Austrian economics is a school of economic thought that originated in Austria in the late 19th century with Carl Menger, professor of political economy at the University of Vienna from 1873 to 1903. Later Fredrick Hayek, Ludwig von Mises, and Murray Rothbard would demonstrate the mastery Austrian style of analysis can have over today’s economy.
The theory is based on the idea that individuals, rather than governments or other large organizations, are the primary drivers of economic activity. Austrian economists believe that prices, wages, and other market signals reflect the underlying value of goods and services, and that these prices should be allowed to adjust freely in response to changes in supply and demand. They also place a strong emphasis on the role of entrepreneurship and innovation in driving economic growth. Austrian economics is often associated with classical liberalism and libertarianism, and it has influenced a number of economic theories and policies.
- Human Action – All humans seek to improve their situation from their viewpoint.
- Action Scarcity – The factors available for improving human’s situations are scarce.
- Human Fallibility – Humans make mistakes.
- Human Rationality – All humans are rational beings.
- Action Time – All human actions take time.
- Action Consequences – All human actions have consequences.
- Action Choices – Humans choose those actions they believe will best improve their situation.
- Action Ideas – The ideas human’s hold determine their actions.
Two important modern theorists in the Austrian school are Ludwig von Mises and Friedrich von Hayek. Mises received widespread attention from other economists in the 1920s with his challenge that socialism was totally impossible in a modern economy because of its lack of market prices, for him the indispensable means of rational resource allocation. Both Mises and Hayek have contributed significantly in molding the Austrian theory into an integrated whole. Their explanation of cyclical swings in business as resulting from uncontrolled credit expansion at the hands of government added another significant block to the Austrian structure.