The Economic School you’ve barely heard of : Austrian School

The author of this article titles it as “The Economic School You’ve Never Heard Of”. I have been kinder and replaced never with barely. But yes the author could be just right. It is highly unlikely that today’s economists have never heard about the Austrian School of Economic thought. I just wrote about reading dead economists but we have case for many important things being just dead in economic teaching.

Valentin Schmid of Epoch times writes a nice piece about the forgotten yet highly important teachings from Austrian School (HT: Cafe Hayek blog).

Mainstream economics is under heavy pressure. Consistently wrong policies and forecasts have damaged the field dubbed “the dismal science.” But what do critics propose should supersede the prevailing neo-Keynesian and neoclassical schools? Almost all alternative economists are calling for more government involvement to “fix” the free market and make it work better.

But there is one school of economics, once prevalent in academia until it was pushed into obscurity, that places the power to fix the world’s problems in the hands of the people.

“Economists err if they forget that economic life existed before them and that it operates, for the most part, independently of them,” American economist Peter J. Boettke wrote in his book “Living Economics.”

Economics was once tasked with describing how man manages the world’s scarce resources, a process far older than economics as a science. But it has morphed into a field that blames the individual and reality for not measuring up to its theories, and then uses the coercive power of the state in an attempt to shape individuals and reality according to its ends.

The Austrian school of economics, the once dominant school of economic thought at the turn of the 19th century, focuses on the individual—and his or her actions and motivations—to explain economic life. It derives its name from the many scholars from Austria who developed 19th-century classic liberalism into a coherent explanation of economic life.

“Economics is in reality very simple. It functions in the same way that it did thousands of years ago. People come together to voluntarily engage in commerce with one another for their mutual benefit. People specialize and divide work among themselves to advance their condition,” writes modern Austrian economist Philipp Bagus in his book “Blind Robbery!”

The crucial thing to understand is economics existed much before economists made it into a subject. Thus, to unnecessarily complicate and glamorise the subject is not really needed. People did fine even before all these theories shaped up.

Further:

This approach to economics can do without the complex mathematical models of the current schools because it admits that perfection doesn’t exist. There is no equilibrium. Things aren’t perfect, but the best possible solution to economic problems will be found by private individuals acting voluntarily, each assessing new situations for themselves.

“This is precisely what the price system does under competition, and which no other system even promises to accomplish. It enables entrepreneurs, by watching the movement of comparatively few prices, as an engineer watches the hands of a few dials, to adjust their activities to those of their fellows,” Nobel laureate Friedrich von Hayek wrote in his 1944 classic “The Road to Serfdom.”

This acceptance of imperfection, and the insight that those on the ground are best suited to make decisions about allocating scarce resources, avoids the false promise that central planning can solve every problem if only the right people are in power.

Even if central planners, including politicians and bureaucrats who pass laws and regulations, are not corrupt, they can never have enough information to make the right decisions for all individuals impacted by their directives.

They are also insulated from the consequences of their decisions, since their offices are protected until the next election. They have “no skin in the game,” as contemporary philosopher Nassim Taleb put it.

Hmm..fascinating..takes much of economics hubris and arrogance away.

Unless we teach history of economic thought, how is it that we are ever going to learn about all these schools and thoughts?

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