Damon Mcknight
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-school theorists hold that economic theory should be exclusively derived from basic principles of human action. The Austrian school originated in 1871 in Vienna with the work of Carl Menger, Eugen von Böhm-Bawerk, Friedrich von Wieser, and others. The Austrian school uses logic of a priori thinking to discover economic laws of universal application, unlike other mainstream schools of economics that use data and mathematical models. The Austrian school of economics has evolved and spread worldwide over the years, with the strongest concentration of Austrian economists in the US found at George Mason University. If you're interested in learning more about Austrian economics, there are many resources available, including books, audiobooks, articles, and online courses.
| Characteristics | Values |
|---|---|
| Origin | Vienna, Austria-Hungary, in 1871 with the work of Carl Menger |
| Names associated | Eugen von Böhm-Bawerk, Friedrich von Wieser, Ludwig von Mises, Friedrich Hayek, Bettina Bien Greaves, Robert P. Murphy, Thomas E. Woods, Jr., Richard J. Maybury, Ron Paul, Jörg Guido Hülsmann, George Reisman, Roger W., Joseph T. Salerno, Mark Thornton, Murray N. Rothbard, Llewellyn H. Rockwell, Jr., Thomas J. DiLorenzo, Gustav von Schmoller, Frank Albert Fetter |
| Key ideas | Strict adherence to methodological individualism, economic theory derived from basic principles of human action, subjective theory of value, marginalism in price theory, formulation of the economic calculation problem, rejection of model building and mathematical and statistical methods, use of logic of a priori thinking to discover economic laws of universal application |
| Recommended resources | Instructional videos by the Institute for Humane Studies, books by authors such as Bettina Bien Greaves, Robert P. Murphy, Thomas E. Woods, Jr., Richard J. Maybury, Ron Paul, Jörg Guido Hülsmann, Murray N. Rothbard, and Ludwig von Mises |
| Places to learn | George Mason University in the US, King Juan Carlos University in Madrid, Universidad Francisco Marroquin in Guatemala, Liberty Classroom |
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What You'll Learn
The Austrian School's history and key thinkers
The Austrian School of Economics is considered heterodox, or not mainstream. It originated in 1871 in Vienna with the work of Carl Menger, Eugen von Böhm-Bawerk, Friedrich von Wieser, and others. Menger is considered the founder of the Austrian School, as he developed the theory of marginal utility, which challenged the classical theory of value. Menger, along with British economist William Stanley Jevons and French economist Leon Walras, ushered in the Marginalist Revolution in economics, emphasising that economic decision-making is performed over specific quantities of goods. Menger's book, "Principles of Economics", argued that economic analysis is universally applicable and that the appropriate unit of analysis is man and his choices.
In the 1930s and 1940s, the Austrian School moved to Britain and the United States, and scholars associated with this approach were primarily located at the London School of Economics and New York University. The reputation of the Austrian School rose in the late 20th century due in part to the work of Israel Kirzner and Ludwig Lachmann at New York University, and to renewed public awareness of the work of Friedrich Hayek after he won the 1974 Nobel Memorial Prize in Economic Sciences. Hayek's work was influential in reviving laissez-faire thought in the 20th century.
In the present day, there are two major camps of Austrian thinkers. One camp staunchly opposes government intervention and rejects neoclassical economic theory, following the philosophies of Ludwig von Mises and Murray Rothbard. The other camp is more accepting of neoclassical economics and is more open to government intervention, following the thinking of Friedrich Hayek. Austrian economists are often concerned with the unintended consequences of individual choices, which have lasting effects on economic activity. They argue that income inequality is a natural outcome of individual choices and market processes, and that government intervention should not attempt to correct this inequality.
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How Austrian Economics differs from mainstream economics
Austrian economics, or the Austrian school of economics, is considered heterodox and differs from mainstream economics in several ways. Firstly, Austrian economics is grounded in verbal logic and philosophical foundations, which sets it apart from the technical and mathematical models used in mainstream economics. Austrian economics focuses on processes of adjustment and changing conditions rather than static or equilibrium states. It emphasizes individualism, subjectivism, and the role of the entrepreneur in the economic coordination of individuals in a market economy. Austrians seek to understand the economy by examining the social ramifications of individual choice, an approach called methodological individualism.
The Austrian school uses a priori thinking to discover economic laws of universal application, while mainstream schools of economics use data and mathematical models to prove their points objectively. Austrians believe that prices are determined by subjective factors like an individual's preference to buy or not buy a particular good, whereas the classical school of economics holds that objective factors determine prices. Austrian economics also contributed to the theory of diminishing marginal utility, with Carl Menger, considered the founder of the Austrian school, and Friedrich von Wieser developing theories on marginal utility and opportunity cost, respectively.
Austrian economics critiques mainstream economics for its failure to account for the unintended consequences of economic policy and individual choice, as well as its over-dependence on quantitative rigor. Austrians argue that the entrepreneur is more than just a profit-maximizer and that price competition is only one aspect of the competitive process, adding valuable insights that mainstream economics may overlook. Additionally, Austrians emphasize the importance of understanding the institutional environment, cultural frames of reference, and the diverse perspectives of individuals in the market.
While Austrian economics offers unique insights, it has faced challenges due to the emigration of its members and the marginalization of its representatives in academia during the 20th century, making it difficult to present a coherent development of the school of thought. Despite these differences, some economists believe that both Austrian and mainstream economics can learn from each other, incorporating the insights of Austrian economics into mainstream methodologies.
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Austrian Economics' influence on libertarian thinking
Austrian economics, or the Austrian school of economics, is a heterodox school of economic thought that advocates strict adherence to methodological individualism. This is 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 exclusively derived from basic principles of human action. The Austrian school originated in 1871 in Vienna with the work of Carl Menger, Eugen von Böhm-Bawerk, Friedrich von Wieser, and others.
The Austrian school believes it is possible to discover the truth simply by thinking aloud and conducting "thought experiments". They use the logic of a priori thinking to discover economic laws of universal application, unlike other mainstream schools of economics that use data and mathematical models. The Austrian school is also known for its advocacy for free-market principles.
The Austrian school of economics has had a significant influence on libertarian thinking. Libertarians are known for their support of individual freedom and free markets, which are also key tenets of the Austrian school. The Austrian school's emphasis on methodological individualism and the belief that social phenomena result primarily from the actions and motivations of individuals aligns with the libertarian philosophy of individual liberty and free choice.
Additionally, the Austrian school's critique of government intervention in the market economy also resonates with libertarian ideals. Austrian economists argue that government intervention in the market can hinder economic growth and infringe on individual freedom. This perspective is reflected in the libertarian belief in limited government and the protection of individual rights.
The Austrian school's influence on libertarian thinking can be seen in the work of economists such as Ludwig von Mises, who applied the theory of marginal utility to money in his book "Theory of Money and Credit". Another example is Friedrich August von Hayek, who shared the 1974 Nobel Memorial Prize in Economic Sciences and helped renew interest in the Austrian school in the 1970s. Libertarians often draw on the insights and theories of these Austrian economists to support their political and economic philosophies.
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Austrian Economics' key concepts and contributions
Austrian economics, also known as the Austrian School, is a heterodox school of economic thought that began in Vienna, Austria-Hungary, in 1871. The school was founded by Carl Menger with his book 'Principles of Economics', which is widely recognised as one of the first modern texts to promote the theory of marginal utility. Menger is also credited with introducing the subjective theory of value, emphasising that the value of goods is determined by individual preferences and needs rather than intrinsic qualities. This concept is known as marginalism in price theory.
One of the key contributions of Austrian economics is the concept of opportunity cost, which was first formulated by Friedrich von Wieser in the late 19th century. Opportunity cost refers to the value of the next best alternative option that is foregone when a choice is made. It is a fundamental concept in economics, expressing the relationship between scarcity and choice and ensuring efficient resource allocation.
Another important concept in Austrian economics is methodological individualism, which asserts that social phenomena primarily result from the motivations, actions, and self-interest of individuals. Austrian economists believe that economic theory should be derived exclusively from basic principles of human action. They emphasise the role of individual choices in driving economic outcomes and argue that economic institutions form unintentionally as a result of these individual decisions. This view often leads Austrian economists to oppose government intervention, as they believe that economic systems are not purposefully designed and that it is impossible to know the preferences and utilities of every individual.
Austrian economists have also contributed to the theory of money, advocating for "sound money" that maintains its value over time, limits inflation, and prevents government overreach. They are critical of fiat money, which they argue is prone to economic manipulation and artificial boom-and-bust cycles due to central bank interference.
Overall, Austrian economics has influenced mainstream economic thinking, particularly with its contributions to the Marginal Revolution in the late 1800s, which introduced the idea of "thinking on the margin" or marginal analysis. However, it has also been criticised for remaining rooted in the past and not embracing empirical research methods that are prevalent in modern economics.
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Austrian Economics' evolution and modern-day relevance
Austrian economics, or the Austrian school of economics, is a heterodox school of economic thought that advocates strict adherence to methodological individualism. This means that Austrian economics believes that social phenomena are primarily the result of the motivations and actions of individuals, along with their self-interest. The Austrian school holds that economic theory should be exclusively derived from basic principles of human action. Austrian economics was founded in 1871 in Vienna with the work of Carl Menger, Eugen von Böhm-Bawerk, Friedrich von Wieser, and others.
The Austrian school was one of three founding currents of the marginalist revolution of the 1870s, with its major contribution being the introduction of the subjectivist approach in economics. The school built upon the work of classical economists such as Adam Smith and David Hume, as well as early-20th-century figures like Knut Wicksell. The subjective theory of value, marginalism in price theory, and the formulation of the economic calculation problem are some of the key theoretical contributions of the early years of the Austrian school. The Austrian school was methodologically opposed to the Historical school, which dominated economic thinking in German-language countries, in a dispute known as the "methodology quarrel" or "methodology struggle". The Historical school argued that economic science could not generate universal principles and that scientific research should be focused on historical circumstances.
In the 1930s and 1940s, the Austrian school moved to Britain and the United States, with scholars associated with this approach primarily located at the London School of Economics and New York University. During the middle of the 20th century, Austrian economics was disregarded or derided by mainstream economists because it rejected model-building and mathematical and statistical methods in the study of economics. Austrian economics is still considered heterodox or not mainstream, and some modern economists may even argue that it is not legitimate economics. However, Austrian economics has provided unique insights into some of the most important economic issues of our time, such as the laws of supply and demand, the cause of inflation, and the theory of money.
In the present day, there are two major camps of Austrian thinkers, with two historical figures acting as their guides. One camp is staunchly against government intervention and rejects much of neoclassical economic theory, following the philosophies of Ludwig von Mises and Murray Rothbard. The other camp is influenced by modern figures in economics, including Armen Alchian, James Buchanan, Douglass North, and Vernon Smith, among others. While the label "Austrian economics" is often associated with harmful or disingenuous political positions, it continues to be a relevant school of economic thought that offers valuable contributions to the field of economics.
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Frequently asked questions
Austrian Economics, also known as the Austrian School, 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-school theorists hold that economic theory should be exclusively derived from basic principles of human action.
The Austrian School includes names like Carl Menger, Ludwig von Mises, Eugen von Bohm-Bawerk, Friedrich Hayek, and Friedrich von Wieser.
Austrian Economics uses the logic of a priori thinking to discover economic laws of universal application, unlike other mainstream schools of economics that use data and mathematical models. Austrian Economics contributed significantly to the theory of diminishing marginal utility. Austrian Economics also focuses on processes of adjustment and changing conditions, as opposed to static or equilibrium states of affairs.
Austrian Economics rejects model-building and mathematical and statistical methods in the study of economics, instead treating economics like a philosophy and conducting "thought experiments". Austrian Economics focuses on the institutional environment within which economic activity takes place, and the cultural frames of reference that form the priors of rational actors.
There are many resources available to learn about Austrian Economics, including books, articles, and videos. Some books include "Principles of Economics" by Carl Menger, "Theory of Money and Credit" by Ludwig von Mises, and "Free Market Economics: A Syllabus" by Bettina Bien Greaves. Videos with a strong Austrian flavour are available from the Institute for Humane Studies. Courses on Austrian Economics are also offered by Liberty Classroom, which also has discussion forums and live Q&A sessions.
