The Austrian School of Economics, the market and entrepreneurial creativity - all these things are incredibly dear to modern libertarians and some neoliberals. The school itself arose in Vienna in the late 19th and early 20th centuries thanks to the works of Karl Menger, Eugene Böhm von Bawerk, Friedrich von Wieser and others. It was the methodological opposite of the Prussian historical school (in the dispute known as Methodist Street).
Modern economists working in this tradition live in many different countries, but their school is still called Austrian. In short, we owe to the Austrian School of Economics such theoretical concepts as the subjective theory of value, marginalism, the theory of pricing and the formulation of the problem of economic calculation. Each of these developments has been accepted by modern economic science, while all other theses of the AES are rigidly disputed in academic circles.
Criticism of the Austrian School of Economics
Since the mid-20th century, serious economists have criticized the Austrian school and believe that its rejection of mathematical modeling, econometrics and macroeconomic analysis goes beyond the scope of scientific methods adopted in this discipline. Although the Austrian school has been considered unorthodox since the late 1930s, it sparked a new influx of interest in the 1970s after Friedrich Hayek received the 1974 Nobel Prize in economics, or after the 2008 global financial crisis.
origin of name
The Austrian school owes its name to German economists, who opposed the Austrians, criticizing their methodology (late 19th century). At that time, the Austrians defended the role of theory in economics, unlike the Germans, who considered various historical circumstances to be the key economic factor.
In 1883, Menger published "Studies of the methods of social sciences with a special appeal to the economy", in which he criticized the dominant historical school at that time. Gustav von Schmoller, the head of the historical school, answered this criticism with an unfavorable review, in which he introduced the term "Austrian school" in an attempt to characterize Menger's followers as outcasts and provincials. The label weathered and was accepted by the devotees themselves.
Story
The school originated in Vienna, the capital of the Austrian Empire. Karl Menger's 1871 work, Principles of Economics, is usually considered the beginning of the birth of the Austrian school of economics. The book is one of the first modern treatises on the promotion of the theory of marginal utility.
AES was one of the three fundamental trends of the marginalist revolution of the 1870s, and its main contribution was to introduce a subjective approach to the economy. Although marginalism was an influential trend at that time, for the first time in the 19th century a specific economic school emerged that shared marginalist views and united around Menger's ideas. Over time, it became known as a psychological school, a Vienna school, or an Austrian school.
Key representatives
Menger's contribution to economic theory is closely related to the figures of Eugene Böhm von Baverk and Friedrich von Wieser. These three economists became the so-called first wave of the Austrian economic school. Böhm-Bawerk wrote extensive critical pamphlets on Karl Marx in the 1880s and 1890s, which are considered to be a typical example of the traditional “Austrians” attacks on the Hegelian doctrines of a historical school.
Frank Albert Fetter (1863-1949) was the most prominent representative of "Austrian thought" in the United States. He received his Ph.D. in 1894 from the University of Halle, and then became a professor of political economics and finance at Cornell in 1901. Several important Austrian economists studied at the University of Vienna in the 1920s, and then participated in private seminars conducted by Ludwig von Mises. Among them were Gottfried Haberler, Friedrich Hayek, Fritz Mahlup, Karl Menger Jr. (son of the aforementioned Karl Menger), Oscar Morgenstern, Paul Rosenstein-Rodan and Abraham Wald.
By the mid-1930s, most economists had accepted many of the ideas of the early "Austrians." Fritz Mahlup proudly quoted Hayek saying that "the greatest success of our school is that it gradually ceases to exist, because its fundamental ideas have become part of generally accepted economic thought."
Once, in the mid-20th century, the Austrian economy was ignored or ridiculed by mainstream economists because it rejected the construction of models, mathematical and statistical methods in the study of economics. Mises' student Israel Kirtsner recalled that in 1954, when he was writing his Ph.D. thesis, there was no separate Austrian school. When Kirzner decided which graduate school to attend, Mises advised him to accept the offer of admission to Jones Hopkins, because it was a prestigious university where his like-minded Fritz Mahlup studied.
Further development
After the 1940s, the Austrian School of Economics split into two separate schools of economic thought, and at the end of the 20th century it completely split. One Austrian camp, an example of which is Mises, considers the neoclassical methodology an unreasonable mistake, while another camp, an example of which is Friedrich Hayek, accepts most of the neoclassical methodology and, moreover, accepts government intervention in the economy. Henry Hazlitt has written economic columns and editorials for a number of publications, as well as many books on Austrian economics from the 1930s to the 1980s. Hazlitt's thinking was influenced by Mises. His book Economics in One Lesson (1946) has been sold in more than a million copies, and another well-known work by an economist is The Failure of a New Economy (1959), a phased criticism of John Maynard Keynes’s general theory.
The reputation of the Austrian school grew at the end of the 20th century, partly due to the work of Israel Kirzner and Ludwig Lachmann at New York University and the renewal of public awareness of Hayek's work after he won the 1974 Nobel Prize in Economics. Hayek's work was influential in the revival of laissez-faire thought in the 20th century.
Criticism of the split
Economist Leland Yeager discussed schism at the end of the 20th century and referred to a textual escapade written by Murray Rothbard, Hans-Hermann Hoppe, Joseph Salerno and others in which they attack and humiliate Hayek. Yeager stated: "The attempt to drive a wedge between Mises and Hayek (the role of knowledge in economic calculation), and especially the humiliation of the second, is unfair to these two great people."
Connection with libertarianism
In a 1999 book published by the Ludwig von Mises Institute (Mises Institute), Hoppe claimed that Rothbard was the leader of "dominance in the Austrian economy" and contrasted Rothbard with Nobel Prize winner Friedrich Hayek, whom he called the British empiricist and opponent of Mises and Rothbard thought. Hoppe admitted that Hayek was the most famous Austrian economist in academia, but stated that Hayek was opposed to the Austrian tradition that went from Karl Menger and Böhm-Bawerk through Mises to Rothbard.
Austrian economist Walter Block says that the Austrian school can be distinguished from other schools of economic thought due to two features - economic and political theory. According to Blok, if Hayek as a whole can be considered an “Austrian” economist, his views on political theory contradict libertarian political thought, which Blok considers as an integral part of AES. The economic theory of the Austrian school in some studies faded into the background, giving way to political.
Speaking about the fact that libertarian political theory is an integral part of the AES, and assuming that Hayek is not a libertarian, Blok unwittingly expels from the Austrian school and its founder, Karl Menger, as it seems to justify a wider government intervention than that which meant Hayek. For example, Menger favored progressive taxation and extensive labor laws. Thus, the following conclusions belong to the Austrian School of Economics:
- Economic freedom cannot exist in isolation from political freedom.
- The state should not interfere in economic processes.
- The government should be reduced, and taxes should be reduced.
- Free entrepreneurs are the main driving force behind market processes.
- The economy should self-regulate without outside interference.
Confession
Many theories developed by Austrian “first wave” economists have long been absorbed in the mainstream economy. These include Karl Menger’s theory of marginal utility, Friedrich von Wieser’s theory of opportunity costs, and the ideas of Eugene Böhm von Bawerk about the role of time, as well as the critic Menger and Böhm-Bawerk of Marxist economic theory.
Former US Federal Reserve Chairman Alan Greenspan said the founders of the Austrian school "have reached the distant future, as most of them have had a profound and, in my opinion, irreversible effect on how most major economists think in this country."
In 1987, Nobel laureate James M. Buchanan told the interviewer: “I do not mind being called the“ Austrian. ” Hayek and Mises may consider me an “Austrian,” but probably others will disagree. ” Chinese economist Zhang Weiying supports some of the "Austrian" theories, such as the theory of the real business cycle.
Impact on Faculties of Economics and Worldwide Distribution
Universities with significant Austrian influence currently exist around the world: George Mason University, New York University, Loyola University in New Orleans and Auburn University in the United States, King Juan Carlos University in Spain and Francisco Marroquin University in Guatemala. But besides them, private organizations such as the Mises Institute and Cato Institute also contribute to the dissemination of AES ideas.
If we talk about the experience of the Austrian economic school for Russians, we can recall the convinced “Austrian” Pavel Usanov, who teaches at the HSE, or the former Russian Prime Minister and Minister of Finance Yegor Gaidar, who has come to be known as a big fan of the ideas of Mises and Hayek.
Relation to Monetarism
After studying the history of business cycles in the United States, Milton Friedman wrote that there seems to be no systematic connection between the expansion and subsequent reduction of cycles, and that further analysis may cast doubt on this theory of the “Austrians”. Referring to Friedman’s criticism of the business cycle theory, the “Austrian” economist Roger Garnison argued that Friedman’s empirical conclusions “generally agree with both monetarist and“ Austrian ”views, believing that although the Friedman model describes the effectiveness of the economy on A high level of aggregation, Austrian theory offers an insightful account of the market process, which may underlie these aggregates.