You might have guessed it but Austrian Economics or the Austrian School of Economics received this name because its founder and early contributors came from Vienna in Austria.
"Austrian" Economists rely on "Human Action" to explain economic theory while orthodox economists rely more on mathematical/statistical techniques.
Who was the founder of the Austrian School?
Carl Menger, professor of political economy at the University of Vienna in the late 19th Century (1873 – 1903), is considered the "originator of the fundamental doctrines of Austrian economics".
In addition in 1871 he produced – (along with W. Stanley Jevons (1835-1892) and Leon Walras (1834-1910) – the subjective theory of value based on the principle of Marginal Utility.
Marginal Utility is described as the "extra satisfaction gained by a consumer from a small increment in the consumption of a commodity."
Professor Menger’s work was expanded by two of his "disciples" Friedrich von Wieser and Eugen von Bohm-Bawerk. Wieser’s theory became known as the "law of cost" and Bohm-Bawerk’s contribution was his theory of capital and interest.
They differed from the German Historical School of Economics at the time resulting in controversy and an exchange of publications that became known as the Methodenstreit. This controversy lasted for more than two decades.
Popularity of the Austrian School
Menger’s "Principles of Economics" was released in 1871. Interest in the Austrian School took hold again in the 1930’s as a result of the works of Ludwig von Mises and Friedrich von Hayek and was piqued in the late 1940’s with the publication of Mises’ masterpiece, "Human Action". Hayek’s "Road to Serfdom" created a sensation when it was published in 1944.
Hayek was awarded the Nobel Memorial Prize in Economics in 1974 for his contributions in the field of economics.
The fall of the Berlin Wall in the 1990’s, confirmed the theories of Mises and Hayek for many and interest in the Austrian School took another great leap that has continued through this day.
Is the Austrian School different than the neoclassical mainstream?
As noted by Thomas Taylor in his 1980 book, An Introduction to Austrian Economics, "The Austrian analysis uses as its data human nature and the realities of the human predicament. Individual human values and human actions, amidst limited means including perceived knowledge, are placed at the center of economic science."
The neoclassical mainstream increasingly focused on mathematical and statistical techniques.
What about macroeconomic differences with Keynesianism?
As discussed earlier, the Austrians rely on human action for their analysis rather than economic aggregations (denoting the total supply or demand for goods and services in an economy at a particular time – Oxford) and government intervention.
In recent years there has been a narrowing of opinion and the "Methodenstreit" is not as pronounced as in the early days of economic science. This is more than likely a result of the theories of the Austrian School being accepted by the mainstream.
As a general rule, "Austrian" economists favour laissez-faire over government intervention.
Both Mises and Hayek wrote extensively about the dangers of Socialism and Nazism, preferring the actions of the free market in creating wealth.
A political philosophy?
While sometimes dismissed as a political philosophy, the Austrian School offers wide commentary on "…the economy, market prices, business profits and losses, interest rates, inflation, and economic recessions and depressions."
The meddling of politicians in the free market, and the poor economic performance that results makes them defensive of their positions and distrustful of the Austrian libertarian philosophy.
Who took up the Mises mantle?
Ludwig von Mises died in 1973 and Hayek in 1992. An increasing number of highly honoured economists and writers are dedicated to advancing the Austrian School. Individuals like Wilhelm Ropke, W. H. Hutt, Henry Hazlitt, Israel Kirzner and Murray Rothbard, Hans Sennholz, Robert Murphy, Don Boudreaux, Russell Roberts, Gene Callahan and many more.
The Austrian School is in good hands for the 21st Century and beyond.
“Mises and the Foundation of Austrian Economics”
Hulsmann, Mises University (2003)
Holcombe, ed., Fifteen Great Austrian Economists
“Introduction: Stayin’ Alive”
“Appendix A: A Brief History of the Austrian School”
Callahan, Economics for Real People
Taylor, An Introduction to Austrian Economics
The Nassau Institute