Austrian School

Contributions

Some contributions of Austrian economists:

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• A theory of distribution in which factor prices result from the imputation of prices of consumer goods to goods of "higher order", that is goods used in the production of consumer goods (goods of the first order).
• An emphasis on opportunity cost and reservation demand in defining value, and a refusal to consider supply as an otherwise independent cause of value. (The British economist Philip Wicksteed adopted this perspective.)
• An emphasis on the forward-looking nature of choice, seeing time as the root of uncertainty within economics (see also time preference).
• A fundamental rejection of mathematical methods in economics seeing the function of economics as investigating the essences rather than the specific quantities of economic phenomena. This was seen as an evolutionary, or "genetic-causal", approach against the stresses of equilibrium and perfect competition found in mainstream Neoclassical economics (see also praxeology).
• Eugen von Böhm-Bawerk's critique of Marx centered around the untenability of the labor theory of value in the light of the transformation problem. There was also the connected argument that capitalists do not exploit workers; they accommodate workers by providing them with income well in advance of the revenue from the output they helped to produce.
• Eugen von Böhm-Bawerk's capital theory, which equates capital intensity with the degree of roundaboutness of production processes.
• The Mises-Hayek business cycle theory, which explains depression as a reaction to an intertemporal production structure fostered by monetary policy setting interest rates inconsistent with individual time preferences.
• Hayek's concept of intertemporal equilibrium. (John R. Hicks took over this theory in his discussion of temporary equilibrium in Value and Capital, a book very influential on the development of neoclassical economics after World War II.)
• Mises and Hayek's view of prices as permitting agents to make use of dispersed tacit knowledge.
• The time preference theory of interest, which explains interest rates through intertemporal choice - the different time preferences of the borrower or lender - rather than as a price paid for a factor of production.
• Stressing uncertainty in the making of economic decisions, rather than relying on "homo economicus" or the rational man who was fully informed of all circumstances impinging on his decisions. The fact that perfect knowledge never exists, means that all economic activity implies risk.
• Seeing the entrepreneurs' role as collecting and evaluating information and acting on risks.
• The economic calculation debate between Austrian and Marxist economists, with the Austrians claiming that Marxism is flawed because prices could not be set to recognise opportunity costs of factors of production, and so socialism could not calculate best uses in the same way capitalism does.