A school of economics which has its roots in the work of late 19th-c Austrian economists, Carl Menger (18401921), Eugen von Böhm Bawerk (18511914), Friedrich von Wieser (18511926), and later, Ludwig Von Mises and Friedrich A Hayek, who developed the major tenets of marginalism, diminishing marginal utility, opportunity cost, and time preferences of saving, consumption, and production. In recent years, the school's followers have opposed governmental planning, and stressed the importance of markets and relative prices in coordinating individuals' actions.
The Austrian School, also known as “the Vienna School” and as “the Psychological School”, is a school of economic thought that advocates the adherence to strict methodological individualism.
This Aristotelian/rationalist approach differs both from the currently dominant Platonic/positivist approach of contemporary neo-classical economics and the once dominant historical approach of the German Historical school of economics and the American Institutionalists. 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 economists, the early continental economists, and the 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, A.R.J.
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 against much of Keynes' theory and its results — the Austrian School has been widely influential because of its emphasis on the creative phase (i.e.
Because many of the policy recommendations of Austrian theorists call for small government, strict protection of private property, and support for individualism in general, they are often cited by laissez-faire liberal, libertarian, and Objectivist groups for support, although Austrian School economists, like Ludwig von Mises, insist on praxeology to be value-free. Austrian economics is currently closely associated with advocacy of laissez-faire views. Earlier Austrian economists were more skeptical 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.
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 economists placed upon deductive logic. (The name “Psychological School” derived from the effort to found marginalism upon prior considerations, largely psychological.)
Menger's contributions were closely followed by Eugen von Böhm-Bawerk and Friedrich von Wieser. Austrian 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. Though many Marxist authors have attempted to portray the Austrian school as a bourgeois reaction to Marx, such an interpretation is implausible: Menger wrote his Principles of Economics at almost the same time as Marx was working upon Das Kapital, whose second and third volumes were published more than ten and twenty years, respectively, after Principles. (However, this does not refute the weaker claim that marginalism received the attention that it did in the 1880s, and did not earlier, in part because it was seen as an answer to Marx.) The Austrian economists were, nonetheless, amongst the first to clash directly with Marxism, since both dealt with such subjects as money, capital, business cycles, and economic processes. Austrian economics was ill-thought of by most economists after World War II due to its rejection of observational methods.
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, and not cardinal;
An area that is often neglected is the influence that Austrian school ideas have had on Keynesian macroeconomics. A further source of this influence is the period of time where the London School of Economics brought in Hayek and other “continental” economists. 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.
Analytical framework
Austrian economists reject statistical methods and artificially constructed experiments as tools 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.
As with neoclassical economists, Austrians reject classical cost of production theories, most famously the labor theory of value.
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 equilibrium system with supply and demand in balance, Austrian economists emphasize its dynamic, perpetually dis-equilibrated nature.
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 obsevrations. However, Austrian ecomomics is consistent with the available body of empirical data about human economic behaviour.
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. 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.
Contributions
Some contributions of Austrian economists:
A theory of distribution in which factor prices result from the 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). Eugen von Böhm-Bawerk's capital theory, which equates capital intensity with the degree of roundaboutness of production processes. Eugen von Böhm-Bawerk's demonstration that the law of marginal utility, as formulated by Menger necessarily implies the classical law of costs and hence the vast majority of the conclusions of the British classical economists. 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.Major economists affiliated with the Austrian School
| Benjamin Anderson 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 Frank Fetter Jacques Garello | Roger Garrison David Gordon Friedrich Hayek Henry Hazlitt Gottfried Haberler Hans-Hermann Hoppe Steven Horwitz Jörg Guido Hülsmann William Harold Hutt Israel Kirzner Ludwig Lachmann Don Lavoie Peter T. Leeson Henri Lepage | Peter Lewin Roderick Long Juan De Mariana Ludwig von Mises Margit von Mises Luis de Molina Oskar Morgenstern Fritz Machlup Carl Menger Gerald O'Driscoll Ernest C. Pasour Ralph Raico | George Reisman Mario Rizzo Llewellyn Rockwell Murray Rothbard Mark Thornton Joseph Salerno Pascal Salin Josef Síma Jesus Huerta de Soto Richard von Strigl Philip Henry Wicksteed Friedrich von Wieser Michael Zutt |
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.
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