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Austrian School

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The Austrian School of Economics is a school of economic thought that derives its name from its Austrian founders and early supporters, including Carl Menger, Eugen von Böhm-Bawerk and Ludwig von Mises.

Other significant Austrian writers and economists include Murray Rothbard, Nobel Laureate Friedrich Hayek and journalist Henry Hazlitt. Current research is produced by, among many others, scholars from the Ludwig von Mises Institute, and "Austrian" economists can now come from any part of the world. They are identified with the School through their shared views on the nature of economic science and its proper methodology.

The school emphasizes the spontaneous organizing power of the price mechanism and holds that the complexity of subjective human choices makes mathematical modeling of the evolving market practically impossible and therefore its scholars eschew what they consider "naïve" and pointless mathematical modeling of the economy, considering much of mainstream economics a form of economic charlatanism.[1][2] Its proponents tend to emphasize the organic, subjective and evolving nature of market dynamics, advocating the strong protection of private property rights and the strict enforcement of voluntary contractual agreements between economic agents as the best way of faciliating economic exchange, and generally advocate a laissez-faire approach to the economy, arguing that the smallest imposition of coercive force (especially government-imposed force) on commercial transactions is the most effective way to secure long-run economic stability and well-being.

In particular, they voice serious concerns about the distorting and damaging effects of government involvement in commerce, arguing that few government regulations in this area are necessary or desirable and often trigger a "ratchet effect" as problems associated with existing regulations are often blamed on the free market, thereby justifying further damaging, coercive incursions into the market. They are particularly critical of long-standing governmental incursions into the area of private money production, advocating instead the immediate abolition of all coercive legal tender laws and the return to full reserve - or free - banking, where the financial system is decentralized and not dominated or controlled by coercive monopoly government or a monopoly central bank.

History[edit]

While the Austrian School of Economics has connections as far back as the 15th century, it began with notable 19th century economists of Austrian origin. It is recognized to have emerged after the publication in 1871 of a trilogy of works (by Jevons, Walras, and Menger) which introduced the idea of the subjective theory of value and began what has been called “the marginal revolution” in economic thought.[3]

Other early theorists of the Austrian School were Eugen von Böhm-Bawerk, Ludwig von Mises, Friedrich Hayek, and Friedrich von Wieser. Austrian economists no longer need be from Austria, and the term describes a particular school of economic thought rather than the nationality of its practitioners.

Pre-Austrian Economists[edit]

With noted contributions of earlier thinkers, like Nicole Oresme, the Austrian school traces its roots to the followers of St. Thomas Aquinas, writing and teaching at the University of Salamanca in Spain.

These Late scholastics established the first modern economic theories and argued, in current terms, for free trade and property rights. Over the course of several generations, they discovered and explained the laws of supply and demand, the cause of inflation, the operation of foreign exchange rates, and the subjective nature of economic value. They were advocates of property rights and the freedom to contract and trade. "Austrians share the scholastic belief that there is no such thing as an economic science dealing with autonomous variables. Economic problems are aspects of larger social phenomena; and it is most expedient to deal with them as such, rather than to analyze them in some twisted separation."[4]

The first general treatise on economics, Essay on the Nature of Commerce, was written in 1730 by Richard Cantillon, a man schooled in the scholastic tradition. Born in Ireland, he emigrated to France. He saw economics as an independent area of investigation, and explained the formation of prices using the "thought experiment." He understood the market as an entrepreneurial process, and held to an Austrian theory of money creation: that it enters the economy in a step-by-step fashion, disrupting prices along the way.

Cantillon was followed by Anne Robert Jacques Turgot, the pro-market French aristocrat and finance minister under the ancien regime, one of the Physiocrats. His economic writings were few but profound. His paper "Value and Money" spelled out the origins of money, and the nature of economic choice: that it reflects the subjective rankings of an individual's preferences. Turgot solved the famous diamond-water paradox that baffled later classical economists, articulated the law of diminishing returns, and criticized usury laws (a sticking point with the Late Scholastics). He favored a classical liberal approach to economic policy, recommending a repeal of all special privileges granted to government-connected industries.

Turgot was the intellectual father of a long line of great French economists of the eighteenth and nineteenth century, most prominently Jean-Baptiste Say and Claude Frédéric Bastiat. Say was the first economist to think deeply about economic method. He realized that economics is not about the amassing of data, but rather about the verbal elucidation of universal facts (for example, wants are unlimited, means are scarce) and their logical implications.

Say discovered the productivity theory of resource pricing, the role of capital in the division of labor, and "Say's Law": there can never be sustained "overproduction" or "underconsumption" on the free market if prices are allowed to adjust. He was a defender of laissez-faire and the industrial revolution, as was Bastiat. As a free-market journalist, Bastiat also argued that nonmaterial services are subject to the same economic laws as material goods. In one of his many economic allegories, Bastiat spelled out the "broken-window fallacy" later popularized by Henry Hazlitt.

Despite the theoretical sophistication of this developing pre-Austrian tradition, the British school of the late eighteenth and early nineteenth centuries won the day, mostly for political reasons. This British tradition (based on the objective-cost and labor-productivity theory of value) ultimately led to the rise of the Marxist doctrine of capitalist exploitation.

The First Austrians[edit]

The dominant British tradition received its first serious challenge in many years when Carl Menger's Principles of Economics was published in 1871. Menger, the founder of the Austrian School proper, resurrected the Scholastic-French approach to economics, and put it on firmer ground.

Together with the contemporaneous writings of Leon Walras and Stanley Jevons, Menger spelled out the subjective basis of economic value, and fully explained, for the first time, the theory of marginal utility (the greater the number of units of a good that an individual possesses, the less he will value any given unit). In addition, Menger showed how money originates in a free market when the most marketable commodity is desired, not for consumption, but for use in trading for other goods.

Menger's book was a pillar of the "marginalist revolution" in the history of economic science. When Mises said it "made an economist" out of him, he was not only referring to Menger's theory of money and prices, but also his approach to the discipline itself. Like his predecessors in the tradition, Menger was a classical liberal and methodological individualist, viewing economics as the science of individual choice. His Investigations, which came out twelve years later, battled the German Historical School, which rejected theory and saw economics as the accumulation of data in service of the state. They took great exception to his defense of "theory" and gave the work of Menger and his followers the derogatory name "Austrian school" because of their faculty positions at the University of Vienna. The term stuck.[5]

As professor of economics at the University of Vienna, and then tutor to the young but ill-fated Crown Prince Rudolf of the House of Habsburg, Menger restored economics as the science of human action based on deductive logic, and prepared the way for later theorists to counter the influence of socialist thought. Indeed, his student Friederich von Wieser strongly influenced Friedrich von Hayek's later writings. Menger's work remains an excellent introduction to the economic way of thinking.

Menger's admirer and follower at the University of Innsbruck, Eugen von Böhm-Bawerk, took Menger's exposition, reformulated it, and applied it to a host of new problems involving value, price, capital, and interest. His History and Critique of Interest Theories, appearing in 1884, is a sweeping account of fallacies in the history of thought and a firm defense of the idea that the interest rate is not an artificial construct but an inherent part of the market. It reflects the universal fact of "time preference," the tendency of people to prefer satisfaction of wants sooner rather than later (a theory later expanded and defended by Frank Fetter[6]).

Böhm-Bawerk's Positive Theory of Capital demonstrated that the normal rate of business profit is the interest rate. Capitalists save money, pay laborers, and wait until the final product is sold to receive profit. In addition, he demonstrated that capital is not homogeneous but an intricate and diverse structure that has a time dimension. A growing economy is not just a consequence of increased capital investment, but also of longer and longer processes of production.

Böhm-Bawerk engaged in a prolonged battle with the Marxists over the exploitation theory of capital, and refuted the socialist doctrine of capital and wages long before the communists came to power in Russia. Böhm-Bawerk also conducted a seminar that would later become the model for Mises's own Vienna seminar.

Böhm-Bawerk favored policies that deferred to the ever-present reality of economic law. He regarded interventionism as an attack on market economic forces that cannot succeed in the long run. In the last years of the Habsburg monarchy, he three times served as finance minister, fighting for balanced budgets, sound money and the gold standard, free trade, and the repeal of export subsidies and other monopoly privileges.

Mises and Hayek[edit]

It was Böhm-Bawerk's research and writing that solidified the status of the Austrian School as a unified way of looking at economic problems, and set the stage for the School to make huge inroads in the English-speaking world. But one area where Böhm-Bawerk had not elaborated on the analysis of Menger was money, the institutional intersection of the "micro" and "macro" approach. The young Ludwig von Mises[7], economic advisor to the Austrian Chamber of Commerce, took on the challenge.

The result of Mises's research was The Theory of Money and Credit, published in 1912. He spelled out how the theory of marginal utility applies to money, and laid out his "regression theorem," showing that money not only originates in the market, but must always do so. Drawing on the British Currency School, Knut Wicksell's theory of interest rates, and Böhm-Bawerk's theory of the structure of production, Mises presented the broad outline of the Austrian theory of the business cycle. A year later, Mises was appointed to the faculty of the University of Vienna, and Böhm-Bawerk's seminar spent a full two semesters debating Mises's book.

Mises's career was interrupted for four years by World War I. He spent three of those years as an artillery officer, and one as a staff officer in economic intelligence. 1919, at war's end, he published Nation, State, and Economy, arguing on behalf of the economic and cultural freedoms of minorities in the now-shattered empire, and spelling out a theory of the economics of war. Meanwhile, Mises's monetary theory received attention in the U.S. through the work of Benjamin M. Anderson, Jr.[8], an economist at Chase National Bank. (Mises's book was panned by John Maynard Keynes, who later admitted he could not read German.[citation needed])

In the political chaos after the war, the main theoretician of the now-socialist Austrian government was Marxist Otto Bauer. Knowing Bauer from the Böhm-Bawerk seminar, Mises explained economics to him night after night, eventually convincing him to back away from Bolshevik-style policies.[citation needed] The Austrian socialists never forgave Mises for this, waging war against him in academic politics and successfully preventing him from getting a paid professorship at the university.

Undeterred, Mises turned to the problem of socialism itself, writing a blockbuster essay in 1921, which he turned into the book Socialism over the next two years. Socialism permits no private property or exchange in capital goods, and thus no way for resources to find their most highly valued use. Socialism, Mises predicted, would result in utter chaos and the end of civilization.

Mises challenged the socialists to explain, in economic terms, precisely how their system would work, a task which the socialists had hitherto avoided. The debate between the Austrians and the socialists continued for the next decade and beyond, and, until the collapse of world socialism in 1989, academics had long thought that the debate was resolved in favor of the socialists.

Meanwhile, Mises's arguments on behalf of the free market attracted a group of converts from the socialist cause, including Hayek, Wilhelm Roepke[9] , and Lionel Robbins. Mises began holding a private seminar in his offices at the Chamber of Commerce that was attended by Fritz Machlup[10], Oskar Morgenstern, Gottfried von Haberler[11], Alfred Schutz[12], Richard von Strigl[13], Eric Voegelin, Paul Rosenstein-Rodan, and many other intellectuals from all over Europe.

Also during the 1920s and 30s, Mises was battling on two other academic fronts. He delivered the decisive blow to the German Historical School with a series of essays in defense of the deductive method in economics, which he would later call praxeology or the logic of action. He also founded the Austrian Institute for Business Cycle Research, and put his student Hayek in charge of it.

During these years, Hayek and Mises authored many studies on the business cycle, warned of the danger of credit expansion, and predicted the coming currency crisis. This work was cited by the Nobel Memorial Prize committee in 1974 when Hayek received the award for economics. Working in England and America, Hayek later became a prime opponent of Keynesian economics with books on exchange rates, capital theory, and monetary reform. His popular book Road to Serfdom helped revive the classical liberal movement in America after the New Deal and World War II. And his series Law, Legislation, and Liberty (online) elaborated on the Late Scholastic approach to law, and applied it to criticize egalitarianism and nostrums like social justice.

Outside of Austria[edit]

In the late 1930s, after suffering from the worldwide depression, Austria was threatened by a Nazi takeover. Hayek had already left for London in 1931 at Mises's urging, and in 1934, Mises himself moved to Geneva to teach and write at the International Institute for Graduate Studies, later emigrating to the United States. Knowing Mises as the sworn enemy of national socialism, the Nazis confiscated Mises's papers from his apartment and hid them for the duration of the war. Ironically, it was Mises's ideas, filtered through the work of Roepke and the statesmanship of Ludwig Erhard, that led to Germany's postwar economic reforms and rebuilt the country. Then, in 1992, Austrian archivists discovered Mises's stolen Vienna papers in a reopened archive in Moscow.[14]

While in Geneva, Mises's wrote his masterwork, Nationalökonomie, and, after coming to the United States, revised and expanded it into Human Action, which appeared in 1949. His student Murray N. Rothbard[15] called it "Mises's greatest achievement and one of the finest products of the human mind in our century. It is economics made whole." It remains the economic treatise that defines the School. Even so, it was not well received in the economics profession, which had already made a decisive turn towards Keynesianism, which accepted fiat money, fractional-reserve banking and central banking, as well as the premise that government had to intervene in the economy because somehow the free market sometimes did not "work" - all principles that Mises found objectionable and wrong.

Though Mises never held the paid academic post he deserved, he gathered students around him at New York University, just as he had in Vienna. Even before Mises emigrated, journalist Henry Hazlitt had become his most prominent champion, reviewing his books in the New York Times and Newsweek, and popularizing his ideas in such classics as Economics in One Lesson. Yet Hazlitt made his own contributions to the Austrian School. He wrote a line-by-line critique of Keynes's General Theory, defended the writings of Say, and restored him to a central place in Austrian macroeconomic theory. Hazlitt followed Mises's example of uncompromising adherence to principle, and as a result was pushed out of four high-profile positions in the journalistic world.

Mises's New York seminar continued until two years before his death in 1973. During those years, Murray Rothbard, a PhD student at Columbia, attended Mises's seminars and become student of the Austrian School, moving further away from "mainstream" economics the more he studied the Austrian School.

Murray Rothbard and the revival of the Austrian School[edit]

Although Murray Rothbard proved to be a brilliant student, he had difficulties obtaining his PhD from Columbia, and the rejection of his views within mainstream economic thought was to become a theme throughout his professional career.[16] Although a prolific writer and polymath, he never obtained an academic posting at any Ivy League institution, having to accept an academic posting at Brooklyn Polytechnic and later becoming a professor of economics at the University of Nevada.[17]

In the tradition of many Austrian scholars, Rothbard was uncompromising in his views and was ostracized from many influential political bodies because of his perceived radicalism, even within right-leaning conservative groups that would normally have been sympathetic to his views. William F. Buckley wrote a bitter obituary on Rothbard's death,[18] and supporters of Ayn Rand ultimately rejected his views on the corrupting influence of big business on politics.

Rothbard wrote of the betrayal of the "true spirit" of the American conservative movement in his book, The Betrayal of the American Right.

On economic matters, Rothbard's Man, Economy, and State was patterned after Human Action, and in some areas--monopoly theory, utility and welfare, and the theory of the state--tightened and strengthened Mises's own views. Rothbard's approach to the Austrian School followed directly in the line of Late Scholastic thought by applying economic science within a framework of a natural-rights theory of property.

What resulted was a full-fledged defense of a capitalistic and stateless social order, based on property and freedom of association and contract. Rothbard extended and in a sense "completed" Mises's views on economic thought, removing inconsistencies and drawing more radical policy conclusions than Mises's early works (that were, in themselves, radical in their day and are still considered to be so even today).

Rothbard followed his economic treatise with an investigation of the Great Depression, which applied Austrian Business Cycle Theory to show that the stock market crash and economic downturn was attributable to a prior bank credit expansion. Then in a series of studies on government policy, he established the theoretical framework for examining the effects of all types of intervention in the market.

Rothbard extended and "radicalized" the Austrian School, taking Mises's insights and pushing them to their logical conclusion. Unlike Mises's view that there was a role for the State (in providing public goods and services such as law and order and basic infrastructure) it was Rothbard's view that all goods and services could be - and should be - produced by the private sector. He viewed many regulations and laws ostensibly promulgated for the "public interest" as self-interested power grabs by scheming government bureaucrats engaging in dangerously unfettered self-aggrandizement, as they were not subject to real competition. Rothbard held that there were inherent inefficiencies involved with governments providing commercial services and asserted that real competition would eliminate these efficiencies, if those services could be provided by the private sector.[19][20][21]

Rothbard was equally condemning of state corporatism. He criticized many instances where business elites co-opted government's monopoly power so as to influence laws and regulatory policy in a manner benefiting them at the expense of their competitive rivals.[22] He was a seminal writer in an area that would later branch out to become public choice theory, but his work is now rarely associated with this area of study.

He argued that taxation represents coercive theft on a grand scale, and "a compulsory monopoly of force" prohibiting the more efficient voluntary procurement of defense and judicial services from competing suppliers.[23] He also considered central banking and fractional reserve banking under a monopoly fiat money system a form of state-sponsored, legalized financial fraud, antithetical to libertarian principles and ethics.[24][25][26][27]

It was Rothbard who firmly established the Austrian School and classical liberal doctrine in the U.S., especially with Conceived in Liberty (volumes I, II, III, IV), his four-volume history of colonial America and the secession from Britain. The reunion of natural-rights theory and the Austrian School came in his philosophical work, The Ethics of Liberty (text), all while he was writing a series of scholarly economic pieces gathered in the two-volume Logic of Action, published in Edward Elgar's Economists of the Century series.

The founding of the Ludwig von Mises Institute in 1982, with the aid of Margit von Mises as well as Hayek and Hazlitt, provided a range of new opportunities for both Rothbard and the Austrian School. Through a steady stream of academic conferences, instructional seminars, books, monographs, newsletters, studies, and even films, they carried the Austrian School forward into the post-socialist age.

The Austrian School enters a new millennium with many new advocates, including economists such as prominent Spanish economist Jesus Huerta de Soto, German economist Jörg Guido Hülsmann and American economists William Anderson, Robert Murphy and Walter Block, writers such as Thomas Woods, Lew Rockwell, and Charles Goyette, and media commentators and public figures such as Peter Schiff and Ron Paul. Some commentators have described this as a recent renaissance of classical liberal scholarship and thought.[28]

Methodology[edit]

Austrian School economists advocate strict adherence to methodological individualism – analyzing human action from the perspective of individual agents.[29] Proponents of this method, praxeology, argue that the only means of arriving at a valid economic theory is to derive it logically from basic principles of human action. Proponents of this method hold that it allows for the discovery of fundamental economic laws valid for all human action. Alongside praxeology, the school has traditionally advocated an interpretive approach to history to address specific historical events.

Austrian economists reject empirical statistical methods as tools applicable to economics, saying that while it is appropriate in the natural sciences where causal factors can be isolated in laboratory conditions, the actions of human beings are far too complex for this "numerical" treatment as passive non-adaptive subjects. Instead one should isolate the logical processes of human action. Mises called this discipline "praxeology" – a term he adapted from Alfred Espinas (but which had been in use by others).[30]

Mises also argued against the use of empirically derived probability modelling in economics, which became prevalent in finance and other areas of economics in the late 20th century.[31][32][33][34][35] Instead, the Austrian praxeological method is based on the heavy use of deductive arguments from undeniable, self-evident axioms or from irrefutable facts about human existence.[36] According to Austrians, deductive economic thought experiment, if performed correctly, can yield conclusions that follow irrefutably from the underlying assumptions and could not be discovered by empirical observation or statistical inference.

The Austrian praxeological method is based on the heavy use of logical deduction from what they assert to be undeniable, self-evident axioms or irrefutable facts about human existence. The primary axiom from which Austrian economists deduce further certain conclusions is the action axiom, which holds that humans take conscious action toward chosen goals.[37]

Austrian school theorists, like Ludwig von Mises, insist that praxeology must be value-free—that the method does not answer the question "should this policy be implemented?", but rather "if this policy is implemented, will it have the effects you intend"? However, Austrian economists often make policy recommendations that call for the elimination of government regulations and their policy prescriptions often overlap with libertarian or anarcho-capitalist solutions. These recommendations are similar to, but further reaching than the minarchist ideas of Chicago School economists, and frequently address issues that other schools ignore, such as monetary reform.[38]

Consistent with this deductive approach, Mises argued against the use of complex mathematical modelling and empirically-derived probabilities in economic models.[39][40][41][42][43] Instead, his praxeological method is based on deductive arguments from what are considered undeniable, self-evident axioms, or irrefutable facts, about human existence. According to Mises, deductive economic thought experiment, if performed correctly, can yield conclusions that follow irrefutably from the underlying assumptions and could not be discovered by empirical observation or statistical inference.[44]

Austrian economists view entrepreneurship as the driving force in economic development, see private property as essential to the efficient use of resources, and usually (if not always) see government interference in market processes as counterproductive.

As with neoclassical economists, Austrian economists reject classical cost of production theories, most famously the labor theory of value. Instead, they explain value by reference to the subjective preferences of individuals. This psychological aspect to Menger's economics has been attributed to the school's birth in turn of the century Vienna. Supply and demand are explained by aggregating over the decisions of individuals, following the precepts of methodological individualism, which asserts that only individuals and not collectives make decisions, and marginalist arguments, which compare the costs and benefits for incremental changes.

Frank van Dun outlines the basic difference between the methods:

The central dogma of positivism in fields such as “law” and “economics” is that every order is artificial. There are no natural orders, or, if there are, they are not suitable objects of scientific investigation. Consequently, persons can be admitted as objects of study only if they are disguised as artificial persons. In economics, positivism typically involves the personification of “theoretical constructs” (for example, utility functions) constrained by the rules of a model or a simulation. It fits the profile of a technology of want-satisfaction that characterises modern neo-classical and mainstream economics, but obviously is useless for the anarchocapitalists’ program of research into the conditions of order and disorder of the real human world.[45]

Criticism of mainstream practices[edit]

Austrians consider their methodology to be superior to mainstream economists' attempts to mimic the "hard' sciences through what Austrians consider to be a "naive" empiricism. This "naive" attempt by the mainstream academic community to mimic the hard sciences through econometrics has had questionable results. German economist, banker and Keynesian critic, L. Albert Hahn, noted the following in October 1952:[46]

It is seldom realized that belief in the possibility of "scientific" business forecasts, and the forecasting mania of our time, are comparatively new phenomena. Until about 1930 serious economists were not so bold — or so naive — as to pretend to be able to calculate the coming of booms and depressions in advance. It would not have fitted into their general view on the working of a free economy. They considered the economic future as basically dependent on unpredictable price-cost relationships and on the equally unpredictable psychological reactions of entrepreneurs. Predictions of future business conditions would have seemed to them mere charlatanry, just as predictions, say, regarding the resolutions of Congress two years from now... The basic error of the whole approach lies in the fact that the causative link between objective data and the decision of the members of the community are treated as mechanical. But men are still men and not automatons... Insufficiently educated in the history of economic thought, they [Anglo-American economists] do not realize that Keynesianism — down to the most technical details, like the concept of the foreign exchange multiplier — is mercantilism or, more precisely, John Lawism pure and simple... Reading, quoting, praising, and promoting each other, and only each other, will not liberate these economists from their voluntary isolationism. They will remain in their dream world. They will continue to predict the unpredictable.

Mainstream economists mostly ignore the Austrian assertion that prediction in economics is inherently impossible and continue to focus on mathematical modelling of the economy derived from simplified assumptions about human behaviour and preferences.[47] However, in the past some mainstream economists and central bankers held similar views to those of the Austrians, eschewing econometric analysis and disparaging attempts to control statistical data that were not amenable to central control and direction (or prediction).[48] For example, H. Parker Willis co-authored the 1936 text The Theory and Practice of Central Banking and wrote the following:

Central banks will do wisely to lay aside their inexpert ventures in half-baked monetary theory, meretricious statistical measures of trade, and hasty grinding of the axes of speculative interests with their suggestion that by so doing they are achieving some sort of vague 'stabilization' that will, in the long run, be for the greater good.

In their rejection of mainstream practices, Austrians have long argued that mainstream economic models have a very poor record of prediction, citing the Global Financial Crisis as one of many examples of the utter uselessness of theoretical economic modelling - and risk analysis - just when it is needed most.[49][50][51] However, some Austrian adherents have themselves been labeled as "Chicken Littles" for continually making predictions of "catastrophic" financial crises.[52][53][54]

Contributions[edit]

Some significant general contributions of Austrian economists are listed below:

  • The Regression Thereom of Money, wherein Mises hypothesized that the creation of money is a time-dependent process where market participants, by spontaneously engaging in barter and trading goods, quickly reach a market-based consensus regarding what should be commonly accepted as a medium of exchange in that market. An item becomes "money" based primarily on participants' subjective values - their past experience of other traders accepting this "good" as money - and their expectation that it will be accepted by others in future. If people stop trusting that others will accept this item in future, this item can lose its tradeability - or "moneyness" - suddenly and immediately.
  • 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 alleged "unreality" and internal stresses inherent in the "static" approach of equilibrium and perfect competition, which are the foundations of mainstream Neoclassical economics (see also praxeology). This methodology is also driven by the belief that econometrics is inherently misleading in that it creates a fallacious "precision" in economics where there is none.
  • Eugen von Böhm-Bawerk's critique of Marx, which centered on 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 demonstration that the law of marginal utility, as formulated by Menger necessarily implies the classical law of costs and hence the vast majority of the conclusions of the British classical economists. This discovery was later fully developed and its implications traced by a student of von Mises, George Reisman, in his book, Capitalism.
  • An emphasis on opportunity cost and reservation demand in defining value, and a refusal to consider supply as an otherwise independent cause of value.[55] (The British economist Philip Wicksteed adopted this perspective.)
  • The Mises-Hayek business cycle theory, which is asserted as explaining depression as a reaction to an intertemporal production structure fostered by monetary policy setting interest rates inconsistent with individual time preferences.
  • 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.
  • The economic calculation debate between Austrian and Marxist economists, with the Austrians claiming that Marxism is flawed because prices could not be set to recognize opportunity costs of factors of production, and so socialism could not make rational decisions.
  • Friedrich Hayek was one of the few economists who gave warning of a major economic crisis before the great crash of 1929.[56][57] In February 1929, Hayek warned that a coming financial crisis was an unavoidable consequence of reckless monetary expansion.[58]
  • 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.
  • An emphasis on the forward-looking nature of choice, seeing time as the root of uncertainty within economics (see also time preference).

Notable theories[edit]

Economic calculation problem[edit]

Main article: Economic calculation problem

The economic calculation problem was first proposed by Ludwig von Mises in 1920 and later expounded by Friedrich Hayek.[7][59] The problem referred to is that of how to distribute resources efficiently in an economy. The capitalist or free market solution is to produce and distribute goods and services according to the price mechanism; Mises and Hayek argued that this is the only viable solution, as the price mechanism co-ordinates supply and investment decisions most efficiently, favoring the production of desired goods and services and eliminating those goods and services that are not wanted by reducing their prices and thereby rationing the resources given to "unwanted" or inefficient producers. Without the "feedback" information being provided by market prices, centrally planned socialism lacks a method to efficiently allocate resources over an extended period of time in any market where the price mechanism is effective (an example where the price mechanism may not work is in the relatively confined area of public and common goods). This thereom implies that a socialist planned economy could never be sustainable in the long term for the vast bulk of the economy, as huge shortages of desired goods and large surpluses of unwanted goods would continually occur in the economy, resulting in misallocations and dislocations that would eventually cause chaos throughout the economic system. The debate over whether socialism was a viable economic system raged in the 1920s and 1930s, and that specific period of the debate has come to be known by historians of economic thought as The Socialist Calculation Debate.[5] Ludwig von Mises argued in a famous 1920 article "Economic Calculation in the Socialist Commonwealth" that the pricing systems in socialist economies were necessarily deficient because if government owned the means of production, then no prices could be obtained for capital goods as they were merely internal transfers of goods in a socialist system and not "objects of exchange," unlike final goods. Therefore, they were unpriced and hence the system would be necessarily inefficient since the central planners would not know how to allocate the available resources efficiently.[5] This led him to declare "…that rational economic activity is impossible in a socialist commonwealth."[7]

Inflation[edit]

Main article: Inflation

The Austrian School has consistently argued that a "traditionalist" approach to inflation yields the most accurate understanding of the causes (and the cure) for inflation. Austrian economists maintain that inflation is by definition always and everywhere simply an increase in the money supply (i.e. units of currency or means of exchange), which in turn leads to a higher nominal price level for assets (such as housing) and other goods and services in demand, as the real value of each monetary unit is eroded, loses purchasing power and thus buys fewer goods and services.[60]

Given that all major economies currently have a central bank supporting the private banking system, money can be supplied into these economies by way of private bank-created credit (or debt).[61] Austrian School economists therefore regard the private bankers and the state-sponsored central bank as the main cause of inflation in an economy where the bulk of the money supply is created through debt, because they regard the central bank as the institution charged with supporting the banking system and supplying cash to the banking system when needed by the banks.[62][63]

The Austrian School also views the "contemporary" definition of inflation as inherently misleading in that it draws attention only to the effect of inflation (rising prices) and does not address the "true" phenomenon of inflation, which they believe simply involves the debasement of the means of exchange. They argue that this semantic difference is important in defining inflation and finding a cure for inflation.[64] Austrian School economists maintain the most effective cure is the strict maintenance of a stable money supply.[65] Ludwig von Mises, the seminal scholar of the Austrian School, asserts that:

Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term `inflation' to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation. . . . As you cannot talk about something that has no name, you cannot fight it. Those who pretend to fight inflation are in fact only fighting what is the inevitable consequence of inflation, rising prices. Their ventures are doomed to failure because they do not attack the root of the evil. They try to keep prices low while firmly committed to a policy of increasing the quantity of money that must necessarily make them soar. As long as this terminological confusion is not entirely wiped out, there cannot be any question of stopping inflation.[66]

Austrian economists tend to measure the inflation by calculating the growth of what they call 'the true money supply', i.e. how many new units of money that are available for immediate use in exchange, that have been created over time.[67][68][69]

Austrian School economists claim that the state uses subtle forms of inflation as one of the three means by which it can fund its activities, the other two being taxing and borrowing.[70] Because of the disruptive and dislocating effects of inflation, many Austrian School economists support the abolition of the central banks and the fractional-reserve banking system, and advocate instead a return to money based on the gold standard, or less frequently, free banking.[71][72] Money could only be created by finding and putting into circulation more gold under a gold standard. In the absence of a return to commodity money, many Austrian analysts predict catastrophe for the economy. For example, Austrian commentator Robert K. Landis has written the following:[73]

No, the die is cast: we shall have the catastrophe. Our fiat monetary system got a reprieve in the 1980's, not a deliverance. All that has happened since, with the fantastic mispricing of credit the Greenspan Fed has engineered, and the massive global malinvestment this has engendered, is that the dimensions of the unraveling have become more dire.

Mises called this one too:

"Certainly, the banks would be able to postpone the collapse; but nevertheless, as has been shown, the moment must eventually come when no further extension of the circulation of fiduciary media is possible. Then the catastrophe occurs, and its consequences are the worse and the reaction against the bull tendency of the market the stronger, the longer the period during which the rate of interest on loans has been below the natural rate of interest and the greater the extent to which roundabout processes of production that are not justified by the state of the capital market have been adopted."

With respect to the form the denouement will take, much has been written within the gold community on the subject of whether we face hyperinflation or deflationary depression as the prelude to monetary collapse. Both sides of the debate appear to accept the premise that whatever may transpire will bear a linear relationship to what now exists. The disagreement centers on the direction the line will go. But today's markets are fully linked by derivatives and technology, and they are patrolled by wolf packs of large, leveraged speculators not noted for their patient outlook. So it seems likely that the terminal monetary crisis will unfold on virtually an instantaneous and discontinuous basis, once the fog of statistical deceit and false market cues begins to lift and a clear trend either way becomes evident. We are not likely to enjoy the luxury of observing either a deflation or an inflation unfold in the fullness of time, but rather, just as Mises foretold, a final and total catastrophe of our fiat monetary system. All we can hope is that once the curtain falls on the current system, the wisdom in the gold bugs' submissions to the Gold Commission will finally find a receptive audience.

Advocates argue that the abolition of legal tender laws and the spontaneous return to a gold or silver monetary system would effectively constrain unsustainable and volatile fractional-reserve banking practices, ensuring that money supply growth ("inflation") would never spiral out of control.[74][75]

In relation to the current central bank-managed fractional reserve fiat currency system, Austrian economist Murray Rothbard stated the following:[76]

Given this dismal monetary and banking situation, given a 39:1 pyramiding of checkable deposits and currency on top of gold, given a Fed unchecked and out of control, given a world of fiat moneys, how can we possibly return to a sound noninflationary market money? The objectives, after the discussion in this work, should be clear: (a) to return to a gold standard, a commodity standard unhampered by government intervention; (b) to abolish the Federal Reserve System and return to a system of free and competitive banking; (c) to separate the government from money; and (d) either to enforce 100 percent reserve banking on the commercial banks, or at least to arrive at a system where any bank, at the slightest hint of nonpayment of its demand liabilities, is forced quickly into bankruptcy and liquidation. While the outlawing of fractional reserve as fraud would be preferable if it could be enforced, the problems of enforcement, especially where banks can continually innovate in forms of credit, make free banking an attractive alternative.

Ludwig von Mises asserted that, in addition to reducing the serverity of business cycles and eliminating inflation, civil liberties would be better protected through a return to the gold standard:

It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of rights. The demand for constitutional guarantees and for bills of rights was a reaction against arbitrary rule and the nonobservance of old customs by kings.[77]

Ludwig von Mises explained in 1952 that the "myth" of a scarcity of money (or deflation) as a cause of depressions or economic crises was customarily considered propaganda by so-called "monetary cranks":[78]

Those authors and politicians who made the alleged scarcity of money responsible for all ills and advocated inflation as the panacea were no longer considered economist but “monetary cranks”. The struggle between the champions of sound money and the inflationist went on for many decades. But it was no longer considered a controversy between various schools of economist. It was viewed as a conflict between economist and anti-economist, between reasonable men and ignorant zealots.

Business cycles[edit]

Main article: Austrian Business Cycle Theory

The Austrian School is one of the few schools of economic thought that considers different forms of money to be "non-neutral" - meaning that changes in the money supply can have real economic effects, disrupting the price mechanism and causing "ripple" effects throughout the economy. Mainstream theories generally consider money to be "neutral" (in other words, they consider that changes in the money supply do not have significant effects on the real economy). According to Austrian School economist Joseph Salerno, what most distinctly sets the Austrian school apart from neoclassical economics is the Austrian Business Cycle Theory:[79]

The Austrian theory embodies all the distinctive Austrian traits: the theory of heterogeneous capital, the structure of production, the passage of time, sequential analysis of monetary interventionism, the market origins and function of the interest rate, and more. And it tells a compelling story about an area of history neoclassicals think of as their turf. The model of applying this theory remains Rothbard's America's Great Depression.

Austrian School economists focus on the changes in the money supply and the associated credit cycle as the primary cause of most business cycles. Austrian economists assert that the pernicious monetary effects of fractional reserve banking are the predominant cause of most business cycles, as the inflating effects of the practice result in lower interest rates than would prevail in a stable money system, thereby causing excessive credit creation, speculative "bubbles" and "artificially" low savings.[80]

According to the Austrian School business cycle theory, the business cycle unfolds in the following way:

Fractional reserve banking continually causes inflation through the "artificial" lowering of interest rates (compared to what they would be in a stable money environment).[81] This can occur indefinitely with the aid and assistance of the central bank. Low interest rates encourage fresh borrowing and new credit creation, thereby increasing the short term profitability of the banking system. But this expansion of credit also causes an expansion of the supply of money, through the money creation process in a fractional reserve banking system and misallocates resources, skewing production to "unwanted" capital goods industries and encouraging Ponzi-like speculation. This artificial increase in money and credit inevitably leads to an unsustainable "credit-fuelled boom" during which the "artificially stimulated" borrowing seeks out diminishing investment opportunities and causes widespread malinvestments, where capital resources are misallocated into areas that would not attract investment if the money supply remained stable.

Murray Rothbard used the concept of malinvesment and the distorting effects of bank-induced credit creation to study the Great Depression is his revisionist work, America's Great Depression:[82]

A credit expansion may appear to render submarginal capital profitable once more, but this too will be malinvestment, and the now greater error will be exposed when this boom is over. Thus, credit expansion generates the business cycle regardless of the existence of unemployed factors. Credit expansion in the midst of unemployment will create more distortions and malinvestments, delay recovery from the preceding boom, and make a more grueling recovery necessary in the future. While it is true that the unemployed factors are not now diverted from more valuable uses as employed factors would be (since they were speculatively idle or malinvested instead of employed), the other complementary factors will be diverted into working with them, and these factors will be malinvested and wasted. Moreover, all the other distorting effects of credit expansion will still follow, and a depression will be necessary to correct the new distortion.

Austrian School economists argue that a correction or "credit crunch" – commonly called a "recession" or "bust" – occurs when credit creation cannot be sustained. They claim that the money supply suddenly and sharply contracts when markets finally "clear", causing resources to be reallocated back toward more efficient uses.

Economist Steve H. Hanke identifies the financial crisis of 2007–2010 as the direct outcome of the Federal Reserve Bank's interest rate policies as is predicted by Austrian school economic theory.[83] Some analysts such as Jerry Tempelman have also argued that the predictive and explanatory power of ABCT in relation to the recent Global Financial Crisis has reaffirmed its status and, perhaps, cast into question the utility of mainstream theories and critiques.[84]

Monetary Reform[edit]

Main article: Debt-based monetary system

The Austrian School is currently the only major school of economic thought that advocates radical monetary reform and actively debates the efficacy of fundamental banking reform.[85]

All other schools of economic thought (including Keynesian, monetarist and neo-classical) implicitly accept the current monopoly fiat money and central bank-dominated financial system as optimal - or at least as not actively destructive of the economy.[86][87] This is based on the mainstream idea of "money neutrality" - the idea that inflation does not have real economic effects over the long term and does not significantly distort real resource allocation.[88]

Austrian scholars, on the other hand, uniformly see coercive legal tender laws (which inevitably force people to use the national fiat currency as money) and the current fractional-reserve financial system as an extremely dysfunctional and disruptive influence on the economy.[89][90][91] Through the centralized control of interest rates, through the arbitrary diversion of scarce resources to repeatedly bail out the "too big to fail" banks, through the manipulation of financial markets via the buying of government bonds (so called "quantitative easing"), Austrian scholars see coercive legal tender laws, central banking and the current financial system generally as a source of continual disruption in the price discovery mechanism, misleading investors and market participants and ultimately causing continual and ongoing misallocations in scarce resource distribution, resulting in massive malinvestments and wrenching and disruptive business cycles.[92][93]

However, Austrian scholars are divided on the optimal solution to this urgent problem.[94][95]

Some Austrian scholars advocate "free banking", where banks are permitted to engage in fractional-reserve banking activities provided they comply with the laws against fraud and are not supported in any way against the possibility of bank runs and are forced into bankruptcy should they not be able to pay their debts as and when they fall due.[96]

Advocates of this system of banking include Lawrence White, Steven Horwitz, George Selgin, and Kevin Dowd, amongst others.[97] F.A. Hayek also advocated the de-nationalization of money production and implicitly supported a free banking financial system in some of his works on monetary reform.[98]

Other Austrian scholars advocate "full-reserve banking", considering fractional-reserve banking to be inherently unethical, disruptive and dysfunctional, akin to embezzlement.[99] Full reserve banking would require banks to retain in reserve all deposits that are legally available for immediate withdrawal, and permit lending only from longer-term deposits.

Advocates of this system of banking include Murray Rothbard,[100][101] Jesus Huerta de Soto,[102] and Jörg Guido Hülsmann,[103][104][105] amongst others.[106]

Criticism of the Austrian School[edit]

Critics argue that modern Austrian economics generally lacks scientific rigor,[107] which forms the basis of the most prominent criticism of the school. Austrian theories are not formulated in formal mathematical form,[108] but by using mainly verbal logic and self-evident axioms. Mainstream economists believe that this makes Austrian theories too imprecisely defined to be clearly used to explain or predict real world events. Economist Bryan Caplan noted that, "what prevents Austrian economists from getting more publications in mainstream journals is that their papers rarely use mathematics or econometrics."

There are also criticisms of specific Austrian theories. For example, Nobel laureate Milton Friedman, after examining the history of business cycles in the US, concluded that "The Hayek-Mises explanation of the business cycle is contradicted by the evidence. It is, I believe, false."[109][110][111] In addition to Milton Friedman's criticism, noted liberal neo-Keynesian economist Paul Krugman has criticized the theory.[112]

Jeffrey Sachs has argued that high tax rates and a "mixed" economy (with some "socialist" elements such as high levels of social welfare transfer payments) appears to have generated higher growth rates in the second half of the 20 century - which appears to run counter to the Austrians' assertion that strong deference to private property rights (and therefore low tax rates) are essential for a properly functioning free market economy. Sachs asserts that poverty rates are lower, median income is higher, the government budget has larger surpluses, and the trade balance is stronger (although unemployment tends to be higher).[113] In response to Sachs' article, William Easterly states that Hayek, writing in 1944, correctly recognized the dangers of large-scale state economic planning. He also questions the validity of comparing poverty levels in the Nordic countries and the United States, when the former have been moving away from social planning toward a more market-based economy, and the latter has historically taken in impoverished immigrants.[114]

Seminal works[edit]

See also[edit]

References[edit]

  1. Keynesians Can't Predict, L. Albert Hahn, The Freeman, October 6, 1952
  2. Tenured Austrian Economists
  3. School of Thought: The Austrian School of Economics, Online Library of Liberty, http://oll.libertyfund.org/index.php?option=com_staticxt&staticfile=show.php%3Fcollection=8&Itemid=29&s=1, retrieved 2011-05-19 
  4. Jörg Guido Hülsmann. "Ethics of Money Production", online version, Introduction p. 12, referenced 2009-05-10.
  5. 5.0 5.1 5.2 "FAQ: What is Austrian Economics", Mises Institute, referenced 2009-04-27.
  6. Jeffrey Herbener. "Frank A. Fetter (1863-1949): A Forgotten Giant", Mises Institute, referenced 2009-04-28.
  7. 7.0 7.1 7.2 Murray N. Rothbard. "Ludwig von Mises (1881-1973)", Mises Institute, referenced 2009-04-26.
  8. Mark Thornton. "Benjamin Anderson (1886-1949)", Mises Institute, referenced 2009-04-26.
  9. Shawn Ritenour. "Wilhelm Röpke (1899-1966): Humane Economist", Mises Institute, referenced 2009-04-27.
  10. Mark Thornton. "Biography of Fritz Machlup (1902-1983)", Mises Institute, referenced 2009-04-27.
  11. "Between Mises and Keynes An Interview with Gottfried von Haberler (1900-1995)", The Austrian Economics Newsletter Spring 2000 Volume 20, Number 1, referenced 2009-04-27.
  12. Peter Kurrild-Klitgaard. "The Viennese Connection: Alfred Schutz and the Austrian School"(pdf), The Quarterly Journal Of Austrian Economics Vol.6, no.2, referenced 2009-04-27.
  13. Jörg Guido Hülsmann. "Richard von Strigl (1891-1942)", Mises Institute, referenced 2009-04-27.
  14. Richard M. Ebeling. "The Discovery of the Lost Papers of Ludwig von Mises", The Future of Freedom Foundation, March 1997, referenced 2009-04-28.
  15. David Gordon. "Murray N. Rothbard (1926-1995)", Mises Institute, referenced 2009-04-28.
  16. Tenured Austrian Economists vs Murray Rothbard
  17. Tenured Austrian Economists vs Murray Rothbard
  18. William F. Buckley, Jr. "Murray Rothbard RIP", National Review, February 6, 1995. Referenced 2013-02-24.
  19. The Great Society: A Libertarian Critique, Murray Rothbard
  20. The Noble Task of Revisionism, Murray Rothbard
  21. The Fallacy of the 'Public Sector', Murray Rothbard
  22. For a New Liberty, Chapter 3
  23. Tax Day, Murray Rothbard
  24. Rothbard, Murray. The Mystery of Banking Ludwig von Mises Institute. 2008. p. 111
  25. "Has fractional-reserve banking really passed the market test? (Controversy).". Independent Review. January 2003. 
  26. The Case for the 100% Gold Dollar, Murray Rothbard
  27. See also Murray Rothbard articles: Private Coinage; Repudiate the National Debt; and Taking Money Back
  28. Ron Paul Interview, National Review Online
  29. Ludwig von Mises "The Principle of Methodological Individualism", Human Action online edition, Mises Institute. Referenced 2009-04-24}.
  30. Ludwig von Mises, Nationalökonomie (Geneva: Union, 1940), p. 3; Human Action (Auburn, Ala.: Mises Institute, [1949] 1998), p. 3.
  31. "The Ultimate Foundation of Economic Science by Ludwig von Mises". Mises.org. http://mises.org/books/ufofes/. Retrieved 2012-08-13. 
  32. The Correct Theory of Probability, Murray Rothbard
  33. Why the definition of probability matters, Mark Crowelli
  34. What Mises can teach the Quants, Daniel Sanchez
  35. The Enduring Allure of Objective Probability Robert Mulligan presentation
  36. Hans-Hermann Hoppe, Economic Science and the Austrian Method (Auburn, Ala.: Mises Institute, [1995] 2007), p. 63.
  37. Hans-Hermann Hoppe, Economic Science and the Austrian Method (Auburn, Ala.: Mises Institute, [1995] 2007), p. 63.
  38. Skousen, Mark (2005). Vienna & Chicago, Friends or Foes?. Washington: Capital Press/Regnery Pub. ISBN 0-89526-029-8. 
  39. "The Ultimate Foundation of Economic Science by Ludwig von Mises". Mises.org. http://mises.org/books/ufofes/. Retrieved 2012-08-13. 
  40. The Correct Theory of Probability, Murray Rothbard
  41. Why the definition of probability matters, Mark Crowelli
  42. What Mises can teach the Quants, Daniel Sanchez
  43. The Enduring Allure of Objective Probability Robert Mulligan presentation
  44. "The Ultimate Foundation of Economic Science by Ludwig von Mises". Mises.org. http://mises.org/books/ufofes/. Retrieved 2012-08-13. 
  45. Frank van Dun. Natural Law: A Logical Analysis. Etica & Politica, 2003.2. Dipartimento di Filosofia, Lingue e Letterature, Università di Trieste.
  46. Keynesians Can't Predict, L. Albert Hahn, The Freeman, October 6, 1952
  47. What is the Current State of Economic Science?, Erwin Rosen
  48. Over To You H. Parker Willis, James Grant
  49. What is the Current State of Economic Science?, Erwin Rosen
  50. You Heard It Here First, Mark Thornton, LRC
  51. Business Cycles and Prediction, Mark Thornton
  52. Saving the System, Robert K. Landis
  53. Brodie, Lee (2009-08-17). "Is This Market Heading For A Serious Correction?". CNBC. 
  54. Inflation is There, Peter Schiff
  55. "Values are not seen (as they are in Marshallian economics) as jointly determined by subjective (utility) and objective (physical cost) considerations. Rather, values are seen as determined solely by the actions of consumers... Cost is seen (by Menger, and especially by Wieser...) merely as prospective utility deliberately sacrificed (in order to command more highly preferred utility)." Israel M. Kirzner, "The Austrian School of Economics", The New Palgrave: Dictionary of Economics (1987)
  56. Skousen, Mark (2001). The Making of Modern Economics. M.E. Sharpe. p. 284. ISBN 0-7656-0479-5. 
  57. "The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1974". Nobel Foundation. 1974-10-09. http://nobelprize.org/nobel_prizes/economics/laureates/1974/press.html. Retrieved 2008-10-12. 
  58. Steele, G. R. (2001). Keynes and Hayek. Routledge. p. 9. ISBN 0-415-25138-9. 
  59. F. A. Hayek, (1935), "The Nature and History of the Problem" and "The Present State of the Debate," om in F. A. Hayek, ed. Collectivist Economic Planning, pp. 1–40, 201–243.
  60. Is Higher Inflation Inevitable?, Thorsten Polleit
  61. The Economics of Legal Tender Laws, Jorg Guido Hulsmann (includes detailed commentary on central banking, inflation and FRB)
  62. Why Deflation Is not Inevitable (Sadly), Gary North
  63. QE is Nothing New, Mike Hewitt
  64. QE is Nothing New, Mike Hewitt
  65. Shostak, Ph.D, Frank (2002-03-02). "Defining Inflation". Mises Institute. http://mises.org/story/908. Retrieved 2008-09-20. 
  66. von Mises, Ludwig (1980). "Economic Freedom and Interventionism". In Greaves, Bettina B.. Economics of Mobilization. Sulphur Springs, West Virginia: The Commercial and Financial Chronicle. http://mises.org/efandi/ch20.asp. 
  67. Ludwig von Mises Institute, "True Money Supply"
  68. Joseph T. Salerno, (1987), Austrian Economic Newsletter, "The "True" Money Supply: A Measure of the Medium of Exchange in the U.S. Economy"
  69. Frank Shostak, (2000), "The Mystery of the Money Supply Definition"
  70. Lew Rockwell, interview on "NOW with Bill Moyers"
  71. Ludwig von Mises Institute, "The Gold Standard"
  72. Ron Paul, "The Case for Gold"
  73. Saving The System, Robert K. Landis
  74. Murray Rothbard, "The Case for a 100 Percent Gold Dollar"
  75. Ludwig von Mises Institute, "Money, Banking and the Federal Reserve"
  76. Rothbard, Murray. The Mystery of Banking, p. 261
  77. von Mises, Ludwig (1981-07-01). The Theory of Money and Credit. Liberty Fund, Inc.. Chapter 21. ISBN 0-913966-71-1. http://mises.org/story/2276. 
  78. Mises, “Planning for freedom” 1952
  79. Salerno, Joseph (1996). "Why We're Winning: An Interview with Joseph T. Salerno". The Austrian Economics Newsletter 16 (3). http://mises.org/journals/aen/aen16_3_1.asp. 
  80. Thorsten Polleit, Manipulating the Interest Rate: a Recipe for Disaster, 13 December 2007
  81. Is Higher Inflation Inevitable?, Thorsten Polleit
  82. Murray Rothbard, America's Great Depression, 2005, 5th Edition, Ludwig von Mises Institute, Chapter 1, The Cluster of Error.
  83. Hanke, Steve H.. "The Fed's Modus Operandi: Panic". cato.org. http://www.cato.org/pub_display.php?pub_id=10100. Retrieved 17 July 2010. 
  84. ABCT and the GFC: Confessions of a Mainstream Economist by Jerry Tempelman
  85. See for example these Murray Rothbard articles: What Has Government Done to Our Money?, The Case for the 100% Gold Dollar; The Fed as Cartel, Private Coinage, Repudiate the National Debt; Taking Money Back, Anatomy of the Bank Run, Money and the Individual
  86. Sound Money, Lew Rockwell
  87. Our Money Madness, Lew Rockwell
  88. Senior Fed Economist Calls Ron Paul a Pinhead, Robert Wenzel
  89. Is Higher Inflation Inevitable?, Thorsten Polleit
  90. Sound Money, Lew Rockwell
  91. Our Money Madness, Lew Rockwell
  92. Is Higher Inflation Inevitable?, Thorsten Polleit
  93. The Faults of Fractional-Reserve Banking, Thorsten Polleit
  94. Free Banking, review by John P. Cochran
  95. White's Interview
  96. Free Banking, review by John P. Cochran
  97. Free Banking, review by John P. Cochran
  98. Free Market Money System by F.A. Hayek
  99. See for example these Murray Rothbard articles: What Has Government Done to Our Money?, The Case for the 100% Gold Dollar; The Fed as Cartel, Private Coinage, Repudiate the National Debt; Taking Money Back, Anatomy of the Bank Run, Money and the Individual
  100. The Mystery of Banking, Murray Rothbard
  101. The Case for a 100% Gold Dollar, Murray Rothbard
  102. Money, Bank Credit, and Economic Cycles, Jesus Huerta de Soto, First English edition (2006), pp. 98-114
  103. The Economics of Legal Tender Laws, Jorg Guido Hulsmann (includes detailed commentary on central banking, inflation and FRB)
  104. Free Banking and the Free Bankers, Jörg Guido Hülsmann, Quarterly Journal of Austrian Economics (Vol. 9, No. 1)
  105. Interview with Jörg Guido Hülsmann, The Lew Rockwell Show
  106. The Faults of Fractional-Reserve Banking, Thorsten Polleit
  107. White, Lawrence H. (2008). "The research program of Austrian economics". Advances in Austrian Economics (Emerald Group Publishing Limited): 20. http://www.emeraldinsight.com/books.htm?chapterid=1775479&show=pdf. 
  108. Walker, Deborah L.. "Austrian Economics". Library of Economics and Liberty. http://www.econlib.org/library/Enc1/AustrianEconomics.html. Retrieved 2010-01-23. 
  109. Friedman, Milton. "The Monetary Studies of the National Bureau, 44th Annual Report". The Optimal Quantity of Money and Other Essays. Chicago: Aldine. pp. 261–284. 
  110. Friedman, Milton. "The 'Plucking Model' of Business Fluctuations Revisited". Economic Inquiry: 171–177. http://onlinelibrary.wiley.com/doi/10.1111/j.1465-7295.1993.tb00874.x/abstract. 
  111. Friedman, Milton. "The Monetary Studies of the National Bureau, 44th Annual Report". The Optimal Quantity of Money and Other Essays. Chicago: Aldine. pp. 261–284. "The Hayek-Mises explanation of the business cycle is contradicted by the evidence. It is, I believe, false." 
  112. Krugman, Paul (1998-12-04). "The Hangover Theory". Slate. http://www.slate.com/id/9593. Retrieved 2008-06-20. 
  113. Sachs, Jeffrey (October 2006). "The Social Welfare State, Beyond Ideology". Scientific American. http://www.sciam.com/article.cfm?id=the-social-welfare-state. Retrieved 2008-06-20. 
  114. William Easterly (2006-11-15). "Dismal Science". The Wall Street Journal. Retrieved 2008-09-07. 

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