Austrian Economics?

[dhudson]

I was at a convention today and a man picked up a copy of "Whatever Happenned to Penny Candy" and made a remark about it being by an Austrian Economist. I consider myself well read but had no clue what he was talking about. I came home and have been researching it ever since and barely have a clue what it means. I think I understand that it is a theory which says that economy models don't work or are inaccurate because they don't take into consideration human nature. I think I also understood that Austrian economists are more likely to be hands off than other theories of economy.

 

Is that basically what it is? I need to be schooled by those smarter than I am. I am not looking for a debate as to what is the right school of economist but more of a definition of the different type of theories in language the common man might understand (meaning me:lol:).

[theYoungerMrsWarde]

:lurk5:

[JumpyTheFrog]

Look up the Mises Institute for more info.

[dangermom]

Look up F. A. Hayek. His most famous book is The Road to Serfdom. Or you can just enjoy this hilarious rap video, which is a duel between Keynes and Hayek:

. Keynes was top-down spending, he believed in gov't spending when people would not spend, in order to fuel economic activity. Hayek believed that was foolish and dangerous.

[WVNA]

I think I understand that it is a theory which says that economy models don't work or are inaccurate because they don't take into consideration human nature. I think I also understood that Austrian economists are more likely to be hands off than other theories of economy.

 

Is that basically what it is? I need to be schooled by those smarter than I am. I am not looking for a debate as to what is the right school of economist but more of a definition of the different type of theories in language the common man might understand (meaning me:lol:).

 

The short answer to your questions is yes. Austrian economists tend to be very hands off on the economy. One of the four remaining Republican presidential candidates has a lot of beliefs that are heavily influenced by Austrian economists, so I'm not sure how much we can say without violating the no political discussion rule on this board.

[brightside]

This is probably overly simplified, but it should give you the gist. This was how it was explained to me before I started studying it further.

 

 

Keynesian = "It takes money to make money" SPEND

 

Austrian = "Saving for a raining day = prosperity" SAVE

 

My favorite beginner's book on Austrian Economics is "How an Economy Grows and Why it crashes".

 

 

If my history is correct (I am too tired to google) the US moved to Keynesian economic theory in the 50s. We originally used the Austrian method.

Edited March 10, 2012 by brightside

[chiguirre]

If you'd like to know more about economics, the best thing to do is to grab an Econ 101 textbook.

 

The best known text is Samuelson's Economics. It's been around for 50 years and covers all the bases. You can buy an older, cheaper edition and not miss out on anything. He's the Gombrich of economics.

 

There's one written by Gregory Mankiw, who has an economic advisor to GW Bush and teaches at Harvard:

 

http://www.amazon.com/Principles-Economics-Student-Gregory-Mankiw/dp/0324224729

 

Mankiw is well known and, obviously, slants right, although he is a Keynesian.

 

If you just can't stomach an Econ 101 book, try The Worldly Philosophers:

 

http://www.amazon.com/Worldly-Philosophers-Lives-Economic-Thinkers/dp/068486214X#_

 

I loved this book when I was a teenager (yes, I was a geek). It's a fascinating read and a very good introduction to the central problems of economics told through the lives of the first people who wrote about those problems. I'm not sure it covers the Austrians, but you can always read Von Hayek afterwards and this will give a strong base to understand both monetarist and Keynesian arguments.

[Ester Maria]

In very short terms:

 

1) The Austrians are into something called methodological individualism - which basically means that they dissect all of human behavior from the perspective of individual actors. They believe that all actions can be traced down to them, and it is important that we are talking about individuals, not group predicates (such as a certain historicity, class, gender, etc.), since even "group actions" can in principle be dissected into individual components.

Unlike that, there is a school of thought according to which a group is more than a sum of its parts, and to be taken as a different kind of agent than individuals are. Austrians are not into any of that, they are into individuals.

 

2) They think that human behavior possesses an enormous complexity and on the grounds of that they largely abandon mathematical and statistical models, as well as experiments, for assessing any theory in economics.

Rather, they are into something called praxeology (they love that word, you will have come across it if you google anything about the Austrian school). It basically means that they want to derive basic principles from logic and from what constitutes principles of an individual action. They are largely into deductive reasoning in how they approach this (and economics in general).

 

3) Translated to practical implications, they generally advocate the laissez faire approach to the market, free exchange, minimalist government intervention into economics and money production, they are into subjectivism as regards value of things (= another impetus for laissez faire), etc.

 

I am not an economist :) - but I was raised by one and in my dark moments recently I began to fear I have birthed one too, LOL - so the above is pretty much how I systematized it in my head without any "serious" study of these things.

[Kathleen in LV]

This article is a good overview of Austrian Economic theory:

 

http://mises.org/page/1444/Why-Austrian-Economics-Matters

 

Also, there are always plenty of interesting articles on the topic at www.lewrockwell.com.

[OrdinaryTime]

I got a big kick out of this video about Hayeck vs. Keynes.

[Spy Car]

This article is a good overview of Austrian Economic theory:

 

http://mises.org/page/1444/Why-Austrian-Economics-Matters

 

Also, there are always plenty of interesting articles on the topic at www.lewrockwell.com.

 

Lew Rockwell is the guy who wrote racist and anti-semetic articles for the newsletter of a certain someone who will not be named.

 

So-called Austrian Economic is a radical far-right/libertarian ideology that rejects the tradition of Classical Economics (and especially any pretentious of a scientific or mathematically valid underpinnings to the discipline). It is much like Marxism in replacing the principles of Classical Economics with ideology, even though the ideology of Austrian Economics is in many way the antithesis of socialism.

 

Austrian Economics as typified by Ludwig Von Mises and his protoge Murry Rothbart is way outside the mainstream of economics. They are considered "hertodox" by mainstream economists.

 

The basic ideological position of Austrian Economics is making a fetish of the "market" and demonizing any actions on the part of governments that "interfere" in the slightest as "distortions of the market." Taxation, government spending, social safety networks, federal reserves, and basically all other functions of government are forms of evil that spoil the purity of the market.

 

Austrian Economics is sometimes call "anarcho-capitalism." The answer to every problem is less government more anarchy and less government, whether reality and sound economics backs up there ideological answers (or not). A tornado hits the Mid-West? You chose to live there, don't expect help.

 

It is a "Dickensian" worldview that is little different than the ideology of Ayn Rand.

 

This is not the classical economics one will study in Samuelson.

 

The man in the OP was correct in one sense. The Penny Candy author is a proponent of Austrian Economics. He is incorrect in thinking Richard Maybury is an "economist." Evidently Maybury once taught economics in high school, and now works as a professional conspiracy-theorist who sells his "warnings" of economic doom on his website.

 

Avoid this stuff like the plague.

 

Bill

[Tina]

And here's a self-guided syllabus with mostly online resources, if you want. I ran across this recently.

 

http://lewrockwell.com/woods/woods177.html

[Kathleen in LV]

With all due respect to Bill, whose opinion on curricula I've come to value, I think there are a variety of perpectives held by members of this forum. Out of respect for the OP's request, the ban on political threads, and the views of others on this board, I refrained from advocating for or against any particular school of economic thought in my response -- I merely directed the OP to information she requested. I don't think Bill was trying to attack or insult, and I'm not personally offended, but I think respect for others' viewpoints should be maintained.

[Kathleen in VA]

Here's another source for info about Austrian Economics.

 

http://www.fee.org/

[ChocolateReignRemix]

With all due respect to Bill, whose opinion on curricula I've come to value, I think there are a variety of perpectives held by members of this forum. Out of respect for the OP's request, the ban on political threads, and the views of others on this board, I refrained from advocating for or against any particular school of economic thought in my response -- I merely directed the OP to information she requested. I don't think Bill was trying to attack or insult, and I'm not personally offended, but I think respect for others' viewpoints should be maintained.

 

I would not have been quite as harsh as Bill, but one of the best descriptions I ever heard of the Austrian economics school of thought was that is best suited for those who do not understand economics.

[ErinE]

With all due respect to Bill, whose opinion on curricula I've come to value, I think there are a variety of perpectives held by members of this forum. Out of respect for the OP's request, the ban on political threads, and the views of others on this board, I refrained from advocating for or against any particular school of economic thought in my response -- I merely directed the OP to information she requested. I don't think Bill was trying to attack or insult, and I'm not personally offended, but I think respect for others' viewpoints should be maintained.

 

 

Agreed with the above.

 

As to the OP, The Road to Serfdom is an enlightening book. I highly recommend it.

[mhgillil]

Whoa, hold up there, Bill. You have obviously read something about the Austrian School of economic theory, but you're speaking with more authority than is warranted. Basically, it looks like you don't know enough to understand it, but just enough to feel free to criticize it.

 

First, I really need to clear-up the misconception that Austrian economics is also called anarcho-capitalism. While many Austrian economists do subscribe to this political ideology, we believe that social sciences must be value-free and there are many Austrians who are not anarcho-capitalists.

 

So-called Austrian Economic is a radical far-right/libertarian ideology that rejects the tradition of Classical Economics (and especially any pretentious of a scientific or mathematically valid underpinnings to the discipline).

 

Again, Austrian economics is a school of economic thought, not an ideology. But let us examine your critique of the lack of scientifically or mathematically valid underpinnings. Economics is a social science. There's a big difference between social and hard sciences. Mainstream economics seems have forgotten this. You cannot examine the behavior of human beings the same way that you would examine, for example, mindless particles. In addition, when mainstream economists attempt to predict future economic trends with their fabulous mathematical models, they use all variables. And the actions of individuals are not accounted for. It's no wonder that they are terrible at predicting much of anything. The resulting equations are imprecise and a downright fraud. On more than one occasion, I have seen mathematicians cackle hysterically when they find out what mainstream economists do in these models. Austrians, on the other hand, primarily employ the study of human action (praxeology) and logic (of which mathematics is only a branch) to predict economic trends. Shockingly, Austrians consistently have a much better grasp of what is happening and is going to happen in an economy (for example, Mises and Hayek were the only economists to predict the Great Depression and we knew about the impending housing bust in the early 2000s, and there were suspicions in the 90s).

 

Economics is much more than a numbers game. In its essence, it is the study of human beings and what they value. If mathematics is the main tool for advancing economic thought, the assumption must be that human beings conform their actions to a constant mathematical equation. This is why Austrians use logical inferences from observation rather than equations. For an overly simplified example, I can observe that someone likes chocolate ice cream more than strawberry ice cream. But it is impossible to precisely say that the person gets 4.5 "utils" of pleasure from chocolate ice cream, versus 2.6 from strawberry ice cream. The latter is a simply ridiculous statement, yet this is the approach of mainstream economics.

 

Furthermore, the vast majority of Austrians had their training in mainstream economics and/or advanced mathematics. It's not like they don't understand the stuff. They see the flaws and the failures.

 

The basic ideological position of Austrian Economics is making a fetish of the "market" and demonizing any actions on the part of governments that "interfere" in the slightest as "distortions of the market." Taxation, government spending, social safety networks, federal reserves, and basically all other functions of government are forms of evil that spoil the purity of the market.

 

I cannot stress enough that Austrian economics has no ideological position. The conclusions of the observations tend to lead to the idea of interference in the market as having an overall detrimental effect on society, but when working purely on economics, Austrians take no stance. Again, we strongly believe in value-free science because we're interested in describing reality.

 

A tornado hits the Mid-West? You chose to live there, don't expect help.

 

Confusing ideology again here. Libertarians as a whole are often influenced by the conclusions of Austrian economics. For example, libertarians tend to believe that state interference in the market results in a poorer society, governments are bad at allocating funds, if it is needed the market will provide it, etc. This is a really difficult paradigm shift to make because our society is so very used to the idea of the state handling things like welfare, natural disaster recovery, education, etc. As for tornadoes, an Austrian economist will tell you that you when you provide “insurance” for disasters from organizations such as FEMA, you make it less of a risk to live in places like Tornado Alley. This isn’t contentious among economists. It’s simply supply and demand. When you reduce the cost of something, more of it will be demanded. I feel like continuing further is treading to close to violating the political discussion ban, but that really needed clarification. If you want more info, mises.org is a good place to read-up on the economics of it.

 

As for Austrians being Randians, both Austrian and Objectivists would laugh at you for saying that.

 

Source: Married to an Austrian economist-in-training.

 

P.S. For anyone interested in Austrian Economics, Dr. Robert Murphy has a wonderful textbook called Lessons for the Young Economist (http://www.amazon.com/Lessons-Young-Economist-Robert-Murphy/dp/1933550880) and just in the past few days released the teacher’s guide (http://www.amazon.com/Lessons-Young-Economist-Teachers-Manual/dp/1610162048), which is specifically designed with homeschooling parents in mind. Austrians economists tend to homeschool. =)

Edited March 10, 2012 by mhgillil
Fixed formatting

[OrdinaryTime]

Friedrich Hayek, who is part of the Austrian school of thought, though a different branch than Mises, won the Nobel Prize in Economics. I think a dismissal of Austrian economics out of hand is a little over the top.

[tntgoodwin]

:lurk5:

[mhgillil]

Friedrich Hayek, who is part of the Austrian school of thought, though a different branch than Mises, won the Nobel Prize in Economics. I think a dismissal of Austrian economics out of hand is a little over the top.

 

And Hayek was Mises' student. =)

 

The Keynes vs. Hayek videos (at least one has been linked to in this thread) are really fabulous for demonstrating how enamored we've become with Keynesian thought in particular. Politicians naturally want to spend more now because the short-term gains are often positive and, well, let the next guy worry about the long-term consequences. The bad economist looks at the obvious - what is seen, ignoring all further consequences - the unseen (paraphrase of Bastiat). As Keynes (who, btw, only ever took one economics course) famously said, "In the long run, we are all dead." Mainstream economic policy rarely gets beyond stage-1. Austrians worry about stages 2, 3, 4, 5, etc. Austrians try to foresee the unseen.

 

It's really obvious which sort of policies we've been following and that they're not working out very well.

[dhudson]

Wow, you guys are amazing. I am going to read a few of these books and educate myself. I, of course, have no formed opinion on either Austrian or mainstream economic theory as I don't have enough info to form an educated one.

 

I appreciate most of you trying to keep the discussion educational not political.:001_smile:

 

I knew I could count on you!

[tntgoodwin]

Actually, that book you mentioned in the OP isn't a bad intro either.