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Austrian economics

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Murray Rothbard, a major economist belonging to the Austrian school of economics.

Austrian economics is a radically anti-empiricist,[1] heterodox[2] school of bourgeois economics. Today it is notably popular among right-libertarian thinkers because of its utility in justifying free-market policies. On account of its radical anti-scientific bent, mainstream economists have rejected the Austrian school as a whole; however, many Austrian ideas, notably the unfalsifiable marginal theory of price, have become instrumental to modern economic orthodoxy.

History

The Austrian school developed in Austria and the United Kingdom starting in the 1870s. This first generation of economists developed ideas such as marginal utility and subjective value theory.

The second generation, including prominent figures like Ludwig von Mises and Friedrich von Hayek, arose in the 1930s in the wake of the Great Depression and the subsequent wave of support for Keynesian economics. The Austrians were also motivated by the looming threat represented by the left, especially the USSR, to develop arguments against Marxist and socialist ideas. In 1947, Hayek and Mises would found the Mont Pelerin Society with Chicago school economists Milton Friedman and George Stigler (as well as other intellectuals, including Karl Popper) in order to further their ideas. The anti-empirical Austrians apparently butted heads with the Chicago school and their positivist approach to economic thought; Mises is famously said to have stormed out of one meeting shouting, “You’re all a bunch of socialists!”, apparently in response to a discussion about tax revenues.[a]

Theories

Marginalism

Marginal price theory, or marginalism, is the assertion that the value of commodities is determined by individuals’ subjective preferences, directly contradicting and nullifying the materialistic classical theory of value. By the 1870s, the classical theory had become fundamental to many leftist critiques of bourgeois economics, and there is clear evidence to suggest that economists adopted the new theory of value in order to undermine this mounting assault:

[Prussian economist H. H.] Gossen’s 1854 book, which had anticipated many of the results of the marginalist revolution, had been a total publishing failure. Gossen died in 1858 with no glory. But 30 years later, a discerning Berlin publisher reprinted the book with a brief preface and a new date: 1889. It was an extraordinary success.[3]

More than one economist of the time explicitly stated that the usefulness of their “revolution” lay in its attack on the foundations of Marxism:

From the 1870s onwards, theoretical socialism rapidly tended to identify itself with Marxism, and unhesitatingly advanced strong claims to be a scientific theory.... But in 1893 [Vilfredo] Pareto was already looking at the matter with more “detachment”, convinced that “the criticism of Karl Marx no longer needed to be made”, as it was by that time implicit “in the improvements brought by political economy to the theory of value”.[3]

Economic calculation problem

The term economic calculation problem refers to the assertion that a planned economy is unviable or impossible, an idea associated especially with Ludwig von Mises. This argument, being understandable to a layman as well as confirming bourgeois stereotypes about 20th century planned economies, has become a favorite of internet rightists, who often abbreviate it as “the ECP”. While the validity of the argument to 1930s technology is debated, Paul Cockshott and others have exhaustively argued that modern computing technology is far beyond the level necessary to make the necessary calculations.

See also

  • Neoliberalism, an ideology influenced by this school of economics.
  • Anarcho-capitalism, a stand of right-libertarianism that subscribes to this school of thought

Notes

  1. The Mises Institute website not only confirms this episode but argues that it in fact reflects well on Mises as a sign of moral courage.

References

  1. Mises’s Apriorism Against Relativism in Economics, Thorsten Polleit, Mises Institute.
  2. “Heterodox economics: Marginal Revolutionaries, The Economist.
  3. 3.0 3.1 Screpanti, E., & Zamagni, S. (2010). An outline of the history of economic thought. Oxford University Press. pp. 171-3. (It’s on Libgen.)