The Austrian School is a
heterodox
In religion, heterodoxy (from Ancient Greek: , "other, another, different" + , "popular belief") means "any opinions or doctrines at variance with an official or orthodox position". Under this definition, heterodoxy is similar to unorthodoxy, w ...
school of economic thought
In the history of economic thought, a school of economic thought is a group of economic thinkers who share or shared a common perspective on the way economies work. While economists do not always fit into particular schools, particularly in moder ...
that advocates strict adherence to
methodological individualism
In the social sciences, methodological individualism is the principle that subjective individual motivation explains social phenomena, rather than class or group dynamics which are illusory or artificial and therefore cannot truly explain marke ...
, the concept that social phenomena result exclusively from the motivations and actions of individuals. Austrian school theorists hold that economic theory should be exclusively derived from basic principles of human action.
[Ludwig von Mises. ]Human Action
''Human Action: A Treatise on Economics'' is a work by the Austrian economist and philosopher Ludwig von Mises. Widely considered Mises' ''magnum opus'', it presents the case for laissez-faire capitalism based on praxeology, his method to under ...
, p. 11, "Purposeful Action and Animal Reaction". Referenced 2011-11-23.
The Austrian School originated in late-19th- and early-20th-century
Vienna
en, Viennese
, iso_code = AT-9
, registration_plate = W
, postal_code_type = Postal code
, postal_code =
, timezone = CET
, utc_offset = +1
, timezone_DST ...
with the work of
Carl Menger,
Eugen von Böhm-Bawerk
Eugen Ritter von Böhm-Bawerk (; born Eugen Böhm, 12 February 185127 August 1914) was an Austrian economist who made important contributions to the development of the Austrian School of Economics and neoclassical economics. He served intermittent ...
,
Friedrich von Wieser
Friedrich Freiherr von Wieser (; 10 July 1851 – 22 July 1926) was an early (so-called "first generation") economist of the Austrian School of economics. Born in Vienna, the son of Privy Councillor Leopold von Wieser, a high official in the war m ...
, and others. It was methodologically opposed to the
Historical School
Historiography is the study of the methods of historians in developing history as an academic discipline, and by extension is any body of historical work on a particular subject. The historiography of a specific topic covers how historians hav ...
(based in Germany), in a dispute known as ''
Methodenstreit
''Methodenstreit'' (German for "method dispute"), in intellectual history beyond German-language discourse, was an economics controversy commenced in the 1880s and persisting for more than a decade, between that field's Austrian School and the (Ge ...
'', or methodology struggle. Current-day economists working in this tradition are located in many different countries, but their work is still referred to as Austrian economics. Among the theoretical contributions of the early years of the Austrian School are the
subjective theory of value
The subjective theory of value is an economic theory which proposes the idea that the value of any good is not determined by the utility value of the object, nor by the cumulative value of components or labour needed to produce or manufacture it, ...
,
marginalism in
price theory
Microeconomics is a branch of mainstream economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms. Microeconomics foc ...
and the formulation of the
economic calculation problem
The economic calculation problem (sometimes abbreviated ECP) is a criticism of using economic planning as a substitute for market-based allocation of the factors of production. It was first proposed by Ludwig von Mises in his 1920 article "Eco ...
, each of which has become an accepted part of
mainstream economics.
Since the mid-20th century, mainstream economists have been critical of the modern-day Austrian School and consider its rejection of
mathematical model
A mathematical model is a description of a system using mathematical concepts and language. The process of developing a mathematical model is termed mathematical modeling. Mathematical models are used in the natural sciences (such as physics, ...
ing,
econometrics
Econometrics is the application of statistical methods to economic data in order to give empirical content to economic relationships. M. Hashem Pesaran (1987). "Econometrics," '' The New Palgrave: A Dictionary of Economics'', v. 2, p. 8 p. 8 ...
and
macroeconomic
Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics dealing with performance, structure, behavior, and decision-making of an economy as a whole.
For example, using interest rates, taxes, and ...
analysis to be outside
mainstream economics, or "heterodox". In the 1970s, the Austrian School attracted some renewed interest after
Friedrich Hayek
Friedrich August von Hayek ( , ; 8 May 189923 March 1992), often referred to by his initials F. A. Hayek, was an Austrian–British economist, legal theorist and philosopher who is best known for his defense of classical liberalism. Haye ...
shared the 1974
Nobel Memorial Prize in Economic Sciences
The Nobel Memorial Prize in Economic Sciences, officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel ( sv, Sveriges riksbanks pris i ekonomisk vetenskap till Alfred Nobels minne), is an economics award administered ...
with
Gunnar Myrdal
Karl Gunnar Myrdal ( ; ; 6 December 1898 – 17 May 1987) was a Swedish economist and sociologist. In 1974, he received the Nobel Memorial Prize in Economic Sciences along with Friedrich Hayek for "their pioneering work in the theory of money a ...
.
History
Etymology
The Austrian School owes its name to members of the German
historical school of economics
The historical school of economics was an approach to academic economics and to public administration that emerged in the 19th century in Germany, and held sway there until well into the 20th century. The professors involved compiled massive econ ...
, who argued against the Austrians during the late-19th century ''
Methodenstreit
''Methodenstreit'' (German for "method dispute"), in intellectual history beyond German-language discourse, was an economics controversy commenced in the 1880s and persisting for more than a decade, between that field's Austrian School and the (Ge ...
'' ("methodology struggle"), in which 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
Gustav Friedrich (after 1908: von) Schmoller (; 24 June 1838 – 27 June 1917) was the leader of the "younger" German historical school of economics.
He was a leading '' Sozialpolitiker'' (more derisively, '' Kathedersozialist'', "Socialist of t ...
, 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.
First wave
![Carl Menger](https://upload.wikimedia.org/wikipedia/commons/a/a3/Carl_Menger.jpg)
The school originated in
Vienna
en, Viennese
, iso_code = AT-9
, registration_plate = W
, postal_code_type = Postal code
, postal_code =
, timezone = CET
, utc_offset = +1
, timezone_DST ...
in the
Austrian Empire
The Austrian Empire (german: link=no, Kaiserthum Oesterreich, modern spelling , ) was a Central-Eastern European multinational great power from 1804 to 1867, created by proclamation out of the realms of the Habsburgs. During its existence, ...
.
Carl Menger's 1871 book ''
Principles of Economics'' is generally considered the founding of the Austrian School. The book was one of the first modern treatises to advance the theory of
marginal utility. 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.
Despite such claim,
John Stuart Mill
John Stuart Mill (20 May 1806 – 7 May 1873) was an English philosopher, political economist, Member of Parliament (MP) and civil servant. One of the most influential thinkers in the history of classical liberalism, he contributed widely to ...
had used ''value in use'' in this sense in 1848 in ''
Principles of Political Economy
''Principles of Political Economy'' (1848) by John Stuart Mill was one of the most important economics or political economy textbooks of the mid-nineteenth century. It was revised until its seventh edition in 1871, shortly before Mill's death ...
'', where he wrote: "Value in use, or as
Mr. De Quincey calls it, ''
teleologic'' value, is the extreme limit of value in exchange. The exchange value of a thing may fall short, to any amount, of its value in use; but that it can ever exceed the value in use, implies a contradiction; it supposes that persons will give, to possess a thing, more than the utmost value which they themselves put upon it as a means of gratifying their inclinations."
While marginalism was generally influential, there was also a more specific school that began to coalesce around Menger's work, which came to be known as the "Psychological School", "Vienna School", or "Austrian School". Menger's contributions to economic theory were closely followed by those of
Eugen Böhm von Bawerk
Eugen is a masculine given name which may refer to:
* Archduke Eugen of Austria (1863–1954), last Habsburg Grandmaster of the Teutonic Order from 1894 to 1923
* Prince Eugen, Duke of Närke (1865–1947), Swedish painter, art collector, and pat ...
and
Friedrich von Wieser
Friedrich Freiherr von Wieser (; 10 July 1851 – 22 July 1926) was an early (so-called "first generation") economist of the Austrian School of economics. Born in Vienna, the son of Privy Councillor Leopold von Wieser, a high official in the war m ...
. These three economists became what is known as the "first wave" of the Austrian School. Böhm-Bawerk wrote extensive critiques of
Karl Marx
Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher, economist, historian, sociologist, political theorist, journalist, critic of political economy, and socialist revolutionary. His best-known titles are the 1848 ...
in the 1880s and 1890s and was part of the Austrians' participation in the late 19th-century ''
Methodenstreit
''Methodenstreit'' (German for "method dispute"), in intellectual history beyond German-language discourse, was an economics controversy commenced in the 1880s and persisting for more than a decade, between that field's Austrian School and the (Ge ...
'', during which they attacked the
Hegelian
Georg Wilhelm Friedrich Hegel (; ; 27 August 1770 – 14 November 1831) was a German philosopher. He is one of the most important figures in German idealism and one of the founding figures of modern Western philosophy. His influence extends a ...
doctrines of the
historical school
Historiography is the study of the methods of historians in developing history as an academic discipline, and by extension is any body of historical work on a particular subject. The historiography of a specific topic covers how historians hav ...
.
Early 20th century
Frank Albert Fetter (1863–1949) was a leader in the United States of Austrian thought. He obtained his PhD in 1894 from the
University of Halle
Martin Luther University of Halle-Wittenberg (german: Martin-Luther-Universität Halle-Wittenberg), also referred to as MLU, is a public, research-oriented university in the cities of Halle and Wittenberg and the largest and oldest university in ...
and then was made Professor of Political Economy and Finance at
Cornell
Cornell University is a private statutory land-grant research university based in Ithaca, New York. It is a member of the Ivy League. Founded in 1865 by Ezra Cornell and Andrew Dickson White, Cornell was founded with the intention to teach a ...
in 1901. Several important Austrian economists trained at the University of Vienna in the 1920s and later participated in private seminars held by
Ludwig von Mises
Ludwig Heinrich Edler von Mises (; 29 September 1881 – 10 October 1973) was an Austrian School economist, historian, logician, and Sociology, sociologist. Mises wrote and lectured extensively on the societal contributions of classical liberali ...
. These included
Gottfried Haberler
Gottfried von Haberler (; July 20, 1900 – May 6, 1995) was an Austrian-American economist. He worked in particular on international trade. One of his major contributions was reformulating the David Ricardo, Ricardian idea of comparative advant ...
,
Friedrich Hayek
Friedrich August von Hayek ( , ; 8 May 189923 March 1992), often referred to by his initials F. A. Hayek, was an Austrian–British economist, legal theorist and philosopher who is best known for his defense of classical liberalism. Haye ...
,
Fritz Machlup
Fritz Machlup (; ; December 15, 1902 – January 30, 1983) was an Austrian-American economist who was president of the International Economic Association from 1971–1974. He was one of the first economists to examine knowledge as an economic re ...
,
Karl Menger
Karl Menger (January 13, 1902 – October 5, 1985) was an Austrian-American mathematician, the son of the economist Carl Menger. In mathematics, Menger studied the theory of algebras and the dimension theory of low- regularity ("rough") curves ...
(son of Carl Menger),
Oskar Morgenstern
Oskar Morgenstern (January 24, 1902 – July 26, 1977) was an Austrian-American economist. In collaboration with mathematician John von Neumann, he founded the mathematical field of game theory as applied to the social sciences and strategic decis ...
, Paul Rosenstein-Rodan,
Abraham Wald
Abraham Wald (; hu, Wald Ábrahám, yi, אברהם וואַלד; – ) was a Jewish Hungarian mathematician who contributed to decision theory, geometry, and econometrics and founded the field of statistical sequential analysis. One ...
, and Michael A. Heilperin, among others, as well as the sociologist
Alfred Schütz
Alfred Schutz (; born Alfred Schütz, ; 1899–1959) was an Austrian philosopher and social phenomenologist whose work bridged sociological and phenomenological traditions. Schutz is gradually being recognized as one of the 20th century's leadin ...
.
Later 20th century
![Campus of Mises Institute](https://upload.wikimedia.org/wikipedia/commons/2/29/Campus_of_Mises_Institute.jpg)
By the mid-1930s, most economists had embraced what they considered the important contributions of the early Austrians.
Fritz Machlup quoted Hayek's statement that "the greatest success of a school is that it stops existing because its fundamental teachings have become parts of the general body of commonly accepted thought". Sometime during the middle of the 20th century, Austrian economics became disregarded or derided by mainstream economists because it rejected
model
A model is an informative representation of an object, person or system. The term originally denoted the plans of a building in late 16th-century English, and derived via French and Italian ultimately from Latin ''modulus'', a measure.
Models c ...
building and mathematical and statistical methods in the study of economics.
Mises' student
Israel Kirzner
Israel Meir Kirzner (also Yisroel Mayer Kirzner ; born February 13, 1930) is a British-born American economist closely identified with the Austrian School.
Early life and education
The son of a well-known rabbi and Talmudist, Kirzner was born i ...
recalled that in 1954, when Kirzner was pursuing his PhD, there was no separate Austrian School as such. When Kirzner was deciding which graduate school to attend, Mises had advised him to accept an offer of admission at Johns Hopkins because it was a prestigious university and
Fritz Machlup
Fritz Machlup (; ; December 15, 1902 – January 30, 1983) was an Austrian-American economist who was president of the International Economic Association from 1971–1974. He was one of the first economists to examine knowledge as an economic re ...
taught there.
After the 1940s, Austrian economics can be divided into two schools of economic thought and the school "split" to some degree in the late 20th century. One camp of Austrians, exemplified by Mises, regards
neoclassical methodology to be irredeemably flawed; the other camp, exemplified by
Friedrich Hayek
Friedrich August von Hayek ( , ; 8 May 189923 March 1992), often referred to by his initials F. A. Hayek, was an Austrian–British economist, legal theorist and philosopher who is best known for his defense of classical liberalism. Haye ...
, accepts a large part of neoclassical methodology and is more accepting of government intervention in the economy.
Henry Hazlitt
Henry Stuart Hazlitt (; November 28, 1894 – July 9, 1993) was an American journalist who wrote about business and economics for such publications as ''The Wall Street Journal'', ''The Nation'', ''The American Mercury'', ''Newsweek'', and '' ...
wrote economics columns and editorials for a number of publications and wrote many books on the topic of Austrian economics from the 1930s to the 1980s. Hazlitt's thinking was influenced by Mises. His book ''
Economics in One Lesson
''Economics in One Lesson'' is an introduction to economics written by Henry Hazlitt and first published in 1946. It is based on Frédéric Bastiat's essay ' (English: "What is Seen and What is Not Seen").
The "One Lesson" is stated in Part On ...
'' (1946) sold over a million copies and he is also known for ''
The Failure of the "New Economics"'' (1959), a line-by-line critique of
John Maynard Keynes
John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946), was an English economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in ...
's ''
General Theory''.
The reputation of the Austrian School rose in the late 20th century due in part to the work of Israel Kirzner and
Ludwig Lachmann
Ludwig Maurits Lachmann (; ; 1 February 1906 – 17 December 1990) was a German economist who was a theorist and important contributor to the Austrian School of Economics. Lachmann himself, Israel Kirzner, and Murray Rothbard were the three primar ...
at
New York University
New York University (NYU) is a private research university in New York City. Chartered in 1831 by the New York State Legislature, NYU was founded by a group of New Yorkers led by then-Secretary of the Treasury Albert Gallatin.
In 1832, the ...
and to renewed public awareness of the work of Hayek after he won the 1974 Nobel Memorial Prize in Economic Sciences.
Hayek's work was influential in the revival of ''laissez-faire'' thought in the 20th century.
Split among contemporary Austrians
Economist
Leland Yeager
Leland Bennett Yeager (; October 4, 1924 – April 23, 2018) was an American economist dealing with monetary policy and international trade.
Biography
Yeager graduated from Oberlin College in 1948 with an A.B. and was granted an M.A. from Columb ...
discussed the late 20th-century rift and referred to a discussion written by
Murray Rothbard
Murray Newton Rothbard (; March 2, 1926 – January 7, 1995) was an American economist of the Austrian School, economic historian, political theorist, and activist. Rothbard was a central figure in the 20th-century American libertarian ...
,
Hans-Hermann Hoppe
Hans-Hermann Hoppe (; ; born 2 September 1949) is a German-American economist of the Austrian School, philosopher and political theorist. He is Professor Emeritus of Economics at the University of Nevada, Las Vegas (UNLV), Senior Fellow of ...
,
Joseph Salerno and others in which they attack and disparage Hayek. Yeager stated: "To try to drive a wedge between Mises and Hayek on
he role of knowledge in economic calculation especially to the disparagement of Hayek, is unfair to these two great men, unfaithful to the history of economic thought". He went on to call the rift subversive to economic analysis and the historical understanding of the fall of Eastern European communism.
In a 1999 book published by the
Ludwig von Mises Institute
Ludwig von Mises Institute for Austrian Economics, or Mises Institute, is a libertarian nonprofit think tank headquartered in Auburn, Alabama, United States. It is named after the Austrian School economist Ludwig von Mises (1881–1973).
It ...
, Hoppe asserted that Rothbard was the leader of the "mainstream within Austrian Economics" and contrasted Rothbard with Nobel Laureate Friedrich Hayek, whom he identified as a
British empiricist and an opponent of the thought of Mises and Rothbard. Hoppe acknowledged that Hayek was the most prominent Austrian economist within academia, but stated that Hayek was an opponent of the Austrian tradition which led from Carl Menger and Böhm-Bawerk through Mises to Rothbard. Austrian economist
Walter Block
Walter Edward Block (born August 21, 1941) is an American Austrian School economist and anarcho-capitalist theorist. He currently holds the Harold E. Wirth Eminent Scholar Endowed Chair in Economics at the School of Business at Loyola Universit ...
says that the Austrian School can be distinguished from other schools of economic thought through two categories—economic theory and political theory. According to Block, while Hayek can be considered an Austrian economist, his views on political theory clash with the
libertarian
Libertarianism (from french: libertaire, "libertarian"; from la, libertas, "freedom") is a political philosophy that upholds liberty as a core value. Libertarians seek to maximize autonomy and political freedom, and minimize the state's e ...
political theory which Block sees as an integral part of the Austrian School.
Both criticism from Hoppe and Block to Hayek apply to Carl Menger, the founder of the Austrian School. Hoppe emphasizes that Hayek, which for him is from the English empirical tradition, is an opponent of the supposed rationalist tradition of the Austrian School; Menger made strong critiques to rationalism in his works in similar vein as Hayek's.
He emphasized the idea that there are several institutions which were not deliberately created, have a kind of "superior wisdom" and serve important functions to society.
He also talked about Burke and the English tradition to sustain these positions.
When saying that the libertarian political theory is an integral part of the Austrian School and supposing Hayek is not a libertarian, Block excludes Menger from the Austrian School too since Menger seems to defend broader state activity than Hayek—for example, progressive taxation and extensive labour legislation.
Economists of the Hayekian view are affiliated with the
Cato Institute
The Cato Institute is an American libertarian think tank headquartered in Washington, D.C. It was founded in 1977 by Ed Crane, Murray Rothbard, and Charles Koch, chairman of the board and chief executive officer of Koch Industries.Koch Ind ...
,
George Mason University (GMU) and New York University, among other institutions. They include
Peter Boettke
Peter Joseph Boettke (; born January 3, 1960) is an American economist of the Austrian School. He is currently a professor of economics and philosophy at George Mason University; the BB&T Professor for the Study of Capitalism, vice president for ...
,
Roger Garrison
Roger Wayne Garrison (born 1944) is an American professor of economics at Auburn University, and an adjunct scholar of the Ludwig von Mises Institute.
He is a proponent of the Austrian School of economics and wrote the book ''Time and Money,'' ...
,
Steven Horwitz
Steven G. Horwitz (February 7, 1964 – June 27, 2021) was an American economist of the Austrian School. Horwitz was the Distinguished Professor of Free Enterprise in the department of economics in the Miller College of Business at Ball State Un ...
,
Peter Leeson
Peter T. Leeson (born July 29, 1979) is an American economist and the Duncan Black Professor of Economics and Law at George Mason University. The website Big Think listed him in 2012 among "Eight of the World's Top Young Economists". He is a Fello ...
and
George Reisman
George Gerald Reisman (; born January 13, 1937)"George Gerald Reisman" (2002), ''Contemporary Authors Online'', Gale, Retrieved on January 18, 2007. is an American economist. He is Professor Emeritus of Economics at Pepperdine University and the ...
. Economists of the Mises–Rothbard view include
Walter Block
Walter Edward Block (born August 21, 1941) is an American Austrian School economist and anarcho-capitalist theorist. He currently holds the Harold E. Wirth Eminent Scholar Endowed Chair in Economics at the School of Business at Loyola Universit ...
,
Hans-Hermann Hoppe
Hans-Hermann Hoppe (; ; born 2 September 1949) is a German-American economist of the Austrian School, philosopher and political theorist. He is Professor Emeritus of Economics at the University of Nevada, Las Vegas (UNLV), Senior Fellow of ...
,
Jesús Huerta de Soto
Jesús Huerta de Soto Ballester (born December 23, 1956) is a Spanish economist of the Austrian School. He is a professor in the Department of Applied Economics at King Juan Carlos University of Madrid, Spain and a Senior Fellow at the Mises Inst ...
and
Robert P. Murphy
Robert Patrick Murphy (born May 23, 1976) is an American economist. Murphy is Research Assistant Professor with the Free Market Institute at Texas Tech University. He has been affiliated with Laffer Associates, the Pacific Research Institute, ...
, each of whom is associated with the
Mises Institute
Ludwig von Mises Institute for Austrian Economics, or Mises Institute, is a libertarian nonprofit think tank headquartered in Auburn, Alabama, United States. It is named after the Austrian School economist Ludwig von Mises (1881–1973).
It ...
and some of them also with academic institutions.
According to Murphy, a "truce between (for lack of better terms) the GMU Austro-libertarians and the Auburn Austro-libertarians" was signed around 2011.
Influence
Many theories developed by "first wave" Austrian economists have long been absorbed into
mainstream economics. These include Carl Menger's theories on marginal utility, Friedrich von Wieser's theories on
opportunity cost and Eugen Böhm von Bawerk's theories on time preference, as well as Menger and Böhm-Bawerk's criticisms of
Marxian economics
Marxian economics, or the Marxian school of economics, is a Heterodox economics, heterodox school of political economic thought. Its foundations can be traced back to Karl Marx, Karl Marx's Critique of political economy#Marx's critique of politic ...
.
Former
American Federal Reserve Chairman
Alan Greenspan
Alan Greenspan (born March 6, 1926) is an American economist who served as the 13th chairman of the Federal Reserve from 1987 to 2006. He works as a private adviser and provides consulting for firms through his company, Greenspan Associates LLC. ...
said that the founders of the Austrian School "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". In 1987, Nobel Laureate
James M. Buchanan
James McGill Buchanan Jr. (; October 3, 1919 – January 9, 2013) was an American economist known for his work on public choice theory originally outlined in his most famous work co-authored with Gordon Tullock in 1962, ''The Calculus of Consen ...
told an interviewer: "I have no objections to being called an Austrian. Hayek and Mises might consider me an Austrian but, surely some of the others would not".
Currently, universities with a significant Austrian presence are
George Mason University,
New York University
New York University (NYU) is a private research university in New York City. Chartered in 1831 by the New York State Legislature, NYU was founded by a group of New Yorkers led by then-Secretary of the Treasury Albert Gallatin.
In 1832, the ...
,
Grove City College
Grove City College (GCC) is a private, conservative Christian liberal arts college in Grove City, Pennsylvania. Founded in 1876 as a normal school, the college emphasizes a humanities core curriculum and offers 60 majors and 6 pre-profession ...
,
Loyola University New Orleans
Loyola University New Orleans is a Private university, private Jesuit university in New Orleans, New Orleans, Louisiana. Originally established as Loyola College in 1904, the institution was chartered as a university in 1912. It bears the name o ...
and
Auburn University
Auburn University (AU or Auburn) is a public land-grant research university in Auburn, Alabama. With more than 24,600 undergraduate students and a total enrollment of more than 30,000 with 1,330 faculty members, Auburn is the second largest uni ...
in the United States;
King Juan Carlos University
Rey Juan Carlos University ( es, Universidad Rey Juan Carlos, URJC) is a Spanish public research university located in the southern area of the Community of Madrid (Spain), with five campuses at Móstoles, Alcorcón, Vicálvaro, Aranjuez and ...
in Spain; and
Universidad Francisco Marroquín
Francisco Marroquín University (Spanish: ''Universidad Francisco Marroquín''), also known by the abbreviation UFM, is a private, secular university in Guatemala City, Guatemala. It describes its mission as "to teach and disseminate the ethical ...
in Guatemala. Austrian economic ideas are also promoted by privately funded organizations such as the
Mises Institute
Ludwig von Mises Institute for Austrian Economics, or Mises Institute, is a libertarian nonprofit think tank headquartered in Auburn, Alabama, United States. It is named after the Austrian School economist Ludwig von Mises (1881–1973).
It ...
and the
Cato Institute
The Cato Institute is an American libertarian think tank headquartered in Washington, D.C. It was founded in 1977 by Ed Crane, Murray Rothbard, and Charles Koch, chairman of the board and chief executive officer of Koch Industries.Koch Ind ...
.
Methodology
The Austrian School theorizes that the subjective choices of individuals including individual knowledge, time, expectation and other subjective factors cause all economic phenomena. Austrians seek to understand the economy by examining the social ramifications of individual choice, an approach called
methodological individualism
In the social sciences, methodological individualism is the principle that subjective individual motivation explains social phenomena, rather than class or group dynamics which are illusory or artificial and therefore cannot truly explain marke ...
. It differs from other schools of economic thought, which have focused on aggregate variables, equilibrium analysis and societal groups rather than individuals.
![Ludwig von Mises](https://upload.wikimedia.org/wikipedia/commons/f/f0/Ludwig_von_Mises.jpg)
In the 20th and 21st centuries, economists with a methodological lineage to the early Austrian School developed many diverse approaches and theoretical orientations.
Ludwig von Mises
Ludwig Heinrich Edler von Mises (; 29 September 1881 – 10 October 1973) was an Austrian School economist, historian, logician, and Sociology, sociologist. Mises wrote and lectured extensively on the societal contributions of classical liberali ...
organized his version of the subjectivist approach, which he called "
praxeology
In philosophy, praxeology or praxiology (; ) is the theory of human action, based on the notion that humans engage in purposeful behavior, contrary to reflexive behavior and other unintentional behavior.
French social philosopher Alfred Espinas ...
", in a book published in English as ''
Human Action
''Human Action: A Treatise on Economics'' is a work by the Austrian economist and philosopher Ludwig von Mises. Widely considered Mises' ''magnum opus'', it presents the case for laissez-faire capitalism based on praxeology, his method to under ...
'' in 1949.
[Ludwig von Mises, Nationalökonomie (Geneva: Union, 1940); Human Action (Auburn, Ala.: Ludwig von Mises Institute, ]949
Year 949 ( CMXLIX) was a common year starting on Monday (link will display the full calendar) of the Julian calendar.
Events
By place
Byzantine Empire
* Arab-Byzantine War: Hamdanid forces under Sayf al-Dawla raid into the theme of Ly ...
1998) In it, Mises stated that praxeology could be used to deduce ''a priori'' theoretical economic truths and that deductive economic
thought experiment
A thought experiment is a hypothetical situation in which a hypothesis, theory, or principle is laid out for the purpose of thinking through its consequences.
History
The ancient Greek ''deiknymi'' (), or thought experiment, "was the most anc ...
s could yield conclusions which follow irrefutably from the underlying assumptions. He wrote that conclusions could not be inferred from empirical observation or statistical analysis and argued against the use of probabilities in economic models.
Since Mises' time, some Austrian thinkers have accepted his praxeological approach while others have adopted alternative methodologies. For example,
Fritz Machlup
Fritz Machlup (; ; December 15, 1902 – January 30, 1983) was an Austrian-American economist who was president of the International Economic Association from 1971–1974. He was one of the first economists to examine knowledge as an economic re ...
,
Friedrich Hayek
Friedrich August von Hayek ( , ; 8 May 189923 March 1992), often referred to by his initials F. A. Hayek, was an Austrian–British economist, legal theorist and philosopher who is best known for his defense of classical liberalism. Haye ...
and others did not take Mises' strong ''a priori'' approach to economics.
Ludwig Lachmann
Ludwig Maurits Lachmann (; ; 1 February 1906 – 17 December 1990) was a German economist who was a theorist and important contributor to the Austrian School of Economics. Lachmann himself, Israel Kirzner, and Murray Rothbard were the three primar ...
, a radical subjectivist, also largely rejected Mises' formulation of Praxeology in favor of the ''verstehende Methode'' ("interpretive method") articulated by
Max Weber
Maximilian Karl Emil Weber (; ; 21 April 186414 June 1920) was a German sociologist, historian, jurist and political economist, who is regarded as among the most important theorists of the development of modern Western society. His ideas profo ...
.
In the 20th century, various Austrians incorporated models and mathematics into their analysis. Austrian economist
Steven Horwitz
Steven G. Horwitz (February 7, 1964 – June 27, 2021) was an American economist of the Austrian School. Horwitz was the Distinguished Professor of Free Enterprise in the department of economics in the Miller College of Business at Ball State Un ...
argued in 2000 that Austrian methodology is consistent with
macroeconomics
Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics dealing with performance, structure, behavior, and decision-making of an economy as a whole.
For example, using interest rates, taxes, and ...
and that Austrian macroeconomics can be expressed in terms of
microeconomic foundations.
[Horwitz, Steven: Microfoundations and Macroeconomics: An Austrian Perspective (2000), ''Routledge''] Austrian economist Roger Garrison writes that Austrian macroeconomic theory can be correctly expressed in terms of
diagrammatic models. In 1944, Austrian economist Oskar Morgenstern presented a rigorous schematization of an ordinal utility function (the
Von Neumann–Morgenstern utility theorem
In decision theory, the von Neumann–Morgenstern (VNM) utility theorem shows that, under certain axioms of rational behavior, a decision-maker faced with risky (probabilistic) outcomes of different choices will behave as if he or she is maximizin ...
) in ''
Theory of Games and Economic Behavior''.
Fundamental tenets
In 1981,
Fritz Machlup
Fritz Machlup (; ; December 15, 1902 – January 30, 1983) was an Austrian-American economist who was president of the International Economic Association from 1971–1974. He was one of the first economists to examine knowledge as an economic re ...
listed the typical views of Austrian economic thinking as such:
*
Methodological individualism
In the social sciences, methodological individualism is the principle that subjective individual motivation explains social phenomena, rather than class or group dynamics which are illusory or artificial and therefore cannot truly explain marke ...
: in the explanation of economic phenomena, we have to go back to the actions (or inaction) of individuals; groups or "collectives" cannot act except through the actions of individual members. Groups don't think; people think.
* Methodological subjectivism: in the explanation of economic phenomena, we have to go back to judgments and choices made by individuals on the basis of whatever knowledge they have or believe to have and whatever expectations they entertain regarding external developments and especially the perceived consequences of their own intended actions.
* Tastes and preferences: subjective valuations of goods and services determine the demand for them so that their prices are influenced by (actual and potential) consumers.
*
Opportunity costs: the costs with which producers and other economic actors calculate reflect the alternative opportunities that must be foregone; as productive services are employed for one purpose, all alternative uses have to be sacrificed.
*
Marginalism: in all economic designs, the values, costs, revenues, productivity and so on are determined by the significance of the last unit added to or subtracted from the total.
* Time structure of production and consumption: decisions to save reflect "time preferences" regarding consumption in the immediate, distant, or indefinite future and investments are made in view of larger outputs expected to be obtained if more time-taking production processes are undertaken.
He included two additional tenets held by the Mises branch of Austrian economics:
*
Consumer sovereignty
Consumer sovereignty is the economic concept that the consumer has some controlling power over goods that are produced, and the idea that the consumer is the best judge of their own welfare.
''Consumer sovereignty in production'' is the controlli ...
: the influence consumers have on the effective demand for goods and services and through the prices which result in free competitive markets, on the production plans of producers and investors, is not merely a hard fact but also an important objective, attainable only by complete avoidance of governmental interference with the markets and of restrictions on the freedom of sellers and buyers to follow their own judgment regarding quantities, qualities and prices of products and services.
*
Political individualism: only when individuals are given full economic freedom will it be possible to secure political and moral freedom. Restrictions on economic freedom lead, sooner or later, to an extension of the coercive activities of the state into the political domain, undermining and eventually destroying the essential individual liberties which the capitalistic societies were able to attain in the 19th century.
Contributions to economic thought
Opportunity cost
![1wieser](https://upload.wikimedia.org/wikipedia/commons/5/54/1wieser.jpg)
The opportunity cost doctrine was first explicitly formulated by the Austrian economist
Friedrich von Wieser
Friedrich Freiherr von Wieser (; 10 July 1851 – 22 July 1926) was an early (so-called "first generation") economist of the Austrian School of economics. Born in Vienna, the son of Privy Councillor Leopold von Wieser, a high official in the war m ...
in the late 19th century. Opportunity cost is the cost of any activity measured in terms of the value of the next best alternative foregone (that is not chosen). It is the sacrifice related to the second best choice available to someone, or group, who has picked among several
mutually exclusive
In logic and probability theory, two events (or propositions) are mutually exclusive or disjoint if they cannot both occur at the same time. A clear example is the set of outcomes of a single coin toss, which can result in either heads or tails ...
choices.
Although a more ephemeral scarcity, expectations of the future must also be considered. Quantified as
time preference
In economics, time preference (or time discounting, delay discounting, temporal discounting, long-term orientation) is the current relative valuation placed on receiving a good or some cash at an earlier date compared with receiving it at a later ...
, opportunity cost must also be valued with respect to one’s preference for present versus future investments.
Opportunity cost is a key concept in mainstream
economics
Economics () is the social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services.
Economics focuses on the behaviour and intera ...
and has been described as expressing "the basic relationship between
scarcity
In economics, scarcity "refers to the basic fact of life that there exists only a finite amount of human and nonhuman resources which the best technical knowledge is capable of using to produce only limited maximum amounts of each economic good. ...
and
choice
A choice is the range of different things from which a being can choose. The arrival at a choice may incorporate motivators and models. For example, a traveler might choose a route for a journey based on the preference of arriving at a give ...
". The notion of opportunity cost plays a crucial part in ensuring that resources are used efficiently.
Capital and interest
![1Bawerk](https://upload.wikimedia.org/wikipedia/commons/b/b3/1Bawerk.png)
The Austrian theory of capital and interest was first developed by
Eugen Böhm von Bawerk
Eugen is a masculine given name which may refer to:
* Archduke Eugen of Austria (1863–1954), last Habsburg Grandmaster of the Teutonic Order from 1894 to 1923
* Prince Eugen, Duke of Närke (1865–1947), Swedish painter, art collector, and pat ...
. He stated that interest rates and profits are determined by two factors, namely
supply and demand in the market for final goods and time preference.
[Böhm-Bawerk, Eugen Ritter von; ''Kapital Und Kapitalizns. Zweite Abteilung: Positive Theorie des Kapitales'' (1889). Translated as ''Capital and Interest. II: Positive Theory of Capital'' with appendices rendered as ''Further Essays on Capital and Interest''.]
Böhm-Bawerk's theory equates
capital intensity
Capital intensity is the amount of fixed or real capital present in relation to other factors of production, especially labor. At the level of either a production process or the aggregate economy, it may be estimated by the capital to labor ratio, ...
with the degree of
roundaboutness
Roundaboutness, or roundabout methods of production, is the process whereby capital goods are produced first and then, with the help of the capital goods, the desired consumer goods are produced.
An argument against Böhm-Bawerk's theory of round ...
of production processes. Böhm-Bawerk also argued that the law of
marginal utility necessarily implies the classical law of costs.
Some Austrian economists therefore entirely reject the notion that interest rates are affected by
liquidity preference
__NOTOC__
In macroeconomic theory, liquidity preference is the demand for money, considered as liquidity. The concept was first developed by John Maynard Keynes in his book '' The General Theory of Employment, Interest and Money'' (1936) to e ...
.
Inflation
In Mises's definition, inflation is an increase in the supply of money:
Hayek pointed out that inflationary stimulation exploits the lag between an increase in money supply and the consequent increase in the prices of goods and services:
Economic calculation problem
![Israel Kirzner](https://upload.wikimedia.org/wikipedia/commons/d/d4/Israel_Kirzner.jpg)
The economic calculation problem refers to a criticism of
planned economies
A planned economy is a type of economic system where investment, production and the allocation of capital goods takes place according to economy-wide economic plans and production plans. A planned economy may use centralized, decentralized, par ...
which was first stated by
Max Weber
Maximilian Karl Emil Weber (; ; 21 April 186414 June 1920) was a German sociologist, historian, jurist and political economist, who is regarded as among the most important theorists of the development of modern Western society. His ideas profo ...
in 1920. Mises subsequently discussed Weber's idea with his student Friedrich Hayek, who developed it in various works including ''
The Road to Serfdom
''The Road to Serfdom'' ( German: ''Der Weg zur Knechtschaft'') is a book written between 1940 and 1943 by Austrian-British economist and philosopher Friedrich Hayek. Since its publication in 1944, ''The Road to Serfdom'' has been popular among ...
''.
What the calculation problem essentially states is that without price signals, the
factors of production
In economics, factors of production, resources, or inputs are what is used in the production process to produce output—that is, goods and services. The utilized amounts of the various inputs determine the quantity of output according to the rel ...
cannot be allocated in the most efficient way possible, rendering planned economies inefficacious.
Austrian theory emphasizes the
organizing power of markets. Hayek stated that market prices reflect information, the totality of which is not known to any single individual, which determines the allocation of resources in an economy. Because socialist systems lack the individual incentives and
price discovery
In economics and finance, the price discovery process (also called price discovery mechanism) is the process of determining the price of an asset in the marketplace through the interactions of buyers and sellers.
Overview
Price discovery is diff ...
processes by which individuals act on their personal information, Hayek argued that socialist economic planners lack all of the knowledge required to make optimal decisions. Those who agree with this criticism view it as a refutation of socialism, showing that socialism is not a viable or sustainable form of economic organization. The debate rose to prominence in the 1920s and 1930s and that specific period of the debate has come to be known by historians of economic thought as the
socialist calculation debate
The socialist calculation debate, sometimes known as the economic calculation debate, was a discourse on the subject of how a socialist economy would perform economic calculation given the absence of the law of value, money, financial prices fo ...
.
Mises argued in a 1920 essay "
Economic Calculation in the Socialist Commonwealth
''Economic Calculation in the Socialist Commonwealth'' is an article by Austrian School economist Ludwig von Mises. Its critique against economic calculation in a planned economy triggered the decades-long economic calculation debate.
The arti ...
" that the pricing systems in socialist economies were necessarily deficient because if the government owned the
means of production
The means of production is a term which describes land, labor and capital that can be used to produce products (such as goods or services); however, the term can also refer to anything that is used to produce products. It can also be used as an ...
, then no prices could be obtained for
capital good
The economic concept of a capital good (also called complex product systems (CoPS),H. Rush, "Managing innovation in complex product systems (CoPS)," IEE Colloquium on EPSRC Technology Management Initiative (Engineering & Physical Sciences Researc ...
s as they were merely internal transfers of goods in a socialist system and not "objects of exchange", unlike final goods. Therefore, they were unpriced and hence the system would be necessarily inefficient since the central planners would not know how to allocate the available resources efficiently.
This led him to write "that rational economic activity is impossible in a socialist commonwealth".
Business cycles
The Austrian theory of the
business cycle
Business cycles are intervals of Economic expansion, expansion followed by recession in economic activity. These changes have implications for the welfare of the broad population as well as for private institutions. Typically business cycles are ...
(ABCT) focuses on banks' issuance of credit as the cause of economic fluctuations.
['' America's Great Depression'', ]Murray Rothbard
Murray Newton Rothbard (; March 2, 1926 – January 7, 1995) was an American economist of the Austrian School, economic historian, political theorist, and activist. Rothbard was a central figure in the 20th-century American libertarian ...
Although later elaborated by Hayek and others, the theory was first set forth by Mises, who posited that fractional reserve banks extend credit at artificially low interest rates, causing businesses to invest in relatively
roundabout
A roundabout is a type of circular intersection or junction in which road traffic is permitted to flow in one direction around a central island, and priority is typically given to traffic already in the junction.''The New Shorter Oxford En ...
production processes which leads to an artificial "boom". Mises stated that this artificial "boom" then led to a misallocation of resources which he called "
malinvestment
In Austrian business cycle theory, malinvestments are badly allocated business investments due to artificially low cost of credit and an unsustainable increase in money supply. Central banks are often blamed for causing malinvestments, such as the ...
" - which eventually must end in a "bust".
Mises surmised how government manipulation of money and credit in the banking system throws savings and investment out of balance, resulting in misdirected investment projects that are eventually found to be unsustainable, at which point the economy has to rebalance itself through a period of corrective recession.
Austrian economist Fritz Machlup summarized the Austrian view by stating, "monetary factors cause the cycle but real phenomena constitute it."
For Austrians, the only prudent strategy for government is to leave money and the financial system to the free market's competitive forces to eradicate the business cycle's inflationary booms and recessionary busts, allowing markets to keep people's saving and investment decisions in place for well-coordinated economic stability and growth.
A Keynesian would suggest government intervention during a recession to inject spending into the economy when people are not. However, the heart of Austrian macroeconomic theory states the government "fine tuning" through expansions and contractions in the money supply orchestrated by the government are actually the cause of business cycles because of the differing impact of the resulting interest rate changes on different stages in the structure of production.
Austrian economist Thomas Woods further supports this view by arguing it is not consumption, but rather production that should be emphasized. A country cannot become rich by consuming, and therefore, by using up all their resources. Instead, production is what enables consumption as a possibility in the first place, since a producer would be working for nothing, if not for the desire to consume.
Central banks
According to
Ludwig von Mises
Ludwig Heinrich Edler von Mises (; 29 September 1881 – 10 October 1973) was an Austrian School economist, historian, logician, and Sociology, sociologist. Mises wrote and lectured extensively on the societal contributions of classical liberali ...
,
central bank
A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union,
and oversees their commercial banking system. In contrast to a commercial bank, a central ba ...
s enable the
commercial bank
A commercial bank is a financial institution which accepts deposits from the public and gives loans for the purposes of consumption and investment to make profit.
It can also refer to a bank, or a division of a large bank, which deals with co ...
s to fund loans at artificially low interest rates, thereby inducing an unsustainable expansion of bank credit and impeding any subsequent contraction and argued for a gold standard to constrain growth in fiduciary media.
Friedrich Hayek
Friedrich August von Hayek ( , ; 8 May 189923 March 1992), often referred to by his initials F. A. Hayek, was an Austrian–British economist, legal theorist and philosopher who is best known for his defense of classical liberalism. Haye ...
took a different perspective not focusing on gold but focusing on regulation of the banking sector via strong
central banking
A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union,
and oversees their commercial banking system. In contrast to a commercial bank, a central ba ...
.
Criticism
General
Mainstream economists generally reject modern-day Austrian economics, and argue that modern-day Austrian economists are excessively averse to the use of mathematics and statistics in economics.
Austrian opposition to mathematization extends to economic theorizing only, as they argue that human behavior is too variable for overarching mathematical models to hold true across time and context. Austrians do, however, support analyzing
revealed preference via mathematization to aid business and finance.
Economist
Paul Krugman
Paul Robin Krugman ( ; born February 28, 1953) is an American economist, who is Distinguished Professor of Economics at the Graduate Center of the City University of New York, and a columnist for ''The New York Times''. In 2008, Krugman was th ...
has stated that Austrians are unaware of holes in their own thinking because they do not use "explicit models".
Economist Benjamin Klein has criticized the economic methodological work of Austrian economist
Israel M. Kirzner
Israel Meir Kirzner (also Yisroel Mayer Kirzner ; born February 13, 1930) is a British-born American economist closely identified with the Austrian School.
Early life and education
The son of a well-known rabbi and Talmudist, Kirzner was born in ...
. While praising Kirzner for highlighting shortcomings in traditional methodology, Klein argued that Kirzner did not provide a viable alternative for economic methodology. Economist
Tyler Cowen
Tyler Cowen (; born January 21, 1962) is an American economist, columnist and blogger. He is a professor at George Mason University, where he holds the Holbert L. Harris chair in the economics department. He hosts the economics blog ''Marginal R ...
has written that Kirzner's theory of entrepreneurship can ultimately be reduced to a neoclassical search model and is thus not in the radical subjectivist tradition of Austrian praxeology. Cowen states that Kirzner's entrepreneurs can be modeled in mainstream terms of search.
Economist
Jeffrey Sachs
Jeffrey David Sachs () (born 5 November 1954) is an American economist, academic, public policy analyst, and former director of The Earth Institute at Columbia University, where he holds the title of University Professor. He is known for his work ...
argues that among developed countries, those with high rates of taxation and high social welfare spending perform better on most measures of economic performance compared to countries with low rates of taxation and low social outlays. He concludes that Friedrich Hayek was wrong to argue that high levels of government spending harms an economy and "a generous social-welfare state is not a road to serfdom but rather to fairness, economic equality and international competitiveness".
Economist
Bryan Caplan
Bryan Douglas Caplan (born April 8, 1971) is an American economist and author. Caplan is a professor of economics at George Mason University, research fellow at the Mercatus Center, adjunct scholar at the Cato Institute, and former contributor ...
has noted that Mises has been criticized for overstating the strength of his case in describing socialism as "impossible" rather than as something that would need to establish non-market institutions to deal with the inefficiency.
Methodology
Critics generally argue that Austrian economics lacks scientific rigor and rejects scientific methods and the use of empirical data in modelling economic behavior.
["Rules for the study of ]natural philosophy
Natural philosophy or philosophy of nature (from Latin ''philosophia naturalis'') is the philosophical study of physics, that is, nature and the physical universe. It was dominant before the development of modern science.
From the ancient wo ...
", from Book 3, ''The System of the World''. Some economists describe Austrian methodology as being ''
a priori
("from the earlier") and ("from the later") are Latin phrases used in philosophy to distinguish types of knowledge, justification, or argument by their reliance on empirical evidence or experience. knowledge is independent from current ...
'' or
non-empirical.
Economist
Mark Blaug
Mark Blaug FBA (; 3 April 1927 – 18 November 2011) was a Dutch-born British economist (naturalised in 1982), who covered a broad range of topics during his long career.
He was married to Ruth Towse.
Life and work
Blaug was born on 3 April ...
has criticized over-reliance on methodological individualism, arguing it would rule out all macroeconomic propositions that cannot be reduced to microeconomic ones, and hence reject almost the whole of received macroeconomics.
Economist
Thomas Mayer has stated that Austrians advocate a rejection of the
scientific method
The scientific method is an empirical method for acquiring knowledge that has characterized the development of science since at least the 17th century (with notable practitioners in previous centuries; see the article history of scientific m ...
which involves the development of empirically falsifiable
theories
A theory is a rational type of abstract thinking about a phenomenon, or the results of such thinking. The process of contemplative and rational thinking is often associated with such processes as observational study or research. Theories may be ...
.
Furthermore, economists have developed numerous experiments that elicit useful information about individual preferences.
Although economist Leland Yeager is sympathetic to Austrian economics, he rejects many favorite views of the Misesian group of Austrians, in particular "the specifics of their business-cycle theory, ultra-subjectivism in value theory and particularly in interest-rate theory, their insistence on unidirectional causality rather than general interdependence, and their fondness for methodological brooding, pointless profundities, and verbal gymnastics".
Economist
Paul A. Samuelson
Paul Anthony Samuelson (May 15, 1915 – December 13, 2009) was an American economist who was the first American to win the Nobel Memorial Prize in Economic Sciences. When awarding the prize in 1970, the Swedish Royal Academies stated that he "h ...
wrote in 1964 that most economists believe that economic conclusions reached by pure logical deduction are limited and weak.
According to Samuelson and Caplan, Mises' deductive methodology also embraced by
Murray Rothbard
Murray Newton Rothbard (; March 2, 1926 – January 7, 1995) was an American economist of the Austrian School, economic historian, political theorist, and activist. Rothbard was a central figure in the 20th-century American libertarian ...
and to a lesser extent by Mises' student Israel Kirzner was not sufficient in and of itself.
Business cycle theory
Mainstream economic research regarding
Austrian business cycle theory finds that it is inconsistent with empirical evidence. Noted economists such as
Gordon Tullock
Gordon Tullock (; February 13, 1922 – November 3, 2014) was an economist and professor of law and Economics at the George Mason University School of Law. He is best known for his work on public choice theory, the application of economic thinkin ...
,
Milton Friedman
Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist and statistician who received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory and the ...
and
Paul Krugman
Paul Robin Krugman ( ; born February 28, 1953) is an American economist, who is Distinguished Professor of Economics at the Graduate Center of the City University of New York, and a columnist for ''The New York Times''. In 2008, Krugman was th ...
have said that they regard the theory as incorrect. Austrian economist Ludwig Lachmann noted that the Austrian theory was rejected during the 1930s:
Theoretical objections
Some economists have argued that Austrian business cycle theory requires bankers and investors to exhibit a kind of irrationality because the Austrian theory posits that investors will be fooled repeatedly (by temporarily low interest rates) into making unprofitable investment decisions.
Milton Friedman objected to the policy implications of the theory, stating the following in a 1998 interview:
Empirical objections
In 1969, Milton Friedman examined the history of business cycles in the United States and wrote that there "appears to be no systematic connection between the size of an expansion and of the succeeding contraction", contradicting business cycle theories (such as the Austrian business cycle theory) which rely on that premise.
[ He analyzed the issue using newer data in 1993, and again reached the same conclusion.] Referring to Friedman's discussion of the business cycle, Austrian economist Roger Garrison argued that Friedman's empirical findings are "broadly consistent with both Monetarist and Austrian views" and goes on to argue that although Friedman's model "describes the economy's performance at the highest level of aggregation, Austrian theory offers an insightful account of the market process that might underlie those aggregates".
See also
* Carl Menger
* Chicago school of economics
* Criticism of the Federal Reserve
The Federal Reserve System (also known as "the Fed") has faced various criticisms since it was authorized in 1913. Nobel laureate economist Milton Friedman and his fellow monetarist Anna Schwartz criticized the Fed's response to the Wall Street ...
* Eugen von Böhm-Bawerk
Eugen Ritter von Böhm-Bawerk (; born Eugen Böhm, 12 February 185127 August 1914) was an Austrian economist who made important contributions to the development of the Austrian School of Economics and neoclassical economics. He served intermittent ...
* Friedrich Hayek
Friedrich August von Hayek ( , ; 8 May 189923 March 1992), often referred to by his initials F. A. Hayek, was an Austrian–British economist, legal theorist and philosopher who is best known for his defense of classical liberalism. Haye ...
* Dorian Electra
Dorian Electra Fridkin Gomberg (born 1992) is an American singer, songwriter, and performance artist. Their debut studio album, ''Flamboyant'', was released in 2019, followed by their second studio album, ''My Agenda,'' in 2020. Electra is know ...
* Hans-Hermann Hoppe
Hans-Hermann Hoppe (; ; born 2 September 1949) is a German-American economist of the Austrian School, philosopher and political theorist. He is Professor Emeritus of Economics at the University of Nevada, Las Vegas (UNLV), Senior Fellow of ...
* Henry Hazlitt
Henry Stuart Hazlitt (; November 28, 1894 – July 9, 1993) was an American journalist who wrote about business and economics for such publications as ''The Wall Street Journal'', ''The Nation'', ''The American Mercury'', ''Newsweek'', and '' ...
* Israel Kirzner
Israel Meir Kirzner (also Yisroel Mayer Kirzner ; born February 13, 1930) is a British-born American economist closely identified with the Austrian School.
Early life and education
The son of a well-known rabbi and Talmudist, Kirzner was born i ...
* List of Austrian intellectual traditions
* List of Austrian School economists
This is a list of notable economists aligned with the Austrian School who are sometimes colloquially called "the Austrians". This designation applies even though few hold Austrian citizenship; moreover, not all economists from Austria subscribe to ...
* Ludwig von Mises
Ludwig Heinrich Edler von Mises (; 29 September 1881 – 10 October 1973) was an Austrian School economist, historian, logician, and Sociology, sociologist. Mises wrote and lectured extensively on the societal contributions of classical liberali ...
* New institutional economics
New Institutional Economics (NIE) is an economic perspective that attempts to extend economics by focusing on the institutions (that is to say the social and legal norms and rules) that underlie economic activity and with analysis beyond earlier ...
* Perspectives on capitalism by school of thought
* School of Salamanca
The School of Salamanca ( es, Escuela de Salamanca) is the Renaissance of thought in diverse intellectual areas by Spanish theologians, rooted in the intellectual and pedagogical work of Francisco de Vitoria. From the beginning of the 16th cen ...
* Gold standard
A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold. The gold standard was the basis for the international monetary system from the 1870s to the early 1920s, and from the la ...
Notes and references
Further reading
*
*
PDF
*
*
*
*
*
*
(Excerpt via Amazon)
External links
Understanding Austrian Economics
by Henry Hazlitt
Henry Stuart Hazlitt (; November 28, 1894 – July 9, 1993) was an American journalist who wrote about business and economics for such publications as ''The Wall Street Journal'', ''The Nation'', ''The American Mercury'', ''Newsweek'', and '' ...
*
{{Authority control
Schools of economic thought
Libertarian theory