With the holidays upon us, I’m not sure how well we’ll keep up for the next couple of weeks. More than likely, I’ll have a couple of entries and share articles I run across as I’m able. We’ll be traveling, so I might easily miss a few days.
Today we want to get a definition of the Austrian School of Economics started. First of all, why “Austrian”?
It’s really no mystery. While the origin of what has become known as Austrian economics has been around for many centuries, the systematization of this school of thought seems to have developed in opposition to the British school of economics, which embraced a method of capitalist manipulation such as we see in the teaching of Keynes.
Carl Menger revisited the Scholastic-French perspective on economics and laid the foundation for the “Australian School proper” with is excellent book, Principles of Economics, in 1871. Two other writers of his day, Leon Walras and Stanley Jevons, complemented his work with their own writings, further advancing the virtues of a free market.
This trio was followed by more Austrians, Eugen von Böhm-Bawerk, Ludwig von Mises and later Murray Rothbard, Friedrich Hayek and Henry Hazlitt. Thus, it is “Austrian” simply because the early writers and greatest systematization of Austrian economics came from Austria. Today all it takes to be “Austrian” is for one to embrace the free-market economics espoused by the Austrian School of Economics. The strongest presence of such teaching today can be found at the Ludwig von Mises Institute, in America.
More on the fascinating history of economic thought as it relates to the Austrian School, as well as the implications leading up to contemporary challenges, can be found on the Mises Wiki site. For the purposes of this article, we’ll simply provide a brief overview.
As noted in a recent article, the focus of Austrian economics is on human action. When markets are free to ebb and flow according to the basic principles of supply and demand, the actions of people will dictate how the market performs. Of course, there will be bubbles because people are reactionary. But they will correct once they’ve spent their fuel, provided some arbitrary manipulation does not take place.
Because of this focus on human action, praxeology became the focus of Austrian study. “Praxeology is the scientific study of human action, which is purposeful behavior.” For clarity, not every action humans make falls into this category. Any behavior that is automatic, involuntary or unconscious is not included. Only actions that are purposeful fall into praxeology, which then studies the implications of those actions. The point here is that this school of study originates with the actions of people and how they affect markets.
In contrast, Marxist or fascist economic theories focus on the market first, seeing the human action as responsive to the markets. Obviously people do respond to markets, but when it is the market that is controlled in order to move the humans, there is no inherent correction to balance the results. This necessitates further action on the parts of the market manipulators in order to continue to promote the human action they’re striving for.
To put it bluntly, Austrian economics embraces a natural market that is free from manipulation since such a market will correct itself through the laws of supply and demand. It begins with the actions of humans and how they affect the markets, recognizing that humans will respond to free-market conditions predictably and promote the corrections needed naturally and with less volatility than systems that begin with the market in an attempt to control supply, demand and human action. Perhaps another way to say it is that one is free, the other is a form of control, or slavery.
Criticism comes from those who say it is too simple. They claim it lacks proper sophistication. It lacks the complicated equations that detractors love to use. In fact, anyone can understand Austrian economics.
Remember this about this school of thought. The academicians and self-proclaimed experts desire to puff themselves up and make themselves important. They want to be seen. And they want to keep those who can’t quite grasp what they’re saying in awe, or stupefied. It allows them to maintain a facade of superiority and keep detractors on their heels. The only defense against this bigotry is the simple understanding of sound economics as proposed by the Austrian School of Economics. Don’t be intimidated by the elitists. The simplicity of Austrian economics is far superior to the conventions of theories of market and fiscal manipulations.
Well, this is Another Joe’s stab and a simple overview of the Austrian School of Economics. Hopefully it’s helpful. Please avail yourself of the Mises Institute and their resources. There are many wonderful articles and their Mises Daily offers some excellent entries to help us think. Some of them are over my head. But almost all of them are helpful.
Have a great day!