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{{libertarianism}}
The '''Austrian School''', also known as the “'''Vienna School'''” or the “'''Psychological School'''”, is a [[Heterodox economics|heterodox]] school of [[history of economic thought|economic thought]] that advocates adherence to strict [[methodological individualism]]. As a result Austrians hold that the only valid economic theory is logically derived from basic principles of human action. Alongside the formal approach to theory, often called [[praxeology]], the school has traditionally advocated an interpretive approach to history. The praxeological method allows for the discovery of economic laws valid for all human action, while the interpretive approach addresses specific historical events.
This [[Aristotelian]]/[[rationalist]] approach differs both from the currently dominant [[Platonic idealism|Platonic]]/[[logical positivism|positivist]] approach of contemporary [[neo-classical economics]] and the once dominant [[Historicism|historical approach]] of the German [[historical school of economics|historical school]] and the American [[institutional economics|institutionalists]]. Regardless, Austrian economics has made significant contributions to modern mainstream neo-classical economics.{{Fact|date=November 2007}} Additionally, the Austrian school is quite heterogeneous{{Fact|date=November 2007}}, with various branches of the school at various times throughout its history taking a range of positions from presenting a radical alternative to mainstream economics to contributing directly to mainstream neoclassical economics, though even in that case often through techniques that remained distinctly Austrian.<ref>Boettke, Peter J. 1998. The Elgar Companion to Austrian Economics. Edgard Elgar Publishing. p. 1</ref>
While the praxeological method differs from the current method advocated by the majority of contemporary economists, the Austrian method derives from a long line of deductive economic thought stretching from the 15th century to the modern era and including such major economists as [[Richard Cantillon]], [[David Hume]], [[Anne Robert Jacques Turgot, Baron de Laune|A.R.J. Turgot]], [[Adam Smith]], [[Jean-Baptiste Say]], [[David Ricardo]], [[Nassau Senior]], [[John Elliott Cairnes]], and [[Claude Frédéric Bastiat]].
The most famous Austrian adherents are [[Carl Menger]], [[Eugen von Böhm-Bawerk]], [[Friedrich von Wieser]], [[Ludwig von Mises]], [[Friedrich Hayek]], [[Gottfried von Haberler]], [[Murray Rothbard]], [[Israel Kirzner]], [[George Reisman]], [[Henry Hazlitt]], and [[Hans-Hermann Hoppe]]. While often controversial, and standing to some extent outside of the mainstream of neoclassical theory—as well as being staunchly opposed to much of [[John Maynard Keynes|Keynes]]' [[Keynesian economics|theory]] and its results—the Austrian School has been widely influential{{Fact|date=November 2007}} because of its emphasis on the creative phase (i.e. the time element) of economic productivity and its questioning of the basis of the behavioral theory underlying [[neoclassical economics]].
Because many of the policy recommendations of Austrian theorists call for [[minarchism|small government]], strict protection of private property, and support for [[individualism]] in general, they are often cited by [[conservatives]], [[laissez-faire liberal]], [[libertarian]], and [[Objectivism (Ayn Rand)|Objectivist]] groups for support, although Austrian School economists, like Ludwig von Mises, insist that ''praxeology'' must be [[positive economics|value-free]]. They do not answer the question "should this policy be implemented?", but rather "if this policy is implemented, will it have [[Law of unintended consequences|the effects you intend]]?".
==History==
[[Classical economics]] focused on the exchange theory of value. In the late 19th century, however, attention was focused on the concepts of “marginal” cost and value (see [[Marginalism]]). Carl Menger's 1871 book, ''[[Principles of Economics]]'', is considered one of the crucial works that began the period known as [[neoclassical economics]]{{Fact|date=November 2007}}. While marginalism was generally influential, there was also a more specific school that grew up around Menger, which came to be known as the “Psychological School,” “Vienna School,” or “Austrian School.”<ref>Israel M. Kirzner (1987). "Austrian School of Economics," ''[[The New Palgrave: A Dictionary of Economics]]'', v. 1, pp. 145-51.</ref>
Austrian economics is currently closely associated with the advocacy of ''[[laissez-faire]]'' views. Earlier Austrian economists were more skeptical compared to later economists such as [[Ludwig von Mises]] and [[Karel Engliš]], with [[Eugen von Böhm-Bawerk]] saying that he feared unbridled competition would lead to “anarchism in production and consumption”. However, the Austrian School, especially through the works of [[Friedrich Hayek]], would be influential in the revival of ''laissez-faire'' thought in the 1980s.{{Fact|date=November 2007}}
The school originated in [[Vienna]]. However, later adherents of the school like [[Murray Rothbard]] and others have derived the roots of the thought of the Austrian School from the Spanish [[Scholastics]] teaching at the [[University of Salamanca]] of the [[15th century]] and the [[France|French]] [[Physiocrats]] of the [[18th century]].<ref>[http://www.mises.org/etexts/austrian.asp What is Austrian economics?]</ref> It owes its name to members of the [[Germany|German]] [[Historical School]] of [[economics]], who argued against the Austrians during the ''[[Methodenstreit]]'', in which the Austrians defended the reliance that [[classical economics|classical economists]] placed upon deductive logic. Their Prussian opponents derisively named them the “Austrian School” to emphasize a departure from mainstream German thought and to suggest a provincial, [[Aristotelian]] approach. (The name “Psychological School” derived from the effort to found marginalism upon prior considerations, largely psychological.)
Menger was closely followed by [[Eugen von Böhm-Bawerk]] and [[Friedrich von Wieser]]. [[Austria]]n economists developed a sense of themselves as a school distinct from [[neoclassical economics]] during the [[economic calculation debate]], with [[Ludwig von Mises]] and [[Friedrich von Hayek]] representing the Austrian position, where they contended that without monetary prices and private property, meaningful economic calculation is impossible.
The Austrian economists were the first liberal economists to systematically challenge the [[Marxist]] school{{Fact|date=November 2007}}. This was partly a reaction to the ''[[Methodenstreit]]'' when they attacked the [[Georg Wilhelm Friedrich Hegel|Hegelian]] doctrines of the [[Historical School]]. Though many Marxist authors have attempted to portray the Austrian school as a ''[[bourgeois]]'' reaction to Marx, such an interpretation is implausible: Menger wrote his ''[[Principles of Economics]]'' at almost the same time as [[Karl Marx|Marx]] was working upon ''[[Das Kapital]]'', whose second and third volumes were published more than ten and twenty years, respectively, after ''Principles''. (However, this does not refute the weaker claim that marginalism received the attention it did in the [[1880s]], and not earlier, in part because it was seen as an answer to Marx.) The Austrian economists were, nonetheless, amongst the first to clash directly with Marxism{{Fact|date=November 2007}}, since both dealt with such subjects as money, [[capital (economics)|capital]], [[business cycle]]s, and economic processes. Böhm-Bawerk wrote extensive critiques of Marx in the 1880s and 1890s, and several prominent Marxists — including [[Rudolf Hilferding]] — attended his seminar in 1905–6. In contrast, the classical economists had shown little interest in such topics, and many of them did not even gain familiarity with Marx's ideas until well into the twentieth century.{{Fact|date=November 2007}}
The school was no longer centered in Austria after [[Hitler]] came to power. Austrian economics was ill-thought of by most economists after [[World War II]] because it rejected observational methods{{Fact|date=November 2007}}. Its reputation has lately risen{{Fact|date=November 2007}} with work by students of [[Israel Kirzner]] and [[Ludwig Lachmann]], as well as a renewed interest in Hayek after he won the [[Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel]]{{Fact|date=November 2007}}. However, it remains a distinctly minority position, even in such areas as capital value.
Austrian economics can be broken into two general trends. One, exemplified by Hayek, while distrusting most neoclassical concepts (like the entire corpus of macroeconomics), generally accepts a large part of the neoclassical methodology; the other, exemplified by the [[Ludwig von Mises Institute]], seeks a different formalism for [[economics]]. The main area of contention between the mainstream and the Austrian school is on their view of the market system as a process, not only to be studied using equilibrium models, but to be viewed as an incessant process that only tends toward a constantly changing equilibrium, this difference is the root of the Austrian business cycles theory, the economic calculation debate and their different views of monopoly and competition. The second primary area of contention between neoclassical theory and the Austrian school is over the possibility of consumer indifference — neoclassical theory says it is possible, whereas Mises rejected it as being “impossible to observe in practice”. The third major dispute arose when Mises and his students argued that utility functions are [[ordinal scale|ordinal]], and not [[cardinal number|cardinal]]; that is, the Austrians contend that one can only rank preferences and cannot measure their intensity, in direct opposition to the neoclassical view at the time. Finally there are a host of questions about uncertainty raised by Mises and other Austrians, who argue for a different means of [[risk assessment]].
The influence that Austrian school ideas have had on Keynesian [[macroeconomics]] is often overlooked{{Fact|date=November 2007}}. Keynes himself acknowledged being exposed to the Misesian notion that “nominal” values could have “real” effects. A further source of this influence is the period of time when the [[London School of Economics]] brought in Hayek and other “continental” economists. {{Fact|date=November 2007}}While their students, though initially receptive, ultimately were drawn to the new Keynesian doctrines, many of the Hayekian concepts, particularly those relating time to the value of capital and its importance, would find their way into the work of Keynesians, especially by way of [[John Hicks]] (who, while distancing himself from Keynesianism, nonetheless made the most influential attempt to formalize it).{{Fact|date=November 2007}}
[[Alan Greenspan]], speaking of the originators of the School, said in 2000, “the Austrian school have 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.”{{Fact|date=November 2007}} The long-time [[U.S. Federal Reserve]] Chairman said he attended a seminar hosted by Ludwig von Mises.<ref>[http://www.usagold.com/gildedopinion/greenspan-gold.html The Greenspan-Paul Congressional Exchanges]</ref>
==Analytical framework==
Austrian economists reject statistical methods and artificially constructed experiments as tools applicable to economics, saying that while it is appropriate in the natural sciences where factors can be isolated in laboratory conditions, acting human beings are too complex for this treatment. Instead one should isolate the logical processes of human action - a discipline named "[[praxeology]]" by [[Alfred Espinas]].{{Fact|date=November 2007}}
Austrians view [[entrepreneurship]] as the driving force in [[economic development]], see [[private property]] as essential to the efficient use of resources, and usually (if not always) see [[government]] interference in market processes as counterproductive.
As with neoclassical economists, Austrians reject [[classical economics|classical]] cost of production theories, most famously the [[labor theory of value]]. Instead they [[Subjective theory of value|explain value by reference to the subjective preferences of individuals]]. This psychological aspect to Menger's economics has been attributed to the school's birth in turn of the century [[Vienna]]. [[Supply and demand]] are explained by aggregating over the decisions of individuals, following the precepts of [[methodological individualism]], which asserts that only individuals and not collectives make decisions, and [[marginalist]] arguments, which compare the costs and benefits for incremental changes.
Contemporary neo-Austrian economists claim to adopt [[economic subjectivism]] more consistently than any other school of economics and reject many neoclassical formalisms. For example, while neoclassical economics formalizes the economy as an [[economic equilibrium|equilibrium]] system with supply and demand in balance, Austrian economists emphasize its dynamic, perpetually dis-equilibrated nature.
The core of the Austrian framework can be summarized as taking a subjectivist approach to marginal economics, and a focus on the idea that logical consistency of a theory is more important than any interpretation of empirical observations. Austrians focus completely on the [[opportunity cost]] of goods, as opposed to balancing downside or disutility costs. It is an Austrian assertion that everyone is ''better'' off in a mutually voluntary exchange, or they would not have carried it out.<ref>[http://cepa.newschool.edu/het/essays/margrev/oppcost.htm The Opportunity Cost Doctrine]</ref>.
This focus on opportunity cost alone means that their interpretation of the [[time value]] of a good has a strict relationship: since goods will be as restricted by scarcity at a later point in time as they are now, the strict relationship between investment and time must also hold. A factory making goods next year is worth as much less as the goods it is making next year are worth. This means that the business cycle is driven by miscoordination between sectors of the same economy, caused by money not carrying incentive information correct about present choices, rather than within a single economy where money causes people to make bad decisions about how to spend their time.
==Contributions==
Some contributions of Austrian economists:
*A theory of distribution in which factor [[price]]s result from the [[imputation (economics)|imputation]] of prices of consumer goods to goods of "higher order", that is goods used in the production of consumer goods (goods of the first order).
*An emphasis on the forward-looking nature of choice, seeing time as the root of uncertainty within economics (see also [[time preference]]).
*A fundamental rejection of mathematical methods in economics seeing the function of economics as investigating the essences rather than the specific quantities of economic phenomena. This was seen as an evolutionary, or "genetic-causal", approach against the stresses of [[economic equilibrium|equilibrium]] and [[perfect competition]] found in mainstream Neoclassical economics (see also [[praxeology]]).
*[[Eugen von Böhm-Bawerk]]'s critique of [[Karl Marx|Marx]] centered around the untenability of the [[labor theory of value]] in the light of the [[transformation problem]]. There was also the connected argument that capitalists do not exploit workers; they accommodate workers by providing them with income well in advance of the revenue from the output they helped to produce.
*[[Eugen von Böhm-Bawerk]]'s capital theory, which equates [[capital intensity]] with the degree of [[roundaboutness]] of production processes.
*[[Eugen von Böhm-Bawerk]]'s demonstration that the law of marginal utility, as formulated by [[Carl Menger|Menger]] necessarily implies the classical law of costs and hence the vast majority of the conclusions of the British [[classical economists]]. This discovery was later fully developed and its implications traced by a student of [[Ludwig von Mises|von Mises]], [[George Reisman]], in his book, ''Capitalism''.
*An emphasis on [[opportunity cost]] and reservation demand in defining [[marginal theory of value|value]], and a refusal to consider supply as an otherwise independent cause of value. (The British economist [[Philip Wicksteed]] adopted this perspective.)
*The Mises-Hayek [[business cycle]] theory, which explains depression as a reaction to an intertemporal production structure fostered by [[monetary policy]] setting [[interest rate]]s inconsistent with individual time preferences.
*Hayek's concept of [[intertemporal equilibrium]]. ([[John Hicks]] took over this theory in his discussion of temporary equilibrium in ''Value and Capital,'' a book very influential on the development of neoclassical economics after World War II.)
*Mises and Hayek's view of prices as permitting agents to make use of [[dispersed knowledge|dispersed tacit knowledge]].
*The [[time preference theory of interest]], which explains interest rates through [[intertemporal choice]] - the different time preferences of the borrower or lender - rather than as a price paid for a [[factor of production]].
*Stressing uncertainty in the making of economic decisions, rather than relying on "[[Homo economicus]]" or the rational man who was fully informed of all circumstances impinging on his decisions. The fact that perfect knowledge never exists, means that all economic activity implies risk.
*Seeing the entrepreneurs' role as collecting and evaluating information and acting on risks.
*The [[economic calculation debate]] between Austrian and [[Marxist]] economists, with the Austrians claiming that Marxism is flawed because prices could not be set to recognize opportunity costs of factors of production, and so [[socialism]] could not make rational decisions.
== Criticism ==
[[Bryan Caplan]] has criticized the school for rejecting on principle the use of [[mathematics]] or [[econometrics]] which is "more than anything else, what prevents Austrian economists from getting more publications in mainstream journals"<ref>[[Bryan Caplan|Caplan, Bryan]], [http://www.gmu.edu/departments/economics/bcaplan/whyaust.htm Why I Am Not an Austrian Economist]</ref> There are also criticisms of more specific theories.<ref>For example, see [http://world.std.com/~mhuben/austrian.html Austrian Economics], part of the [http://world.std.com/~mhuben/libindex.html "Critiques of Libertarianism" site]</ref>
==Economists affiliated with the Austrian School==
{|
| valign="top" |
*[[Benjamin Anderson]]
*[[William L. Anderson]]
*[[William Barnett II]]<ref>[http://business.loyno.edu/faculty/wbarnett/ Chase Distinguished Professor of International Business and Professor of Economics]</ref>
*[[Gérard Bramoullé]]
*[[Walter Block]]
*[[Peter Boettke]]
*[[Eugen von Böhm-Bawerk]]
*[[Gene Callahan]]
*[[Tony Carilli]]<ref>[http://www.gmu.edu/rae/archives/VOL14_4_2001/4_carilli&dempster.pdf George Mason University site]</ref>
*[[Jean-Pierre Centi]]
*[[Christopher Coyne]]
*[[Gregory Dempster]]<ref>[http://www.gmu.edu/rae/archives/VOL14_4_2001/4_carilli&dempster.pdf George Mason University site]</ref>
*[[Thomas DiLorenzo]]
*[[Richard Ebeling]]
*[[Karel Engliš]]<ref>[http://www.brno.cz/index.php?nav01=2222&nav02=2220&lan=en&nav03=2447&idosobnosti=10 Karel Englis, Economist, politician]</ref>
| <hspace width=40px> |
| valign="top" |
*[[Frank Fetter]]
*[[Jacques Garello]]
*[[Roger Garrison]]
*[[David Gordon (economist)|David Gordon]]
*[[Friedrich Hayek]]
*[[Henry Hazlitt]]
*[[Gottfried Haberler]]
*[[Hans-Hermann Hoppe]]
*[[Hans F. Sennholz]]
*[[Steven Horwitz]]
*[[Jorg Guido Hulsmann|Jörg Guido Hülsmann]]
*[[William Harold Hutt]]
*[[Israel Kirzner]]
*[[Ludwig Lachmann]]
*[[Don Lavoie]]
| <hspace width=40px> |
| valign="top" |
*[[Peter T. Leeson]]
*[[Henri Lepage]]
*[[Peter Lewin]]
*[[Juan De Mariana]]
*[[Ludwig von Mises]]
*[[Margit von Mises]]
*[[Oskar Morgenstern]]
*[[Fritz Machlup]]
*[[Carl Menger]]
*[[Gerald O'Driscoll]]
*[[Ernest C. Pasour]]
*[[Ralph Raico]]
*[[George Reisman]]
| <hspace width=40px> |
| valign="top" |
*[[Kurt Richebächer]]
*[[Mario Rizzo]]
*[[Llewellyn Rockwell]]
*[[Paul Rosenstein-Rodan]]
*[[Murray Rothbard]]
*[[Mark Thornton]]
*[[Joseph Salerno]]
*[[Pascal Salin]]
*[[Josef Síma]]
*[[Mark Skousen]]
*[[Jesus Huerta de Soto]]
*[[Steven P. Spadijer]]
*[[Nicholas G. Tam]]
*[[Richard von Strigl]]
*[[Philip Henry Wicksteed]]
*[[Friedrich von Wieser]]
*[[Frederick Nymeyer]]
|}
Note that the economists aligned with the Austrian School are sometimes colloquially called "the Austrians" even though not all held Austrian citizenship, and not all economists from Austria subscribe to the ideas of the Austrian School.
==Other related economists==
*[[Richard Cantillon]]
*[[Frédéric Bastiat]] (precursor)
*[[Henry Hazlitt]] (introduced the Austrian School to the USA)
*[[School of Salamanca]] (Renaissance precursors)
*[[Étienne Bonnot de Condillac]]
*[[Louis Say]]
*[[Jean-Baptiste Say]]
*[[Léon Walras]]
*[[Jules Dupuit]]
*[[Lionel Robbins]]
*[[Wilhelm Röpke]]
*[[Joseph Schumpeter]]
*[[Anne Robert Jacques Turgot, Baron de Laune|A.R.J. Turgot]]
*[[Knut Wicksell]]
==Critics==
*[[Bryan Caplan]]
*[[David D. Friedman]]
*[[Tyler Cowen]]
==Seminal works==
*''[[Principles of Economics]]'' by [[Carl Menger]]
*''[[Capital and Interest]]'' by [[Eugen von Böhm-Bawerk]]
*''[[Human Action]]'' by [[Ludwig von Mises]]
*''[[Individualism and Economic Order]]'' by [[Friedrich Hayek]]
*''[[Man, Economy, and State]]'' by [[Murray Rothbard|Murray N. Rothbard]]
*''[[Competition and Entrepreneurship]]'' by [[Israel Kirzner|Israel M. Kirzner]]
==References==
<references/>
==See also==
*[[Anarcho-capitalism]]
*''[[An Austrian Perspective on the History of Economic Thought]]'' by [[Murray Rothbard]]
*[[Consumarchy]]
*[[Consumer sovereignty]]
*[[Chicago school (economics)]]
*[[Classical liberalism]]
*[[Free Market]]
*[[Keynesian|Keynesian school]]
*[[Libertarianism]]
*[[Neoclassical economics|Neoclassical school]]
*[[Newtonian time]]
*[[Quarterly Journal of Austrian Economics]]
*[[Ron Paul]]
*[[Socialist economics|Socialist school]]
*[[Supply-side economics]]
*[[School of Salamanca#Economics|School of Salamanca (Renaissance pre-Austrians)]]
==External links==
*[http://www.mises.org/etexts/austrian.asp What is Austrian Economics?] Austrian School as defined by the [[Ludwig von Mises Institute]].
*[http://www.mises.org The Mises Institute - A large selection of online books, video/audio, journal archives, and research on Austrian economics]
*[http://it.stlawu.edu/sdae Society for the Development of Austrian Economics] Largest professional organization of Austrian economists
*[http://www.econlib.org/library/Enc/AustrianEconomics.html Austrian Economics] ''[[Concise encyclopedia of economics]]'' on [[Econlib]]
*[http://homepage.newschool.edu/het/schools/austrian.htm Austrian School on newschool.edu] – compare Austrian versus other Schools
*[http://socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/bawerk/austrian The Austrian Economists by Eugen von Böhm-Bawerk 1891]
*[http://library.wur.nl/way/catalogue/documents/A%20Great%20Revolution%20in%20Economics.htm A Great Revolution in Economics - Vienna 1871 and after] by Houmanidis and Leen
*[http://www.montpelerin.org/ The Mont Pelerin Society]
*[http://www.liberty-page.com/issues/austrian/main.html/ Austrian School Economists] from Mark Valenti's Liberty Page
*[http://www.gmu.edu/departments/ihs/hsr/s97hsr.html#austrian The Origins of the Austrian School of Economics by John Moser]
*{{dmoz|Science/Social_Sciences/Economics/Schools_of_Thought/Austrian_School/}}
*[http://austrianecon.com Austrian Economics Forum] Discussion message board concerning Austrian economic theory
*[http://www.FreeMarketeers.com The Free Marketeers Network] The networking site for Free Marketeers around the world
*[http://austrianeconomists.typepad.com/ The Austrian Economists]
*[http://austrianaddiction.rationalmind.net Austrian Addiction]
*[http://www.lewrockwell.com Lew Rockwell]
*[http://www.purelogic.us The Pure Logic of Choice]
*[http://http://worksaveown.wordpress.com WorkSaveOwn] Blog on Personal Finance from an Austrian Economics perspective
*[http://www.econtalk.org/archives/2007/12/boettke_on_aust.html Link] Discussion on [[Econtalk]] regarding Austrian School
===Critical ===
*[http://world.std.com/~mhuben/austrian.html Critiques of Libertarianism: Austrian Economics]
*[http://www.gmu.edu/departments/economics/bcaplan/whyaust.htm Why I Am Not An Austrian Economist]
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