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Austrian economics is a school of economics that preaches strict methodological individualism. Proponents favour laissez-faire view
The Austrian School of Economics holds that the complexity of human behavior makes mathematical modeling of the evolving market extremely difficult (or undecidable). They advocate a laissez-faire approach to the economy. Austrian School economists advocate the strict enforcement of voluntary contractual agreements between economic agents, and hold that commercial transactions should be subject to the smallest possible imposition of forces they consider to be coercive (in particular the smallest possible amount of government intervention). Some important figures involved with the Austrian school of economics include the following: Carl Menger, Ludwig Von Mises, and Friedrich von Hayek.
The School derives its name from its predominantly Austrian founders and early supporters, the first of which was Carl Menger, one of the main contributors to the ‘marginal utility revolution’. The ‘Austrian School’ comes from a derisive name of the German Historical School of economics, who argued against the Austrians during the Methodenstreit (“methodology struggle”).
Austrian economists follow a formal approach to theory termed praxeology. The school generally favours an interpretive approach to history. Supporters of the praxeological method are of the belief that economic laws remain valid for all human actions. The interpretive approach is especially suited for particular events in human history. Critics of Austrian economics point to the fact that its methods involve post-hoc analysis and fail falsifiability tests.
Austrian economists adopt the maximum use of logical deductive reasoning from stark axioms. They believe that humans take willful steps towards chosen goals. The economic theory recognizes the value of human identity, free will, existence, and consciousness. The Austrian economists, however, focus on action-as they believe- to deny action, one has to use action for denial. Pure logic is employed to arrive at an economic conclusion.
Entrepreneurship is regarded as the principal force in economic development. Private property is compulsory for the efficient deployment of resources. Government interference is seen as harmful to economic development. Like neoclassical economists, Austrian economists disapprove of the labour theory of value and other classical costs of production theories. In that place, the Austrian school believes in individuals’ subjective preferences. Economic theories like supply and demand are described as decisions taken by a cluster of individuals. Austrian economists believe in methodological individualism-only individuals make decisions and not collectives. The logical consistency of theory is paramount and the Austrian school follows economic subjectivism in marginal economics.
The criticism of Austrian economics lies in its near absence of scientific preciseness. The economic theory is woven in verbal logic. This makes the Austrian school of economic thought to be too foggy to predict or interpret real-world events.
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This glossary post was last updated: 4th August, 2021 | 3 Views.