Austrian economics: please explain?

Austrian economics or Austrian School economics has been cited in a number of online LibertyWorks articles to date, not including this one. However, none of us has really expounded on what Austrian economics is. As Pauline Hanson, the ‘boss’ of my former ‘boss’ Malcolm Roberts would say: “Please explain?

This piece is based mainly on a speech I gave in 2017 to an audience of Libertarians from the Liberal Democrats Party (LDP) which relied, in significant part, on a lesser-known book entitled Understanding The Dollar Crisis by Percy Greaves. The speech was entitled Austrian School Libertarianism, and it was aimed at a free-market-friendly audience that may or may not know much (if anything) about Austrian economics.

The various economics schools of thought provide most but not all of the intellectual foundations for political worldviews including that of Libertarianism, Conservatism and Populism on the Right as well as Socialism, Fascism and Populism on the Left.[1] Most Leftists today are (or have been) influenced by Green Socialism  (Galbraith). This school is the most anti-liberty school as well as being the most anti-human and anti-wealth. Some Leftists have been (or are still) influenced by Red Socialism (Marx) and its imaginary end-state of Communism. This school is the second most anti-liberty school but at least isn’t anti-human and anti-wealth.

Some Rightists have been (or are still) guided by Keynesianism, despite its misplaced faith in macroeconomic central planning over free markets. Most Rightists are guided by Neoclassicism, despite it’s misplaced faith in perfection, mathematics and statistics. This school is the second most pro-liberty, pro-human and pro-wealth school, second only to the Austrian. A growing number of Rightists are guided by Austrianism, which accepts humans and the world as they are,  including the fact that human beings are not capable of being understood by aggregation, calculus or by lab experimentation.

The founder of the Austrian School was Carl Menger in the 1870s. He was also the co-founder of the Neoclassical School or marginal subjectivist school, along with Léon Walras and William Jevons. The Austrian School was inspired more so by the French Classical school of the 18th and 19th century (Bastiat, Cantillon, Say, Tocqueville and Turgot) and the Spanish Christian Scholastics for hundreds of years prior to this period (including followers of St Thomas Aquinas) rather than the British Classical school of the 18th and 19th century (Bentham, Hume, Malthus, Mill, Ricardo and Smith).

Dr Richard Ebeling provides a current Austrian ‘family tree’ or organisational chart (reproduced below) in his book Austrian Economics & Public Policy. It should be noted that, in my considered opinion, the most accomplished and influential of the 20th century Austrians were Friedrich von Hayek, Ludwig von Mises and Murray Rothbard and to a somewhat lesser extent Israel Kirzner and Ludwig Lachmann.[2] Most modern Austrians[3] are American by birth or choice, with some Brits and others thrown in. However, there are few Aussie or Kiwi Austrians. This is, as President Donald Trump might say, “sad”.

Copyright: The Future of Freedom Foundation

Why Austrian economics is the best single foundation for real-world, over text-book, economics and politics can be shown in many ways. One way is that it best shows why market freedom is always and everywhere superior to government control. And without the mainstream caveats about chaos, commons, competition, democracy, discrimination, externalities, inequality, information, irrationality, monopoly, poverty, and public goods.

A second way is that, although it is more concerned with truth than prediction, the Austrian School has best predicted critical economic phenomena such as economic booms, busts and recessions. These are caused by government-backed money, finance, banking and other such interventions in free markets.

A third way is that it best gives practical policy solutions, whether in the short or long term. These are largely based on less-and-less Big Government bureaucracy, debt, expenditure, inflation, regulation, subsidies, tax, welfare and Cultural Marxism.

All of life’s fundamental political problems, about which there are so many disagreements, are basically economic in nature. The best answers can be found only by resorting to the study of sound economics. Economics is not a study of opinions. Economics is a science, and as a science it deals with eternal laws —laws that people are not able to change —laws that remain constant. Science seeks to know reality and truth by tracing back every phenomenon or effect to its cause.

There will always be some irreducible and unanalysable phenomena, some ultimate given, some a priori axiom beyond which one cannot go back any further. If it is D that one wants and C produces D, then one strives for C. If one learns that B produces C, one seeks B, and if A produces B, one seeks A. One goes back to A, so that A gives one B, which gives one C, which gives one D. Thus, in addition to the why, how Austrian economics is the best can be seen from, amongst other things, it’s axioms.

An axiom is a universal principle or rule. The key economic axioms of Austrian economics are paraphrased below from Percy Greaves’s Understanding The Dollar Crisis. There are fourteen axioms. They are as follows:

  • The 1st axiom – the action axiom – is that all humans seek to improve their situation from their viewpoint by pursuing ends.
  • The 2nd axiom – the human axiom – is that all humans are both rational and emotional beings in terms of their own decisions about ends and means.[4]
  • The 3rd axiom – the scarcity axiom – is that the means (including production factors like ‘land’, labour and capital) available for seeking human improvement are scarce.
  • The 4th axiom – the uncertainty axiom – is that the human universe is uncertain, and mistakes are made.
  • The 5th axiom – the space-time axiom – is that all human actions take place in physical space-time.
  • The 6th axiom – the causality axiom – is that all human actions have consequences (or there is cause and effect).
  • The 7th axiom – the cost axiom – is that human actions, including the decision to do nothing, always involve the sacrifice of something (or an opportunity cost).
  • The 8th axiom – the choice axiom – is that humans choose those actions they each believe will best improve their situation.
  • The 9th axiom – the ideas axiom – is that the ideas (including worldviews) that humans hold determine their choice of actions.
  • The 10th axiom – the value axiom – is that humans have value scales that are ordinal not cardinal in nature (rankings not metrics).
  • The 11th axiom – the subjectivity axiom – is that different individual humans have different value scales and even those same individuals may have different value scales at different times.
  • The 12th axiom – the marginality axiom – is that each additional unit of any economic good in a human’s decision is of diminishing importance (or value is discounted for priority).
  • The 13th axiom – the discount axiom – is that humans prefer ends sooner in time over those later in time (or value is discounted for time).
  • The 14th axiom – the exchange axiom – is that only humans with different values can and do exchange for mutually beneficial advantage.

The Austrian School does not provide all of the answers in economics, but it is way closer to the truth than any other school.[5] It also best speaks to economists and non-economists, young or old, male or female,[6] gay or straight, black or white, rich or poor, theoretical or practical, minds or hearts, logic or evidence, private or public sector, and atheists or theists alike.

There is so much more that can be said about Austrian economics, and fortunately, there has been. In my LDP speech, I recommended ten books to start with. I will narrow this down to three here: The Austrian School by Jesús Huerta de Soto;[7] Economics in One Lesson by Henry Hazlitt; and Democracy: The God That Failed by Hans-Hermann Hoppe. Plus, by far-and-away the best (but not the only[8]) online resource for Austrian economics is the Mises Institute in Auburn Alabama USA.

I will conclude with a quote by C.S. Lewis. Although he is a great writer of secular science fiction and fantasy as well as Christian theology and apologetics, he is no economist much less one of the Austrian variety. Nevertheless, the following insight by him is very Austrian:

There is one thing, and only one, in the whole universe which we know more about than we could learn from external observation. That one thing is [humans]. We do not merely observe [humans], we are [humans]. In this case we have, so to speak, inside information; we are in the know.

[1] It is a fallacy, and clever propaganda by the Left since the end of WWII, that Nazis and other real Fascists are considered by most to be on the far Right. Nazi after all is short for National Socialist. On the far Right are Liberty-Capitalists. On the far Left are Totalitarian-Socialists. Nazis, Fascists and Crony-Capitalists are various forms of Statism off to the Left with other Statists like the Marxist, Fabian and Green Socialists.

[2] Honourable mentions should be made of Dr Ron Paul, David Gordon, Dominick Armentano, Frank Chodorov, Gary North, George Selgin, Hans-Hermann Hoppe, Henry Hazlitt, Jeffrey Tucker, Jesús Huerta de Soto, Joe Salerno, Lew Rockwell, Mark Skousen, Mark Thornton, Paul Cantor, Peter Boettke, Peter Klein, Robert Bradley, Robert Higgs, Robert Murphy, Roy Cordato, Shawn Ritenour, Stephan Kinsella, Stephen Littlechild, Steven Horwitz, Thomas DiLorenzo and Walter Block.

[3] Note that Joseph Schumpeter, although originally from the German-speaking country of Austria (like Mises and Hayek were), is not of the Austrian School (unlike Mises and Hayek are).

[4] I would also add “spiritual” (to the “rational” and “emotional” of the physical) as well as potentially moral and truthful (in the physical but from the spiritual). See writers like C.S. Lewis and Ravi Zacharias for more on this sort of thing.

[5] It is also closer to the truth, not just compared to other social sciences, but also to the physical sciences like physics which has at least three theories of gravity for instance.

[6] The reality is (and has always been plus always will be) there are two, and only two, sexes genetically. Some individuals can and do (and should not be prevented by government law if they so wish) surgically change aspects of their physical body to outwardly appear more male or female and/or want to believe they are ‘deep down’ one or the other despite their genes. Note that in Christianity, God created both male and female in His image. The use of “He” or “Him” when referring to God, instead of “She” or “Her”, is a mere language convention in the Bible. Furthermore, Jesus Christ was a human male with a human female for a mother during his time on this Earth.

[7] This is where I started in 2008-09 on the proactive and insightful suggestion of Professor Philip Booth of the Institute of Economic Affairs (IEA), back when I was living in London England UK.

[8] See for example the Adam Smith Institute (ASI), American Institute for Economic Research (AIER), Austrian Economics Center (AEC), Foundation for Economic Education (FEE), LibertyMe, Lion Rock Institute (LRI), Mises Institute Canada (MIC) and Australia’s own Catallaxy Files.

Darren Brady Nelson

Darren Brady Nelson

Mr Darren Brady Nelson is the Chief Economist at, and on the Advisory Board of, LibertyWorks. He is also a Heartland Institute expert who recently worked for an Australian Senator and on a Presidential Campaign.
Darren Brady Nelson

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