Austrian School

Austrian School of Economics

The Austrian School of Economics is a school of economic thought that is based on methodological individualism, the idea that social phenomena result from the motivations and actions of individuals. It originated in late 19th and early 20th century Vienna with the work of Carl Menger, Eugen von Böhm-Bawerk, and Friedrich von Wieser.

History

The Austrian School began in 1871 with the publication of Carl Menger's Principles of Economics. Menger's work was part of the marginalist revolution, which emphasized the importance of marginal utility in the determination of value. This was a departure from the classical economics of Adam Smith and David Ricardo, which focused on the labor theory of value.

Key Figures

• Carl Menger (1840–1921): Founder of the Austrian School, known for his work on the theory of value and price.
• Eugen von Böhm-Bawerk (1851–1914): Known for his work on capital and interest, and his critique of Marxist economics.
• Friedrich von Wieser (1851–1926): Developed the concept of opportunity cost and contributed to the theory of imputation.
• Ludwig von Mises (1881–1973): Advanced the Austrian School with his work on praxeology and the critique of socialism.
• Friedrich Hayek (1899–1992): Nobel laureate known for his work on the business cycle, the use of knowledge in society, and the critique of central planning.

Core Principles

Methodological Individualism

Austrian economics is characterized by its emphasis on methodological individualism, which holds that economic phenomena can be explained by analyzing the actions and interactions of individuals.

Subjectivism

Austrians emphasize the subjective nature of value, arguing that value is not inherent in objects but is determined by the preferences and perceptions of individuals.

Marginalism

The Austrian School was instrumental in developing the concept of marginal utility, which explains how individuals make decisions based on the additional benefit of consuming one more unit of a good or service.

Time Preference and Capital Theory

Austrians like Böhm-Bawerk developed a theory of capital and interest based on time preference, the idea that people prefer present goods to future goods.

Business Cycle Theory

The Austrian Business Cycle Theory (ABCT) posits that business cycles are caused by government intervention in the economy, particularly through manipulation of interest rates by central banks.

Criticisms

The Austrian School has been criticized for its rejection of mathematical modeling and econometrics, which are standard tools in mainstream economics. Critics argue that this limits the empirical testability of Austrian theories.

Influence and Legacy

The Austrian School has had a significant impact on economic thought, particularly in the areas of entrepreneurship, market processes, and the critique of central planning. It has influenced libertarian and free-market movements worldwide.

See Also

• Marginalism
• Praxeology
• Libertarianism
• Chicago School of Economics

References

• Menger, Carl. Principles of Economics. 1871.
• Böhm-Bawerk, Eugen von. Capital and Interest. 1884.
• Mises, Ludwig von. Human Action. 1949.
• Hayek, Friedrich. The Road to Serfdom. 1944.

External Links

• Mises Institute
• Friedrich Hayek Center