude Frédéric Bastiat]].
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While the praxeological method differs from the current method advocated by the majority of contemporary economists, the Austrian method is essentially identical to the traditional approach to economics used by the British [[Classical economics|classical economists]], the early continental economists, and the [[Scholasticism|Late Scholastics]]. Therefore, Austrian methodology can be seen as a continuation of a long line of economic thought stretching from the 15th century to the modern era and including such major economists as [[Richard Cantillon]], [[David Hume]], [[Anne Robert Jacques Turgot, Baron de Laune|A.R.J. Turgot]], [[Adam Smith]], [[Jean-Baptiste Say]], [[David Ricardo]], [[Nassau Senior]], [[John Elliott Cairnes]], and [[Claude Frédéric Bastiat]].
 
  
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The most famous Austrian adherents are [[Carl Menger]], [[Eugen von Böhm-Bawerk]], [[Friedrich von Wieser]], [[Ludwig von Mises]], [[Friedrich Hayek]], [[Gottfried Haberler]], [[Murray Rothbard]], [[Israel Kirzner]], [[George Reisman]], [[Henry Hazlitt]], and [[Hans-Hermann Hoppe]]. While often controversial, and standing to some extent outside of the mainstream of neoclassical theory — as well as being staunchly against much of [[John Maynard Keynes|Keynes']] theory and its results — the Austrian School has been widely influential because of its emphasis on the creative phase of economic productivity and questioning of the basis of the behavioral theory underlying [[neoclassical economics]].
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The core of the Austrian framework can be summarized as taking a "subjectivist approach to marginal economics," and a focus on the idea that logical consistency of a theory is more important that any interpretation of empirical observations. Their idea that value derives from utility, not from the [[labor]] invested in its production, contradicted [[Karl Marx]]'s labor theory of value that ignored the ability of an item to satisfy human wants as a measure of its value.
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The most famous Austrian adherents are [[Carl Menger]], [[Eugen von Böhm-Bawerk]], [[Friedrich von Wieser]], [[Ludwig von Mises]], [[Friedrich Hayek]], [[Gottfried von Haberler]], [[Murray Rothbard]], [[Israel Kirzner]], [[George Reisman]], [[Henry Hazlitt]], and [[Hans-Hermann Hoppe]]. While often controversial, and standing to some extent outside of the mainstream of neoclassical theory—as well as being staunchly opposed to much of [[John Maynard Keynes|Keynes]]' [[Keynesian economics|theory]] and its results—the Austrian School has been widely influential because of its emphasis on the creative phase (the time element) of economic productivity and its questioning of the basis of the behavioral theory underlying [[neoclassical economics]].
  
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Because many of the policy recommendations of Austrian theorists call for government restraint, the protection of private property, and defence of other individual rights, [[laissez-faire]] [[liberalism|liberal]], [[libertarian]], and [[Objectivist]] groups often cite the works of major Austrian thinkers for support.
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==History==
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The story of the Austrian School begins in the fifteenth century, when the followers of St. [[Thomas Aquinas]], writing and teaching at the [[University of Salamanca]] in [[Spain]], sought to explain the full range of human action and social organization. These Late [[Scholastics]] observed the existence of [[economics|economic]] law, inexorable forces of cause and effect that operate very much as other natural laws. Over the course of several generations, they discovered and explained the laws of [[supply and demand]], the cause of [[inflation]], the operation of foreign [[exchange rate]]s, and the subjective nature of economic value—all reasons [[Joseph Schumpeter]] celebrated them as the first real economists.
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The Late Scholastics were advocates of [[property]] rights and the freedom to [[contract]] and [[trade]]. They celebrated the contribution of [[business]] to society, while doggedly opposing [[tax]]es, [[price]] controls, and regulations that inhibited enterprise. As [[moral theology|moral theologian]]s, they urged governments to obey ethical strictures against [[theft]] and [[murder]]. And they lived up to [[Ludwig von Mises]]'s rule: the first job of an economist is to tell governments what they cannot do.
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===Austrian School Proper===
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The Austrian school owes its name to members of the [[Germany|German]] [[Historical School]] of [[economics]], who argued against the Austrians during the ''[[Methodenstreit]],'' in which the Austrians defended the reliance that [[classical economics|classical economists]] placed upon deductive logic. Their Prussian opponents derisively named them the “Austrian School” to emphasize a departure from mainstream German thought and to suggest a provincial, [[Aristotelian]] approach. (The name “Psychological School” derived from the effort to found [[marginalism]] upon prior considerations, largely psychological.)
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By way of general fascination over ''Principles of Economics'' (1871), [[Carl Menger]] (1840-1921) then became the founder of the Austrian School proper, resurrected the Scholastic-French approach to economics, and put it on firmer ground. In addition, Menger showed how [[money]] originates in a free market when the most marketable commodity is desired, not for consumption, but for use in trading for other goods.
  
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==History==
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Menger's book was a pillar of the "[[marginalist revolution]]" in the history of economic science. When [[Ludwig von Mises]] said it "made an economist" out of him, he was not only referring to Menger's theory of money and prices, but also his approach to the discipline itself. Like his predecessors in the tradition, Menger was a classical liberal and methodological individualist, viewing economics as the science of individual choice. His Investigations, which came out twelve years later, battled the German Historical School, which rejected theory and saw economics as the accumulation of data in service of the state.
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[[Classical economics]] focused on the exchange theory of value. In late 19th century, however, there was a focus on the concept of the "marginal" cost and value. (See [[Marginalism]]). Carl Menger's 1871 book, ''[[Principles of Economics]],'' is considered one of the crucial works that began the period known as [[neoclassical economics]]. While marginalism was generally influential, there was also a more specific school that grew up around Menger, which came to be known as the "Vienna School" or "Austrian School". Austrian economics is currently closely associated with advocacy of ''[[laissez-faire]]'' views. However, earlier Austrian economists were more cautious compared to later economists such as [[Ludwig von Mises]], with [[Eugen von Böhm-Bawerk]] saying that he feared that unbridled free competition would lead to "anarchism in production and consumption." However, the Austrian School, especially through the works of [[Friedrich Hayek]], would be influential in the revival of laissez-faire thought in the 1980s.
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As professor of economics at the [[University of Vienna]], Menger restored economics as the science of human action based on deductive logic, and prepared the way for later theorists to counter the influence of socialist thought. Indeed, his student [[Friedrich von Wieser]] (1851-1926) strongly influenced Friedrich von Hayek's later writings. Menger's work remains an excellent introduction to the economic way of thinking. At some level, every Austrian since has seen himself as a student of Menger.
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The next great contributions of the Austrian School were made soon. [[Friedrich von Wieser]] (1889) detailed and expanded Menger's theory of imputation in production and alternative cost, while [[Eugen von Boehm-Bawerk]] (1889) developed his own distinctive time-dependent theory of [[capital]] and interest. 
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Boehm-Bawerk's ''Positive Theory of Capital'' demonstrated that the normal rate of business profit is the interest rate. Capitalists save money, pay laborers, and wait until the final product is sold to receive profit. In addition, he demonstrated that capital is not homogeneous but an intricate and diverse structure that has a time dimension. A growing economy is not just a consequence of increased capital investment, but also of longer and longer processes of production. His ''History and Critique of Interest Theories,'' appearing in 1884, is a sweeping account of fallacies in the history of thought and a firm defense of the idea that the interest rate is not an artificial construct but an inherent part of the market. It reflects the universal fact of "time preference," the tendency of people to prefer satisfaction of wants sooner rather than later.
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The "First" Generation of the Austrian School was thus composed of a pair Austrian professors who, although not directly students of Menger, were nonetheless heavily influenced by him: Friedrich von Wieser and Eugen von Böhm-Bawerk. Boehm-Bawerk and von Wieser, for the most part, spread the Austrian School gospel throughout the Austro-Hungarian Empire and trained the next two generations. These later generations were dominated by the figures of [[Ludwig von Mises]] (1881-1973) in the second generation of “Austrian School of Economics” and, in the third generation, by [[Friedrich von Hayek]] (1889-1992).
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One area where Boehm-Bawerk had not elaborated on the analysis of Menger was money, the institutional intersection of the "micro" and "macro" approach. This time, young Mises, economic adviser to the Austrian Chamber of Commerce, took on the challenge. The result of Mises's research was ''The Theory of Money and Credit,'' published in 1912. He spelled out how the theory of marginal utility applies to money, and laid out his "regression theorem," showing that money not only originates in the market, but must always do so. Drawing on the British Currency School, [[Knut Wicksell]]'s theory of [[interest]] rates, and Boehm-Bawerk's theory of the structure of production, Mises presented the broad outline of the Austrian theory of the [[business cycle]].
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The early Austrian School was to influence economists beyond the boundaries of the Austro-Hungarian Empire. The alternative cost doctrine caught the fancy of [[Philip H. Wicksteed]] and [[Lionel Robbins]] in the U.K. and [[Herbert J. Davenport]] and [[Frank H. Knight]] in the United States, who used it to gleefully pound away at the [[Alfred Marshall|Marshallian]] [[Neoclassical economics|Neoclassical]] orthodoxy.
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==Major features==
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There are a number of features that distinguish the Austrian school from other approaches to economics. While not all "Austrians" subscribe to all of them, generally the school is characterized by these beliefs.
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Austrian economists do not use [[mathematics]] in their analyses or theories because they do not think mathematics can capture the complex reality of human action. They believe that as people act, change occurs, and that quantifiable relationships are applicable only when there is no change. Mathematics can capture what has taken place, but can never capture what will take place.
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Austrians focus completely on the ''opportunity cost'' goods, as opposed to balancing downside or disutility costs. It is an Austrian assertion that everyone is better off in a mutually voluntary exchange, or they would not have carried it out.
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===Methodological subjectivism===
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A radically "subjectivist" strain of [[Neoclassical economics]], also called "marginalist," (versus [[Classical economics|Classical School]]), the Austrian school assumes that an individual's actions and choices are based upon a unique value scale known only to that individual. It is this subjective valuation of goods that creates economic value. Like other economists, the Austrian does not judge or criticize these subjective values but instead takes them as given data. But unlike other economists, the Austrian never attempts to measure or put these values in mathematical form. The idea that an individual's values, plans, expectations, and understanding of reality are all subjective permeates the Austrian tradition and, along with an emphasis on change or processes, is the basis for their notion of economic efficiency.
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===Methodological individualism===
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The Austrian school is characterized by a dedication to [[a priori]]stic "pure" theory, with an emphasis on "methodological individualism" (versus [[German Historical School]]).
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[[Economics]], to an Austrian economist, is the study of purposeful human action in its broadest sense. Since only individuals act, the focus of study for the Austrian economist is always on the individual. Although Austrian economists are not alone in their methodological individualism, they do not stress the maximizing behavior of individuals in the same way as mainstream neoclassical economists.
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Austrian economists believe that one can never know if humans have maximized benefits or minimized costs. Austrian economists emphasize instead the process by which market participants gain information and form their expectations in order to lead them to their own idea of a best solution.
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After the 1871 presentation of his revolutionary subjective theory of value, [[Carl Menger]] was challenged by [[Gustav Schmoller]] and the recurrent debate on method or ''methodenstreit'' which ensued between them and their followers divided the German-speaking world neatly: Austria and its universities for the Austrian School; Germany and its universities for the German Historical School.
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===Disorganized competitive market processes===
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According to the Austrian approach, the [[demand]] for one's market product will depend on how many, if any, new competitors will enter that market. Offering a product on the market is always a ''trial-and-error,'' never-ending process of changing one's plans to reflect new knowledge one gains from day to day.
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They stress the importance of competitive markets and a price system in organizing a decentralized morass of economic agents with limited knowledge into a harmonious order (going directly against the views of Marxian and Keynesian economists).
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An individual's action takes place through time. A person decides on a desired end, chooses a means to attain that end, and then acts to attain it. But because all individuals act under the condition of uncertainty—especially uncertainty regarding the plans and actions of other individuals—people sometimes do not achieve their desired ends. The actions of one person may interfere with the actions of another. The actual consequences of any action can be known only after the action has taken place. This does not mean that people do not include in their plans expectations regarding the plans of others. But the exact outcome of a vast number of plans being executed at the same time can never be predicted. When offering a product on the market, for example, a producer can only guess as to what price can be asked.
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The most important economic problem that people face, according to Austrian economists, is how to coordinate their plans with those of other people. Why, for example, when a person goes to a store to buy an apple, is the apple there to be bought? This meshing of individual plans in a world of [[uncertainty]] is, to Austrians, the basic economic problem. Austrians stress uncertainty in the making of economic decisions, rather than relying on "Homo economicus" or the rational man who was fully informed of all circumstances impinging on his decisions. The fact that perfect knowledge never exists, means that all economic activity implies risk.
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===Antitrust behavior===
  
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The school originated in [[Vienna]] and owes its name to members of the [[Historical School]] of [[economics]] who during the ''[[Methodenstreit]],'' where the Austrians defended the reliance that [[classical economics|classical economists]] placed on logic over observation. Their Prussian opponents derisively named them the "Austrian School" to emphasize a departure from mainstream German thought and to suggest a provincial approach.
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Their theory of "alternative cost" reduces all goods and factors, by "imputation," to the subjective valuation of consumer goods (versus [[Neoclassical economics|Classical School]] and [[Neoclassical economics|Marshallian Neoclassicals]]). The neoclassical economic theory of perfect [[competition]] defines a competitive market as one in which there are a large number of small firms, all selling a homogeneous good and possessing perfect knowledge.  
  
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Menger's contributions were closely followed by [[Eugen von Böhm-Bawerk]] and [[Friedrich von Wieser]]. [[Austria]]n economists developed a sense of themselves as a school distinct from [[neoclassical economics]] during the [[economic calculation debate]], with [[Ludwig von Mises]] and [[Friedrich von Hayek]] representing the Austrian position, where they contended that without monetary prices or private property, meaningful economic calculation was impossible. The Austrian economists were the first liberal economists to systematically challenge the [[Marxist]] school. This was partly a reaction to the ''[[Methodenstreit]]'' when they attacked the [[Georg Wilhelm Friedrich Hegel|Hegelian]] doctrines of the [[Historical School]]. Though many Marxist authors have attempted to portray the Austrian school as a ''[[bourgeois]]'' reaction to Marx, such an interpretation is debatable: Menger wrote his ''[[Principles of Economics]]'' at almost the same time as [[Karl Marx|Marx]] was completing ''[[Das Kapital]].'' The Austrian economists were, however, the first to clash directly with Marxism, since both dealt with such subjects as money, [[capital (economics)|capital]], [[business cycle]]s, and economic processes. Böhm-Bawerk wrote extensive critiques of Marx in the 1880s and 1890s, and several prominent Marxists — including [[Rudolf Hilferding]] — attended his seminar in 1905–06. In contrast, the classical economists had shown little interest in such topics, and many of them did not even gain familiarity with Marx's ideas until well into the twentieth century.
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The structure of the market, according to this analysis, determines the competitiveness of a market. But Austrian economists [[Friedrich A. Hayek]] and [[Israel M. Kirzner]] have rejected this theory of competition. According to Hayek there is no competition in the neoclassical theory of "perfect" competition. Competition to an Austrian economist is defined simply as rivalrous behavior, and to compete is to attempt to offer a better deal than one's competitors.  
  
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The school was no longer centered in Austria after [[Hitler]] came to power. Austrian economics was ill-thought of by most economists after [[World War II]] due to its rejection of observational methods. Its reputation has lately risen with work by students of [[Israel Kirzner]] and [[Ludwig Lachmann]], as well as an interest in Hayek after he won the [[Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel]]. However, it remains a distinctly minority position, even in such areas as capital value.
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Competition in the market arises out of one firm distinguishing its products in some way from those of other firms. And because firms in the real world do not have perfect knowledge, they do not know what a successful competitive strategy is until they try it. "Competition is," therefore, as Hayek explains, a "discovery procedure." As each firm attempts to do better than all other firms, the knowledge of what consumers actually want in the market is discovered.
  
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Austrian economics can be broken into two general trends. One, exemplified by Hayek, while distrusting of many neoclassical concepts, generally accepts their formulations, the other exemplified by the [[Ludwig von Mises Institute]], seeks a different formalism for [[economics]]. The primary areas of contention between neoclassical theory and the Austrian school are on the possibility of consumer indifference — neoclassical theory says it is possible, where as Mises rejected it as being "impossible to observe in practice" — and when Mises and his students argued that utility functions are [[ordinal number|ordinal]], and not [[cardinal number|cardinal]]; that is, one can only rank preferences and not measure their intensity. Finally there are a host of questions about uncertainty raised by Mises and other Austrians, who argue for a different means of [[risk assessment]].
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===Monetary over-investment theory of the business cycle===
  
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An area that is often neglected is the influence that Austrian school ideas have had on Keynesian [[macroeconomics]]. The source of this influence is the period of time where the [[London School of Economics]] brought in Hayek and other "continental" economists. While their students, though initially receptive, ultimately were drawn to the new popularity of Keynesian doctrines, many of the concepts, particularly relating time to the value of capital and its importance, would find their way into the work of Keynesians such as [[John Hicks]]. [[Alan Greenspan]], speaking of the originators of the School, said in 2000, "the Austrian school have reached far into the future from when most of them practiced and have had a profound and, in my judgment, probably an irreversible effect on how most mainstream economists think in this country." The long-time [[U.S. Federal Reserve]] Chairman said he attended a seminar hosted by Ludwig von Mises. [http://www.usagold.com/gildedopinion/greenspan-gold.html]
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This focus on opportunity cost alone means that their interpretation of the time value of a good has a strict relationship: since goods will be as restricted by scarcity at a later point in time as they are now, the strict relationship between investment and time must also hold.  
  
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==Analytical framework==
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A factory making goods next year is worth as much less as the goods it is making next year are worth. This means that the [[business cycle]] is driven by mis-coordination between sectors of the same economy, caused by money not carrying incentive information correct about present choices, rather than within a single economy where money causes people to make bad decisions about how to spend their time. This leads to monetary overinvestment theory of the business cycle (versus [[Keynesian economics|Keynesian]]s).  
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Austrian economists reject observation as a tool applicable to economics, saying that while it is appropriate in the natural sciences where factors can be isolated in laboratory conditions, acting human beings are too complex for this treatment. Instead one should isolate the logical processes of human action - a discipline named "[[praxeology]]" by [[Alfred Espinas]]. [[Ludwig von Mises]] is commonly miscredited as coining the term "praxeology."
 
  
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Austrians view [[entrepreneurship]] as the driving force in [[economic development]], see [[private property]] as essential to the efficient use of resources, and usually (if not always) see [[government]] interference in market processes as counterproductive.
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[[Hayek]] and [[Mises]] authored many studies on the business cycle, warning of the danger of credit expansion, and predicted the coming currency crisis. This work was cited by the [[Nobel Prize]] committee in 1974 when Hayek received the award for economics. Working in England and America, Hayek later became a prime opponent of Keynesian economics with books on exchange rates, capital theory, and monetary reform.  
  
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As with neoclassical economists, Austrians reject [[classical economics|classical]] cost of production theories, most famously the [[labor theory of value]]. Instead they explain value by reference to the subjective preferences of individuals. This psychological aspect to Menger's economics has been attributed to the school's birth in turn of the century [[Vienna]]. [[Supply and demand]] are explained by aggregating over the decisions of individuals, following the precepts of [[methodological individualism]], which asserts that only individuals and not collectives make decisions, and [[marginalist]] arguments, which compare the costs and benefits for incremental changes.
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Hayek's popular book ''Road to Serfdom'' (1944) helped revive the classical liberal movement in America after the [[New Deal]] and [[World War II]]. His series ''Law, Legislation, and Liberty'' elaborated on the Late Scholastic approach to [[law]], applying it to criticize egalitarianism and nostrums like social justice.  
  
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Contemporary neo-Austrian economists claim to adopt [[economic subjectivism]] more consistently than any other school of economics and reject many neoclassical formalisms. For example, while neoclassical economics formalizes the economy as an [[economic equilibrium|equilibrium]] system with supply and demand in balance, Austrian economists emphasize its dynamic, perpetually dis-equilibrated nature.
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Mises' New York seminar continued until two years before his death in 1973. During those years, [[Murray Rothbard]] was his student. Indeed, Rothbard's ''Man, Economy, and State'' (1963) was patterned after ''Human Action'' (Mises 1949), and in some areas—[[monopoly]] theory, utility and welfare, and the theory of the state—tightened and strengthened Mises' own views.  
  
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The core of the Austrian framework can be summarized as taking a subjectivist approach to marginal economics, and a focus on the idea that theory should absolutely overrule observation. Austrians focus completely on the [[opportunity cost]] of goods, as opposed to balancing downside or disutility costs. It is an Austrian assertion that everyone is ''better'' off in a mutually voluntary exchange, or they would not have carried it out. A fuller explanation of this in more exact terms is [http://cepa.newschool.edu/het/essays/margrev/oppcost.htm available at the New School's economic pages].
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Rothbard's approach to the Austrian School followed directly in the line of Late Scholastic thought by applying economic science within a framework of a natural-rights theory of property. What resulted was a full-fledged defense of a capitalistic and stateless social order, based on property and freedom of association and contract.
  
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This focus on opportunity cost alone means that their interpretation of the [[time value]] of a good has a strict relationship: since goods will be as restricted by scarcity at a later point in time as they are now, the strict relationship between investment and time must also hold. A factory making goods next year is worth as much less as the goods it is making next year are worth. This means that the business cycle is driven by miscoordination between sectors of the same economy, caused by money not carrying incentive information correct about present choices, rather than within a single economy where money causes people to make bad decisions about how to spend their time. This means, in the Austrian context, the correct way to prevent imbalances in the economy is to make people want to buy the correct goods, rather than controlling when people buy goods.
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== Criticism ==
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The Austrian school is generally criticized for its rejection of the [[scientific method]] and [[empirical]] testing in favor of supposedly self-evident [[axiom]]s and logical reasoning. [[Bryan Caplan]] has criticized the school for rejecting on principle the use of [[mathematics]] or [[econometrics]] which is "more than anything else, what prevents Austrian economists from getting more publications in mainstream journals."
  
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==Contributions==
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==Economists affiliated with the Austrian School==
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Some contributions of Austrian economists:
 
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*A theory of distribution in which factor [[price]]s result from the [[imputation (economics)|imputation]] of prices of consumer goods to goods of "higher order", that is goods used in the production of consumer goods (goods of the first order).
 
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*An emphasis on the forward-looking nature of choice, seeing time as the root of uncertainty within economics (see also [[time preference]]).
 
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*A fundamental rejection of mathematical methods in economics seeing the function of economics as investigating the essences rather than the specific quantities of economic phenomena. This was seen as an evolutionary, or "genetic-causal", approach against the stresses of [[economic equilibrium|equilibrium]] and [[perfect competition]] found in mainstream Neoclassical economics (see also [[praxeology]]).
 
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*[[Eugen von Böhm-Bawerk]]'s critique of [[Karl Marx|Marx]] centered around the untenability of the [[labor theory of value]] in the light of the [[transformation problem]]. There was also the connected argument that capitalists do not exploit workers; they accommodate workers by providing them with income well in advance of the revenue from the output they helped to produce.
 
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*[[Eugen von Böhm-Bawerk]]'s capital theory, which equates [[capital intensity]] with the degree of [[roundaboutness]] of production processes.
 
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*[[Eugen von Böhm-Bawerk]]'s demonstration that the law of marginal utility, as formulated by [[Carl Menger|Menger]] necessarily implies the classical law of costs and hence the vast majority of the conclusions of the British [[classical economists]]. This discovery was later fully developed and its implications traced by a student of [[Ludwig von Mises|von Mises]], [[George Reisman]], in his book, ''Capitalism''.
 
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*An emphasis on [[opportunity cost]] and reservation demand in defining [[marginal theory of value|value]], and a refusal to consider supply as an otherwise independent cause of value. (The British economist [[Philip Wicksteed]] adopted this perspective.)
 
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*The Mises-Hayek [[business cycle]] theory, which explains depression as a reaction to an intertemporal production structure fostered by [[monetary policy]] setting [[interest rate]]s inconsistent with individual time preferences.
 
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*Hayek's concept of [[intertemporal equilibrium]]. ([[John Hicks]] took over this theory in his discussion of temporary equilibrium in ''Value and Capital,'' a book very influential on the development of neoclassical economics after World War II.)
 
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*Mises and Hayek's view of prices as permitting agents to make use of [[dispersed knowledge|dispersed tacit knowledge]].
 
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*The [[time preference theory of interest]], which explains interest rates through [[intertemporal choice]] - the different time preferences of the borrower or lender - rather than as a price paid for a [[factor of production]].
 
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*Stressing uncertainty in the making of economic decisions, rather than relying on "[[Homo economicus]]" or the rational man who was fully informed of all circumstances impinging on his decisions. The fact that perfect knowledge never exists, means that all economic activity implies risk.
 
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*Seeing the entrepreneurs' role as collecting and evaluating information and acting on risks.
 
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*The [[economic calculation debate]] between Austrian and [[Marxist]] economists, with the Austrians claiming that Marxism is flawed because prices could not be set to recognize opportunity costs of factors of production, and so [[socialism]] could not calculate best uses in the same way [[capitalism]] does.
 
  
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==Major economists affiliated with the Austrian School==
 
 
{|
 
{|
 
| valign="top" |
 
| valign="top" |
 
*[[Benjamin Anderson]]
 
*[[Benjamin Anderson]]
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*[[William L. Anderson]]
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*[[William Barnett II]]
 
*[[Gérard Bramoullé]]
 
*[[Gérard Bramoullé]]
 
*[[Walter Block]]
 
*[[Walter Block]]
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*[[Thomas DiLorenzo]]
 
*[[Thomas DiLorenzo]]
 
*[[Richard Ebeling]]
 
*[[Richard Ebeling]]
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*[[Frank Fetter]]
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*[[Karel Engliš]]  
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*[[Jacques Garello]]
 
  
 
| <hspace width=40px> |
 
| <hspace width=40px> |
 
| valign="top" |
 
| valign="top" |
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*[[Frank Fetter]]
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*[[Jacques Garello]]
 
*[[Roger Garrison]]
 
*[[Roger Garrison]]
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*[[David Gordon]]
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*[[David Gordon (economist)|David Gordon]]
 
*[[Friedrich Hayek]]
 
*[[Friedrich Hayek]]
 
*[[Henry Hazlitt]]
 
*[[Henry Hazlitt]]
 
*[[Gottfried Haberler]]
 
*[[Gottfried Haberler]]
 
*[[Hans-Hermann Hoppe]]
 
*[[Hans-Hermann Hoppe]]
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*[[Hans F. Sennholz]]
 
*[[Steven Horwitz]]
 
*[[Steven Horwitz]]
 
*[[Jorg Guido Hulsmann|Jörg Guido Hülsmann]]
 
*[[Jorg Guido Hulsmann|Jörg Guido Hülsmann]]
Line 86: Line 127:
 
*[[Ludwig Lachmann]]
 
*[[Ludwig Lachmann]]
 
*[[Don Lavoie]]
 
*[[Don Lavoie]]
−
*[[Peter T. Leeson]]
 
−
*[[Henri Lepage]]
 
  
 
| <hspace width=40px> |
 
| <hspace width=40px> |
 
| valign="top" |
 
| valign="top" |
 +
*[[Peter T. Leeson]]
 +
*[[Henri Lepage]]
 
*[[Peter Lewin]]
 
*[[Peter Lewin]]
−
*[[Roderick Long]]
 
 
*[[Juan De Mariana]]
 
*[[Juan De Mariana]]
 
*[[Ludwig von Mises]]
 
*[[Ludwig von Mises]]
 
*[[Margit von Mises]]
 
*[[Margit von Mises]]
−
*[[Luis de Molina]]
 
 
*[[Oskar Morgenstern]]
 
*[[Oskar Morgenstern]]
 
*[[Fritz Machlup]]
 
*[[Fritz Machlup]]
Line 103: Line 142:
 
*[[Ernest C. Pasour]]
 
*[[Ernest C. Pasour]]
 
*[[Ralph Raico]]
 
*[[Ralph Raico]]
 +
*[[George Reisman]]
 +
*[[Kurt Richebächer]]
 +
*[[Mario Rizzo]]
  
 
| <hspace width=40px> |
 
| <hspace width=40px> |
 
| valign="top" |
 
| valign="top" |
−
*[[George Reisman]]
 
−
*[[Mario Rizzo]]
 
 
*[[Llewellyn Rockwell]]
 
*[[Llewellyn Rockwell]]
 +
*[[Paul Rosenstein-Rodan]]
 
*[[Murray Rothbard]]
 
*[[Murray Rothbard]]
 
*[[Mark Thornton]]
 
*[[Mark Thornton]]
Line 114: Line 155:
 
*[[Pascal Salin]]
 
*[[Pascal Salin]]
 
*[[Josef Síma]]
 
*[[Josef Síma]]
 +
*[[Mark Skousen]]
 
*[[Jesus Huerta de Soto]]
 
*[[Jesus Huerta de Soto]]
 +
*[[Steven P. Spadijer]]
 
*[[Richard von Strigl]]
 
*[[Richard von Strigl]]
−
*[[Phillip Wicksteed]]
+
*[[Philip Henry Wicksteed]]
 
*[[Friedrich von Wieser]]
 
*[[Friedrich von Wieser]]
−
 
+
*[[Frederick Nymeyer]]
 
|}
 
|}
  
 
Note that the economists aligned with the Austrian School are sometimes colloquially called "the Austrians" even though not all held Austrian citizenship, and not all economists from Austria subscribe to the ideas of the Austrian School.
 
Note that the economists aligned with the Austrian School are sometimes colloquially called "the Austrians" even though not all held Austrian citizenship, and not all economists from Austria subscribe to the ideas of the Austrian School.
  
−
==Other related economists==
+
==Seminal publications==  
−
*[[Richard Cantillon]]
 
−
*[[Frederic Bastiat]] (precursor)
 
−
*[[Henry Hazlitt]] (introduced the Austrian School to the USA)
 
−
*[[School of Salamanca]] (Renaissance precursors)
 
−
*[[Étienne Bonnot de Condillac]]
 
−
*[[Louis Say]]
 
−
*[[Jean-Baptiste Say]]
 
−
*[[Léon Walras]]
 
−
*[[Jules Dupuit]]
 
−
*[[Lionel Robbins]]
 
−
*[[Wilhelm Röpke]]
 
−
*[[Joseph Schumpeter]]
 
−
*[[Anne Robert Jacques Turgot, Baron de Laune|A.R.J. Turgot]]
 
  
−
==Critics==
+
*Boehm-Bawerk, E. 1959. ''Capital and Interest.'' Libertarian Press. ISBN 978-0910884075
−
*[[Bryan Caplan]]
+
*__________. 1891. "The Austrian Economists," ''Annals of the American Academy of Political and Social Science'' 1.
 +
*__________. [1891] 2006. ''Positive Theory of Capital.'' Cosimo Classics. ISBN 978-1602060395
 +
*Hayek, F. A. [1944] 1996. ''The Road to Serfdom.'' Chicago, IL: University of Chicago Press. ISBN 978-0226320618
 +
*__________. [1948] 1996. ''Individualism and Economic Order.'' Chicago, IL: University of Chicago Press. ISBN 978-0226320939
 +
*___________. 1988. ''The Fatal Conceit: The Errors of Socialism.'' Routledge. ISBN 978-0415008204
 +
*___________. "Economic Thought VI: The Austrian School," in David L. Sills (ed.), ''International Encyclopedia of the Social Sciences.'' New York: Macmillan and Free Press, 1968, 458-459
 +
*Kirzner, I. M. 1978. ''Competition and Enterpreneurship.'' Chicago, IL: University of Chicago Press. ISBN 978-0226437767 
 +
*Menger, C. [1871] 1994. ''Principles of Economics.'' Libertarian Press. ISBN 978-0910884273
 +
*von Mises, L. [1949] 2007. ''Human Action: A Treatise on Economics.'' Liberty Fund. ISBN 978-0865976313
 +
*Moser, J. 1997. "The Origins of the Austrian School of Economics," ''Humane Studies Review'' 11(1) (Spring 1997).
 +
*Rothbard, M. N. [1962] 1993. ''Man, Economy and State.'' Von Mises Institute. ISBN 978-0945466321
  
−
==Seminal works==
+
==External links==
−
*''[[Principles of Economics]]'' by [[Carl Menger]]
+
All links retrieved August 22, 2023.  
−
*''[[Capital and Interest]]'' by [[Eugen von Böhm-Bawerk]]
 
−
*''[[The Theory of Money and Credit]]'' by [[Ludwig von Mises]]
 
−
*''[[Socialism (book)|Socialism]]'' by [[Ludwig von Mises]]
 
−
*''[[Human Action]]'' by [[Ludwig von Mises]]
 
−
*''[[Man, Economy, and State]]'' by [[Murray Rothbard|Murray N. Rothbard]]
 
−
*''[[Individualism and Economic Order]]'' by [[Friedrich Hayek]]
 
  
−
 
+
*[http://www.mises.org/etexts/austrian.asp What is Austrian Economics?] Austrian School as defined by the Ludwig von Mises Institute.
−
 
 
−
==External links==
 
−
*[http://www.mises.org/etexts/austrian.asp What is Austrian Economics?] Austrian School as defined by the [[Ludwig von Mises Institute]].
 
 
*[http://www.mises.org The Mises Institute - A large selection of online books, video/audio, journal archives, and research on Austrian economics]
 
*[http://www.mises.org The Mises Institute - A large selection of online books, video/audio, journal archives, and research on Austrian economics]
 
*[http://it.stlawu.edu/sdae Society for the Development of Austrian Economics] Largest professional organization of Austrian economists
 
*[http://it.stlawu.edu/sdae Society for the Development of Austrian Economics] Largest professional organization of Austrian economists
−
*[http://homepage.newschool.edu/het/schools/austrian.htm Austrian School on newschool.edu] &ndash; compare Austrian versus other Schools
+
*[http://www.econlib.org/library/Enc/AustrianSchoolofEconomics.html Austrian School of Economics] ''Concise encyclopedia of economics'' on Econlib
−
*[http://socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/bawerk/austrian The Austrian Economists by Eugen von Böhm-Bawerk 1891]
+
*Caplan, Bryan [https://econfaculty.gmu.edu/bcaplan/whyaust.htm Why I Am Not An Austrian Economist]
−
*[http://library.wur.nl/way/catalogue/documents/A%20Great%20Revolution%20in%20Economics.htm A Great Revolution in Economics - Vienna 1871 and after] by Houmanidis and Leen
 
−
*[http://www.montpelerin.org/ The Mont Pelerin Society]
 
−
*[http://www.liberty-page.com/issues/austrian/main.html/ Austrian School Economists]  from Mark Valenti's Liberty Page
 
−
*[http://www.gmu.edu/departments/ihs/hsr/s97hsr.html#austrian The Origins of the Austrian School of Economics by John Moser]
 
−
*[http://www.dmoz.org/Science/Social_Sciences/Economics/Schools_of_Thought/Austrian_School/ Austrian School] Directory of links from the Open Source Directory
 
−
*[http://www.againstpolitics.com/austrian_economics/ A list of academic critiques of Austrian economics]
 
−
*[http://austrianecon.com Austrian Economics Forum] Discussion message board concerning Austrian economic theory
 
−
*[[:fr:Pascal Salin|Pascal Salin]] (in French)
 
−
*[[:fr:Jacques Garello|Jacques Garello]] (in French)
 
−
*[[:fr:Jean-Pierre Centi|Jean-Pierre Centi]] (in French)
 
−
*[[:fr:Gérard Bramoullé|Gérard Bramoullé]] (in French)
 
−
*[[:fr:Henri Lepage|Henri Lepage]] (in French)
 
−
*[http://austrianeconomists.typepad.com/ The Austrian Economists]
 
−
*[http://austrianaddiction.rationalmind.net Austrian Addiction]
 
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*[http://www.lewrockwell.com Lew Rockwell]
 
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* Smartalec Economic Discussion Board: [http://s6.invisionfree.com/SmartalEC] - Growing community for Economic discussion.
 
−
*[http://www.austrianeconomicsconference.org The Official Site of the International Conference on Austrian School of Economics to be held in Argentina Sept 28-30, 2006]
 
−
*[http://cepa.newschool.edu/~het/schools/austrian.htm The Austrian School]
 
  
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{{Credit1|Austrian_School|80964742|}}
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{{Credits|Austrian_School|120656842|}}

Latest revision as of 19:14, 22 August 2023


Schools of economics

History of economic thought

Pre-modern

Early economic thought

Early Modern

Mercantilism · Physiocrats

Modern

Classical Economics
English historical school · German historical school
Socialist economics · Neoclassical economics
Lausanne school · Austrian school

Twentieth-century

Institutional economics · Stockholm school
Keynesian economics · Chicago school

The Austrian School, also known as the “Vienna School” or the “Psychological School,” is a school of economic thought that advocates adherence to strict methodological individualism. As a result Austrians hold that the only valid economic theory is logically derived from basic principles of human action. Alongside the formal approach to theory, often called praxeology, the school has traditionally advocated an interpretive approach to history. The praxeological method allows for the discovery of economic laws valid for all human action, while the interpretive approach addresses specific historical events.

While the praxeological method differs from the method advocated by the majority of contemporary economists, the Austrian method derives from a long line of deductive economic thought stretching from the fifteenth century to the modern era and including such major economists as Richard Cantillon, David Hume, A.R.J. Turgot, Adam Smith, Jean-Baptiste Say, David Ricardo, Nassau Senior, John Elliott Cairnes, and Claude Frédéric Bastiat.

The core of the Austrian framework can be summarized as taking a "subjectivist approach to marginal economics," and a focus on the idea that logical consistency of a theory is more important that any interpretation of empirical observations. Their idea that value derives from utility, not from the labor invested in its production, contradicted Karl Marx's labor theory of value that ignored the ability of an item to satisfy human wants as a measure of its value.

The most famous Austrian adherents are Carl Menger, Eugen von Böhm-Bawerk, Friedrich von Wieser, Ludwig von Mises, Friedrich Hayek, Gottfried von Haberler, Murray Rothbard, Israel Kirzner, George Reisman, Henry Hazlitt, and Hans-Hermann Hoppe. While often controversial, and standing to some extent outside of the mainstream of neoclassical theory—as well as being staunchly opposed to much of Keynes' theory and its results—the Austrian School has been widely influential because of its emphasis on the creative phase (the time element) of economic productivity and its questioning of the basis of the behavioral theory underlying neoclassical economics.

History

The story of the Austrian School begins in the fifteenth century, when the followers of St. Thomas Aquinas, writing and teaching at the University of Salamanca in Spain, sought to explain the full range of human action and social organization. These Late Scholastics observed the existence of economic law, inexorable forces of cause and effect that operate very much as other natural laws. Over the course of several generations, they discovered and explained the laws of supply and demand, the cause of inflation, the operation of foreign exchange rates, and the subjective nature of economic value—all reasons Joseph Schumpeter celebrated them as the first real economists.

The Late Scholastics were advocates of property rights and the freedom to contract and trade. They celebrated the contribution of business to society, while doggedly opposing taxes, price controls, and regulations that inhibited enterprise. As moral theologians, they urged governments to obey ethical strictures against theft and murder. And they lived up to Ludwig von Mises's rule: the first job of an economist is to tell governments what they cannot do.

Austrian School Proper

The Austrian school owes its name to members of the German Historical School of economics, who argued against the Austrians during the Methodenstreit, in which the Austrians defended the reliance that classical economists placed upon deductive logic. Their Prussian opponents derisively named them the “Austrian School” to emphasize a departure from mainstream German thought and to suggest a provincial, Aristotelian approach. (The name “Psychological School” derived from the effort to found marginalism upon prior considerations, largely psychological.)

By way of general fascination over Principles of Economics (1871), Carl Menger (1840-1921) then became the founder of the Austrian School proper, resurrected the Scholastic-French approach to economics, and put it on firmer ground. In addition, Menger showed how money originates in a free market when the most marketable commodity is desired, not for consumption, but for use in trading for other goods.

Menger's book was a pillar of the "marginalist revolution" in the history of economic science. When Ludwig von Mises said it "made an economist" out of him, he was not only referring to Menger's theory of money and prices, but also his approach to the discipline itself. Like his predecessors in the tradition, Menger was a classical liberal and methodological individualist, viewing economics as the science of individual choice. His Investigations, which came out twelve years later, battled the German Historical School, which rejected theory and saw economics as the accumulation of data in service of the state.

As professor of economics at the University of Vienna, Menger restored economics as the science of human action based on deductive logic, and prepared the way for later theorists to counter the influence of socialist thought. Indeed, his student Friedrich von Wieser (1851-1926) strongly influenced Friedrich von Hayek's later writings. Menger's work remains an excellent introduction to the economic way of thinking. At some level, every Austrian since has seen himself as a student of Menger.

The next great contributions of the Austrian School were made soon. Friedrich von Wieser (1889) detailed and expanded Menger's theory of imputation in production and alternative cost, while Eugen von Boehm-Bawerk (1889) developed his own distinctive time-dependent theory of capital and interest.

Boehm-Bawerk's Positive Theory of Capital demonstrated that the normal rate of business profit is the interest rate. Capitalists save money, pay laborers, and wait until the final product is sold to receive profit. In addition, he demonstrated that capital is not homogeneous but an intricate and diverse structure that has a time dimension. A growing economy is not just a consequence of increased capital investment, but also of longer and longer processes of production. His History and Critique of Interest Theories, appearing in 1884, is a sweeping account of fallacies in the history of thought and a firm defense of the idea that the interest rate is not an artificial construct but an inherent part of the market. It reflects the universal fact of "time preference," the tendency of people to prefer satisfaction of wants sooner rather than later.

The "First" Generation of the Austrian School was thus composed of a pair Austrian professors who, although not directly students of Menger, were nonetheless heavily influenced by him: Friedrich von Wieser and Eugen von Böhm-Bawerk. Boehm-Bawerk and von Wieser, for the most part, spread the Austrian School gospel throughout the Austro-Hungarian Empire and trained the next two generations. These later generations were dominated by the figures of Ludwig von Mises (1881-1973) in the second generation of “Austrian School of Economics” and, in the third generation, by Friedrich von Hayek (1889-1992).

One area where Boehm-Bawerk had not elaborated on the analysis of Menger was money, the institutional intersection of the "micro" and "macro" approach. This time, young Mises, economic adviser to the Austrian Chamber of Commerce, took on the challenge. The result of Mises's research was The Theory of Money and Credit, published in 1912. He spelled out how the theory of marginal utility applies to money, and laid out his "regression theorem," showing that money not only originates in the market, but must always do so. Drawing on the British Currency School, Knut Wicksell's theory of interest rates, and Boehm-Bawerk's theory of the structure of production, Mises presented the broad outline of the Austrian theory of the business cycle.

The early Austrian School was to influence economists beyond the boundaries of the Austro-Hungarian Empire. The alternative cost doctrine caught the fancy of Philip H. Wicksteed and Lionel Robbins in the U.K. and Herbert J. Davenport and Frank H. Knight in the United States, who used it to gleefully pound away at the Marshallian Neoclassical orthodoxy.

Major features

There are a number of features that distinguish the Austrian school from other approaches to economics. While not all "Austrians" subscribe to all of them, generally the school is characterized by these beliefs.

Austrian economists do not use mathematics in their analyses or theories because they do not think mathematics can capture the complex reality of human action. They believe that as people act, change occurs, and that quantifiable relationships are applicable only when there is no change. Mathematics can capture what has taken place, but can never capture what will take place.

Austrians focus completely on the opportunity cost goods, as opposed to balancing downside or disutility costs. It is an Austrian assertion that everyone is better off in a mutually voluntary exchange, or they would not have carried it out.

Methodological subjectivism

A radically "subjectivist" strain of Neoclassical economics, also called "marginalist," (versus Classical School), the Austrian school assumes that an individual's actions and choices are based upon a unique value scale known only to that individual. It is this subjective valuation of goods that creates economic value. Like other economists, the Austrian does not judge or criticize these subjective values but instead takes them as given data. But unlike other economists, the Austrian never attempts to measure or put these values in mathematical form. The idea that an individual's values, plans, expectations, and understanding of reality are all subjective permeates the Austrian tradition and, along with an emphasis on change or processes, is the basis for their notion of economic efficiency.

Methodological individualism

The Austrian school is characterized by a dedication to a prioristic "pure" theory, with an emphasis on "methodological individualism" (versus German Historical School).

Economics, to an Austrian economist, is the study of purposeful human action in its broadest sense. Since only individuals act, the focus of study for the Austrian economist is always on the individual. Although Austrian economists are not alone in their methodological individualism, they do not stress the maximizing behavior of individuals in the same way as mainstream neoclassical economists.

Austrian economists believe that one can never know if humans have maximized benefits or minimized costs. Austrian economists emphasize instead the process by which market participants gain information and form their expectations in order to lead them to their own idea of a best solution.

After the 1871 presentation of his revolutionary subjective theory of value, Carl Menger was challenged by Gustav Schmoller and the recurrent debate on method or methodenstreit which ensued between them and their followers divided the German-speaking world neatly: Austria and its universities for the Austrian School; Germany and its universities for the German Historical School.

Disorganized competitive market processes

According to the Austrian approach, the demand for one's market product will depend on how many, if any, new competitors will enter that market. Offering a product on the market is always a trial-and-error, never-ending process of changing one's plans to reflect new knowledge one gains from day to day.

They stress the importance of competitive markets and a price system in organizing a decentralized morass of economic agents with limited knowledge into a harmonious order (going directly against the views of Marxian and Keynesian economists).

An individual's action takes place through time. A person decides on a desired end, chooses a means to attain that end, and then acts to attain it. But because all individuals act under the condition of uncertainty—especially uncertainty regarding the plans and actions of other individuals—people sometimes do not achieve their desired ends. The actions of one person may interfere with the actions of another. The actual consequences of any action can be known only after the action has taken place. This does not mean that people do not include in their plans expectations regarding the plans of others. But the exact outcome of a vast number of plans being executed at the same time can never be predicted. When offering a product on the market, for example, a producer can only guess as to what price can be asked.

The most important economic problem that people face, according to Austrian economists, is how to coordinate their plans with those of other people. Why, for example, when a person goes to a store to buy an apple, is the apple there to be bought? This meshing of individual plans in a world of uncertainty is, to Austrians, the basic economic problem. Austrians stress uncertainty in the making of economic decisions, rather than relying on "Homo economicus" or the rational man who was fully informed of all circumstances impinging on his decisions. The fact that perfect knowledge never exists, means that all economic activity implies risk.

Antitrust behavior

Their theory of "alternative cost" reduces all goods and factors, by "imputation," to the subjective valuation of consumer goods (versus Classical School and Marshallian Neoclassicals). The neoclassical economic theory of perfect competition defines a competitive market as one in which there are a large number of small firms, all selling a homogeneous good and possessing perfect knowledge.

The structure of the market, according to this analysis, determines the competitiveness of a market. But Austrian economists Friedrich A. Hayek and Israel M. Kirzner have rejected this theory of competition. According to Hayek there is no competition in the neoclassical theory of "perfect" competition. Competition to an Austrian economist is defined simply as rivalrous behavior, and to compete is to attempt to offer a better deal than one's competitors.

Competition in the market arises out of one firm distinguishing its products in some way from those of other firms. And because firms in the real world do not have perfect knowledge, they do not know what a successful competitive strategy is until they try it. "Competition is," therefore, as Hayek explains, a "discovery procedure." As each firm attempts to do better than all other firms, the knowledge of what consumers actually want in the market is discovered.

Monetary over-investment theory of the business cycle

This focus on opportunity cost alone means that their interpretation of the time value of a good has a strict relationship: since goods will be as restricted by scarcity at a later point in time as they are now, the strict relationship between investment and time must also hold.

A factory making goods next year is worth as much less as the goods it is making next year are worth. This means that the business cycle is driven by mis-coordination between sectors of the same economy, caused by money not carrying incentive information correct about present choices, rather than within a single economy where money causes people to make bad decisions about how to spend their time. This leads to monetary overinvestment theory of the business cycle (versus Keynesians).

Hayek and Mises authored many studies on the business cycle, warning of the danger of credit expansion, and predicted the coming currency crisis. This work was cited by the Nobel Prize committee in 1974 when Hayek received the award for economics. Working in England and America, Hayek later became a prime opponent of Keynesian economics with books on exchange rates, capital theory, and monetary reform.

Hayek's popular book Road to Serfdom (1944) helped revive the classical liberal movement in America after the New Deal and World War II. His series Law, Legislation, and Liberty elaborated on the Late Scholastic approach to law, applying it to criticize egalitarianism and nostrums like social justice.

Mises' New York seminar continued until two years before his death in 1973. During those years, Murray Rothbard was his student. Indeed, Rothbard's Man, Economy, and State (1963) was patterned after Human Action (Mises 1949), and in some areas—monopoly theory, utility and welfare, and the theory of the state—tightened and strengthened Mises' own views.

Rothbard's approach to the Austrian School followed directly in the line of Late Scholastic thought by applying economic science within a framework of a natural-rights theory of property. What resulted was a full-fledged defense of a capitalistic and stateless social order, based on property and freedom of association and contract.

Criticism

The Austrian school is generally criticized for its rejection of the scientific method and empirical testing in favor of supposedly self-evident axioms and logical reasoning. Bryan Caplan has criticized the school for rejecting on principle the use of mathematics or econometrics which is "more than anything else, what prevents Austrian economists from getting more publications in mainstream journals."

Economists affiliated with the Austrian School

  • Benjamin Anderson
  • William L. Anderson
  • William Barnett II
  • Gérard Bramoullé
  • Walter Block
  • Peter Boettke
  • Eugen von Böhm-Bawerk
  • Gene Callahan
  • Tony Carilli
  • Jean-Pierre Centi
  • Christopher Coyne
  • Gregory Dempster
  • Thomas DiLorenzo
  • Richard Ebeling
  • Karel Engliš
  • Frank Fetter
  • Jacques Garello
  • Roger Garrison
  • David Gordon
  • Friedrich Hayek
  • Henry Hazlitt
  • Gottfried Haberler
  • Hans-Hermann Hoppe
  • Hans F. Sennholz
  • Steven Horwitz
  • Jörg Guido Hülsmann
  • William Harold Hutt
  • Israel Kirzner
  • Ludwig Lachmann
  • Don Lavoie
  • Peter T. Leeson
  • Henri Lepage
  • Peter Lewin
  • Juan De Mariana
  • Ludwig von Mises
  • Margit von Mises
  • Oskar Morgenstern
  • Fritz Machlup
  • Carl Menger
  • Gerald O'Driscoll
  • Ernest C. Pasour
  • Ralph Raico
  • George Reisman
  • Kurt Richebächer
  • Mario Rizzo

Note that the economists aligned with the Austrian School are sometimes colloquially called "the Austrians" even though not all held Austrian citizenship, and not all economists from Austria subscribe to the ideas of the Austrian School.

Seminal publications

  • Boehm-Bawerk, E. 1959. Capital and Interest. Libertarian Press. ISBN 978-0910884075
  • __________. 1891. "The Austrian Economists," Annals of the American Academy of Political and Social Science 1.
  • __________. [1891] 2006. Positive Theory of Capital. Cosimo Classics. ISBN 978-1602060395
  • Hayek, F. A. [1944] 1996. The Road to Serfdom. Chicago, IL: University of Chicago Press. ISBN 978-0226320618
  • __________. [1948] 1996. Individualism and Economic Order. Chicago, IL: University of Chicago Press. ISBN 978-0226320939
  • ___________. 1988. The Fatal Conceit: The Errors of Socialism. Routledge. ISBN 978-0415008204
  • ___________. "Economic Thought VI: The Austrian School," in David L. Sills (ed.), International Encyclopedia of the Social Sciences. New York: Macmillan and Free Press, 1968, 458-459
  • Kirzner, I. M. 1978. Competition and Enterpreneurship. Chicago, IL: University of Chicago Press. ISBN 978-0226437767
  • Menger, C. [1871] 1994. Principles of Economics. Libertarian Press. ISBN 978-0910884273
  • von Mises, L. [1949] 2007. Human Action: A Treatise on Economics. Liberty Fund. ISBN 978-0865976313
  • Moser, J. 1997. "The Origins of the Austrian School of Economics," Humane Studies Review 11(1) (Spring 1997).
  • Rothbard, M. N. [1962] 1993. Man, Economy and State. Von Mises Institute. ISBN 978-0945466321

External links

All links retrieved August 22, 2023.

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