Lyla Lindsey
Austrian Economics, also known as the Austrian School of Economics, is a school of economic thought that focuses on free-market economics and individual freedom. It was founded by Austrian economist Carl Menger in 1871 with the publication of his book, Principles of Economics. The school is known for its rejection of mathematical models and data-driven analysis, instead favouring thought experiments and a priori thinking to discover economic laws. The Austrian School has gained popularity worldwide and there are now many institutions offering education in this field. Notable universities include George Mason University, New York University, Auburn University, and the University of Chicago.
What You'll Learn
The Austrian School of Economics: history and key thinkers
The Austrian School of Economics was founded in 1871 in Vienna with the publication of Carl Menger's 'Principles of Economics'. Menger, along with William Stanley Jevons and Leon Walras, developed the marginalist revolution in economic analysis. Menger's work was methodologically opposed to the Historical School, in a dispute known as the 'Methodenstreit' or 'methodology quarrel'.
The Austrian School owes its name to members of the German Historical School of Economics, who argued against the Austrians during the late 19th-century 'Methodenstreit'. The Austrians defended the role of theory in economics as distinct from the study or compilation of historical circumstances.
The Austrian School uses the logic of a priori thinking to discover economic laws of universal application, whereas other mainstream schools of economics make use of data and mathematical models. The Austrian School holds that economic theory should be exclusively derived from basic principles of human action.
The early concepts of the Austrian School contributed significantly to the theory of diminishing marginal utility. Later, Ludwig von Mises, another great thinker of the Austrian School, applied the theory of marginal utility to money in his book, 'Theory of Money and Credit' (1912).
Other key thinkers of the Austrian School include Eugen von Bohm-Bawerk, Friedrich Hayek, Friedrich von Wieser, Frank Albert Fetter, Gottfried Haberler, Fritz Machlup, Oskar Morgenstern, Israel Kirzner, Ludwig Lachmann, and many others.
Today, the Austrian School of Economics is becoming more and more popular all over the world. There are many universities with a significant Austrian presence, including George Mason University, New York University, Auburn University, and the University of Chicago in the United States; King Juan Carlos University in Spain; and Universidad Francisco Marroquín in Guatemala.
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How Austrian Economics compares to other schools of thought
Austrian economics is considered heterodox, or not mainstream. It is often contrasted with other schools of economic thought, including the neoclassical school, the new Keynesians, and the German historical school. While Austrian economics uses a priori thinking and logic to discover economic laws of universal application, other schools rely on data and mathematical models.
Austrian Economics vs. Neoclassical Economics
Neoclassical economics holds that prices are determined by the equilibrium of demand and supply. In contrast, the Austrian school rejects this view, arguing that costs of production and demand and supply are determined by subjective factors, such as individual preferences and the value of alternative uses of scarce resources.
Austrian Economics vs. Keynesian Economics
Austrian economics and Keynesian economics differ in their views on the role of government intervention. Austrian economists generally oppose government intervention, believing that economic institutions form unintentionally and inefficiently as a result of individual choices. They argue that government activity is often harmful due to the unintended consequences of economic policy. On the other hand, Keynesian economics may promote government intervention, such as through fiscal and monetary policies, to stabilize the economy and promote full employment.
Austrian Economics vs. German Historical School
The German historical school, which dominated economic thinking in German-language countries, argued that economic science cannot generate universal principles. Instead, they believed that scientific research should focus on detailed historical examination. In contrast, Austrian economics, founded by Carl Menger, asserts the universality of economic analysis, emphasizing individual choices and subjective preferences. The German historical school labelled Menger's ideas as "Austrian economics" in a derogatory manner, but the term was later adopted by Austrian economists themselves.
Austrian Economics vs. Classical Economics
Austrian economics and classical economics share similarities in their belief in universal economic laws. However, they differ in their views on money. Classical economists believe that money is neutral, while Austrian economists, similar to monetarists, argue that money is not neutral.
In conclusion, Austrian economics stands out from other schools of thought by emphasizing a priori thinking, subjective factors, and individual choices. It rejects the widespread use of data and mathematical models in mainstream economics, favoring thought experiments and verbal logic instead.
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The role of the free market
Austrian economics places a strong emphasis on the role of the free market in allocating resources and coordinating economic activity. Austrian economists view the market as the most efficient mechanism for allocating resources, arguing that it can do so much more effectively than any central authority. They believe that economic decisions should be made by individuals, rather than the government or any other central authority.
The free market is seen as a powerful tool for driving economic progress and prosperity. Austrian economists argue that private property rights are essential for this progress, as they provide incentives for individuals to invest, innovate, and create wealth. The market also encourages and rewards entrepreneurship, which is viewed as a key driver of economic growth and innovation. Entrepreneurs play a critical role in creating new products, services, and technologies, and their efforts are essential for driving economic growth.
The Austrian School of Economics also critiques interventionism, arguing that government intervention in the economy, such as through regulation, subsidies, or the creation of money, leads to market distortions, reduces efficiency, and undermines prosperity. They believe that monetary policy can have a significant impact on the economy and that artificially low-interest rates can lead to market distortions and economic bubbles.
The Austrian theory of the business cycle (ABCT) further highlights the role of the free market. This theory focuses on banks' issuance of credit as the cause of economic fluctuations. Austrian economists argue that fractional reserve banks extend credit at artificially low-interest rates, leading to an artificial "boom" followed by a "bust" when resources are rebalanced. They advocate for a free-market full-reserve system, allowing market forces to eradicate inflationary booms and recessionary busts, thus achieving economic stability and growth.
Overall, the Austrian School of Economics strongly advocates for the role of the free market as the best mechanism for allocating resources, encouraging innovation, and driving economic progress and prosperity.
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The impact of inflation
Austrian economics defines inflation as an increase in the money supply without a corresponding increase in the production of goods and services. This leads to a general rise in prices, but not all prices increase simultaneously or uniformly. The Austrian School believes that this is due to prices being subjective and based on an individual's preference to buy or not to buy a particular good, rather than being determined by supply and demand.
Austrian economists argue that the government's attempts to control inflation through measures such as lowering interest rates or propping up failing industries can be counterproductive and lead to further malinvestment and a worse recession. They believe that interest rates should be determined by the subjective decisions of individuals to spend money now or in the future, rather than by the government or central bank.
Overall, the Austrian School views inflation as a result of government intervention in the economy and believes that it can have negative consequences for individuals and the economy as a whole.
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The Austrian Economics education landscape
The Austrian School of Economics is a popular and influential economic theory, particularly in the English-speaking world, with a growing number of schools offering specialised programs. The school is based on the work of economists such as Carl Menger, Ludwig von Mises, Friedrich Hayek, and others. It promotes economic and social thinking that focuses on individual freedom, personal responsibility, and free-market principles.
The Austrian School of Economics is becoming increasingly popular, and several institutions worldwide offer programs or courses that follow its principles. While some universities offer programs fully devoted to Austrian Economics, others may have sympathetic faculty members or a free-market orientation.
In the United States, notable universities offering programs or courses in Austrian Economics include:
- George Mason University (Virginia)
- New York University
- Auburn University (Alabama)
- University of Virginia
- University of California, Los Angeles (UCLA)
- Florida State University
- University of Chicago
- Walsh College of Accountancy and Business Administration (Michigan)
- Hillsdale College (Michigan)
- Grove City College (Pennsylvania)
- Northwood University (Michigan, Florida, Texas)
- Santa Clara University (California)
- California State University at Hayward
- University of Missouri-St. Louis
- Rollins College (Florida)
Outside the United States, some universities offering Austrian Economics education include:
- Universidad Francisco Marroquín (Guatemala)
- University of Canterbury (New Zealand)
- Rey Juan Carlos University (Spain)
- Université Paul Cézanne Aix-Marseille III (France)
- University of Liechtenstein
- University of Europe (Czech Republic)
- University of Economics, Prague (Czech Republic)
- Swiss Management Center (Switzerland)
- Department of International Business and Economics, Academy of Economic Studies Bucharest (Romania)
- University of Guelph (Canada)
Additionally, there are online courses available, such as Liberty Classroom, headed by Thomas Woods.
It is important to note that the field of Austrian Economics may involve more mathematics than expected, and it is advisable to check the requirements of specific programs before applying.
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Frequently asked questions
Austrian Economics, or the Austrian School of Economics, is a school of economic thought that focuses on autonomous entrepreneurial action and the free interaction of individuals in the marketplace. It is based on the idea that economic relations and their social and political implications can be explained by understanding people's behaviour, rather than through complex mathematical models.
Austrian Economics holds that prices are determined by subjective factors, such as an individual's preference to buy or not to buy a particular good, rather than objective costs of production. It also emphasises the heterogeneous nature of capital goods and the role of interest rates in the business cycle.
There are several universities that offer courses or programmes in Austrian Economics, including George Mason University, New York University, Auburn University, and the University of Missouri. Additionally, there are research institutes such as the Austrian Economics Center and the Ludwig von Mises Institute, which offer internships and other educational opportunities.
Some key texts in Austrian Economics include "Principles of Economics" by Carl Menger, "Theory of Money and Credit" by Ludwig von Mises, and works by Friedrich von Hayek, Eugen von Böhm-Bawerk, and Friedrich von Wieser.
