Lexi Webster
The Austrian school of 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. The Austrian school was founded in 1871 with the publication of Carl Menger's Principles of Economics, in which he developed the marginalist revolution in economic analysis. Menger, along with Jevons and Walras, explained that the economic values of goods and services are subjective in nature, and that their value depends on their utility in their least important use. 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 over the role of theory in economics. Austrian theory emphasizes the organizing power of markets and holds that economic theory should be exclusively derived from basic principles of human action.
| Characteristics | Values |
|---|---|
| Founding | Founded in 1871 with the publication of Carl Menger's Principles of Economics |
| Location | Vienna |
| Key figures | Carl Menger, Ludwig von Mises, Friedrich Hayek, Fritz Machlup, Eugen von Böhm-Bawerk, Friedrich von Wieser, Wilhelm Röpke, Lionel Robbins, Ludwig Lachmann, Gustav von Schmoller, Benjamin M. Anderson Jr., and others |
| Opposition to | The Historical School |
| Core principles | Strict adherence to methodological individualism; economic theory should be derived from basic principles of human action; economic value is subjective and dependent on utility |
| Methodology | A priori thinking, verbal logic, and praxeology |
| Influence on | Neoclassical school, new Keynesians, libertarianism, and classical liberalism |
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What You'll Learn
The Austrian School's origins in Vienna, 1871
The Austrian School of Economics was founded in 1871 in Vienna, Austria-Hungary, with the publication of Carl Menger's Principles of Economics. Menger's work is considered the founding text of the Austrian School, and he is often regarded as the father of this economic tradition. Menger's book was one of the first modern treatises to advance the theory of marginal utility, and it contributed significantly to the marginalist revolution in economic analysis. Menger's work was influenced by the philosopher Franz Brentano, who rejected the Hegelian system and was a strong advocate of Aristotle. Brentano was a colleague and friend of Menger's at the University of Vienna.
Menger's Principles of Economics was dedicated to his German colleague, William Roscher, the leading figure of the German Historical School. However, Menger's work was at odds with the views of Roscher's students, particularly Gustav Schmoller, who took exception to Menger's defence of economic "theory". Schmoller and other members of the German Historical School coined the term "Austrian School" to characterise Menger and his followers, Eugen von Böhm-Bawerk and Friedrich von Wieser, as outcast and provincial because of their association with the University of Vienna. Despite its derogatory origins, the label "Austrian School" was eventually embraced and endured.
The Austrian School stood in opposition to the German Historical School, arguing for the role of theory in economics as distinct from the mere study of historical circumstances. Menger's work emphasised that economic analysis is universally applicable and that the fundamental unit of analysis is the individual and their choices. These choices, according to Menger, are shaped by subjective preferences and the margins on which decisions are made, a concept known as marginalism. The Austrian School's early years also saw the development of the subjective theory of value and the formulation of the economic calculation problem.
The ideas of the Austrian School were further developed by economists trained at the University of Vienna in the 1920s, such as Friedrich Hayek, Gottfried Haberler, Fritz Machlup, and others. These economists participated in private seminars held by Ludwig von Mises, and their work contributed to the spread and evolution of Austrian economic thought. By the mid-1930s, Austrian economics had largely moved to Britain and the United States, with scholars associated with this school of thought based at the London School of Economics and New York University. Despite the shift in geographic focus, the work of economists in this tradition continues to be referred to as Austrian economics.
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The subjective theory of value
Austrian economics, also known as the Austrian school of economics, was founded in 1871 with the publication of Carl Menger's Principles of Economics. 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.
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The marginalist revolution
The Austrian School of Economics, also known as the Marginalist Revolution, was founded in 1871 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 dedicated "Principles of Economics" to his German colleague, William Roscher, the leading figure of the German Historical School.
Menger argued that economic analysis is universally applicable and that the appropriate unit of analysis is man and his choices. These choices, he wrote, are determined by individual subjective preferences and the margin on which decisions are made. The logic of choice, he believed, is the essential building block for developing a universally valid economic theory. Menger explained in his book that the economic values of goods and services are subjective in nature, so what is valuable to one person may not be valuable to another. He further explained that with an increase in the number of goods, their subjective value for an individual diminishes. This valuable insight lies behind the concept of what is called diminishing marginal utility.
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 is methodologically opposed to the Historical School, in a dispute known as "Methodenstreit", or the methodology quarrel.
The term "Austrian School" was first used by Roscher's students, especially Gustav Schmoller, who took great exception to Menger's defence of "theory" and gave the work of Menger and his followers, Eugen Böhm-Bawerk and Friedrich Wieser, the derogatory name "Austrian School" because of their faculty positions at the University of Vienna. The label was intended to characterise the school as outcast and provincial, but it was adopted by its adherents and endured.
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Opposition to the Historical School
The Austrian school of economics was founded in 1871 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 dedicated to his German colleague William Roscher, the leading figure in the German Historical School, which dominated economic thinking in German-language countries.
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 ("methodology struggle"). The Austrians defended the role of theory in economics as distinct from the study or compilation of historical circumstance.
In 1883, Menger published Investigations into the Method of the Social Sciences with Special Reference to Economics, which attacked the methods of the historical school. Gustav von Schmoller, a leader of the historical school, responded with an unfavorable review, coining the term ""Austrian school" in an attempt to characterize the school as outcast and provincial. The label endured and was adopted by the adherents themselves.
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 is opposed to the German Historical School, which rejected the universal application of any economic theorem. The Austrian school holds that prices are determined by subjective factors like an individual's preference to buy or not to buy a particular good, whereas the classical school of economics holds that objective costs of production determine the price, and the neoclassical school holds that prices are determined by the equilibrium of demand and supply.
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The revival of the Austrian School
Von Mises, in particular, played a crucial role in this revival. He had been a prominent member of the Vienna Circle in the early 20th century and had fled to the United States in 1940 to escape the Nazi regime. In the US, he taught and wrote extensively, developing and promoting the Austrian School's methodology and theories. Von Mises's contributions to Austrian economics were significant, and he is often credited with reviving and popularizing the school of thought. He established the Geneva School of economics, which became a hub for Austrian-oriented scholarship, and his book "Human Action" (1949) became a foundational text for the modern Austrian School.
Another key figure in the revival was Friedrich Hayek, who, like von Mises, had also fled Europe during World War II. Hayek's contributions were particularly important in bringing Austrian economics to the attention of a wider audience, especially in the English-speaking world. His book "The Road to Serfdom" (1944) was a powerful critique of central planning and socialism, and it gained significant traction, even influencing political debates of the time. Hayek also helped establish the Mont Pelerin Society in 1947, which brought together like-minded scholars and intellectuals who supported classical liberal ideas and free-market economics. This society played a crucial role in fostering discussion and collaboration among Austrian economists and contributed significantly to the revival and spread of Austrian economic thought.
In addition to von Mises and Hayek, other scholars also contributed to the revival. One notable figure was Murray Rothbard, a student of von Mises, who further developed Austrian theories and applied them to a range of economic and social issues. Rothbard's work, including his book "Man, Economy, and State" (1962), helped to popularize Austrian economics among a new generation of scholars and students. Another important contributor was Israel Kirzner, whose work focused on the role of entrepreneurship in the market process, adding a new dimension to Austrian theory.
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Frequently asked questions
Austrian economics, or the Austrian school of economics, originated in Vienna in 1871 with the work of Carl Menger, Eugen von Böhm-Bawerk, Friedrich von Wieser, and others.
The Austrian school of economics 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's theoretical contributions include the subjective theory of value, marginalism in price theory, and the formulation of the economic calculation problem.
The Austrian school emerged in the late 19th century as a distinct school of economic thought, opposed to the Historical School in a dispute known as the Methodenstreit or methodology quarrel/struggle. The term "Austrian school" was first used by Gustav von Schmoller, a leader of the Historical School, in an attempt to characterize the school as outcast and provincial.
