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What is the Austrian School of Economics?

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Austrian Economics dates back all the way to the fifteenth century. It is based on the assumption that the actions of social groupings and individual humans follow natural laws much in the same way as other aspects of nature. It has been the aim of Austrian economics to produce theories to explain these actions; although the claim that this should involve different tools than used in hard science. Followers of this theory of economics are strong advocates for complete freedom in the marketplace; they believe that industry should be allowed to make voluntary contracts but they should not be coerced into anything. The reason why it is called the Austrian school is that many of the early proponents of the theory were from Austria; most supporters of the school these days do not come from anywhere near Austria.

An important interest, for those involved with the Austrian School, are those forces which cause a recession.  The actions of central banks have come under a lot of criticism because it is claimed that their manipulation of interest rates are often the cause of the downturn. It is this that is seen as causing a huge increase in credit growth which eventually leads to a credit burst which affects the whole economy.  This is another area where the Austrian economists believe that government intervention causes things in the economy to worsen.

The Austrian school believes that the entrepreneurial spirit and the right to own property are vital for the success of any economy. Their ideas find a lot of support around the world and are quite similar to the theories of the Chicago School. The Austrians don’t believe that economies can be simplified into mathematical models because they feel that a different set of tools is needed when dealing with this area of life. Instead of using the methods of the hard sciences the approach is instead focused on deduction.  These economists believe in the existence of axioms from which further deductions can be made about human economic behaviour.

Like all school of economic theory, the Austrian school has not been without its critics. The fact that they don’t use mathematical models is often viewed as being a negative and means that their ideas lack any real scientific rigor. This criticism is compounded by the fact that many critics claim that their arguments or often overstated or even based on faulty understandings about the other economic theories that they criticize. They also fail to take into account the many examples of how government intervention has helped in the market place.

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