Austrian school of economics, the market and entrepreneurial creativity - all these things are incredibly dear to modern libertarians and some neoliberals. The school itself originated in Vienna in the late 19th and early 20th century through the work of Carl Menger, Eugen Böhm von Bawerk, Friedrich von Wieser, and others. She was the methodological opposite of the Prussian historical school (in a 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 the Austrian school of economics such theoretical concepts as the subjective theory of value, marginalism, pricing theory 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 heavily contested in academic circles.
Criticism of the Austrian School of Economics
Since the mid-20th century, serious economists have criticized the Austrian school andbelieve that its rejection of mathematical modeling, econometrics and macroeconomic analysis is beyond the scientific methods accepted in this discipline. Though considered unorthodox since the late 1930s, the Austrian School sparked a new surge of interest in the 1970s, after Friedrich Hayek won the 1974 Nobel Prize in Economics, and also after the 2008 global financial crisis.
Origin of the name
The Austrian school owes its name to German economists who opposed the Austrians, criticizing their methodology (end of the 19th century). At that time, the Austrians advocated the role of theory in economics, in contrast to the Germans, who considered various historical circumstances to be the key economic factor.
In 1883, Menger published "Studies in the Methods of the Social Sciences, with a Particular Appeal to Economics," in which he criticized the then dominant historical school. Gustav von Schmoller, head of the historical school, responded to this criticism with an unfavorable review, in which he introduced the term "Austrian school" in an attempt to characterize Menger's adherents as outcasts and provincials. The label endured and was accepted by the adherents themselves.
History
The school originated in Vienna, the capital of the Austrian Empire. Karl Menger's 1871 work "The Principles of Economics" is generally considered to be the beginning of the birth of the Austrian school of economics. The book is one of the first modern treatises to promote the theory of marginal utility.
The AES was one of the three founding currents of the marginalist revolution of the 1870s, and its main contribution was to introduce a subjectivist approach to economics. Although marginalism was an influential current at the time, for the first time in the 19th century a specific school of economics arose that shared marginalist views and united around Menger's ideas. Over time, it became known as the School of Psychology, the Viennese School, or the Austrian School.
Key Representatives
Menger's contribution to economic theory is closely related to the figures of Eugen Böhm von Bawerk and Friedrich von Wieser. These three economists became the so-called first wave of the Austrian school of economics. Böhm-Bawerk wrote extensive critical pamphlets on Karl Marx in the 1880s and 1890s, which are considered typical examples of the traditional "Austrian" attack on the Hegelian doctrines of the historical school.
Frank Albert Vetter (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 professor of political economy and finance at Cornell in 1901. Several important Austrian economists were trained at the University of Vienna in the 1920s and later participated in private seminars taught by Ludwig von Mises. Among them were Gottfried Haberler, Friedrich Hayek, Fritz Machlup, Karl Menger Jr. (son of the aforementioned Karl Menger), Oskar Morgenstern, Paul Rosenstein-Rodan and Abraham Wald.
By the mid-1930s, most economists had embraced many of the ideas of the early "Austrians". Fritz Machlup proudly quoted Hayek as saying that “the greatest success of our school is that it gradually ceases to exist, because its fundamental ideas have become part of mainstream economic thought.”
Once, in the mid-20th century, Austrian economics was ignored or ridiculed by mainstream economists because it rejected modeling, mathematical and statistical methods in the study of economics. Mises' student Israel Kirzner recalled that in 1954, when he wrote his Ph. D. thesis, there was no separate Austrian school. When Kirzner was deciding which graduate school to attend, Mises advised him to accept an offer to join Johns Hopkins because it was a prestigious university where his like-minded Fritz Machlup attended.
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 camp of Austrians, exemplified by Mises, considers neoclassical methodology an unreasonable error, while another camp, exemplified by Friedrich Hayek, accepts much 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 numerous books on the subject of Austrian economics since1930s to 1980s. Mises influenced Hazlitt's thinking. His book Economics in One Lesson (1946) sold over a million copies, and another notable work by the economist is The Failure of the New Economics (1959), a staged critique of John Maynard Keynes's general theory.
The Austrian School's reputation grew in the late 20th century, thanks in part to the work of Israel Kirzner and Ludwig Lachmann at New York University and renewed public awareness of Hayek's work after he won the 1974 Nobel Prize in Economics. Hayek's work was influential in reviving laissez-faire thought in the 20th century.
Criticism of the split
Economist Leland Yeager discussed the split 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 latter, is unfair to these two great people."
Link to libertarianism
In a 1999 book published by the Ludwig von Mises Institute (Mises Institute), Hoppe argued that Rothbard was the leader of "dominance in the Austrian economy" and contrasted Rothbard with the Nobel laureate Friedrich Hayek, whom he called a British empiricist and opponent of thought Mises and Rothbard. Hoppe acknowledged that Hayek was the most famous Austrian economist in academia, but stated thatHayek was opposed to the Austrian tradition that went from Karl Menger and Böhm-Bawerk through Mises to Rothbard.
Austrian economist W alter 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 Block, while Hayek can be generally considered an "Austrian" economist, his views on political theory are in conflict with the libertarian political thought that Block sees as an integral part of the AES. The economic theory of the Austrian school in some studies receded into the background, giving way to political.
Saying that libertarian political theory is an integral part of the AES, and believing that Hayek is not a libertarian, Block unwittingly excludes from the Austrian school and its founder, Carl Menger, because he seems to justify wider state intervention than what Hayek meant. 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 apart from political freedom.
- The state should not interfere in economic processes.
- Government should be cut and taxes should be reduced.
- Free entrepreneurs are the main driving force behind market processes.
- The economy should self-regulate without outsidersintervention.
Recognition
Many of the theories developed by Austrian "first wave" economists have long been absorbed into mainstream economics. These include Carl Menger's theories of marginal utility, Friedrich von Wieser's theories of opportunity cost, and Eugen Böhm von Bawerk's ideas on the role of time, and Menger's and Böhm-Bawerk's critiques of Marxist economics.
Former U. S. Federal Reserve Chairman Alan Greenspan said the founders of the Austrian School “reached far into the future, as most of them had a profound and, in my opinion, irreversible effect on how most mainstream economists think in this country "".
In 1987, Nobel laureate James M. Buchanan told an interviewer, “I don't mind being called 'Austrian'. Hayek and Mises may consider me an "Austrian", but perhaps others will not agree with this. Chinese economist Zhang Weiying supports some "Austrian" theories such as the real business cycle theory.
Impact on economics departments and global expansion
Currently, universities with significant "Austrian" influence exist all over the world: George Mason University, New York University, Loyola University New Orleans and Auburn University in the United States, King Juan Carlos University in Spain and Francisco University Marroquin in Guatemala. But in addition to them, the dissemination of the ideas of the AES alsoprivate organizations such as the Mises Institute and the Cato Institute contribute.
If we talk about the experience of the Austrian school of economics for Russians, then we can recall the convinced "Austrian" Pavel Usanov, who teaches at the Higher School of Economics, or the former Russian Prime Minister and Minister of Finance Yegor Gaidar, who was known as a big fan of the ideas of Mises and Hayek.
Connection with monetarism
Milton Friedman, after studying the history of business cycles in the United States, wrote that there seemed to be no systematic relationship between expansion and subsequent contraction of cycles, and that further analysis might cast doubt on this "Austrians" theory. Referring to Friedman's critique of business cycle theory, "Austrian" economist Roger Garnison argued that Friedman's empirical findings "are broadly consistent with both monetarist and 'Austrian' views," believing that although Friedman's model does describe the efficiency of an economy high level of aggregation, the Austrian theory offers an insightful account of the market process that may underlie these aggregations.
