Austrian school of economics

The Austrian school of economics, is a body of economic theory associated with neoliberalism and in particular with the Mont Pelerin society. It is similar in many respects to the Chicago School of Economics which developed in the latter half of the Twentieth Century, though they do differ in a number of important areas.

According to the Encyclopedia Britannica the school was originated in the late 19th century:

by Austrian economists who, in determining the value of a product, emphasized the importance of its utility to the consumer. Carl Menger published the new theory of value in 1871, the same year in which English economist William Stanley Jevons independently published a similar theory.

Menger believed that value is completely subjective: a product’s value is found in its ability to satisfy human wants. Moreover, the actual value depends on the product’s utility in its least important use (see marginal utility). If the product exists in abundance, it will be used in less-important ways. As the product becomes more scarce, however, the less-important uses are abandoned, and greater utility will be derived from the new least-important use. (This idea relates to one of the most important laws in economics, the law of demand, which says that when the price of something rises, people will demand less of it.)

The two best known Austrian School economists of the 20th century were Ludwig von Mises and Friedrich A. Hayek. Both claimed that 'a complex economy cannot be rationally planned because true market prices are absent. As a result, the information critical for centralized planning cannot be obtained.'

Resources

Reading

• Boettke, P., ed. The Elgar Companion to Austrian Economics. Brookfield, Vt.: Edward Elgar, 1994.
• Boettke, P., and Peter Leeson. 'The Austrian School of Economics: 1950–2000.' In Jeff Biddle and Warren Samuels, eds., The Blackwell Companion to the History of Economic Thought. London: Blackwell, 2003.
• Böhm-Bawerk, E. Capital and Interest. 3 vols. 1883. South Holland, Ill.: Libertarian Press, 1956. Available online at: http://www.econlib.org/library/BohmBawerk/bbCI.html
• Dolan, E., ed. The Foundations of Modern Austrian Economics. Mission, Kans.: Sheed and Ward, 1976. Available online at: http://www.econlib.org/library/NPDBooks/Dolan/dlnFMA.html
• Hayek, F. A. Individualism and Economic Order. Chicago: University of Chicago Press, 1948.
• Hayek, F. A. 'Economic Thought VI: The Austrian School.' In International Encyclopedia of the Social Sciences. New York: Macmillan, 1968.
• Kirzner, I. Competition and Entrepreneurship. Chicago: University of Chicago Press, 1973.
• Machlup, F. 'Austrian Economics.' In Encyclopedia of Economics. New York: McGraw-Hill, 1982.
• Menger, C. Principles of Economics. 1871. New York: New York University Press, 1976.
• Mises, L. von. Human Action: A Treatise on Economics. New Haven: Yale University Press, 1949. Available online at: http://www.econlib.org/library/Mises/HmA/msHmA.html
• O’ Driscoll, G., and M. Rizzo. The Economics of Time and Ignorance. Oxford: Basil Blackwell, 1985.
• Rothbard, M. Man, Economy and State. 2 vols. New York: Van Nostrand Press, 1962.
• Schulak, Eugen Maria and Unterkofler, Herbert Austrian School of Economics: A History of Its Ideas, Ambassadors, and Institutions Ludwig von Mises Institute 2011.
• Vaughn, K. Austrian Economics in America. Cambridge: Cambridge University Press, 1994.

See also

Chicago School of Economics | Friedrich Hayek | Ludwig von Mises