Left-Wing Austrians: Economics Through A Progressive Lens

Austrian economics is a heterodox school of economic thought that advocates for strict adherence to methodological individualism, the concept that social phenomena result primarily from the motivations and actions of individuals along with their self-interest. Austrian economics was founded by Carl Menger, who noticed discrepancies between what most economists were teaching about prices and what he observed in the real world. Austrian economics focuses on people, the incentives they face, their limited knowledge, and the environment within which decisions are made. Austrian economics emphasises the complex, ever-changing, and adaptive nature of the economy, which it refers to as the Market Process.

Austrian economics is often considered a right-wing school of thought, with economists such as Ludwig von Mises and Murray Rothbard being staunch defenders of classical liberalism. However, some on the left have found value in Austrian economics, particularly in the work of Friedrich Hayek, whose ideas about knowledge, the spontaneous order, and freedom have been used to support a form of radical social movement politics.

The Austrian School of Economics was founded by Carl Menger, who introduced the marginal utility theory of value

Menger's insight led him to conclude that both sides gain from exchange—that people will exchange something they value less for something they value more, and that both trading partners benefit from this exchange. This insight also led him to recognise the productivity of middlemen, who facilitate transactions that may not have taken place or would have been more costly without them.

Menger's theory of value was part of a broader system of thought that would come to be known as Austrian Economics. This system was outlined in his 1871 book, 'Principles of Economics', which is generally considered the founding text of the Austrian School. Menger's work was recognised and built upon by later economists, including Eugen von Böhm-Bawerk and Friedrich von Wieser, who, along with Menger, are considered the ''first wave' of Austrian economists.

Menger's marginal utility theory of value was not without its critics. Members of the historical school of economics derisively referred to Menger and his students as the 'Austrian School' to emphasise their departure from mainstream German economic thought. A debate ensued, known as the ''Methodenstreit' or methodology quarrel, which saw Menger defend his positions and methods against the historical school. Despite this opposition, Menger's ideas would go on to have a lasting impact on economic thought, with many of his theories, such as his work on marginal utility, being absorbed into mainstream economics.

Austrian economics focuses on methodological individualism, which holds that people, with their unique purposes and plans, are the beginning of all economic analysis

Austrian economics is a heterodox school of economic thought that advocates strict adherence to methodological individualism, the concept that social phenomena result primarily from the motivations and actions of individuals along with their self-interest. Austrian economics holds that economic theory should be exclusively derived from basic principles of human action.

Austrian economics originated in Vienna with the work of Carl Menger, Eugen von Böhm-Bawerk, Friedrich von Wieser, and others. It was methodologically opposed to the Historical School, based in Germany, in a dispute known as the Methodenstreit, or methodology quarrel.

Methodological individualism is a core principle of Austrian economics, and it sets it apart from other schools of economic thought. While other schools may focus on aggregate variables, equilibrium analysis, and societal groups, Austrian economics zooms in on the individual, recognising that people are the driving force behind economic activity.

This focus on the individual also leads Austrian economics to emphasise the role of consumer valuations in determining prices. According to Austrian economics, the value of a commodity is not based on the amount of labour expended but on how useful people perceive the commodity to be in satisfying their needs and wants. This idea is known as the marginal utility theory of value, and it was a key contribution of Carl Menger, one of the founders of Austrian economics.

By emphasising methodological individualism and marginal utility, Austrian economics offers a unique perspective on economic analysis. It recognises the importance of individual agency and choice, and it provides a framework for understanding how these factors shape social and economic phenomena.

Austrian economics is associated with laissez-faire and anti-socialist thought

Austrian economics is often associated with laissez-faire and anti-socialist thought. The Austrian School of Economics, which originated in Vienna with the work of Carl Menger, Eugen von Böhm-Bawerk, Friedrich von Wieser, and others, is a heterodox school of economic thought that has been dominant since the end of the 20th century. It advocates strict adherence to methodological individualism, the concept that social phenomena result primarily from the motivations and actions of individuals along with their self-interest. Austrian-school theorists hold that economic theory should be derived exclusively from basic principles of human action.

The Austrian School is often branded as a sort of radical laissez-faire wing within the economics profession, even more "right-wing" than Milton Friedman. Friedrich Hayek, perhaps the most significant 'neoliberal' philosopher and economist, gained fame and notoriety as a vehement opponent of socialism and an advocate for the market. Hayek's work was influential in the revival of laissez-faire thought in the 20th century. Hayek's argument over the dispersed nature of knowledge can be used to support a form of radical social movement politics, not simply a scepticism about socialist planning.

The Austrian School's methodological differences, particularly its reluctance to engage with quantitative methods, have led to its marginalization within the broader economics discipline. This isolation is a result of the school's focus on verbal logic and theoretical purity, which many mainstream economists view as insufficiently rigorous.

The Austrian School's association with laissez-faire and anti-socialist thought is further reflected in its economic theories. For example, the Austrian theory of the business cycle (ABC) focuses on banks' issuance of credit as the cause of economic fluctuations. The Austrian theory of capital and interest was first developed by Eugen Böhm von Bawerk, who stated that interest rates and profits are determined by two factors: supply and demand in the market for final goods, and time preference.

The Austrian School's economic calculation problem refers to a criticism of planned economies, arguing that without price signals, factors of production cannot be allocated efficiently, rendering planned economies inefficacious. This critique is grounded in the belief that economic theories should be subject to Popperian falsification, as seen in mainstream economics, which emphasises data-driven analysis and the use of econometrics.

Austrian economics is critical of positivism and Keynesianism

Austrian economics and positivism differ in their approach to economic theory and methodology. Austrian economics emphasizes the use of logical reasoning and a priori thinking, believing that economic laws can be discovered through introspection and deduction. In contrast, positivism emphasizes empirical data, observation, and scientific methods to study economic phenomena. Positivism seeks to understand economic behavior through quantitative analysis, mathematical models, and statistical methods, while Austrian economics focuses on verbal logic and theoretical purity.

Austrian economics and Keynesianism have contrasting views on the role of government intervention in the economy. Austrian economics emphasizes methodological individualism and political individualism, arguing that individuals should be free to pursue their self-interest without excessive government interference. In contrast, Keynesianism advocates for a regulated market economy and an active role for government intervention during economic downturns. Keynesian economists believe that aggregate demand fluctuations can be mitigated through fiscal and monetary policy responses coordinated between the government and the central bank.

Austrian economics and Keynesianism also differ in their understanding of economic fluctuations and the business cycle. Austrian economics attributes economic fluctuations to distortions in interest rates caused by government intervention in the money supply. They argue that artificial suppression of interest rates leads to misallocation of capital and malinvestment, ultimately resulting in a recession. In contrast, Keynesianism views economic fluctuations as arising from volatile aggregate demand and advocates for government intervention to stabilize economic output, inflation, and unemployment over the business cycle.

Austrian economics is marginalised within the broader economics discipline due to its focus on verbal logic and theoretical purity

While Austrian economics has made valuable contributions, particularly in the area of microeconomics, its efforts to rebuild economics on foundations substantially different from those of modern neoclassical economics have largely failed. Austrian economists have also been criticised for their misunderstanding of modern neoclassical economics, leading them to overstate their differences. In addition, several of the most important Austrian claims, such as the rejection of utility functions and the "impossibility" of socialism, have been found to be false or overstated.

The marginalisation of Austrian economics is further exacerbated by its focus on verbal logic and theoretical purity. By rejecting mathematical and empirical tools, Austrian economists have limited their ability to engage with and contribute to the broader economics discipline. This isolation has resulted in a lack of recognition and influence within the field, despite the existence of valuable insights and contributions.

Austrian economics has also been criticised for its rigid adherence to its fundamental axioms, which some consider to be unrealistic and overly simplistic. For example, the assumption of continuity in preferences is rejected by Austrians, who argue that human behaviour cannot be reduced to mathematical equations. However, this assumption is fundamental to much of neoclassical economics, and the rejection of it limits the applicability and predictive power of Austrian theories.

Furthermore, the Austrian focus on methodological individualism, which asserts that all social phenomena result from the actions and decisions of individuals, has been criticised as overly simplistic and behaviourist. This assumption ignores the complex interplay of social and cultural factors that influence individual behaviour and decision-making. By neglecting these factors, Austrian economics provides an incomplete understanding of economic phenomena.

In conclusion, while Austrian economics has made significant contributions, particularly in microeconomics, its marginalisation within the broader economics discipline is due to its focus on verbal logic and theoretical purity. This has led to a disconnect between Austrian economics and the mainstream, resulting in a lack of recognition and influence for Austrian ideas and insights.

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