The Long FAQ on Liberalism
A Critique of the Austrian School of Economics:
The Austrian School of Economics is an anarchist branch of
economics that has attracted a wide libertarian following. Founded
in 1871, it is named after four turn-of-the-century Austrian economists
who developed its theories: Carl Menger, Eugen von Böhm-Bawerk,
Ludwig von Mises and Friedrich von Hayek. Later, as the school
migrated to America, non-Austrians like Murray Rothbard and Henry
Hazlitt also helped develop and popularize its teachings.
Perhaps the first thing to stand out about Austrian economics
is its relationship to mainstream economics. The two completely
reject each other, and proudly so. Their differences extend even
deeper than their diametrically opposite interpretations of the
economy; they even use different philosophical approaches. The
two could almost be called separate disciplines, if they were
not attempting to describe the same phenomena. So, then, how do
they view each other?
Mainstream economists dismiss the Austrians as cranks. Nobel economist
Paul Samuelson wrote that "I tremble for the reputation of
my subject" after reading the "exaggerated claims that
used to be made in economics for the power of deduction and a
priori reasoning [the Austrian methods]." (1) Noted economist
Mark Blaug has called Austrian methodologies "so cranky and
idiosyncratic that we can only wonder that they have been
taken seriously by anyone." (2)
Austrians, on the other hand, have their own spin on their differences.
Here's Llewellyn Rockwell, Jr., president of the Ludwig von Mises
Institute, after listing several different economic schools of
thought: "Also part of this mix, but in many ways apart from
and above it, is the Austrian School. It is not a field within
economics, but an alternative way of looking at the entire science."
(3) As we shall see, that the Austrians are "apart"
is clear -- "above" is mere bluster.
For most of the Austrian School's history, mainstream academia
has simply ignored it. Even today, none of its works are on the
required reading list at Harvard. Most introductory economics
texts don't even mention the school, and its economists are absent
from many encyclopedias or indexes of the century's great economists.
Several of its founding figures struggled to make ends meet, rejected
by universities which did not view their work as sound. Even today,
the movement's faculty boasts no more than 75 scholars worldwide.
(4) By comparison, there are over 20,000 economists in the American
Economics Association alone. Their failure to rise in academia
has not been for want of publicity -- on the contrary, their leaders
have been publishing books for over 120 years, all the while bumping
elbows with famous economists like John Maynard Keynes. And after
Hayek shared a Nobel Prize in 1974 for a contribution to monetary
theory, the school received a huge burst of academic attention.
But it was just as quickly rejected. Their dismal showing in academia
stems from the fact that they have simply failed to make their
In classic crank tradition, Austrians have a conspiracy theory
to explain this failure. In an essay subtitled "Ignorance
and the Universities," Austrian professor Patrick Gunning
"The aim of this essay is to try to explain why positivism
[the mainstream approach] has succeeded in professional economics,
while subjectivist economics [the Austrian approach] has failed.
identifies two main reasons for this phenomenon. The
first is that ordinary people cannot tell the difference between
good and bad economics. The second is that the training ground
for professional economics is the university. In modern times,
the university is more likely than not to be funded by the government.
In a democracy, government funding implies (1) a competition for
funds and (2) bureaucracy. Both of these characteristics favor
Today the Austrian tradition is kept alive by the Ludwig von Mises
Institute, a think tank financed entirely by wealthy business
donors. It is part of a broader phenomenon, the explosion of
far-right think tanks in the last 20 years, funded by such conservative
and libertarian donors as the Bradley, Coors and Koch family foundations.
These foundations have poured hundreds of millions of dollars
into the creation of an "alternate academia" of right-wing
think tanks, after the failure of mainstream academia to support
right-wing dogma. This alternate academia comes complete with
extensive media ties to publicize their research, which is why
Austrians are so frequently found on conservative talk radio.
Austrian economist Israel Kirzner describes the critical role
that their primary backer, the Foundation for Economic Education
(FEE), has played in the "revival" of Austrian economics:
"It was their vision which brought Ludwig von Mises to FEE
at a time when he was, to put it mildly, all but ignored on the
academic scene. It was through the resources of FEE, its skilled
use of the tools of communication and public education, which
ensured that Mises' message would survive." (6)
This movement has not been completely unsuccessful in making inroads
into "liberal" academia. Austrians have self-described
"intellectual communities" at three universities, most
notably Auburn, where the von Mises Institute is affiliated. The
Institute publishes only one journal and one newsletter in English,
and holds only one major seminar a year. However, thanks to its
well-funded publicity, the movement is starting to generate more
The differences between Austrian and mainstream economics
The Austrian School is not a monolithic ideology. One of their
top professors, Peter Boettke, writes: "
It must be
admitted that Austrian economics is plagued with many thorny issues
of an epistemological, theoretical, empirical, and political nature.
Disagreement within the ranks of Austrian economists still persists
over [many] issues
" (7) Perhaps the largest split is
between the "narrow church" of Mises and the "broad
church" of Hayek. The Miseans do not consider Hayek a "true"
Austrian, and even refer to him privately as a "social democrat,"
because he did not subscribe to all the tenets of hard-core Austrianism.
Factions aside, the general differences between Austrian and mainstream
economics can be summarized as follows:
Next Section: The Scientific Method
- Mainstream economists use the scientific method; Austrians
reject it, at least for the study of the economy. Instead, they
use a pre-scientific method which deduces truths from a priori
- Mainstream economists make heavy use of statistics; Austrians
claim statistics have very little value, because of their extreme
- Mainstream scientists believe in both objective and subjective
truth (that is, absolute truth and personal truth); Austrians
believe only in subjective.
- Mainstream scientists seek to explain human behavior on many
different levels: the gene, the individual, the group and the
specie. Austrians believe that all explanations of human behavior
can be traced back to the individual.
- Mainstream economists often use models that use perfect starting
assumptions; Austrians claim not to.
- Mainstream economists believe that monopolies can arise from
a number of causes; Austrians believe that only government causes
- Mainstream economists believe in fiat money; Austrians believe
in the gold standard.
- Mainstream economists assert that the mystery of the business
cycle is deep and poorly understood; Austrians claim the government
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1. Paul Samuelson, Economics, 6th ed. (New York: McGraw-Hill,
1964), p. 736.
2. Mark Blaug, The Methodology of Economics (New York:
Cambridge, 1980), p. 93
3. Llewellyn H. Rockwell, Jr. (president and founder of the Ludwig
von Mises Institute), "Why Austrian Economics Matters,"
4. "About the Ludwig von Mises Institute,"
5. J. Patrick Gunning, "Subjectivist Economics vs. Positivism:
Ignorance and the Universities,"
6. Israel M. Kirzner, "Fifty Years of FEE--Fifty Years of
Progress in Austrian Economics," The Freeman, May
7. Peter J. Boettke, "What is Wrong With Neoclassical Economics
(And What is Still Wrong With Austrian Economics)" in Fred
Foldvary, ed., Beyond Neoclassical Economics (Edward Elgar