Who Were the Austrians?

I’ve had two emails in the past week asking what is Austrian Economics.  This is an excerpt of my senior thesis, which was on the Federal Monopoly on Money in the United States of America.  My paper was “a tribute to the Austrians.”  Who were the Austrians and what were they doing in my paper?  That’s what this post is about.

The perspective of economic theory by which I am going to analyze the situation in America, describe what we should have been doing all along, and make policy recommendations for the future, is known as Austrian Economics or sometimes referred to as the Austrian School.  In short, this school of economic thought was founded, as the name suggests, by philosophers and economists in Austria.  During the twentieth century, these Austrians began to emigrate from Austria to central Europe and the United States in order to flee the oppressive nature of the German government after the Nazi Germans overtook Austria.  The Austrian School began at the University of Vienna in Austria in the 19th century, was more vocal in Britain for a short time as WWII heated up, and then later, with Mises and Hayek, the United States.  After the move to America in the 1950’s adherents of the Austrian School of thought were mainly American and therefore the title refers to the origin of the School, not necessarily the current nationality of its leaders.  There are six main economists from this school of thought that have most impacted my economic thinking.  They each were key in promoting and formalizing what is considered the Austrian School today.

  1. Carl Menger:  Menger was the founder of Austrian economics and introduced his theory with this book Principles of Economics.  This book challenged the German economic status quo by focusing on what he called “marginal utility”[1] and claiming that all value must be subjective, that is, the value of an economic good is imputed into the good by the individual mind and thus a good’s value depends on the human agent himself.  It is only by this subjective value that trade can possibly exist.
  2. Eugen von Bohm-Bawerk:  Bohm-Bawerk, considered a second generation Austrian, was heavily persuaded by Menger’s Principles and made remarkable contributions to economic theory by his efforts in analyzing the structure of production in an economy.  He was influential in his discussion of capital accumulation and challenged Karl Marx’s theory of the exploitation of workers under a free market.[2]
  3. Ludwig von Mises:  Mises is probably the most important figure to current day Austrians due to the fact that he developed what is known as the Austrian Business Cycle Theory, his bringing the Austrian perspective to the United States, and keeping it alive almost single handedly in an academic era where John Maynard Keynes’ theories reigned supreme.  He focused his efforts on the claim that all economics is flawed unless it is studied through the lens of Praxeology (the study of human action).  In this way, economics cannot be explained through graphs and empirical evidence, but rather must be studied through the a priori starting point that humans act in order to achieve their subjectively valued ends and whatever can be deduced logically from that starting point.
  4. F.A. Hayek:  Hayek is the most well-known Austrian economist and is mostly recognized for his stark opposition to the theories of John Keynes and his claims that laissez faire economics is flawed and a strong economy needs a mix of free enterprise and government regulation and control.[i]  He is also well known for his warnings of the dangers of collectivism and the inevitability of a society that has rejected pure liberty to slowly drift away into serfdom.  His biggest contribution to economics was the structure of production and the elaboration upon Mises’ Austrian Business Cycle Theory.
  5. Henry Hazlitt:  Hazlitt is best known for his opposition to President Franklin Roosevelt’s New Deal, which he considered a dangerous step toward socialism.  Hazlitt’s most famous book is also his greatest contribution to the Austrian School of thought.  He stated that economics had one basic lesson when it came to a government’s economic policy making that every student of economics needed to understand: that “the art of economics consists in looking not merely at the immediate but at the longer effects of any such policy.”[ii]
  6. Murray Rothbard:  Rothbard was not merely an economist.  He was also a philosopher, a political theorist, a legal theorist, a historian, and the founder of the modern libertarian movement as well as “Anarcho-capitalism” (a phrase that he coined).[3]  He was known before he died in 1995 as the dean of the Austrian School of economics.  He is also the only one on this list who is not an Austrian nationally.  His focus was on the inherent destructiveness of the state in society and economy in the sense that, by its nature, it is coercive, unproductive, and ultimately standing in contrast with objective ethical standards and human liberty.  [One should advocate civil governance in society, but the State, as the Austro-libertarians defined it, takes a monopolistic and self-contradictory role in pursuing such governance.]

Based on the above descriptions, a general summary explanation of Austrian Economics is that it is an approach to economics through the lens of Praxeology (human action), with its emphasis on the subjective theory of value, the claim of knowledge being the scarcest resource, and the economic impossibility of any system which endorses collectivism, central planning, or abandonment of individual choices.  This is free-market capitalism in its purist and most consistent form and it is upon this theory that my thesis, that is, the call for the ending of the Federal Monopoly on money, is founded.

Questions? Comments? Book recommendations? 


[1] Marginal Utility: satisfaction gained from the consumption of an additional unit of good.

[2] Karl Marx was one of the major developers of the economic theory of Socialism.  The exploitation of workers is expressed in section 2 of his Communist Manifesto

[3] Not to be confused with Anarchy


[i] Keynes, J. M. (1965). The General Theory of Employment, Interest, and Money. Boston, MA: Houghton Mifflin Harcourt

[ii] Hazlitt, H. (1946). Economics in One Lesson. P. 20.  New York City, New York: Harper & Brothers.

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