Austrian School
Overview
The Austrian School is a tradition in economics founded by Carl Menger in Vienna in the 1870s and carried on by Eugen von Böhm-Bawerk, Ludwig von Mises, and Friedrich Hayek. Its distinctive commitments are the subjective theory of value (value is set by the preferences of individuals, not by labour or any property of the good; see Diminishing marginal utility), methodological individualism (economic phenomena are to be explained through the choices of individuals), scepticism about mathematical modelling and aggregate statistics, and a strong preference for free markets over state planning.
Notes
- The school's most durable contribution is the Economic calculation problem: the argument that central planning cannot work because it abolishes the price signals that carry the information needed to allocate resources. This argument stands regardless of what one thinks of the rest of the programme, and it is the main reason I regard Communism as not implementable.
- Its most durable error, in my view, is the slide from "markets process information better than planners" to "markets should be left alone". The first is a claim about knowledge; the second is a political preference, and it does not follow. A regulated market is still a market. See Wealth and Luck for why I want a floor and progressive taxation inside the price system, not instead of it.
- The school's influence is out of proportion to its academic standing, chiefly through American libertarianism, where "Austrian economics" has become a political identity more than a research programme.