Austrian Economics Today

Abstract

The recent financial and economic crisis has raised doubts about mainstream economics which, according to many observers, were not able to predict this event and had considerable difficulties in providing convincing explanations and policy prescriptions to deal with its consequences. This has led to a revival of heterodox alternatives to neoclassical economic theories, including Post-Keynesian, institutionalist, and even Marxist alternatives to the accumulated wisdom of general equilibrium economics. Most of these heterodox approaches lead to policy recommendations more to the “left” of neoclassical ones, implying a more active role of government in regulation and stabilization policies. On the other hand, for a long time public choice theorists have pointed towards the danger of government failure under such “paternalistic” schemes of public policy design. In any case, now the door seems to be open for a re-evaluation of alternative approaches to economics and for recognizing the requirement of dealing with critiques of the neoclassical paradigm. Austrian Economics, or more precisely the Austrian School of Economics, is unique in providing a theoretical framework which, although distinctly different from Walrasian general equilibrium, rests on methodological individualism and the assumption of rationality of economic agents, two pillars of neoclassical economics, and leads to policy conclusions that are located to the “right” of the mainstream in pleading for unfettered markets, free trade and minimal government. Even if some of the Austrians’ propositions are deemed provocative and unrealistic by many economists, it is worthwhile examining this alternative framework which has a long and distinguished career hearkening back to the time of the neoclassical revolution in the 1870s (Menger 1871). A reconsideration of the Austrian contribution may provide insights which help explain economic phenomena of today and enrich the corpus of economic theory in various ways. The Austrian School of Economics was founded by Carl Menger, continued in the “second generation” by Eugen von Bohm-Bawerk and Friedrich von Wieser, in the “third generation” by Ludwig von Mises, and later by such eminent economists as Oskar Morgenstern and Nobel laureate Friedrich August von Hayek. While all these economists came from the Austrian part of the Habsburg monarchy and later from Atl Econ J (2014) 42:121–122 DOI 10.1007/s11293-014-9408-4