Overview

Most economics is about math and models. The Austrian School says: “You can’t model human behavior with equations because humans are unpredictable.” They believe in the absolute free market and hate government intervention (Central Banks).

Core Idea

The core Idea is Spontaneous Order. No one “designed” language, or the internet, or the price of bread. They emerged from millions of people acting freely. Trying to control the economy (Socialism) is like trying to control the weather—it always fails because the planner doesn’t have enough information.

Formal Definition

A school of economic thought based on methodological individualism. Praxeology: The study of human action.

Intuition

  • The Knowledge Problem (Hayek): Imagine trying to plan a dinner for 300 million people. You don’t know what they want to eat, or who is allergic to peanuts. Only the price system knows this (if people want peanuts, the price of peanuts goes up, and farmers grow more). A central planner can never know as much as the market.

Examples

  • Business Cycle: Austrians believe recessions are caused by the Federal Reserve keeping interest rates too low. This encourages businesses to borrow money for bad projects (Malinvestment). When the rates go back up, the bad projects fail.
  • Bitcoin: Many Bitcoiners are Austrians. They like it because it takes power away from the government.

Common Misconceptions

  • They are anarchists: Some are (Anarcho-Capitalists), but most just want a very small government.
  • It’s mainstream: It is a heterodox school. Most universities teach Keynesian or Neoclassical economics.
  • Opportunity Cost: Invented by an Austrian (Wieser).
  • Creative Destruction: Coined by Schumpeter (an Austrian).

Applications

  • Deregulation: The push to remove government rules is often based on Austrian arguments.

Criticism / Limitations

  • No Math: They reject empirical testing (Econometrics). They say you can figure out economics just by thinking logically (A priori). This makes it hard to prove them right or wrong.

Further Reading

  • Hayek, F.A. The Road to Serfdom.
  • Hazlitt, Henry. Economics in One Lesson.