Austrian school

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A group of theorists who represent a certain heterodox doctrine of economics is referred to as the Austrian School , the Vienna School , the Austrian Marginal Utility School or (rarely) the psychological school . Central is the idea of ​​the evolutionary creation of knowledge by the entrepreneur and the consideration of the dynamic uncertainty of economic processes. The school emphasizes the importance of individual people and their individual preferences for economic processes ( subjectivism , methodological individualism ). In addition, there is an aversion to the mathematical form of representation of economic relationships. Opposite this approach are the Lausanne School and the Cambridge School , which emerged around the same time, with their mathematically formulated equilibrium models ( neoclassical theory ). To this day, the Austrian School is of the opinion that theories cannot ultimately be refuted by history or empiricism .

Carl Menger (1840–1921) is widely regarded as the founder of the Austrian School , who contributed to the marginalist revolution with the theory of marginal utility : He was of the opinion that the classic value paradox , i.e. the question of the relationship between value and utility , could be solved in this way that the value of a good is determined by the contribution of another unit of a good to the satisfaction of a human need. This approach became known in the methodological dispute between economics and the historical school , in which Menger advocated the thesis that economic theory is independent of economic history . Eugen von Böhm-Bawerk (1851–1914) added a subjectivistic theory of capital , according to which the interest on capital arises in a market process between individuals with different time preferences . The owner of capital renounces consumption in the present in order to receive interest in return for his renunciation. Ludwig von Mises built a money and business cycle theory on this basis . He explained business cycles with the distortion of the production process through the creation of money by the central banks , which stimulate excessive investment through too low interest rates . Friedrich von Hayek made this theory more precise and thus contrasted sharply with John Maynard Keynes ' theory and with monetarism (Chicago school).

Together with Gunnar Myrdal, von Hayek was surprisingly honored with the Alfred Nobel Memorial Prize for Economics in 1974 . Together with Israel Kirzner's work on the concept of the entrepreneur , this heralded the so-called Austrian revival in the USA. Kirzner argues that market equilibria are the exception in reality, as there is no complete information . According to Kirzner, the task of the entrepreneur is precisely to create knowledge through his "ingenuity" (English "alertness") and to track down profit opportunities, ie to use information advantages. The Austrian Economics or Neo-Austrians, which can also be traced back to Murray Rothbard , denote, on the one hand, a continuation of that specific subjectivist economic theory in the USA, and, on the other hand , Rothbard's political, libertarian ideology legitimized by natural law . The assignment of this ideology to the Austrian school is controversial.

Conceptual content

The terms Austrian School or Austrian School are sometimes used to denote very different positions. Israel Kirzner , a student of Ludwig von Mises, distinguishes five different views of the term:

  1. The view of the Austrian School, widespread especially in Germany and Austria, as a purely historical epoch of economics, the teachings of which (above all the theory of marginal utility and an economic theory independent of economic history ) were recognized by almost all other schools from 1930 at the latest.
  2. The repeated interest in Böhm-Bawerk's theory of capital , but without Menger's strictly subjective theory . In this sense, the term is mainly used by John Richard Hicks (Capital and Time: A Neo-Austrian Theory (1973)), Peter Bernholz and Malte Michael Faber (Introduction to Modern Austrian Capital Theory (1979)) .
  3. With austrian 1980s, a general in the US since the beginning of libertarian political philosophy of advocacy called free markets. This goes back in particular to Murray Rothbard .
  4. As an interest in the historical Austrian school with the ideas and methods of Carl Menger and the economic theorists referred to below as the first generation , including the later concepts of von Mises' and von Hayeks , which has existed in the USA since about 1970 ; sometimes the name Neo-Austrians is used. In this sense, the term can be found in Murray N. Rothbard (Man, Economy and the State (1962)) , Israel Kirzner (Competition and Entrepreneurship (1973)) . The Neo-Austrians distinguish themselves primarily through their view of markets as a process in contrast to the equilibrium model prevailing in economics.
  5. The name of a generally subjectivist theory of microeconomics that emphasizes the uncertainty of all economic decisions. Kirzner assigns the work of GLS Shackle and Ludwig Lachmann to this understanding .

Teaching (overview)

Fritz Machlup , a pupil of Wiesers and von Mises', named six main courses of the Austrian School in 1982 that were at the heart of the Austrian innovations around 1930 :

  • Methodological individualism : Economic issues must be explained based on the actions of individuals (not to be confused with ideological or political individualism, the opposite is represented by methodological collectivism ).
  • Methodological subjectivism : Economics is based on the study of the actions of real individuals, their subjective knowledge (or ignorance), their subjective needs and their subjective expectations.
  • Marginal utility theory : All economic decisions are determined by marginal utility .
  • Usefulness : Subjective valuations (usefulness) and decreasing marginal utility determine the demand and thus the market price.
  • Opportunity costs (also Wieser's cost law): Actions depend on the evaluation of alternative options for action.
  • Time structure of consumption and production: The decision to save or to consume arises from the subjective time preference.

He lists the following teachings as controversial within the school, which particularly radiated into the USA from the 1960s through Ludwig von Mises :

  • Complete sovereignty of consumers: Consumers express their needs through demand. Only a market that is unhindered by state intervention ensures, through competition , that the needs of consumers are optimally satisfied permanently (via the price system as a control mechanism).
  • Political individualism : Only complete economic freedom ensures lasting political and moral freedom for citizens. Economic restrictions lead to the increasing expansion and restriction of political and moral freedom.

Since the school's undisputed theses were soon recognized by all economic schools, Israel Kirzner sees the list as requiring two additional points with regard to the late work of von Mises and von Hayeks:

  • Markets and competition as a learning and discovery process
  • Individual decisions as a choice between individually identifiable alternatives in a fundamentally unknown context.

The US-American Neo-Austrians , who are essentially shaped by von Mises and his student Murray Rothbard , define themselves primarily by the demarcation from the neoclassical and (neo) Keynesian , called static, equilibrium models. Jesús Huerta de Soto , a Spanish representative of the Neo-Austrians, highlights the following teachings as characteristics of this particular direction:

  • Formation of a universal theory of human action (in contrast to the purely economic theory of rational decision ).
  • The knowledge-creating, creative entrepreneur as an economic subject (in contrast to the neoclassical homo oeconomicus ).
  • Possibility of entrepreneurial errors (as opposed to the neoclassical model of complete information ).
  • Strict distinction between objective (scientific) and subjective (practical) knowledge.
  • Markets as a process of discovery (as opposed to the neoclassical model of complete competition ).
  • Subjective cost theory (as opposed to neoclassical objective cost theory).
  • Verbal logic (as opposed to neoclassical mathematical formalization).
  • Aprioristic deductive method (as opposed to the empirical model).
  • Impossibility of quantitative predictions, but restriction to pattern predictions.
  • Prediction of economic events through the entrepreneurial skills of every person (as opposed to the social engineer ).

methodology

The Austrian School is of the opinion that theories are not clearly falsifiable through history or empiricism due to the “theory- related nature of the data” . In practice, the skepticism of knowledge of the newer Austrian school went far beyond critical rationalism . Friedrich von Hayek never tried to empirically test his theories. He justified this by stating that an empirical test was only possible for simple theories, but not for complex phenomena - such as Hayek's work. Such a position would be untenable even from the point of view of a representative of critical rationalism. This is all the more serious as Hayek wanted to solve practical problems. Here it is obviously illogical to stop at a per se judgment without testing the concrete effect. Ludwig von Mises' view of the world was shaped by catallactics and praxeology , a radical apriorism and a total opposition to empiricism, econometrics and sterile mathematics .

Theory history and development

Ancient and scholastic predecessors

Representatives of the school already see in Cicero's De re publica 51 BC. Anticipated arguments that would later be central to von Mises' and von Hayek's reflections on the impossibility of socialism : never had a central position available comparable knowledge, as expressed about the price system. A centrally administered economy is therefore inevitably inferior to a market system in terms of efficiency.

"(2) Is dicere solebat whether hanc causam praestare nostrae civitatis statum ceteris civitatibus, quod in illis singuli fuissent fere, qui Suam quisque rem publicam constituissent legibus atque institutis suis, ut Cretum Minos , Lacedaemoniorum Lycurgus [...] nostra autem res publica non unius esset ingenio, sed multorum. […] Nam neque ullum ingenium tantum extitisse dicebat, ut, quem res nulla fugeret, quisquam aliquando fuisset, neque cuncta ingenia conlata in unum tantum posse uno tempore providere, ut omnia complecterentur sine rerum usu ac vetustate.

“(2) This man used to say that the reason for the advantage of our constitution over that of the other states lies in the fact that, while only a few lived in these, each in his fatherland, the constitution of the state through their laws and institutions would have justified; for example with the Cretans Minos , with the Spartans Lycurgus ; […] On the other hand, in our state, not the talent of one individual, but of many who established the constitution. [...] Because, he said, never and nowhere was there a man of such all-embracing spirit, from whom nothing at all would have escaped; also it is impossible that an association of all talents could calculate everything in a period of time in such a way that it can replace the experience and the test of time. "

- Marcus Tullius Cicero : De re publica II. Book.
Luis de Molina (1536-1624)

In contrast to Max Weber, von Hayek sees the origins of capitalism not in Calvinist and Protestant ethics, but in the late scholastic school of Salamanca and cites Luis de Molina and Juan de Lugo in his Nobel Prize speech from 1974 ; Murray Rothbard referred to the Salamanca school as "proto-austrians" . Jesús Huerta de Soto sees in her teachings as well as in Richard Cantillon and Turgot all the essential ideas of the Austrian School are anticipated:

Diego de Covarrubias y Leyva (1512–1577) had already developed a subjective theory of value in Omnia Opera (1604) , according to which the value of a thing does not depend on immanent, objectively given properties, but solely on the subjective appreciation that is given to it. Carl Menger quotes his work Veterum collatio numismatum in Principles of Economics (1871) . The relationship between costs and prices is discussed with Luis Saravia de la Calle ; in Instrucción de mercadores (1544) this teaches (in contrast to later classical economics) that costs depend on prices. The fair price is determined by the scarcity of the market. The idea of dynamic competition is already discussed in Luis de Molina and Jerónimo Castillo de Bovadillo (Política para corregidores (1585)) . Juan de Lugo (1583–1660) wrote in 1643 about the equilibrium prices so characteristic of later classical economics : “pretium iustum matematicum licet soli Deo notum” (German: “only God is allowed to know the just mathematical price”). Considerations on time preference and money creation by banks would be found in 1556 by Martín de Azpilcueta . In 1605 Juan de Mariana published in De monetae mutatione a theory about the harmful effects of inflation and in 1625 the Discurso sobre las enfermedades de la companía , in which he declared state intervention to be harmful due to the limited knowledge of the state. Intervention represents a violation of natural rights and leads to chaos in the long term.

The creative entrepreneur as a key figure in the economic process is treated by Richard Cantillon in 1730, and scattered knowledge in 1759 by Turgot . In his essay Verdadero idea del valor (1844), Jaime Balmes (1810–1848) deals with the classical paradox of values and gives thought to the solution by considering marginal utility .

First generation: Carl Menger (1840–1921)

Principles of Economics (1871)

The first and second generation are also grouped together as the older Austrian school . The actual founder of the school is Carl Menger with his principles of economics , which appeared in 1871 and which are dedicated to Wilhelm Roscher . The principles are the first overall presentation of the economy from a consistently subjectivist point of view. Above all, Menger saw it in sharp contrast to classical economics . The center of Menger's considerations is the human being as a creative agent and as a protagonist of all economic and social processes. Based on methodological subjectivism, Menger saw the satisfaction of human needs as the “end goal” of all economic activity. He therefore divided goods into first-order goods (or consumer goods) and higher-order goods. Human needs are directly satisfied by goods of the first order; Goods of a higher order are intermediate stations in the production of goods of the first order. The value of a good is its subjective appraisal for the satisfaction of human needs, the usefulness : "the suitability of a thing to serve the satisfaction of human needs." Huerta de Soto sees this as the most important contribution Menger in the economics; Frank H. Knight , however, rated these as “less important contributions”.

The so-called classic value paradox was solved by Menger by considering the marginal utility . Hermann Heinrich Gossen , Léon Walras (Eléments d'économie politique pure (1874)) and William Stanley Jevons (Theory of Political Economy (1871)) had already embarked on this path almost simultaneously with him and independently of one another ; In contrast to these, Menger's explanation is not based on mathematical considerations, but is merely a consequence of the applied subjectivist view.

Investigations into the method of social sciences (1883)

Studies on the method of social sciences and political economy in particular , 1933

Another important contribution from Menger is his theory of the development of “social phenomena”, which he has already discussed in the principles using the example of money . In his investigations into the method of social sciences and political economy in particular (1883) he was later again concerned with the question: "Why can institutions that serve the common good and are highly significant for its development arise without a common will based on their justification?" Friedrich von Savigny , Montesquieu , Hume and Burke had established the theoretical tradition of evolutionary, historical and spontaneous development; they were opposed by the representatives of a rationalist approach ( Thibaut , Bentham ). Menger acknowledged the principles of historical perspective. He generalized this in the investigations . All social phenomena are "unintentional resultants" and arise spontaneously and evolutionarily.

Citing Aristotle , Menger argued that the knowledge of social reality requires two complementary, but epistemologically fundamentally different sciences: theory (εἶδος - eidos 'form') and history (ὕλη - hylē 'substance'). The theory is axiomatic-deductive, whereas the story is based on empirical data. The historical school mixes the two in an inadmissible way. Economic theory can never be based on empirical data, but is a pure human science, similar to mathematics. In contrast, economic history is an independent but equal science.

The method controversy of economics

Opposition in German economics to Menger's research came in particular from the historical school around Gustav von Schmoller , which was predominant in Prussia , and which advocated a relativistic approach. Menger, on the other hand, did not regard economic laws as historically relative but as logically objectively recognizable. The different approaches led to the so-called methodological dispute of economics , in which Menger's work was mainly defended by Eugen von Böhm-Bawerk and Friedrich von Wieser . The term Austrian School (or Vienna School ) was initially used by representatives of the historical school and was intended to devalue Menger's circle as provincial. However, the Austrians soon accepted it themselves and later gladly quoted their opponents polemically, who initially meant themselves positively as the "intellectual bodyguards of the House of Hohenzollern ".

In the course of the methodological dispute, the Austrian School was formed as a new, internationally recognized branch of economics; In 1891 Eugen von Böhm-Bawerk wrote an essay for the American journal Annals of the American Academy of Political and Social Science , in which he set out their basic teachings. Further contributions from the early phase of the Austrian School came from Johann von Komorzynski (The value in the isolated economy (1889)), Robert Zuckerkandl (On the theory of the price (1889)), Viktor Mataja (The entrepreneurial profit (1884)), Gustav Groß ( The theory of entrepreneurial profit (1884)), Emil Sax (foundation of the theoretical state economy (1887)) and Robert Meyer (The essence of income (1887)). The school achieved fame in German-speaking countries through its positive mention in the textbook Grundriß der Politischen Ökonomie (1893) by Eugen von Philippovich .

To this day, the Austrian School is of the opinion that theories cannot ultimately be refuted by history or empiricism .

Second generation: Eugen von Böhm-Bawerk (1851–1914)

Eugen von Böhm-Bawerk (1851-1914)

The second generation was shaped by Eugen von Böhm-Bawerk . In addition, Friedrich von Wieser (1851–1926) is occasionally assigned to the Austrian School. After 1903 he was Menger's successor to the chair and wrote articles on a subjective theory of opportunity costs. He used the term marginal utility for the first time . Von Mises thought his work was not very creative and assigned him to the Lausanne school around Walras rather than the Viennese school. Von Hayek considered his Theory of the Social Economy (1914) to be a personal achievement rather than a work of the Austrian School.

Capital and interest on capital (1884–1902)

Von Böhm-Bawerk contributed significantly to the development of a subjectivist theory of capital and interest in capital and interest on capital. For him, human action refers to any will-controlled human behavior. The goals of this action are freely chosen and attempts are made to achieve them through freely chosen means that appear subjectively suitable for the goal. Value and usefulness describe the psychological appreciation of the goal and the means. Goals and means are not given objectively, but rather the result of entrepreneurial action by people. As a result of the human activity of will, the human being often unconsciously draws up plans ; a plan is a mental preview of the gradual achievement of goals over time . For him, time is not to be understood in the physical sense, but a category of economics for human activity. Human behavior always has a goal. Man is separated from this goal by time. People value the use of time less than the goal to be achieved. In doing so, ceteris paribus , in the case of two needs of the same value, he prefers the one to be achieved earlier to the later one (law of present preference).

Capital goods are intermediate stages in every action and production process. What capital goods are depends on the subjective view. Capital goods always serve one goal, that is, they are goods of a higher order (also "means of production"). Capital goods can be the natural resources, labor, and time used by human entrepreneurial skills. The conditio sine qua non for the production of capital goods is saving, that is, renouncing direct consumption. Böhm-Bawerk explains this using the example of Robinson Crusoes: He collects blackberries for his diet every day. Through an act of creative entrepreneurial knowledge creation, he finds that he can bend higher branches with the help of a stick and thus harvest more blackberries in a shorter time. Finding a suitable stick and working on it would take about five days. Since he cannot harvest blackberries during this time, he has to provide for this time by saving and additional harvesting, which would take about ten days. The accumulation of capital goods thus arises from weighing up the best possible use of the present and the future. If the capitalist makes an entrepreneurial mistake, the renunciation of consumption turns out to be useless. In modern economies, the task of the capitalist has not changed in any way: if the economic processes are also more complex and the time horizon is much longer, then the essential characteristic of the capitalist lies in saving. The difference between rich and poor nations lies in the amount of capital that has been saved over time. Under capital Böhm-Bawerk understands the value of capital goods in market prices. Since there are no markets and therefore no prices in socialist economic systems, no economic calculation is possible and consequently no capital exists.

The appreciation of goods differs from person to person and also with the same person over time. Consequently, a market is created through the exchange of goods. The interest can be explained by the interplay of capital goods and time preference : If some people value capital goods more highly in the present than capital goods in the future, then there is also a market here. People who value capital goods low in the present, do without them and give them to people who value them highly in the present. The capitalist forego part of his consumption in order to make capital available to workers, but also to owners of the means of production. The entrepreneurial valuation of the value of the time preference is expressed in market prices: the interest. The interest rate is central to the production structure of a society, with the credit market being only a small part of this market. For some observers, Böhm-Bawerk's theory of capital represents the core of Austrian teaching; others, however, see inconsistencies with Menger's subjectivist approach.

Criticism of Marshall, Marx and Clark

Parallel to the dispute over methods , Böhm-Bawerk had a dispute with Alfred Marshall . He saw the price as determined by the historically given costs, i.e. as given objectively. Böhm-Bawerk, however, saw the costs as the result of the price (subjective cost theory).

The Austrian School began to deal with Marxism early on ; its representatives reject any kind of socialism and central administration economy. This is mainly due to Böhm-Bawerk, who in his work Capital and Capital Interest (1884–1902) expanded Menger's work and tried to refute the labor theory of Karl Marx - which is considered fundamental for Marxism - systematically, while many other economists tried only began to concern themselves with Marxism after the October Revolution of 1918. Böhm-Bawerk was the first to assert the inconsistency of the labor theory of value in the first and third volumes of Marx's Das Kapital . The controversy found its continuation with von Mises and von Hayek in the controversy over economic accounting under socialism .

Böhm-Bawerk turned against Marx's theory of the " exploitation " of workers in particular . Indeed, the owners of the means of production would help the workers by paying them their wages in advance. Marx ignores the time factor and time preference. He also overestimated the work factor. Marx's labor theory of value is circular. Technical progress does not replace human labor, it only makes it more productive and thus provides for an increase in the capital stock and prosperity. He turned against Marx's crisis theory of capitalism: Why should the capitalist continue to produce despite falling profit rates?

Also through his criticism of Marx he soon became the most famous representative of the Austrian school. From the Marxist side this was soon seen as the epitome of bourgeois criticism of Marx. Nikolai Bukharin tried to refute this criticism from the Marxist side. Rudolf Hilferding took part in one of Böhm-Bawerk's seminars in 1906.

Böhm-Bawerk also turned against the capital theory of John Bates Clarks and Walras', which he described as "mystical" and "static". Capital as such does not lead to interest (“value jelly”). It must be used in an entrepreneurial sense.

Third generation: Ludwig von Mises (1881–1973)

Ludwig von Mises (1881–1973)

Third and fourth generations are also grouped together as the younger Austrian school . The most important representative of the third generation was Ludwig von Mises . Further representatives of this development phase are Hans Mayer (Wieser's successor to the chair), Richard von Strigl , Ewald Schams , Leo Schonfeld-Illy and Alexander Mahr (economics (1948)). Von Mises was a supporter of Schmoller's historical school until he read Menger's Principles in the winter of 1903 and then took part in Böhm-Bawerk's private seminar, to which Joseph Schumpeter also belonged, until 1914 . He expanded the teachings of Menger and Böhm-Bawerk to include a theory of money and credit, and laid the foundations for the Austrian theory of business cycles . He summarized the teachings of the Austrian School in the most systematic form to date in Human Action .

Theory of money and the means of circulation (1912)

Von Mises solved the problem of circular reasoning in applying marginal utility to the theory of money through his regression theorem . The purchasing power of money arises from supply and demand. Up to von Mises' theory of money and the means of circulation , the problem arose that the demand for money arises precisely through its purchasing power. Von Mises solved this by tracing the demand for money today back to its purchasing power in the past, up to the day money was first minted. There the value of money was determined by its value of goods (for example the value of gold). The theory is consistent with Menger's evolutionary theory of social institutions.

Von Mises' theory of money and the means of circulation soon became the standard work in this field throughout continental Europe. Even after its translation into English in the 1930s, the work was hardly received in the Anglo-Saxon region. Keynes later regretted not having known von Mises's theory of money prior to his work.

Von Mises' business cycle theory emerged from the combination of Böhm-Bawerk's capital theory and the work of the Currency School . Money creation by banks and the central bank is responsible for business cycles . Cyclical and uncontrolled monetary growth would create credits ex nihilo with artificially low interest rates. By inflation and credit expansion, the entire pricing system would be distorted, the price lose its function of information scarcity, unproductive modes of production would thus kept alive artificially. Crises and recessions are the unavoidable result in order to bring the bad investments that they cause into line with reality. The Great Depression looked at monetary mistakes in the 20s von Mises as the result. The only solution are banks with 100% reserve . Von Mises' declaration is the first microeconomic explanation of business cycles.

The Common Economy (1922)

After the dispute over methods and the dispute over Böhm-Bawerk's theory of capital, the dispute over the impossibility of socialism represents the third major dispute in the history of economic theory in which the Austrian School was involved. For von Mises, the impossibility of economic calculation under socialism was the focus of his argument. In a free economy the price arises from the combination of subjective appreciation (ordinal numbers) and voluntary exchange on the market; the subjective appreciation is expressed there in market prices (cardinal numbers) that provide information about the scarcity of a good. For von Mises, socialism and interventionism were ultimately based on coercion and thus prevented voluntary exchange. The conversion of subjective appreciation into cardinal numbers, which is necessary for economic accounting, is prevented. The central administration office does not have sufficient information.

Von Mises saw the fallacies of a socialist economic theory based on the classical objective theory of value . All essential information is given objectively in their equilibrium models; the model is static. In 1938 Frank Knight saw socialism not as an economic problem, but a political one.

The community economy brought Friedrich von Hayek, until then a Fabian socialist, and Wilhelm Röpke to confront the Austrian school and the removal of socialist ideas. Oskar Lange , Wlodzimierz Brus and Harold Laski then deal with the problem of economic accounting, which is still insignificant for Marx . Lionel Robbins was also heavily influenced by The Community ; he wrote The Nature and Significance of Economic Science (1932) , which had an enormous influence on the reception of the Austrian School in the Anglo-American region. Through his mediation, von Hayek obtained a position at the London School of Economics in 1931 . Von Mises' private seminar was also attended by Felix Kaufmann , Alfred Schütz and Eric Voegelin .

Human Action (1949)

Human Action - A Treatise on Economics is the most systematic and consistent summary of the teachings of the Austrian School, as it had developed up to von Mises. In it, von Mises developed Mengers and Böhm-Bawerk's theories from an economic theory to a comprehensive theory of human action, praxeology . For von Mises it was a value-free science that answered the question for every action: Does an action have the desired consequences? For von Mises, every action has an entrepreneurial core that consists of the creative creation of information about the future. For von Mises, entrepreneurship does not consist of making decisions based on a benefit-maximizing calculation . He considered homo oeconomicus to be an unsuitable model. The profit of an entrepreneur does not comeaboutby assuming mathematical risks, but by the best possible foresight of the future needs of consumers , the search for and creation of information. Entrepreneurial ability cannot be learned, it is fundamentally unacademic and is instead based on the immanent abilities of people.

One of the axioms of von Mises' praxeology is that all human action has a goal and that a choice is made between these goals. Choice is a concept of the inner world that precedes knowledge of the external world and a category of human action; empirically it cannot be checked or refuted, since empiricism only encompasses facts of the external world. The chosen goals are also not accessible to economic laws, only the expediency of the means used can be checked. The available funds are initially used for important goals (law of decreasing marginal utility ). Reaching the same goal earlier is better than reaching it later (law of time preference ). All human action takes place in time. One is driven from one state to the next by the satisfaction of needs. In contrast, history is the theory of the content of human activity in the past.

Fourth generation: Friedrich August von Hayek (1899–1992)

Hayek

Friedrich August von Hayek was central to the fourth generation of the Austrian School . Other important representatives of the fourth development phase are Gottfried Haberler , Fritz Machlup , Oskar Morgenstern , Paul Rosenstein-Rodan and Ludwig Lachmann .

At the beginning of the 1930s, almost all representatives of the Austrian School (with the exception of Hans Mayer ) had left Vienna (partly for political reasons) and continued to work in various Anglo-Saxon countries. The strictly historical view sees the Austrian school largely as being integrated into current economics; with the extinction of Vienna as a center, the Viennese school also died out and became an episode in economic history. After the teachings of the historical school were barely represented, the representatives of the Austrian school could assume that their teachings would ultimately have prevailed.

In the 1940s and 1950s, representatives of the Austrian school realized that, under the influence of Mises and Hayek, their teaching had radically moved away from the mainstream of economics. The Austrian school has been part of the heterodox economy since the mid-1930s .

Prices and Production (1931)

Von Hayek developed von Mises' business cycle theory further. Prices and Production is the execution of thoughts that von Hayek had already published in 1928 in his essay The intertemporal price equilibrium and movements in the value of money . In 1974 Hayek received the Nobel Prize for prizes and production . His analysis is basically based on the traditional equilibrium theory ( general equilibrium model ). Knut Wicksell's theory also had an influence ; Accordingly, imbalance processes are based on the gap between the natural interest rate and the interest rate set by the banks. The following considerations are fundamental to von Hayek's business cycle theory: Voluntary saving reduces the demand for consumer goods. The relative price of consumer goods is falling. The capital formation rate rises, which means that the interest rate on money falls. If the cost of capital falls, the investment in more productive means of production becomes more profitable ( Ricardo effect ) . As long as this is based on voluntary saving, the economy strives towards equilibrium.

If the interest on money falls below the natural rate of interest as a result of credit expansion , investments in means of production increase. The reduced production of consumer goods is countered by a steady demand. The renunciation of consumer goods leads to “forced saving”, which corresponds to the resources used by the investors. With the price increase caused by this, the economic high has reached a critical point: the prices of consumer goods rise with interest rates now rising. The only solutions for von Hayek were further credit expansion to avoid a decline in the demand for capital goods, or the painful but persistently inevitable process of recession. In the recession, the intersectoral imbalance of the actual demand structure adjusts itself again ( monetary overinvestment theory ). In contrast to monetarism, for von Hayek the emergence of recessions was caused by the interplay of monetary phenomena and the real production structure. Von Hayek saw his work confirmed by the global economic crisis. John Maynard Keynes and Milton Friedman , on the other hand, saw Hayek's policy recommendations as harmful and as a reason why the Great Depression turned into a great depression.

Von Hayek saw the foundations for Keynesianism in the work of the Chicago School around Frank Knight and his “mystical” capital theory. In the discussion of Hayek's theory that followed the publication of the book, Keynes described Hayek's theory as “one of the most frightful muddles I have ever read, with scarcely a sound proposition in it”. Keynes accused von Hayek that his theories were not based on any systematic theory of capital and that his macroeconomic considerations were useless. The theory of under-consumption is a myth. But also on the part of the Chicago School , namely by Milton Friedman , the business cycle theory of the Austrian school was rejected, the rigid rejection of state intervention during economic crises considered dangerous and harmful:

“The Hayek-Mises explanation of the business cycle is contradicted by the evidence. It is, I believe, false. "

“The Hayek-Mises business cycle theory is refuted by facts. I believe it is wrong. "

- Milton Friedman : The 'Plucking Model' of Business Fluctuations Revisited, 1993

The Counter-Revolution of Science (1955)

After von Hayek moved to Chicago in 1949, he was less concerned with purely economic issues. His work now concentrated on socio-philosophical considerations around socialism , " piecework technology " and "social engineers". In continuation of Menger's thoughts, von Hayek argues that a society cannot be organized rationally, since knowledge is only available in a scattered manner in societies. Instead, a “ spontaneous order ” develops in which people can pursue their freely chosen goals with freely chosen means. But the essence of the state is coercion and violence. By violently disrupting this spontaneous order, the incentive to create knowledge is reduced. All social institutions, such as language , law and morality , are not centrally controllable, but a scattered, evolving process in which the experiences and wishes of millions of individual people are relevant.

Socialist ideas were based on the transmission of atavistic ideas that were appropriate for small groups and tribes from the early days of mankind. The maintenance of these ideas, which is typical of socialism, leads in the long term to primitive subsistence farming in tribes. They were unsuitable for raising the standard of living in a modern society based on the division of labor , which is characterized by the peaceful and voluntary exchange of goods. Von Hayek thus generalized von Mises' theory for every Cartesian - rationalistically constructed society. In The Counter-Revolution of Science (German: Abuse and Decay of Reason) he calls these ideas, which can be traced back to Comte , Saint-Simon and Bentham , “ scientism ” : The methods of the natural sciences (especially physics) are not transferable to the social sciences . In doing so, he was also directed against Milton Friedman's positivism . Although he admired Friedman and many of his ideas, he found the methodology presented in the essays in Positive Economics (1953) dangerous. The monetarism and Keynesianism were ultimately very similar.

Law, Law and Freedom (1973–1979)

For von Hayek, socialism was characterized by institutionalized and systematic coercion. In socialism, the abstract and generally applicable law is transformed into bureaucratic instructions for individual behavior. Freely chosen norms of behavior would be replaced by state instructions. Justice is also fundamentally defined differently under socialism. While iustitia traditionally decides blindly and without regard to wealth and poverty according to abstract norms, social justice is the result of the arbitrary decision of a central body with regard to equality of results. However, this fundamentally contradicts the idea of ​​equality before the law; Legal security is no longer observed. The voluntary contract will be replaced by the hegemony of the majority.

Austrian Economics and Neo-Austrians in the USA

The early reception of the Austrian School in the USA goes first to Benjamin Anderson (The Value of Money (1917)), Philip Wicksteed and Frank Fetter , from Mises' emigration to the United States to Henry Hazlitt , William Harold Hutt , Kurt Richebächer , Frederick Nymeyer and Hans Sennholz back. The influenced political celebrities include the US Congressman Ron Paul , who publishes himself about the teachings, and the former Czech President Václav Klaus .

Murray Rothbard (1926–1995)

Murray Rothbard (1926–1995)
America's Great Depression (1963)

Murray Rothbard came into contact with Ludwig von Mises in the 1950s; his work Human Action exerted a great influence on him. In America's Great Depression , he turned von Mises's business cycle theory to the Great Depression of of 1929th He came to the conclusion that this was caused by previous inflationary monetary policy in the 1920s and was unnecessarily prolonged by Herbert C. Hoover's subsequent interventionist economic policy . This is in diametrical contrast to Milton Friedman's analysis, which appeared at the same time in A Monetary History of the United States (1857–1960). These differences can, of course, be explained by the fact that Friedman followed the traditional definition of inflation , according to which this can be seen in the rise in the price level . Rothbard, on the other hand, followed von Mises' use of the term, according to which inflation already exists when the money supply grows. He also referred to the money supply, all for a nominal value redeemable money substitutes , among other things, repurchase rights to life insurance .

Man, Economy and the State (1962)

Rothbard's economic method sees its basis in von Mises' praxeology: for Rothbard too, economics is only part of a theory of human action that can be deductively developed from praxeological axioms. He specified and systematized von Mises' work, but brought hardly any economic innovations compared to von Mises. However, he added two subsidiary assumptions to the basics of praxeology:

“The present work deduces the entire corpus of economics from a few simple and apodictically true axioms: the Fundamental Axiom of action —that men employ means to achieve ends, and two subsidiary postulates: that there is a variety of human and natural resources, and that leisure is a consumer's good. "

“The present work derives the entire theoretical structure of economics from a few simple and apodictically true axioms: the basic axiom of action - that people use means to achieve goals - and two subsidiary requirements: that there are a multitude of human and natural resources and that Leisure is a consumer good. "

- Murray Rothbard : Man, Economy and the State (1962), p. Xi.

Von Mises still strictly rejected any arguments based on natural law and was an advocate of a utilitarian method. Rothbard, on the other hand, tried to combine von Mises' a priori method with the natural law non-aggression principle : ethics and natural law are objectively recognizable. He also replaced the principle of consumer sovereignty with individual sovereignty. Embedded in this broader ideological, ethical and political context, Rothbard came to far more radical and political conclusions than von Mises: the demand for radical capitalist libertarianism , anarcho-capitalism . From the late 1960s onwards, Rothbard turned less to economic questions than to his political ideology, the most comprehensive of which is Power and Market (1970) . Rothbard's argument based on natural law also contrasts with Friedrich von Hayek. For von Hayek, the deduction from natural law premises was methodically assigned to a dangerous constructivist rationalism . Rothbard, on the other hand, considered any method other than his natural law method to be irrational : man, by virtue of his reason, is able to recognize natural law. To fail to recognize this is a rejection of reason. He heavily criticized Hayek's The Constitution of Liberty : "[It is] surprisingly and distressingly, an extremely bad, and I would even say evil, book."

Ludwig von Mises Institute

In 1982 Lew Rockwell founded the libertarian academic Ludwig von Mises Institute in Auburn, Alabama . Going back to its influence, Austrian economics in the USA mostly describes a natural law, conservative anarcho-capitalism. This development in the USA has its origin in the interpretation of Ludwig von Mises' work by Murray Rothbard. The institute includes, among others, Hans-Hermann Hoppe ( University of Nevada, Las Vegas ), Jörg Guido Hülsmann ( University of Angers ), Pascal Salin (Emeritus of the University of Paris-Dauphine ) and Jesús Huerta de Soto ( University of Rey Juan Carlos ).

This interpretation differs in part significantly from the views of Menger to von Hayek: Böhm-Bawerk, von Mises and von Hayek strictly rejected anarchy and justifications based on natural law. For them the market could only exist within a state order. Despite its anti-Marxist stance, the Austrian School from Menger to von Hayek remained rather apolitical. Wieser did not rule out government intervention. Von Hayek and von Mises attached great importance to the freedom of their economic method. Rothbard and the Ludwig von Mises Institute , which is in his tradition, advocate an anarcho-capitalism legitimized by natural law . In cultural and ethical terms, its members classify themselves as conservative. Observers therefore doubt their identification with the tradition of the Austrian school . The Review of Austrian Economics ( ISSN  0889-3047 ) and the Quarterly Journal of Austrian Economics ( ISSN  1098-3708 ) are considered to be the most important scientific journals on Austrian economics .

Israel Kirzner (* 1930) Competition and Entrepreneurship (1973)

Israel Kirzner (* 1930)

Another American Von Mises student is Israel Kirzner ( New York University ). In contrast to Rothbard, Kirzner sought a dialogue with mainstream economics and emphasized similarities. Thus, Market Theory and the Price System (1963) is an attempt to integrate Mises'sche of price theory in the conventional price theory. An Essay on Capital (1966) was a modern version of the Austrian capital theory.

Kirzner's Competition and Entrepreneurship is considered to be the first important American contribution to conventional economics with a specifically Austrian influence. Instead of arguing in fundamental opposition to the neoclassical model, as Rothbard did, the article sees itself as filling in a widely recognized gap in the neoclassical microeconomic model: although equilibrium models were undisputedly recognized there, there was no consensus on how equilibrium prices actually came about. Kirzner suggested filling this gap with the Austrian model of markets as entrepreneurial discovery processes.

For Kirzner, the task of the entrepreneur is to ensure that prices are adjusted to the market equilibrium at all times. At any time, any place, there are countless untapped opportunities that can be turned into profit. In the neoclassical model of complete information, however, all profit opportunities should already have been discovered. In fact, for Kirzner, incomplete information is the cause of profit. The entrepreneur differs from others in that he uses his “ingenuity” ( “alertness”) to track down such opportunities and derive his profit from them. In principle, anyone can be an entrepreneur . For him, competition only exists as long as entrepreneurs compete and are allowed to compete with one another through product innovations and price reductions.

“For me the changes the entrepreneur initiates are always toward the hypothetical state of equilibrium; they are changes brought about in response to existing patterns of mistaken decisions, a pattern characterized by missed opportunities. The entrepreneur, in my view, brings into mutual adjustment those discordant elements which resulted from prior market ignorance. "

“For me, the changes introduced by the entrepreneur are always geared towards the hypothetical state of equilibrium; they are changes that are brought about in response to the mistakes that have been made that are marked by missed opportunities. In my view, the entrepreneur brings mismatched elements, which arose from previous market ignorance, to mutual adjustment. "

- Israel Kirzner : Competition and Entrepreneurship

Ultimately, Kirzner's work represents a fusion of von Mises's concept of entrepreneur, enriched by the concept of alertness, with von Hayek's theory of knowledge. In his opinion, the conventional neoclassical model emphasizes the equilibrium price in an insubordinate way, since it is actually only a transitional stage . Studying the evolutionary transition processes is a no less important part of economics.

As a result, Kirzner also sees monopolies in the traditional sense as merely a short-term consequence of product innovations and entrepreneurial skill: If an entrepreneur is the only one to offer a certain product, this is unproblematic as long as others have the opportunity to offer their innovative product on the market . Real, harmful monopolies for him are only those that arise through state privilege and are caused by legal barriers for competitors.

With his work, Kirzner found a considerable audience within mainstream economics and thus also ensured a broader reception of the Austrian School as a whole, beyond Rothbard's fundamental opposition. In addition to von Hayek's Nobel Prize, he initiated the so-called austrian revival in the USA.

criticism

General criticism

Most economists reject the Austrian school because it is very critical of the use of statistics and empirical methodology.

The economist Paul Krugman has stated that economists of this school cannot see mistakes in their own thinking because “the Austrians” would not use explicit models.

Economist Jeffrey Sachs argues that among developed countries, those with high tax rates and high social spending do better than countries with low tax rates and low social spending on most measures of economic performance. He comes to the conclusion that Friedrich August von Hayek wrongly argued that high government spending harms an economy and that “a generous welfare state is not a path to bondage, but to fairness, economic equality and international competitiveness”.

methodology

Critics generally argue that the Austrian school lacks scientific accuracy and rejects scientific methodology such as using empirical data to model economic behavior.

Some economists describe the Austrian methodology as a priori or non-empirical and thus incompatible with a modern understanding of science.

Mark Blaug criticizes the Austrian school's excessive dependence on methodological individualism, arguing that this would exclude all macroeconomic theories that cannot be reduced to microeconomic theories. Blaug criticizes this theoretical reductionism .

The American economist Thomas Mayer has declared that the Austrians reject a scientific methodology that involves the development of empirically falsifiable theories. In addition, economists have developed numerous experiments that provide relevant information about individual preferences.

Paul A. Samuelson wrote in 1964 that most economists believe that economic conclusions drawn from purely logical inference are limited and weak. According to Samuelson, Mises 'deductive methodology, which was also adopted by Murray Rothbard and, to a lesser extent, by Mises' student Israel Kirzner , was in and of itself insufficient.

Business cycle theory

Current economic research on Austrian business cycle theory states that it does not agree with empirical data. Economists like Milton Friedman and Paul Krugman have stated that based on the data, they believe the theory is wrong.

The theoretical objections can be summarized as follows: The Austrian business cycle theory demands a systematic and inexplicable irrationality from bankers and investors, since investors are repeatedly led (by temporarily low interest rates) to make unprofitable investment decisions.

literature

Primary literature

First generation
Second generation
  • Eugen von Böhm-Bawerk : History and criticism of the capital interest theories . In: capital and interest on capital . First division. Fischer, Jena 1994, ISBN 3-87881-085-7 ( ia351402.us.archive.org [PDF; 32.7 MB ] First edition: 1884).
  • Eugen von Böhm-Bawerk: Positive Theory of Capital (Book I – IV) . In: capital and interest on capital . Second section, 1st volume. Wagner, Innsbruck 1991, ISBN 3-87881-061-X (first edition: 1889).
  • Eugen von Böhm-Bawerk: Positive theory of capital (excursions) . In: capital and interest on capital . Second Division, Volume 2. Wagner, Innsbruck 1991, ISBN 3-87881-061-X (first edition: 1902).
Third generation
Fourth generation
  • Friedrich von Hayek : Prices and Production . Routledge & Kegan, London 1931.
  • Friedrich von Hayek: The Road to Serfdom . Routledge, London 2007, ISBN 978-0-226-32055-7 (first edition: 1944).
  • Friedrich von Hayek: The Use of Knowledge in Society . In: American Economic Review . 1945 ( online ).
  • Friedrich von Hayek: The Counter-Revolution of Science - Studies in the Abuse of Reason . Collier-Macmillan Limited, London 1955 ( ia331336.us.archive.org [PDF; 11.8 MB ]).
  • Friedrich von Hayek: Law, Law and Freedom - A new version of the liberal principles of justice and political economy . tape 4 , 2003, ISBN 3-16-147878-9 (Original title: Law, Legislation and Liberty. A New Statement of the Liberal Principles of Justice and Political Economy . First edition: 1973).
Neo-Austrians
reception
  • Nikolai Bukharin : The Pensioner's Political Economy. The value and profit theory of the Austrian school . Publishing house for literature and politics, Vienna / Berlin 1926.
  • Frank H. Knight : Professor Mises and the Theory of Capital . In: Economica . tape 8 , no. 32 , November 1941, p. 409-427 .
  • Robert Nozick : On Austrian Methodology . In: Synthesis - An International Journal for Epistemology, Methodology and Philosophy of Science . tape 36 , 977, pp. 353-392 .

Secondary literature

Web links

Commons : Austrian School  - collection of images, videos and audio files

Individual evidence

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  28. ↑ Nikolai Bukharin : The political economy of the pensioner. The value and profit theory of the Austrian school . Publishing house for literature and politics, Vienna / Berlin 1926.
  29. ↑ a b c d e f g h i Jesús Huerta de Soto: La Escuela Austríaca . Editorial Sintesis, Madrid 2000, ISBN 84-7738-775-3 , p. 101-118 .
  30. ↑ Von Mises wrote in 1933: “Within modern subjectivist economics we distinguish several directions. We usually speak of the Austrian, Lausanne and Anglo-American schools. The work of MORGENSTERN 1), which you have before you, has the fact that this is just a different way of presenting the same basic idea and that the three types are more distinguished by their terminology and the peculiarities of presentation than by the content of their teaching Most necessary said. "(Ludwig von Mises: Grundprobleme der Nationalökonomie . Gustav Fischer, Jena 1933, p. 199 ( docs.mises.de [PDF; 1.1 MB ]). )
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  33. ↑ "[...] that a rise in wages will encourage the capitalists to replace work with machines" (FA von Hayek: The Ricardo Effect. In: FA von Hayek: Individualism and economic order. Eugen Rentsch Verlag, Erlenbach / Zurich 1952 , P. 281 (1942))
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  37. ↑ Milton Friedman : The Plucking Model of Business Fluctuations Revisited . In: Economic Inquiry . April 1993, p. 171-177 . discussed in Mark Skousen : Vienna & Chicago, friends or foes ?: a tale of two schools of free-market economics . Capital Press / Regnery Pub, 2005, ISBN 0-89526-029-8 .
  38. ^ The Economics of a Free Society - Ron Paul - Mises Institute
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  46. ↑ David Gordon: The Essential Rothbard . Ludwig von Mises Institute, Auburn (Alabama) 2007, ISBN 978-1-933550-10-7 , pp. 68-69 . On Rothbard Hayek's criticism, see also Murray N. Rothbard: The Ethics of Liberty . Humanities Press, Atlantic Highlands, NJ 1981, chapter 28.
  47. ↑ Jacob H. Huebert. Libertarianism Today . ABC-CLIO, 2010, p. 18.
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This version was added to the list of articles worth reading on September 6, 2009 .