Austrian economics and value judgments: a critical comparison with Neoclassical Economics

Abstract

This article points out the limits of Austrian economics as far as the passage from positive to normative economics is concerned. We propose a comparison with neoclassical economics and discuss the different theoretical solutions adopted by these two schools of thought in their legitimization of the normative discourse. The bridge from positive to normative economics is analyzed as resting upon two interdependent pillars, one of a technical nature, the other of an ethical one. In neoclassical theory, these two pillars are, respectively, the Pareto principle and the so-called minimal benevolence principle. In the case of Austrian economics, they are the coordination principle and a set of value judgments considered to be ‘quasi-universal’. One problem for Austrian economics is that the coordination principle turns out to be incompatible with process analysis, the latter being a central tenet of the Austrian theory. A second problem, which creates serious difficulties for both schools, has to do with distribution. Our thesis is that whereas the neoclassical solution of the distributive problem is formally consistent (although deeply unrealistic), the Austrian solution is theoretically untenable and based on strong, although implicit, value judgments.