AUSTRIAN SCHOOL

OF ECONOMICS
OVERVIEW
• One of the major heterodox schools of economic thought.
• This means that it is out of the mainstream, which is generally a consequence of rejecting
mathematical models due to lacking usefulness in presenting human behavior.
• The main method of analyzing is praxeology, which is the study of human action, and
mainly relies on a priori rationalism. This involves reasoning in thought experiments and
trying to challenge theories on their theoretical basis instead of empirical evidence, which
they seldom relate to in forming counter-arguments.
MAIN BELIEFS

• Opinions generally range from free-market advocates supporting a small state and a very
limited welfare program(such as vouchers), to full-blown anarcho-capitalists who see the
government as an oppressive apparatus limiting the power of the free market and want
to abolish it entirely.
• The Austrian school also generally rejects the aim of full employment, in a similar manner
to the Chicago school, arguing that employment should be determined by the market
forces, and that any intervention to change this would lead to distortion of this and a
move towards oligopoly/crony-capitalism(state sponsoring of industries to levels of
oligopolies/monopolies)
KEY CONTRIBUTIONS

• Opportunity cost (which is generally expressed as “seeing the unseen”)

• Marginal utility (how much does the utility one derives from consumption fall after
consuming multiple units of that good)
• Knowledge problem(how could a central planner know how to allocate resources
without knowing the desires of the people, which could only be found out in a timely and
efficient manner through the price mechanism)
• Business cycle theory(Boom-Bust) – it is expansionary credit, resulting from central
managing of interest rates, which causes financial crisis to happen
KEY BOOKS OF THE SCHOOL
A SHORT EXAMPLE

• “The vain arrogance of the literati and the Bohemian artists dismisses
the activities of the businessmen as unintellectual money-making. The
truth is that the entrepreneurs and promoters display more
intellectual faculties and intuition than the average writer and painter.
The inferiority of many self-styled intellectuals manifests itself
precisely in the fact that they fail to recognize what capacity and
reasoning power are required to develop and to operate successfully
a business enterprise.”
VIDEOS

• https://www.youtube.com/watch?v=y8l47ilD0II
• https://www.youtube.com/watch?v=fXqc-yyoVKg
• https://www.youtube.com/watch?v=3r4vFnPCCjU