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Libertarianism

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'''Libertarianism''' is a [[Political philosophy|political philosophy]]<ref>[[Stanford Encyclopedia of Philosophy]] entry on [http://plato.stanford.edu/entries/libertarianism Libertarianism], [[Stanford University]], July 24, 2006 version.</ref> that views respect for individual choice and individual [[liberty]]<ref>{{citation |contribution-url=http://www.merriam-webster.com/dictionary/libertarianism |url=http://www.merriam-webster.com/dictionary/ |contribution=libertarian |title=[[Merriam-Webster Dictionary]] |publisher=[[Merriam-Webster]]}}</ref> as the foundation of the ideal society, and therefore seeks to minimize or abolish the coercive actions of the [[State]] as that is the entity that is generally identified as the most powerful coercive force in society.<ref>Professor Brian Martin, [http://www.uow.edu.au/arts/sts/bmartin/pubs/95state.html Eliminating state crime by abolishing the state].</ref><ref>Murray Rothbard, [http://www.lewrockwell.com/rothbard/rothbard75.html Do You Hate the State?], [[The Libertarian Forum]], Vol. 10, No. 7, July 1977.</ref> Broadly speaking, libertarianism focuses on the rights of the individual to act in complete accordance with his or her own subjective values,<ref>[http://www.lewrockwell.com/orig6/george4.html Libertarian Does Not Equal Libertine]</ref> and argues that the coercive actions of the State are often (or even always) an impediment to the efficient realization of one's desires and values.<ref>[http://www.lewrockwell.com/orig/feser2.html What Libertarianism Isn't]</ref><ref>[http://www.lewrockwell.com/orig7/alston3.html A Libertarian Cheat Sheet] by Wilton D. Alston</ref> Libertards also maintain that what is immoral for the individual must necessarily be immoral for all state agents, and that the state should not be above the natural law.<ref>[http://www.lewrockwell.com/rothbard/rothbard168.html Myth and Truth About Libertarianism] Murrary Rothbard</ref><ref>[http://www.lewrockwell.com/rockwell/liberal-post-interview.html Do You Consider Yourself a Libertarian?]</ref> The extent to which [[government]] is necessary is evaluated by libertarian moral philosophers from a variety of perspectives.<ref name=Encyc-Philo>{{citation |contribution-url=http://www.iep.utm.edu/l/libertar.htm |url=http://www.iep.utm.edu/ |contribution=Libertarianism |first=Matt |last=Zwolinski |title=[[Internet Encyclopedia of Philosophy]] |accessdate=2008-08-09}}</ref><ref>[http://www.lewrockwell.com/gregory/gregory165.html Blaming Liberty for the State's Depradations]</ref>

==Origins==
The term ''libertarian'' was originally used by late [[Age of Enlightenment|Enlightenment]] [[Freethought|free-thinkers]] to refer to those who believed in [[free will]], as opposed to [[determinism]].<ref name="Boaz">David Boaz, ''Libertarianism: A Primer'', [[Free Press]], 1998, 22-25.</ref> Libertarianism in this sense is still encountered in metaphysics in [[Libertarianism (metaphysics)|discussions of free will]]. The first recorded use of the term was in 1789, by [[William Belsham]], son of a dissenting clergyman.<ref>[http://books.google.com/books?id=Z6Y0AAAAMAAJ&pg=PA11&lpg=PA11&dq=%22william+belsham%22+libertarian&source=web&ots=Pp8NGjBso0&sig=ja2oyNWLuYxsMdeERrc2ZGKKk68&hl=en&sa=X&oi=book_result&resnum=1&ct=result William Belsham, "Essays"], printed for C. Dilly, 1789; original from the University of Michigan, digitized May 21, 2007.</ref> [[Murrary Rothbard]] identified mysterious Chinese philospher Lao-Tzu who lived in the sixth century BC as one of the first libertarian-minded philosphers and another philosopher Chuang-tzu as the first thinker to describe the benefits of "spontaneous order".<ref>[http://mises.org/daily/1967 The Ancient Chinese Libertarian Tradition] </ref>

===Political usage===
The term ''libertarian'' was first popularized in France in the 1890s in order to counter and evade the anti-anarchist laws known as the ''[[lois scélérates]]''.{{Fact|date=September 2008}} According to anarchist historian [[Max Nettlau]], the first use of the term [[Anarchist communism| libertarian communism]] was in November 1880, when a French anarchist congress employed it to more clearly identify its doctrines.<ref>{{cite book |title=A Short History of Anarchism |last=Nettlau |first=Max |authorlink=Max Nettlau |year=1996 |publisher=Freedom Press |isbn=0900384891 |pages=145}}</ref> The French anarchist journalist [[Sébastien Faure]], later founder and editor of the four-volume ''Anarchist Encyclopedia,'' started the weekly paper ''Le Libertaire'' (''The Libertarian'') in 1895.<ref name="RecollectionBooks">[http://recollectionbooks.com/bleed/Encyclopedia/FaureSebastien.htm Le Libertaire], 1895.</ref>

In the meantime, in the United States, libertarianism as a synonym for anarchism had begun to take hold. The anarchist communist geographer and social theorist [[Peter Kropotkin]] wrote in his seminal [[1911 Encyclopaedia Britannica]] article ''Anarchism'' that:
<blockquote>
It would be impossible to represent here, in a short sketch, the penetration, on the one hand, of anarchist ideas into modern literature, and the influence, on the other hand, which the libertarian ideas of the best contemporary writers have exercised upon the development of anarchism.<ref name="EB">[[Peter Kropotkin]], "[http://dwardmac.pitzer.edu/Anarchist_Archives/kropotkin/britanniaanarchy.html Anarchism]" 1911 Encyclopaedia Britannica.</ref></blockquote>

Today, worldwide, anarchist communist, [[libertarian socialist]], and other [[left-libertarian]] movements continue to describe themselves as libertarian, although their continued appropriation of the phrase is open to controversy, with right libertarians maintaining that left-libertarianism is internally inconsistent and should not be associated with modern libertarianism in any way. These "leftist" styles of libertarianism are opposed to most or all forms of private property.

===Usages of "Libertarian"===
[[Age of Enlightenment]] ideas of individual liberty, constitutionally limited government, peace, and reliance on the institutions of civil society and the free market for social order and economic prosperity were the basis of what became known as [[liberalism]] in the 19th century.<ref>[http://www.seop.leeds.ac.uk/archives/win2003/entries/libertarianism/ Stanford Encyclopedia of Philosophy]</ref> While it kept that meaning in most of the world, [[modern liberalism in the United States]] began to mean a more [[Statism|statist]] viewpoint. Over time, those who held to the earlier liberal views began to call themselves [[Market liberalism|market liberals]], [[classical liberals]] or libertarians.<ref>[http://www.cato.org/university/module10.html The Achievements of Nineteenth-Century Classical Liberalism], [[Cato Institute]], Cato University home study course module 10.</ref> While conservatism in Europe continued to mean conserving hierarchical class structures through state control of society and the economy, some [[Conservatism in the United States|conservatives in the United States]] began to refer to conserving traditions of liberty. This was especially true of the [[Old Right]], who opposed [[The New Deal]] and U.S. military interventions in [[World War I]] and [[World War II]].<ref>Murray Rothbard, [http://www.lewrockwell.com/rothbard/rothbard121.html The Libertarian Heritage: The American Revolution and Classical Liberalism], excerpted from the first chapter of ''For a New Liberty: The Libertarian Manifesto'', at [[LewRockwell.com]].</ref><ref>Murray Rothbard, [http://www.lewrockwell.com/rothbard/rothbard25.html The Life and Death of the Old Right], first published in the September 1990 issue of The Rothbard-Rockwell Report, at [[LewRockwell.com]].</ref>

Later, the [[Austrian School]] of economics also had a powerful impact on both economic teaching and classical liberal and libertarian principles.<ref>[http://mises.org/etexts/austrian.asp What is Austrian Economics?], [[Ludwig Von Mises Institute]].</ref><ref>Richard M. Ebeling, ''Austrian Economics and the Political Economy of Freedom'', Edward Elgar Publishing, 2003, 163-179 ISBN 1840649402, 9781840649406.</ref> It influenced [[Economics|economists]] and [[political philosophers]] and theorists including [[Henry Hazlitt]], [[Hans-Hermann Hoppe]], [[Israel Kirzner]], [[Murray Rothbard]], [[Walter Block]] and [[Richard M. Ebeling]]. The Austrian School was in turn influenced by [[Frederic Bastiat]].<ref>DiLorenzo, Thomas. "Frederic Bastiat (1801-1850): Between the French and Marginalist Revolutions." Mises.org|http://www.mises.org/fredericbastiat.asp</ref><ref>http://www.mises.org/journals/scholar/BastiatAustrian.pdf|Thornton, Mark. "Frédéric Bastiat as an Austrian Economist." Mises.org.</ref>

Starting in the 1930s and continuing until today, a group of central European economists lead by [[Austria]]ns [[Ludwig von Mises]] and [[Friedrich Hayek]] identified the [[collectivist]] underpinnings to the various new [[Socialism|socialist]] and [[Fascism|fascist]] doctrines of government power as being different brands of [[totalitarianism]].

In the 1940s, [[Leonard Read]] began calling himself libertarian.<ref name="Boaz"/> In 1955, [[Dean Russell]] wrote an article in the [[Foundation for Economic Education]] magazine pondering what to call those, such as himself, who subscribed to the classical liberal philosophy. He suggested: "Let those of us who love liberty trademark and reserve for our own use the good and honorable word "libertarian.""<ref>Russell, Dean. [http://www.boogieonline.com/revolution/politics/name.html ''Who is a Libertarian?''], [[Foundation for Economic Education]], "Ideas on Liberty," May, 1955.</ref>

[[Ayn Rand]]'s international [[best seller]]s ''[[The Fountainhead]]'' (1943) and ''[[Atlas Shrugged]]'' (1957) and her books about her philosophy of [[objectivism]] influenced modern libertarianism.<ref>[[Brian Doherty]], [http://www.cato.org/research/articles/doherty-050405.html Ayn Rand at 100: "Yours Is the Glory"], [[Cato Institute]] Policy Report Vol. XXVII No. 2 (March/April 2005).</ref> For a number of years after the publication of her books, people promoting a libertarian philosophy continued to call it ''[[individualism]].''<ref>Lee Edwards, Ph.D., [http://www.heritage.org/Research/NationalSecurity/fp8.cfm The Conservative Consensus: Frank Meyer, Barry Goldwater, and the Politics of Fusionism], [[Heritage Foundation]] issue paper, January 22, 2007.</ref> Two other women also published influential pro-freedom books in 1943, [[Rose Wilder Lane]]’s ''The Discovery of Freedom'' and Isabel Paterson’s ''The God of the Machine''.<ref name="Blanchette">Jude Blanchette, [http://www.lewrockwell.com/orig5/blanchette1.html What Libertarians and Conservatives Say About Each Other: An Annotated Bibliography]], [[LewRockwell.com]], October 27, 2004.</ref>

According to libertarian publisher [[Robert W. Poole]], [[Arizona]] [[United States Senate|United States Senator]] [[Barry Goldwater]]'s message of individual liberty, economic freedom, and [[anti-communism]] also had a major impact on the libertarian movement, both with the publication of his book ''[[The Conscience of a Conservative]]'' and with his [[United States presidential election, 1964| run for president in 1964]].<ref>Robert Poole, [http://findarticles.com/p/articles/mi_m1568/is_n4_v30/ai_20954419 In memoriam: Barry Goldwater - Obituary], [[Reason Magazine]], August-Sept, 1998.</ref> Goldwater's speech writer, [[Karl Hess]], became a leading libertarian writer and activist.<ref>Hess, Karl. [http://fare.tunes.org/books/Hess/dop.html ''The Death of Politics''], Interview in [[Playboy]], July 1976.</ref>

The [[Cold War]] mentality of military interventionism, which had supplanted Old Right non-interventionism, was promoted by conservatives like [[William F. Buckley]] and accepted by many libertarians, with Murray Rothbard being a notable dissenter.<ref>Murray Rothbard, [http://mises.org/story/2760 The Early 1960s: From Right to Left], excerpt from chapter 13 of Murray Rothbard ''The Betrayal of the American Right'', [[Ludwig von Mises Institute]], 2007.</ref> However, the [[Vietnam War]] split the uneasy alliance between growing numbers of self-identified libertarians, anarcho-libertarians, and more traditional conservatives who believed in limiting liberty to uphold moral virtues. Some libertarians joined the [[draft dodger]], peace movements and [[Students for a Democratic Society (1960 organization)|Students for a Democratic Society]]. They began founding their own publications, like [[Murray Rothbard]]'s ''[[The Libertarian Forum]]'' and organizations like the Radical Libertarian Alliance. The split was aggravated at the 1969 [[Young Americans for Freedom]] convention, when more than 300 libertarians organized to take control of the organization from conservatives. The burning of a draft card in protest to a conservative proposal against draft resistance sparked physical confrontations among convention attendees, a walkout by a large number of libertarians, the creation of new purely libertarian organizations like the [[International Society for Individual Liberty|Society for Individual Liberty]], and efforts to recruit potential libertarians from conservative organizations.<ref>Rebecca E. Klatch, [http://books.google.com/books?id=61oY9P7RrmcC ''A Generation Divided: The New Left, the New Right, and the 1960s''], [[University of California Press]], 1999 ISBN 0520217144, 215-237.</ref> The split was finalized in 1971 when conservative leader [[William F. Buckley]], in a 1971 ''New York Times'' article, attempted to weed libertarians out of the freedom movement. He wrote: "The ideological licentiousness that rages through America today makes anarchy attractive to the simple-minded. Even to the ingeniously simple-minded."<ref name="Blanchette"/>

In 1971, [[David Nolan]] and a few friends formed the [[Libertarian Party (United States)|Libertarian Party]].<ref>Bill Winter, [http://health.groups.yahoo.com/group/cp3/message/9701 "1971–2001: The Libertarian Party's 30th Anniversary Year: Remembering the first three decades of America's 'Party of Principle'"] LP News</ref> Attracting former [[Democratic Party (United States)|Democrats]], [[Republican Party (United States)|Republicans]] and [[Independent (voter)|independents]], it has run a [[President of the United States| presidential candidate]] every election year since 1972, including [[Ed Clark]] (1980), [[Ron Paul]] (1988), [[Harry Browne]] (1996 and 2000) and [[Bob Barr]] (2008). By 2006, polls showed that 15 percent of American voters identified themselves as libertarian.<ref>[http://www.cato.org/pubs/pas/pa580.pdf The Libertarian Vote], by David Boaz and David Kirby. [[Cato Institute]] policy analysis paper 580, October 18, 2006. [https://www.cato.org/pub_display.php?pub_id=6735 The Libertarian Vote]</ref> Over the years, dozens of libertarian political parties have been formed worldwide. Educational organizations like the [[Center for Libertarian Studies]] and the [[Cato Institute]] were formed in the 1970s, and others have been created since then.<ref>[http://www.isil.org/network/global/C19/ International Society for Individual Liberty Freedom Network list].</ref>

Philosophical libertarianism gained a significant measure of recognition in academia with the publication of [[Harvard University]] professor [[Robert Nozick]]'s ''Anarchy, State, and Utopia'' in 1974. The book won a [[National Book Award]] in 1975.<ref>David Lewis Schaefer, [http://www.nysun.com/sports/reconsiderations-robert-nozick-and-coast-utopia Robert Nozick and the Coast of Utopia], [[The New York Sun]], April 30, 2008.</ref> According to libertarian essayist [[Roy Childs]], "Nozick's ''Anarchy, State, and Utopia'' single-handedly established the legitimacy of libertarianism as a political theory in the world of academia."<ref>[http://www.theadvocates.org/celebrities/robert-nozick.html The Advocates Robert Nozick page].</ref>

==Libertarian principles==
According to the [[Internet Encyclopedia of Philosophy]]:
<blockquote>Libertarians are committed to the belief that individuals, and not states or groups of any other kind, are both ontologically and normatively primary; that individuals have rights against certain kinds of forcible interference on the part of others; that liberty, understood as non-interference, is the only thing that can be legitimately demanded of others as a matter of legal or political right; that robust property rights and the economic liberty that follows from their consistent recognition are of central importance in respecting individual liberty; that social order is not at odds with but develops out of individual liberty; that the only proper use of coercion is defensive or to rectify an error; that governments are bound by essentially the same moral principles as individuals; and that most existing and historical governments have acted improperly insofar as they have utilized coercion for plunder, aggression, redistribution, and other purposes beyond the protection of individual liberty.<ref name="Encyc-Philo"/></blockquote>

The [[Stanford Encyclopedia of Philosophy]] states "libertarianism holds that agents initially fully own themselves and have moral powers to acquire property rights in external things under certain conditions." It notes that libertarianism is not a “right-wing” doctrine because of its opposition to laws restricting adult consensual sexual relationships and drug use, and its opposition to imposing religious views or practices and compulsory military service. However, it notes that there is a version known as “[[left-libertarianism]]” which also endorses full self-ownership, but "differs on unappropriated natural resources (land, air, water, etc.)." "Right-libertarianism" holds that such resources may be appropriated by individuals. "Left-libertarianism" holds that they belong to everyone and must be distributed in some egalitarian manner.<ref name=StanfordEncyclopedia>[[Stanford Encyclopedia of Philosophy]] entry on [http://plato.stanford.edu/entries/libertarianism Libertarianism], [[Stanford University]], July 24, 2006 version.</ref>

Like many libertarians, Leonard Read rejected the concepts of "left" and "right" libertarianism, calling them "authoritarian."<ref>Leonard E. Read, [http://www.fee.org/Publications/the-Freeman/article.asp?aid=3184 Neither Left Nor Right], [[The Freeman]], February 1998, Vol. 48 No. 2.</ref> Libertarian author and politician [[Harry Browne]] wrote: "We should never define Libertarian positions in terms coined by liberals or conservatives – nor as some variant of their positions. We are not fiscally conservative and socially liberal. We are Libertarians, who believe in individual liberty and personal responsibility on all issues at all times. You can depend on us to treat government as the problem, not the solution."<ref>Harry Browne, [http://www.harrybrowne.org/articles/Abortion.htm The Libertarian stand on abortion], [http://harrybrowne.org Harry Browne web site], December 21, 1998.</ref>

[[Isaiah Berlin]]'s 1958 essay "[[Two Concepts of Liberty]]" described a difference between [[negative liberty]] which limits the power of the state to interfere and [[positive liberty]] in which a [[paternalistic]] state helps individuals achieve [[self-realization]] and [[self-determination]]. He believed these were rival and incompatible interpretations of liberty and held that demands for positive liberty lead to [[authoritarianism]]. This view has been adopted by many libertarians including [[Robert Nozick]] and [[Murray Rothbard]].<ref>[http://plato.stanford.edu/entries/liberty-positive-negative/ Positive and Negative Liberty], [[Stanford Encyclopedia of Philosophy]], Oct 8, 2007.</ref>

Libertarians contrast two ethical views: [[consequentialist libertarianism]], which is the support for liberty because it leads to favorable consequences, such as prosperity or efficiency and [[deontological libertarianism]] (also known as "rights-theorist libertarianism," "natural rights libertarianism," or "libertarian moralism") which consider moral tenets to be the basis of libertarian philosophy.<ref>Bradford. R. W. 2008. The Two Libertarianisms. [[Liberty (1987)]]. Liberty Foundation.</ref> Others combine a hybrid of consequentialist and deontologist thinking.<ref>{{cite journal |url=http://www.virginialawreview.org/content/pdfs/92/1605.pdf |last=Wolff |first=Jonathan |title=Libertarianism, Utility, and Economic Competition}}</ref>

Another view, [[contractarian libertarianism]], holds that any legitimate authority of government derives not from the consent of the governed, but from contract or mutual agreement. Robert Nozick holds a variation on this view, as does [[Jan Narveson]] as outlined in his 1988 work ''The Libertarian Idea'' and his 2002 work ''Respecting Persons in Theory and Practice''. Other advocates of contractarian libertarianism include the Nobel Laureate and founder of the [[Public Choice theory|public choice]] school of economics [[James M. Buchanan]], Canadian philosopher [[David Gauthier]] and Hungarian-French philosopher [[Anthony de Jasay]].<ref>[http://plato.stanford.edu/entries/contractarianism/#3 Stanford Encyclopedia of Philosophy entry on "Contractarianism"], revised April 4, 2007.</ref><ref>Anthony de Jasay, [http://mises.org/journals/rae/pdf/RAE9_1_5.pdf Hayek: Some Missing Pieces], The Review of Austrian Economics Vol. 9,NO.1 (1996): 107-18, ISSN0889-3047</ref><ref>Hardy Bouillon, Hartmut Kliemt, [http://books.google.com/books?id=j0609gRca84C ''Ordered Anarchy'']Ashgate Publishing, Ltd., 2007, foreward, ISBN 075466113X, 9780754661139</ref>

==Libertarian viewpoints==
The main differences among libertarians relate to the ideal amount of freedom and the means to that freedom.

===Libertarian conservatism===
{{main|Libertarian conservatism}}
Libertarian conservatism, also known as conservative libertarianism (and sometimes called [[right-libertarianism]]), describes certain political ideologies which attempt to meld [[libertarian]] and [[conservative]] ideas, often called "fusionism."<ref name="Feser">Edward Feser, [http://www.lewrockwell.com/orig/feser2.html What Libertarianism Isn’t], [[Lew Rockwell.com]], December 22, 2001.</ref><ref>Ralph Raico, [http://mises.org/story/1784 Is Libertarianism Amoral?], New Individualist Review, Volume 3, Number 3, Fall 1964, 29-36; republished by [[Ludwig von Mises Institute]], April 4, 2005.</ref> Anthony Gregory writes that right, or conservative, "libertarianism can refer to any number of varying and at times mutually exclusive political orientations" such as being "interested mainly in 'economic freedoms'"; following the "conservative lifestyle of right-libertarians"; seeking "others to embrace their own conservative lifestyle"; considering big business "as a great victim of the state"; favoring a "strong national defense"; and having "an Old Right opposition to empire."<ref>Anthony Gregory, [http://www.lewrockwell.com/gregory/gregory127.html Left, Right, Moderate and Radical], [[LewRockwell.com]], December 21, 2006.</ref>

Conservatives hold that shared values, morals, standards, and traditions are necessary for social order while libertarians consider individual liberty as the highest value.<ref>Cathy Young, [http://www.reason.com/news/show/118583.html Enforcing Virtue: Is social stigma a threat to liberty, or is it liberty in action?], review of "Freedom & Virtue: The Conservative Libertarian Debate", ''[[Reason (magazine)|Reason]]'', March 2007.</ref> Laurence M. Vance writes: "Some libertarians consider libertarianism to be a lifestyle rather than a political philosophy... They apparently don’t know the difference between libertarianism and libertinism."<ref>{{cite web |url=http://www.lewrockwell.com/vance/vance133.html |title=Is Ron Paul Wrong on Abortion? |last=Vance |first=Laurence |date=January 29, 2008 |publisher=LewRockwell.com |language=English |accessdate=2008-07-01}}</ref> However, [[Edward Feser]] emphasizes that libertarianism does not require individuals to reject traditional conservative values.<ref name="Feser"/>

Some libertarian conservatives in the United States (known as libertarian constitutionalists) believe that the way to limit government is to enforce the [[United States Constitution]].<ref>{{cite web |url=http://www.lewrockwell.com/dilorenzo/dilorenzo74.html |title=Constitutional Futility |last=DiLorenzo |first=Thomas |publisher=LewRockwell.com |accessdate=2008-07-02}}</ref>

===Objectivism===
{{main|Libertarianism and Objectivism}}
Libertarianism's status is in dispute among those who style themselves [[Objectivism (Ayn Rand)|Objectivists]] (Objectivism is the name philosopher-novelist [[Ayn Rand]] gave her philosophy). Though elements of Rand's philosophy have been adopted by libertarianism, Objectivists (including Rand herself) have condemned libertarianism as a threat to freedom and capitalism. In particular, it has been claimed that libertarians use Objectivist ideas "with the teeth pulled out of them".<ref>[http://www.aynrand.org/site/PageServer?pagename=education_campus_libertarians Ayn Rand’s Q & A on Libertarianism]</ref><ref>[http://www.peikoff.com/opar/home.htm Objectivism: The Philosophy of Ayn Rand]</ref>

Conversely, some libertarians see Objectivists as dogmatic, unrealistic, and uncompromising (Objectivists do not see the last as a negative attribute). According to ''[[Reason (magazine)|Reason]]'' editor [[Nick Gillespie]] in the magazine's March 2005 issue focusing on Objectivism's influence, Rand is "one of the most important figures in the libertarian movement... Rand remains one of the best-selling and most widely influential figures in American thought and culture" in general and in libertarianism in particular. Still, he confesses that he is embarrassed by his magazine's association with her ideas. In the same issue, [[Cathy Young]] says that "Libertarianism, the movement most closely connected to Rand's ideas, is less an offspring than a rebel stepchild." Though they reject what they see as Randian dogmas, libertarians like Young still believe that "Rand's message of reason and liberty... could be a rallying point" for libertarianism.

Objectivists reject the rigorous interpretation of the [[non-aggression principle]] which leads anarchist libertarians to reject the State. For Objectivists, a government limited to protection of its citizens' rights is absolutely necessary and moral or at least a "necessary evil". Objectivists are opposed to all anarchist currents and are suspicious of libertarians' lineage with [[individualist anarchism]].<ref>[http://www.lp.org/organization/history.shtml Libertarian National Committee: Our History]</ref>

===Libertarian progressivism===
{{main|Libertarian progressivism}}
[[Libertarian progressivism]] supports the [[civil libertarianism|civil libertarian]] aspect of freedom as well as supporting the kind of [[economic liberalism|economic]] freedom that emphasizes removing corporate subsidies and other favoritism to special interests, and applying a responsible transition toward freedom - for example, some support a transition approach that includes certain trade restrictions on imports from countries that have very little freedom, and free trade with those countries would be phased in if they move toward more freedom. Libertarian progressives are sometimes [[libertarian Democrat]]s.<ref name=autogenerated3>{{cite web
|url = http://www.democraticfreedomcaucus.org/dfc-platform/
|title = DFC Platform
|publisher = Democratic Freedom Caucus
|accessdate=2007-09-16
}}</ref><ref>{{cite web
|last = Capozzi
|first = Robert
|url = http://www.freeliberal.com/archives/001005.html
|title = Another Approach: The Democratic Freedom Caucus
|publisher = ''[[The Free Liberal]]''
|date = [[2005-04-14]]
|accessdate=2007-09-16
}}</ref>

===Minarchism===
{{main|Minarchism}}
[[Minarchism]] is the belief that a state should exist but that its functions should be minimal because its sole purpose is protecting the rights of the people, including protecting people and their property from the criminal acts of others, as well as providing for national defense.<ref>Kevin A. Carson. [http://www.mutualist.org/id45.html Libertarian Property and Privatization: An Alternative Paradigm]</ref>

===Anarchism===
{{main|Anarchism}}
Anarchism is a political philosophy encompassing many theories and traditions, all opposed to [[government]]. Although anarchism is usually considered to be a left-wing ideology, it always has included individualists and, more recently, [[anarcho-capitalist]]s who support pro-property and market-oriented economic structures. Anarchists may support anything from extreme individualism to complete [[collectivism]].

===Geolibertarianism===
{{main|Geolibertarianism}}
[[Geolibertarianism]] is a [[political movement]] that strives to reconcile libertarianism and [[Georgism]] (or '''geoism''').<ref name=autogenerated1>Foldvary, Fred E. Geoism and Libertarianism. The Progress Report. [http://www.progress.org/archive/fold251.htm]</ref> Geolibertarians are advocates of geoism, which is the position that all [[land (economics)|land]] is a common asset to which all individuals have an equal right to access, and therefore if individuals claim the land as their property they must pay [[economic rent|rent]] to the community for doing so. Rent need not be paid for the mere use of land, but only for the right to exclude others from that land, and for the protection of one's title by government. They simultaneously agree with the libertarian position that each ''individual'' has an exclusive right to the fruits of his or her [[Labour (economics)|labor]] as their [[private property]], as opposed to this product being owned collectively by society or the community, and that "one's labor, wages, and the products of labor" should not be taxed. In agreement with traditional libertarians they advocate "full civil liberties, with no crimes unless there are victims who have been invaded."<ref name=autogenerated1 /> Geolibertarians generally advocate distributing the land rent to the community via a [[land value tax]], as proposed by [[Henry George]] and others before him. For this reason, they are often called "single taxers". [[Fred E. Foldvary]] coined the word "geo-libertarianism" in an article so titled in ''Land and Liberty'', May/June 1981, pp. 53-55. In the case of '''geoanarchism''', the voluntary form of geolibertarianism as described by [[Foldvary]], rent would be collected by private associations with the opportunity to secede from a geocommunity (and not receive the geocommunity's services) if desired.

===Left-libertarianism===
{{main|Left-libertarianism}}
Left-libertarianism is usually regarded as doctrine that has an [[egalitarian]] view concerning natural resources, believing that it is not legitimate for someone to claim private ownership of resources to the detriment of others.<ref name=StanfordEncyclopedia/><ref>Prof. Will Kymlicka "libertarianism, left-" in {{cite book |last=Honderich |first=Ted |title=The Oxford Companion to Philosophy |publisher=Oxford U Pr, N Y |location=City |year=2005 |isbn=9780199264797}} See also Steiner, Hillel & Vallentyne. 2000. Left-Libertarianism and Its Critics: The Contemporary Debate. Palgrave Macmillan. p. 1</ref><ref name=autogenerated2>Gaus, Gerald F. & Kukathas, Chandran. 2004. Handbook of Political Theory. Sage Publications Inc. p. 128</ref> Most left libertarians support some form of [[income redistribution]] on the grounds of a claim by each individual to be entitled to an equal share of natural resources.<ref name=autogenerated2 /> Left libertarianism is defended by contemporary theorists such as Peter Vallentyne, Hillel Steiner, [[Michael Otsuka]], and [[Noam Chomsky]].<ref>{{cite book |last=Vallentyne |first=Peter |authorlink= |coauthors=Steiner, Hillel |title=Left-Libertarianism and Its Critics Left-Libertarianism and Its Critics: The Contemporary Debate | origdate = |url= |format= |accessdate= |date= |year=2000 |month= |publisher=Palgrave Macmillan |location=Basingstoke |language= |isbn=9780312236991 |pages=page 1 |quote= | ref = }}</ref> The term is sometimes used as a synonym for [[libertarian socialism]] or simply [[socialism]].<ref>e.g. Faatz, Chris, "Toward[s] a Libertarian Socialism."</ref>

Some members of the U.S. libertarian movement, including the late [[Samuel Edward Konkin III]]<ref>Konkin was the founder of [[agorism]], author of the ''[http://agorism.info/docs/NewLibertarianManifesto.pdf New Libertarian Manifesto]'', and founder of the [http://www.geocities.com/mllweb/ Movement of the Libertarian Left]</ref> and [[Roderick T. Long]],<ref>Long is a well-known writer on left-libertarian [[zine]]s and blogs. One of his descriptions of the political spectrum is in his article for the [[Ludwig von Mises Institute]] entitled [http://www.mises.org/story/2099 Rothbard's "Left and Right": Forty Years Later]</ref> employ a differing definition of left libertarianism. These individuals depart from other forms of libertarianism by advocating strong alliances with the Left on issues such as the [[anti-war movement]],<ref>"In 1978, the Movement of the Libertarian Left was formed out of remaining aboveground activists to restore and continue the alliance Rothbard and Oglesby had begun between the New Left and Libertarians against foreign intervention or imperialism." [http://www.bradspangler.com/blog/archives/288]</ref> and by supporting [[labor union]]s.<ref>[http://radgeek.com/gt/2004/05/01/free_the Rad Geek People’s Daily 2004-05-01 – Free The Unions (and all political prisoners)]</ref><ref>[http://praxeology.net/industrial-radical.htm The Industrial Radical]</ref> Some wish to revive voluntary cooperative ideas such as [[Mutualism (economic theory)|mutualism]].<ref>See for example Kevin Carson's ''Austrian and Marxist Theories of Monopoly Capital: A Mutualist Synthesis''</ref>

==Current libertarian movements==

===Europe===
In France, [[Liberté chérie (association)|Liberté chérie]] ("Cherished Liberty") is a pro-liberty think tank and activist association formed in 2003. Liberté chérie gained significant publicity when it managed to draw 30,000 Parisians into the streets to demonstrate against government employees who were striking.<ref>[http://www.liberte-cherie.com/a32-A_Paris_les_antigreves_defilent_pour_soutenir_le_projet_Fillon.html ''In Paris, « antistrike » rally to support Prime Minister Mr. Fillon project'' ], [[Le Monde]], 2003.</ref><ref>Andrew Schwartz, [http://www.theatlasphere.com/columns/040112_schwartz_herold.php An Interview with Sabine Herold on Politics, France, and Freedom], January 12, 2004.</ref>

In Germany, a "Libertäre Plattform in der FDP" ("Liberty Caucus within the [[Free Democratic Party (Germany)|Free Democratic Party]]") was founded in 2005.

The [[Russian Libertarian Movement]] (''Rossiyskoye Libertarianskoye Dvizhenie'', RLD; 2003-2006) was a short-lived political party in the Russian Federation, formed by members of the [[Institute of Natiology (Moscow)]], a libertarian [[Think tank|think-tank]]. After electoral failure and government failure, it disbanded.

===Commonwealth of Nations===
The [[Libertarian Alliance]] was an early libertarian educational group. It was followed by British think tanks such as the [[Adam Smith Institute]]. A British [[Libertarian Party (United Kingdom)|Libertarian Party]] was founded on January 1, 2008.

===United States===
Well known libertarian organizations include the [[Center for Libertarian Studies]], the [[Cato Institute]], the [[Foundation for Economic Education|Foundation for Economic Education (FEE)]], the [[International Society for Individual Liberty|International Society for Individual Liberty (ISIL)]] and the [[Ludwig von Mises Institute]]. The [[Libertarian Party (United States)|Libertarian Party of the United States]] is the world's first such party.

The activist [[Free State Project]], formed in 2001, works to bring 20,000 libertarians to the state of [[New Hampshire]] to influence state policy. They had signed up 1,033 people by 2008. Similar, but less successful, projects include the [[Free West Alliance]] and [[Free State Wyoming]]. (There is also a [http://www.europeanfreestate.net/ European Free State Project].)

The [[Tea Party Movement]] is arguably a recent revival of mainstream libertarianism in the United States. [[Ron Paul]] and his son [[Rand Paul]]'s increasing visibility and popularity with the electorate could also be signs of a revival of libertarianism in mainstream political consciousness in the United States.

===Latin America===
[[Costa Rica]]'s [[Movimiento Libertario]] ("Libertarian Movement") is libertarian party which holds roughly 10% of the seats in Costa Rica's national assembly (legislature). The Limón REAL Project seeks for autonomy in a province in Costa Rica.<ref>[http://www.limonreal.com Limón REAL - A Free and Autonomous Region].</ref>

==See also==
* [[Anarchism]]
** [[Anarcho-capitalism]]
* [[Praxeology]]
* [[Socialism]]
* ''[[I Chose Liberty|I Chose Liberty: Autobiographies of Contemporary Libertarians]]''

==References==
{{reflist|2}}

==Bibliography==
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* [[Brian Doherty]] ''Radicals for Capitalism: A Freewheeling History of the Modern American Libertarian Movement'', [[PublicAffairs]], (2007)
* Franzen, Don. ''Los Angeles Times Book Review Desk'', review of "Neither Left Nor Right". January 19, 1997. Franzen states that "Murray and Boaz share the political philosophy of libertarianism, which upholds individual liberty--both economic and personal--and advocates a government limited, with few exceptions, to protecting individual rights and restraining the use of force and fraud." ([http://www.libertarianism.org/reviews.html Review on libertarianism.org]). MSN ''[[Encarta]]''<nowiki>'</nowiki>s [http://encarta.msn.com/encyclopedia_761551995/Libertarianism.html entry on Libertarianism] defines it as a "political philosophy" (Both references retrieved June 24, 2005). The ''Encyclopedia Britannica'' defines Libertarianism as "Political philosophy that stresses personal liberty." ([http://www.britannica.com/ebc/article?tocId=9370164&query=libertarian link], accessed June 29, 2005)
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* {{cite book|last=Friedman |first=Milton | chapterurl = http://www.druglibrary.org/special/friedman/socialist.htm |chapter=The Drug War as a Socialist Enterprise |title=Friedman & Szasz on Liberty and Drugs |editor=Arnold S. Trebach and Kevin B. Zeese (eds.) |location=Washington, D.C. |publisher=The Drug Policy Foundation |year=1992}}
* {{cite web|last=Gillespie |first=Nick |url=http://www.reason.com/0503/ed.ng.editors.shtml |title=Rand Redux |work=Reason |date=March 2005}}
* {{cite web|last=Goldberg |first=Jonah |url=http://www.nationalreview.com/goldberg/goldberg121201.shtml |title=Freedom Kills |work=[[National Review|National Review Online]] |date=[[December 12]] [[2001]]}}
* {{cite book|editor=Harwood, Sterling (ed.) |title=Business as Ethical and Business as Usual |location=Belmont, CA |publisher=Wadsworth Publishing}}
* {{cite book|last=Hayek |first=F.A. |title=Why I am not a Conservative |publisher=[[University of Chicago]] Press |year=1960 |url=http://hem.passagen.se/nicb/cons.htm}}
* {{cite book|last=Hospers |first=John |title=Libertarianism |location=Santa Barbara, CA |publisher=Reason Press |year=1971}}
* {{cite book|last=Hospers |first=John |chapter=Arguments for Libertarianism |editor=Harwood, Sterling (ed.) |title=Business as Ethical and Business as Usual |location=Belmont, CA |publisher=Wadsworth Publishing}}
* {{cite web|last=Huben |first=Michael |url=http://world.std.com/~mhuben/faq.html#nolan |title=The World's Smallest Political Quiz. (Nolan Test) |work=A Non-Libertarian FAQ |date=[[March 15]] [[2005]] |accessdate=2006-07-10}}
* {{cite web|last=Kangas |first=Steve |url=http://www.huppi.com/kangaroo/L-chichile.htm |title=Chile: The Laboratory Test |work=Liberalism Resurgent |accessdate=2006-07-10}}
* {{cite book|last=LaFollette |first=Hugh |chapter=Why Libertarianism is Mistaken |editor=Harwood, Sterling (ed.) |title=Business as Ethical and Business as Usual |location=Belmont, CA |publisher=Wadsworth Publishing |pages=58–66}}
* {{cite book|last=Lester|first=J.C. |title=Escape from Leviathan: Liberty, Welfare and Anarchy Reconciled|location=Basingstoke, UK/New York, USA |publisher=Macmillan/St Martin's Press|year=2000}}
* {{cite journal |last=Lester |first=J.C. |url=http://www.la-articles.org.uk/wwwl.pdf |title=What's Wrong with "What's Wrong with Libertarianism": A reply to Jeffrey Friedman |journal=Liberty |issue=August |year=2003}}
* {{cite web|last=Levy |first=Jacob |url=http://volokh.com/2003_03_16_volokh_archive.html#200013465 |title=Self-Criticism |work=[[The Volokh Conspiracy]] |date=[[March 19]] [[2003]] |accessdate=2006-07-10}}
* {{cite web|last=Machan |first=Tibor R. |url=http://www.liberalia.com/htm/tm_minarchists_anarchists.htm |title=Revisiting Anarchism and Government |accessdate=2006-07-10}}
* {{cite web|authorlink=James Madison |last=Madison |first=James |title=The Federalist No. 10: The Utility of the Union as a Safeguard Against Domestic Faction and Insurrection (continued) |work=Daily Advertiser |date=[[November 22]] [[1787]] |url=http://www.constitution.org/fed/federa10.htm |accessdate=2006-07-10}}
* {{cite book|authorlink=John Stuart Mill |last=Mill |first=John Stuart |chapter=Introduction |title=[[On Liberty]] |location=London, UK |publisher=Longman, Roberts & Green |date=1869}}
* {{cite book|last=Nelson |first=Quee |chapter=Quotations Concerning Libertarianism (Often Called Classical Liberalism) |editor=Harwood, Sterling (ed.) |title=Business as Ethical and Business as Usual |location=Belmont, CA |publisher=Wadsworth Publishing |page=67}}
* {{cite book|last=Nettlau |first=Max |title=A Short History of Anarchism|year=2000 |page=75}}
* {{cite book|last=Partridge |first=Ernest | chapterurl = http://gadfly.igc.org/papers/liberty.htm |chapter=With Liberty and Justice for Some |title=Environmental Philosophy |editor=[[Michael Zimmerman]], [[Baird Callicott]], [[Karen Warren]], [[Irene Klaver]], [[John Clark]] (eds.) |year=2004 |accessdate=2006-07-10}}
* Rand, Ayn. [http://www.aynrand.org/site/PageServer?pagename=education_campus_libertarians "Ayn Rand’s Q&A on Libertarians"], from a 1971 interview.
* {{cite web|last=Rockwell |first=Lew |coauthors=Friedman, Milton |url=http://www.mises.org/fullstory.aspx?control=92&id=79 |title=Friedman v. Rockwell |work=Chronicles |date=December 1998 |accessdate=2006-07-10}}
* {{cite news|last=Sanchez |first=Julian |url=http://www.reason.com/interviews/guevara.shtml |title=The Other Guevara |work=[[Reason (magazine)|Reason]] |date=[[August 12]] [[2003]] |accessdate=2006-07-10}}
* {{cite web|last=Yglesias |first=Matthew |url=http://yglesias.typepad.com/matthew/2005/04/health_is_forev.html |title=Health is Forever |date=[[April 15]] [[2005]] |accessdate=2006-07-10}}
* {{cite news|last=Young |first=Cathy |url=http://www.reason.com/0503/fe.cy.ayn.shtml |title=Ayn Rand at 100 |work=[[Reason (magazine)|Reason]] |date=March 2005 |accessdate=2006-07-10}}
* {{cite web |last=Zwolinski |first=Matt |url=http://www.iep.utm.edu/l/libertar.htm|title=Libertarianism |work=The Internet Encyclopedia of Philosophy |date=December 2007 |accessdate=2008-03-28}}
* {{cite web|publisher=[[Advocates for Self Government]] |title=The World's Smallest Political Quiz |url=http://www.self-gov.org/ |accessdate=2006-07-10}}
* {{cite web|url=http://capitalism.org/tour/preamble5b.htm |title=The Capitalism Tour |work=[[Capitalism Magazine]] |accessdate=2006-07-10}}
* {{cite web|publisher=[[Advocates for Self Government]] |title=Russell Means—Libertarian |url=http://www.self-gov.org/means.html |accessdate=2006-07-10}}
* {{cite web| puslisher = City Journal |title=Radicals for Capitalism: A Freewheeling History of the Modern American Libertarian Movement |url=http://www.city-journal.org/html/rev2007-04-20pb.html |accessdate=2006-07-10}}
</div>

==Links==
{{store|http://mises.org/store/Libertarian-Collection-P501C53.aspx|The Libertarian Collection}}
{{academy|http://academy.mises.org/courses/libertarianism-and-modern-philosophers/|Libertarianism and Modern Philosophers|http://academy.mises.org/courses/libertarian-ethics/|Libertarian Ethics|http://academy.mises.org/courses/libertarian-controversies/|Libertarian Controversies|http://academy.mises.org/courses/anarcho-capitalism/|Anarcho-Capitalism}}

===Sites===
* [http://lewrockwell.com LewRockwell.com]
* [http://www.mises.org Ludwig von Mises Institute]
* [http://www.cato.org Cato Institute]
* [http://www.reason.org Reason Foundation]
* [http://books.google.com/books?id=yxNgXs3TkJYC&printsec=frontcover&dq=libertarian+encyclopedia The Encyclopedia of Libertarianism]

===Literature===
* [http://mises.org/daily/3660 "What Libertarianism Is"] by [[Stephan Kinsella]] (adapted from a contribution to [[Property, Freedom, and Society]])
* {{mb|17862|What Libertarianism is Not|Jonathan M.F. Catalán|July 2011}}
* [http://www.mises.org/story/910 Left and Right: The Prospects for Liberty] by [[Murray Rothbard]]
* [http://mises.org/story/2801 Are Libertarians "Anarchists"?] - Article by Murray N. Rothbard
* [http://www.isil.org/resources/introduction.swf "The Philosophy of Liberty"] ([[Adobe Flash|Flash]]) at the [http://www.isil.org International Society for Individual Liberty]
* Mises Review: [http://mises.org/misesreview_detail.aspx?control=375 Libertarianism Today] by [[David Gordon]], 2010 (republished as "What Is Libertarianism?" [http://www.lewrockwell.com/gordon/gordon80.1.html here])

===Other media===
* Related courses
** [http://academy.mises.org/courses/libertarianism-and-modern-philosophers/ Libertarianism and Modern Philosophers] [[Mises Academy]] course by [[David Gordon]]
** [http://academy.mises.org/courses/libertarian-ethics/ Libertarian Ethics] Mises Academy course by David Gordon
** [http://academy.mises.org/courses/libertarian-controversies/ Libertarian Controversies] Mises Academy course by [[Stephan Kinsella]]
*** {{md|5540|Libertarian Controversies|Stephan Kinsella|August 2011}}
** [http://academy.mises.org/courses/anarcho-capitalism/ Anarcho-Capitalism] Mises Academy course by [[Robert P. Murphy]]

{{wplink}}

[[Category:Ideologies]]

Austrian School

2012-12-09T00:59:38Z

77.86.125.199:

{{TOC right}}
The '''Austrian School of Economics''' is a defunct [[Schools of economic thought|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 [[Mises Institute|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.<ref>[http://mises.org/daily/3582 Keynesians Can't Predict], [[L. Albert Hahn]], ''The Freeman'', October 6, 1952</ref> Its proponents tend to advocate the strong protection of private property rights and the strict enforcement of voluntary contractual agreements between economic agents, but otherwise advocate a laissez-faire approach to the economy and hold 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==
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 [[William Stanley Jevons|Jevons]], [[Léon Walras|Walras]], and [[Carl Menger|Menger]]) which introduced the idea of the [[subjective theory of value]] and began what has been called “the [[marginal revolution]]” in economic thought.<ref>{{Citation | title = School of Thought: The Austrian School of Economics | publisher = [[Online Library of Liberty]] | url = http://oll.libertyfund.org/index.php?option=com_staticxt&staticfile=show.php%3Fcollection=8&Itemid=29&s=1 | accessdate = 2011-05-19}}</ref>

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===
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 [[School of Salamanca|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."<ref name="Hulsmann_scholastics">Jörg Guido Hülsmann. [http://www.mises.org/books/moneyproduction.pdf "Ethics of Money Production"], online version, Introduction p. 12, referenced 2009-05-10.</ref>

The first general treatise on economics, [http://socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/cantillon/index.html 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 [[price]]s 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 [[Paradox of value|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 [[Frédéric Bastiat|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 [[good]]s. In one of his many economic allegories, Bastiat spelled out the "[[Parable of the broken window|broken-window fallacy]]" later popularized by [[Henry Hazlitt]].

Despite the theoretical sophistication of this developing pre-Austrian tradition, the [[Classical economics|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===
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 [[Value|economic value]], and fully explained, for the first time, the theory of [[Utility|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 [[Wikipedia:Historical school of economics|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.<ref name="School">[http://mises.org/about/3467#Austrian_Economics "FAQ: What is Austrian Economics"], ''[[Mises Institute]]'', referenced 2009-04-27.</ref>

As professor of economics at the University of Vienna, and then tutor to the young but ill-fated [[Wikipedia:Rudolf, Crown Prince of Austria|Crown Prince Rudol]]f 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]]<ref name="Fetter">Jeffrey Herbener. [http://mises.org/about/3231 "Frank A. Fetter (1863-1949): A Forgotten Giant"], ''[[Mises Institute]]'', referenced 2009-04-28.</ref>).

Böhm-Bawerk's ''[[Positive Theory of Capital]]'' demonstrated that the normal rate of business profit is the interest rate. Capitalists [[Saving|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 [[Marxian Economics|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===
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]]<ref name="Mises">Murray N. Rothbard. [http://mises.org/about/3248 "Ludwig von Mises (1881-1973)"], ''[[Mises Institute]]'', referenced 2009-04-26.</ref>, 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 [[Utility|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|British Currency School]], [[Knut Wicksell]]'s theory of [[interest rate]]s, and Böhm-Bawerk's theory of the structure of production, Mises presented the broad outline of the [[Austrian Business Cycle Theory|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 Anderson|Benjamin M. Anderson, Jr.]]<ref name="Anderson">Mark Thornton. [http://mises.org/about/3226 "Benjamin Anderson (1886-1949)"], ''[[Mises Institute]]'', referenced 2009-04-26.</ref>, an economist at [[Chase National Bank]]. (Mises's book was panned by [[John Maynard Keynes]], who later admitted he could not read German.{{Fact|reason=It would be cool to quote this somewhere.}})

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.{{fact|reason=It would be great to have a resource on this.}} 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 (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 [[Friedrich Hayek|Hayek]], [[Wilhelm Roepke]]<ref name="Roepke">Shawn Ritenour. [http://mises.org/about/3241 "Wilhelm Röpke (1899-1966): Humane Economist"], ''[[Mises Institute]]'', referenced 2009-04-27.</ref> , and [[Wikipedia:Lionel Robbins|Lionel Robbins]]. Mises began holding a private seminar in his offices at the Chamber of Commerce that was attended by [[Wikipedia:Fritz Machlup|Fritz Machlup]]<ref name="Machlup">Mark Thornton. [http://mises.org/about/3237 "Biography of Fritz Machlup (1902-1983)"], ''[[Mises Institute]]'', referenced 2009-04-27.</ref>, [[Wikipedia:Oskar Morgenstern|Oskar Morgenstern]], [[Wikipedia:Gottfried von Haberler|Gottfried von Haberler]]<ref name="Haberler">[http://mises.org/journals/aen/aen20_1_1.asp "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.</ref>, [[Wikipedia:Alfred Schutz|Alfred Schutz]]<ref name="Schutz">Peter Kurrild-Klitgaard. [http://mises.org/journals/qjae/pdf/qjae6_2_2.pdf "The Viennese Connection: Alfred Schutz and the Austrian School"](pdf), ''The Quarterly Journal Of Austrian Economics'' Vol.6, no.2, referenced 2009-04-27.</ref>, Richard von Strigl<ref name="Strigl">Jörg Guido Hülsmann. [http://mises.org/about/3243 "Richard von Strigl (1891-1942)"], ''[[Mises Institute]]'', referenced 2009-04-27.</ref>, [[Wikipedia:Eric Voegelin|Eric Voegelin]], [[Wikipedia:Paul Rosenstein-Rodan|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 [[Historical school of economics|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 in Economic Sciences|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]]'' ([http://books.google.com/books?id=wK49AAAAIAAJ&dq=Law,+Legislation+and+Liberty&printsec=frontcover&source=bl&ots=YAvviNdntc&sig=ZdwmZeD_vlQzvUM5nIIs2xmqp50&hl=en#PPP1,M1 online]) elaborated on the Late Scholastic approach to law, and applied it to criticize egalitarianism and [[nostrums]] like [[social justice]].

===Outside of Austria===
In the late 1930s, after suffering from the [[Great Depression|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 [[Graduate Institute of International Studies|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.<ref name="Documents">Richard M. Ebeling. [http://www.fff.org/comment/ed0397e.asp "The Discovery of the Lost Papers of Ludwig von Mises"], ''The Future of Freedom Foundation'', March 1997, referenced 2009-04-28.</ref>

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]]<ref name="Rothbard">David Gordon. [http://mises.org/about/3249 "Murray N. Rothbard (1926-1995)"], ''[[Mises Institute]]'', referenced 2009-04-28.</ref> 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 [[The Failure of the New Economics|critique]] of Keynes's ''[[The General Theory of Employment, Interest and Money|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===

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. 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.

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, 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]] [[Inflation|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.<ref>[http://www.lewrockwell.com/rothbard/rothbard40.html The Great Society: A Libertarian Critique], Murray Rothbard</ref><ref>[http://www.lewrockwell.com/rothbard/rothbard53.html The Noble Task of Revisionism], Murray Rothbard</ref><ref>[http://www.lewrockwell.com/rothbard/rothbard37.html The Fallacy of the 'Public Sector'], Murray Rothbard</ref>

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.<ref>''For a New Liberty'', Chapter 3</ref> 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.<ref>[http://www.lewrockwell.com/rothbard/rothbard24.html Tax Day], Murray Rothbard</ref> He also considered [[central bank]]ing and [[fractional reserve banking]] under a monopoly [[fiat money]] system a form of state-sponsored, legalized financial [[embezzlement|fraud]], antithetical to [[Libertarianism|libertarian]] principles and ethics.<ref>Rothbard, Murray. [http://www.mises.org/Books/mysteryofbanking.pdf ''The Mystery of Banking''] Ludwig von Mises Institute. 2008. p. 111</ref><ref>{{cite news |url=http://www.accessmylibrary.com/coms2/summary_0286-2737288_ITM |title=Has fractional-reserve banking really passed the market test? (Controversy). |date=January 2003 |format= |work= Independent Review|accessdate=}}</ref><ref>[http://www.fff.org/freedom/0999c.asp The Case for the 100% Gold Dollar], Murray Rothbard</ref><ref>See also Murray Rothbard articles: [http://www.lewrockwell.com/rothbard/rothbard191.html Private Coinage]; [http://www.lewrockwell.com/rothbard/rothbard190.html Repudiate the National Debt]; and [http://www.lewrockwell.com/rothbard/rothbard181.html Taking Money Back]</ref>

It was Rothbard who firmly established the Austrian School and classical liberal doctrine in the U.S., especially with ''[[Conceived in Liberty]]'' (volumes [http://mises.org/books/conceived1.pdf I], [http://mises.org/books/conceived2.pdf II], [http://mises.org/books/conceived3.pdf III], [http://mises.org/books/conceived4.pdf 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]]'' ([http://www.mises.org/rothbard/ethics/ethics.asp 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 [[Mises Institute|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.<ref>[http://www.nationalreview.com/articles/255968/who-ron-paul-interview Ron Paul Interview], National Review Online</ref>

==Methodology==
Austrian School economists advocate strict adherence to [[methodological individualism]] – analyzing human [[action]] from the perspective of individual agents.<ref name="Mises_Individualism">Ludwig von Mises [http://mises.org/humanaction/chap2sec4.asp "The Principle of Methodological Individualism"], ''[[Human Action]]'' online edition, [[Mises Institute]]. Referenced 2009-04-24}.</ref> 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 [[Econometrics|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. Von Mises called this discipline "[[praxeology]]" – a term he adapted from [[Alfred Espinas]] (but which had been in use by others).<ref>Ludwig von Mises, Nationalökonomie (Geneva: Union, 1940), p. 3; Human Action (Auburn, Ala.: Mises Institute, [1949] 1998), p. 3.</ref>

The Austrian praxeological method is based on the heavy use of logical [[deductive reasoning|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.<ref>Hans-Hermann Hoppe, Economic Science and the Austrian Method (Auburn, Ala.: Mises Institute, [1995] 2007), p. 63.</ref>

Austrian school theorists, like [[Ludwig von Mises]], insist that praxeology must be [[positive economics|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 [[Law of unintended consequences|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-capitalism|anarcho-capitalist]] solutions. These recommendations are similar to, but further reaching than the [[minarchism|minarchist]] ideas of [[Chicago school of economics|Chicago School]] economists, and frequently address issues that other schools ignore, such as [[monetary reform]].<ref>{{cite book | last = Skousen | first = Mark | title = Vienna & Chicago, Friends or Foes? | publisher = Capital Press/Regnery Pub | location = Washington | year = 2005 | isbn = 0-89526-029-8 }}</ref>

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. In this, their views do not differ far from those of the Chicago school.

As with neoclassical economists, Austrian economists reject [[classical economics|classical]] cost of production theories, most famously the [[labor theory of value]]. Instead, they explain value by reference to the [[Subjective theory of value|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 order]]s, 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.<ref>Frank van Dun. [http://www2.units.it/etica/2003_2/index.html ''Natural Law: A Logical Analysis'']. Etica & Politica, 2003.2. Dipartimento di Filosofia, Lingue e Letterature, Università di Trieste.</ref>

===Criticism of mainstream practices===
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:<ref>[http://mises.org/daily/3582 Keynesians Can't Predict], L. Albert Hahn, ''The Freeman'', October 6, 1952</ref>

{{quote|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.<ref>[http://www.lewrockwell.com/orig11/rosen-e1.1.1.html What is the Current State of Economic Science?], Erwin Rosen</ref> 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).<ref>[http://mises.org/daily/5146/Over-to-You-H-Parker-Willis Over To You H. Parker Willis], James Grant</ref> For example, H. Parker Willis co-authored the 1936 text ''The Theory and Practice of Central Banking'' and wrote the following:

{{quote|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.<ref>[http://www.lewrockwell.com/orig11/rosen-e1.1.1.html What is the Current State of Economic Science?], Erwin Rosen</ref><ref>[http://www.lewrockwell.com/thornton/thornton38.html You Heard It Here First], Mark Thornton, LRC</ref><ref>[http://mises.org/media/4019 Business Cycles and Prediction, Mark Thornton]</ref> However, some Austrian adherents have themselves been labeled as "Chicken Littles" for continually making predictions of "catastrophic" financial crises.<ref>[http://www.goldensextant.com/SavingtheSystem.html Saving the System], Robert K. Landis</ref><ref>{{cite news
|last=Brodie
|first=Lee
|title=Is This Market Heading For A Serious Correction?
|date=2009-08-17
|work=CNBC
|url=http://www.cnbc.com/id/32441070/Is_This_Market_Heading_For_A_Serious_Correction }}
</ref><ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref>

==Contributions==
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 [[economic equilibrium|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 [[Karl Marx|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 [[Carl Menger|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 [[Ludwig von Mises|von Mises]], [[George Reisman]], in his book, ''Capitalism''.
* An emphasis on [[opportunity cost]] and reservation demand in defining [[marginal theory of value|value]], and a refusal to consider supply as an otherwise independent cause of value.<ref>"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)</ref> (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 rate]]s inconsistent with individual time preferences.
* Mises and Hayek's view of prices as permitting agents to make use of [[dispersed knowledge|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 [[Wall Street Crash of 1929|the great crash]] of 1929.<ref>{{cite book |title=The Making of Modern Economics |last=Skousen |first=Mark |authorlink=Mark Skousen |year=2001 |publisher=M.E. Sharpe |isbn=0-7656-0479-5 |page=284 }}</ref><ref>{{cite web |url=http://nobelprize.org/nobel_prizes/economics/laureates/1974/press.html |title=The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1974 |accessdate=2008-10-12 |publisher=[[Nobel Foundation]] |date=1974-10-09 }}</ref> In February 1929, Hayek warned that a coming financial crisis was an unavoidable consequence of reckless monetary expansion.<ref>{{cite book |title= Keynes and Hayek |last= Steele |first=G. R. |year=2001 |publisher= Routledge |isbn= 0-415-25138-9 |page=9 }}</ref>
* 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==
===Economic calculation problem===
{{Main|Economic calculation problem}}
The economic calculation problem was first proposed by Ludwig von Mises in 1920 and later expounded by Friedrich Hayek.<ref name="Mises">{{cite book |title=Economic calculation in the Socialist Commonwealth |accessdate=2008-09-08 |last=Von Mises |first=Ludwig |authorlink=Ludwig von Mises |year=1990|format=pdf |publisher=[[Ludwig von Mises Institute]] |url=http://mises.org/pdf/econcalc.pdf |isbn=0945466072 }}</ref><ref>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.</ref> 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 goods|public]] and [[common good (economics)|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.''<ref name="School">[http://cepa.newschool.edu/het/essays/paretian/social.htm The socialist calculation debate]</ref>
[[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.<ref name="School" /> This led him to declare "…that rational economic activity is impossible in a socialist commonwealth."<ref name="Mises" />

===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.<ref>[http://mises.org/daily/5407/Is-Higher-Inflation-Inevitable Is Higher Inflation Inevitable?], Thorsten Polleit</ref>

Given that all major economies currently have a [[central bank]] supporting the private [[bank]]ing system, money can be supplied into these economies by way of private bank-created credit (or [[debt]]).<ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], [[Jorg Guido Hulsmann]] (includes detailed commentary on [[central banking]], [[inflation]] and [[fractional reserve banking|FRB]])</ref> 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.<ref>[http://www.lewrockwell.com/north/north803.html Why Deflation Is not Inevitable (Sadly)], Gary North</ref><ref>[http://www.marketoracle.co.uk/Article25964.html QE is Nothing New], Mike Hewitt</ref>

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.<ref>[http://www.marketoracle.co.uk/Article25964.html QE is Nothing New], Mike Hewitt</ref> Austrian School economists maintain the most effective cure is the strict maintenance of a stable money supply.<ref>{{cite web|url=http://mises.org/story/908 |title=Defining Inflation |accessdate=2008-09-20 |last=Shostak, Ph.D |first=Frank |date=2002-03-02 |publisher=Mises Institute }}</ref> [[Ludwig von Mises]], the seminal scholar of the Austrian School, asserts that:

<blockquote>
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.<ref>{{Cite book |first=Ludwig |last=von Mises |chapter=Economic Freedom and Interventionism |editor1-first=Bettina B. |editor1-last=Greaves |title=Economics of Mobilization |publisher=The Commercial and Financial Chronicle |location=Sulphur Springs, West Virginia |pages= |year=1980 |isbn= |chapterurl=http://mises.org/efandi/ch20.asp |ref=harv}}</ref>
</blockquote>

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.<ref>Ludwig von Mises Institute, "[http://mises.org/content/nofed/chart.aspx?series=TMS True Money Supply]"</ref><ref>Joseph T. Salerno, (1987), Austrian Economic Newsletter, "[http://www.mises.org/journals/aen/aen6_4_1.pdf The "True" Money Supply: A Measure of the Medium of Exchange in the U.S. Economy]"</ref><ref>Frank Shostak, (2000), "[http://www.mises.org/journals/qjae/pdf/qjae3_4_3.pdf The Mystery of the Money Supply Definition]"</ref>

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.<ref>[[Lew Rockwell]], interview on "[http://mises.org:88/Now NOW with Bill Moyers]"</ref> Because of the disruptive and dislocating effects of inflation, many Austrian School economists support the abolition of the [[central bank]]s and the [[fractional-reserve banking]] system, and advocate instead a return to money based on the [[gold standard]], or less frequently, [[free banking]].<ref>Ludwig von Mises Institute, "[http://mises.org/books/goldstandard.pdf The Gold Standard]"</ref><ref>Ron Paul, "[http://mises.org/books/caseforgold.pdf The Case for Gold]"</ref> 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:<ref>[http://www.goldensextant.com/SavingtheSystem.html Saving The System], Robert K. Landis</ref>

<blockquote> 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.</blockquote>

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.<ref>Murray Rothbard, "[http://mises.org/rothbard/100percent.pdf The Case for a 100 Percent Gold Dollar]"</ref><ref>Ludwig von Mises Institute, "[http://mises.org/story/2870 Money, Banking and the Federal Reserve]"</ref>

In relation to the current [[central bank]]-managed [[fractional reserve banking|fractional reserve]] [[fiat currency]] [[debt-based monetary system|system]], Austrian economist [[Murray Rothbard]] stated the following:<ref>Rothbard, Murray. [http://www.mises.org/Books/mysteryofbanking.pdf ''The Mystery of Banking''], p. 261</ref>

{{quote|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:

<blockquote>
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.<ref>{{cite book |last=von Mises |first=Ludwig |authorlink=Ludwig von Mises |coauthors= |title=The Theory of Money and Credit |publisher=Liberty Fund, Inc. |date=1981-07-01 |location= |pages=Chapter 21 |url=http://mises.org/story/2276 |doi= |id= |isbn=0-913966-71-1 |nopp=true }}</ref>
</blockquote>

===Business cycles===
{{Main|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]]:<ref>{{Cite journal
| last = Salerno
| first = Joseph
| author-link = Joseph Salerno
| title = Why We're Winning: An Interview with Joseph T. Salerno
| journal = The Austrian Economics Newsletter
| volume = 16
| issue = 3
| pages =
| date =
| origyear =
| year = 1996
| month =
| url = http://mises.org/journals/aen/aen16_3_1.asp
| archiveurl =
| archivedate =
| doi =
| id =
| ref = harv }}
</ref>
{{quote|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 [[Murray Rothbard|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 "[[economic bubble|bubbles]]" and "artificially" low savings.<ref>Thorsten Polleit, [http://mises.org/story/2810 Manipulating the Interest Rate: a Recipe for Disaster], 13 December 2007</ref>

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).<ref>[http://mises.org/daily/5407/Is-Higher-Inflation-Inevitable Is Higher Inflation Inevitable?], Thorsten Polleit</ref> 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 [[money supply|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 [[malinvestment]]s, 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 [[historical revisionism|revisionist]] work, ''[[America's Great Depression]]'':<ref>[[Murray Rothbard]], [http://mises.org/rothbard/agd/chapter1.asp#cluster_of_error|''America's Great Depression'', 2005, 5th Edition, Ludwig von Mises Institute, Chapter 1, ''The Cluster of Error''].</ref>

{{quote|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 [[Great Recession|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.<ref>{{Cite web |url= http://www.cato.org/pub_display.php?pub_id=10100 |title=The Fed's Modus Operandi: Panic | Cato Institute: Commentary |first=Steve H. |last=Hanke |work=cato.org |accessdate=17 July 2010 }}</ref> 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.<ref>[http://mises.org/journals/qjae/pdf/qjae13_1_1.pdf ABCT and the GFC: Confessions of a Mainstream Economist] by Jerry Tempelman</ref>

===Monetary Reform===
{{Main|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.<ref>See for example these [[Murray Rothbard]] articles: [http://www.mises.org/money.asp What Has Government Done to Our Money?], [http://www.mises.org/story/1829 The Case for the 100% Gold Dollar]; [http://www.lewrockwell.com/rothbard/cartelization.pdf The Fed as Cartel], [http://www.lewrockwell.com/rothbard/rothbard191.html Private Coinage], [http://www.lewrockwell.com/rothbard/rothbard190.html Repudiate the National Debt]; [http://www.lewrockwell.com/rothbard/rothbard181.html Taking Money Back], [http://www.lewrockwell.com/rothbard/rothbard163.html Anatomy of the Bank Run], [http://www.lewrockwell.com/rothbard/rothbard128.html Money and the Individual]</ref>

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.<ref>[http://mises.org/story/3108 Sound Money], [[Lew Rockwell]]</ref><ref>[http://mises.org/story/1971 Our Money Madness], [[Lew Rockwell]]</ref> 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.<ref>[http://www.lewrockwell.com/wenzel/wenzel87.1.html Senior Fed Economist Calls Ron Paul a Pinhead], Robert Wenzel</ref>

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.<ref>[http://mises.org/daily/5407/Is-Higher-Inflation-Inevitable Is Higher Inflation Inevitable?], Thorsten Polleit</ref><ref>[http://mises.org/story/3108 Sound Money], [[Lew Rockwell]]</ref><ref>[http://mises.org/story/1971 Our Money Madness], [[Lew Rockwell]]</ref> 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 [[malinvestment]]s and wrenching and disruptive business cycles.<ref>[http://mises.org/daily/5407/Is-Higher-Inflation-Inevitable Is Higher Inflation Inevitable?], Thorsten Polleit</ref><ref>[http://mises.org/daily/4880 The Faults of Fractional-Reserve Banking], Thorsten Polleit</ref>

However, Austrian scholars are divided on the optimal solution to this urgent problem.<ref>[http://mises.org/daily/4898 ''Free Banking''], review by John P. Cochran</ref>

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.<ref>[http://mises.org/daily/4898 ''Free Banking''], review by John P. Cochran</ref>

Advocates of this system of banking include Lawrence White, Steven Horwitz, George Selgin, and Kevin Dowd, amongst others.<ref>[http://mises.org/daily/4898 ''Free Banking''], review by John P. Cochran</ref> 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.<ref>[http://www.mises.org/store/Free-Market-Monetary-System-A-P553.aspx?AFID=14 ''Free Market Money System''] by [[F.A. Hayek]]</ref>

Other Austrian scholars advocate "full-reserve banking", considering fractional-reserve banking to be inherently unethical, disruptive and dysfunctional, akin to embezzlement.<ref>See for example these [[Murray Rothbard]] articles: [http://www.mises.org/money.asp What Has Government Done to Our Money?], [http://www.mises.org/story/1829 The Case for the 100% Gold Dollar]; [http://www.lewrockwell.com/rothbard/cartelization.pdf The Fed as Cartel], [http://www.lewrockwell.com/rothbard/rothbard191.html Private Coinage], [http://www.lewrockwell.com/rothbard/rothbard190.html Repudiate the National Debt]; [http://www.lewrockwell.com/rothbard/rothbard181.html Taking Money Back], [http://www.lewrockwell.com/rothbard/rothbard163.html Anatomy of the Bank Run], [http://www.lewrockwell.com/rothbard/rothbard128.html Money and the Individual]</ref> [[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]],<ref name="The Mystery of Banking">[http://www.mises.org/Books/mysteryofbanking.pdf ''The Mystery of Banking''], Murray Rothbard</ref><ref name="The Case for a 100% Gold Dollar">[http://mises.org/story/1829 The Case for a 100% Gold Dollar], Murray Rothbard</ref> [[Jesus Huerta de Soto]],<ref>[http://www.mises.org/books/desoto.pdf ''Money, Bank Credit, and Economic Cycles''], Jesus Huerta de Soto, First English edition (2006), pp. 98-114</ref> and [[Jörg Guido Hülsmann]],<ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], [[Jorg Guido Hulsmann]] (includes detailed commentary on [[central banking]], [[inflation]] and [[fractional reserve banking|FRB]])</ref><ref name=FBFB>[http://mises.org/journals/rae/pdf/RAE9_1_1.pdf Free Banking and the Free Bankers], Jörg Guido Hülsmann, Quarterly Journal of Austrian Economics (Vol. 9, No. 1)</ref><ref>[http://www.lewrockwell.com/lewrockwell-show/2011/01/04/181-hyperinflation-ahead/ Interview with Jörg Guido Hülsmann], The Lew Rockwell Show</ref> amongst others.<ref>[http://mises.org/daily/4880 The Faults of Fractional-Reserve Banking], Thorsten Polleit</ref>

==Criticism of the Austrian School==
Critics argue that modern Austrian economics generally lacks scientific rigor,<ref name="white1">{{Cite journal |title=The research program of Austrian economics |publisher=Emerald Group Publishing Limited |first=Lawrence H. |last=White |journal=Advances in Austrian Economics |year=2008 |pages=20 |url=http://www.emeraldinsight.com/books.htm?chapterid=1775479&show=pdf}}</ref> which forms the basis of the most prominent criticism of the school. Austrian theories are not formulated in formal mathematical form,<ref>{{cite web |first=Deborah L. |last=Walker |title=Austrian Economics |publisher=Library of Economics and Liberty |url=http://www.econlib.org/library/Enc1/AustrianEconomics.html |accessdate=2010-01-23 }}</ref> but by using mainly verbal logic and self-evident axioms, leading to conclusions that are demonstrably false, just like ancient theories of geocentrism and the classical elements. 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."<ref name="Friedman1969">{{cite book|last=Friedman |first=Milton |title=The Optimal Quantity of Money and Other Essays |publisher=Aldine |location=Chicago |pages=261–284 |chapter=The Monetary Studies of the National Bureau, 44th Annual Report}}</ref><ref name="Friedman93">{{cite journal|last=Friedman|first=Milton|title=The 'Plucking Model' of Business Fluctuations Revisited|journal=Economic Inquiry|pages=171–177|url=http://onlinelibrary.wiley.com/doi/10.1111/j.1465-7295.1993.tb00874.x/abstract}}</ref><ref name="Friedman_ABCT_false">{{cite book|last=Friedman |first=Milton |title=The Optimal Quantity of Money and Other Essays |publisher=Aldine |location=Chicago |pages=261–284 |chapter=The Monetary Studies of the National Bureau, 44th Annual Report | quote=The Hayek-Mises explanation of the business cycle is contradicted by the evidence. It is, I believe, false. }}</ref> In addition to Milton Friedman's criticism, noted liberal [[Neo-Keynesian Economics|neo-Keynesian]] economist [[Paul Krugman]] has criticized the theory.<ref name="Krugman">{{cite web|url=http://www.slate.com/id/9593 |title=The Hangover Theory |last=Krugman |first=Paul |date=1998-12-04 |publisher=Slate |accessdate=2008-06-20}}</ref>

[[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).<ref>{{cite journal|title=The Social Welfare State, Beyond Ideology |last=Sachs|first=Jeffrey |date=October 2006 |journal=Scientific American |url=http://www.sciam.com/article.cfm?id=the-social-welfare-state |accessdate=2008-06-20|ref=harv }}</ref> 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.<ref>{{cite news |url=http://online.wsj.com/article/SB116355956112023480.html?mod=opinion_main_commentaries|title=Dismal Science|accessdate=2008-09-07|author=[[William Easterly]]
|date=2006-11-15|publisher=[[The Wall Street Journal]]}}</ref>

==Seminal works==
* ''[[Principles of Economics]]'' (1871) by [[Carl Menger]]
* ''[[Capital and Interest]]'' (1884–1921) by [[Eugen von Böhm-Bawerk]]
* ''[[Human Action]]'' (1940–1949) by [[Ludwig von Mises]]
* ''[[Economics in One Lesson]]'' (1946) by [[Henry Hazlitt]]
* ''[[Individualism and Economic Order]]'' (1948) by [[Friedrich Hayek]]
* ''[[Man, Economy, and State]]'' (1962) by [[Murray Rothbard|Murray N. Rothbard]]
* ''[[Competition and Entrepreneurship]]'' (1973) by [[Israel Kirzner|Israel M. Kirzner]]

==See also==
* ''[[The Austrian School of Economics]]''
* ''[[An Introduction to Economic Reasoning‎]]''
* ''[[An Introduction to Austrian Economics]]''
* ''[[The Historical Setting of the Austrian School of Economics]]''
* ''[[Austrian Economics: An Anthology]]''
* ''[[Economic Science and the Austrian Method]]''

==References==
{{Reflist|3}}

==Links==
{{store|http://mises.org/store/Home-Study-Course-in-Austrian-Economics-P211.aspx|Home Study Course in Austrian Economics|https://mises.org/store/The-Framework-P10468.aspx|The Framework}}
{{Academy|http://academy.mises.org/courses/ae1/|Austrian Economics 1: Praxeology through Price Theory|http://academy.mises.org/courses/production/|Production and the Market Process|http://academy.mises.org/courses/money-monopoly-market-intervention/|Money, Monopoly, and Market Intervention|http://academy.mises.org/courses/microeconomics/|Austrian Microeconomics}}
===Writings===
* What is economics (Austrian perspective)
** [http://mises.org/daily/987 "What is Economics? Why Study It?"] by [[Gene Callahan]] (excerpt from ''[[Economics for Real People]]'')
** [http://mises.org/daily/6118 "What Is Economics?"] by [[Percy L. Greaves, Jr.]] (excerpt from ''[[Understanding the Dollar Crisis]]'')
** [http://mises.org/daily/1294 "Why Study Economics?"] by Stephen Carson, April 2003
** {{md|2025|What Is A Priori Science, and Why Does Economics Qualify As One?|Gene Callahan|February 2006}}
** {{mb|8056|The Real Problem With Non-Austrian Economics|Stefan Karlsson|April 2008}}

* Austrian School tenets & methodology
** [http://mises.org/etexts/austrian.asp What is Austrian Economics?] from the [[Mises Institute]] (republished in Mises About [http://mises.org/about/3223 here])
** [http://mises.org/resources/1200 "Why Austrian Economics Matters"] by [[Lew Rockwell]]
** [http://www.econlib.org/library/Enc/AustrianSchoolofEconomics.html Austrian School of Economics] from The Concise Encyclopedia of Economics
** [http://homepage.newschool.edu/het//schools/austrian.htm The Austrian School] from the History of Economic Thought page
** [http://mises.org/daily/5091 "The Austrian School in Brief"] by Schulak and Unterköfler (excerpt from ''[[The Austrian School of Economics]]'')
** {{md|1665|To Be an Austrian: A Primer|Sean Corrigan|November 2004}}
** [http://mises.org/daily/3561 Understanding "Austrian" Economics] by [[Henry Hazlitt]], February 1981
** [http://mises.org/daily/4390 A Primer on Austrian Economics] by Jonathan M. Finegold Catalan, June 2010
** [http://www.cobdencentre.org/literature/primer/ Austrian economics primer] list of resources by [[Cobden Centre]]
** [http://www.tomwoods.com/blog/austrian-economics-is-unscientific/ Austrian Economics Is ‘Unscientific’] by [[Tom Woods]], November 2011
** [http://www.tomwoods.com/blog/austrian-economists-called-unscientific/ Austrian Economists Called ‘Unscientific’] [[Jeffrey M. Herbener]] interview by Tom Woods, August 2012
** [http://mises.org/daily/3512 "Mises Introduces the Austrian School"] (Excerpt from [[Memoirs (Mises)|Memoirs]])
** "Ludwig von Mises and the Austrian School of Economics" ([http://mises.org/journals/rae/pdf/rae5_2_2.pdf PDF]) by Jeffrey M. Herbener, 1991
** [http://mises.org/resources/1004 "Hermeneutics vs. Austrian Economics"] by [[David Gordon]], 1986
** [http://blog.mises.org/15965/adventures-in-austrian-economics/ "Adventures in Economics"] Interview with [[Richard M. Ebeling]], March 2011
** [http://mises.org/resources/204/ "The Austrian School and the Theory of Value"] by [[Friedrich Wieser]], 1891
** [http://mises.org/resources/976/ "Austrian School of Economics at the University of Vienna"] lecture by Ludwig von Mises, May 1962
** [http://mises.org/daily/2200 "The Philosophical Origins of Austrian Economics"] by David Gordon, 1994
** [http://ontology.buffalo.edu/smith/articles/menger.html "Aristotle, Menger, Mises: An Essay in the Metaphysics of Economics"] by Barry Smith, 1990

* Collections
** [http://mises.org/literature.aspx?action=subject&Id=1 Overview of the Austrian School of Economics] literature collection at [[Mises.org]]
** [http://mises.org/literature.aspx?action=subject&Id=116 Austrian core] literature collection at Mises.org
** [http://mises.org/literature.aspx?Id=3&action=subject Methodological Foundations] literature collection at Mises.org
** [http://mises.org/literature.aspx?action=subject&Id=127 Austrian Methodology for the Social Sciences] literature collection at Mises.org
** [http://www.fee.org/category/intro-to-austrian-economics/ Intro to Austrian Economics Category] article collection at [[Foundation for Economic Education|FEE.org]]

* {{wplink}}

===Recommendations===
* [http://mises.org/store/For-Beginners-C9.aspx "For Beginners"] - Mises Store reading list
* [http://www.garynorth.com/public/3112.cfm "Ten Steps to Understand Austrian Economic Theory"] - [[Gary North]] recommended reading list (in order of difficulty)
* [http://blog.mises.org/8831/how-do-i-get-started-with-austrian-economics/ "How Do I Get Started with Austrian Economics?"] by [[Thomas E. Woods]], October 2008
* [http://austrianomics.com "Learn Austrian Economics"] - Tom Woods' recommended reading list
** {{mb|19148|Learn Austrian Economics|Justin Ptak|November 2011}}
*"[http://www.cobdencentre.org/2010/06/review-how-an-economy-grows-and-why-it-crashes/ And Then There Were Three]" by Andy Duncan, June 2010

===Media and interactive===
{{See also|Where to study Austrian Economics}}
* [http://academy.mises.org/ Mises Academy]
* [http://mises.org/classroom/default.asp The Mises Classroom] - study in Austrian economics and libertarian theory ([http://mises.org/resources/2022/ MP3 downloads])([http://mises.org/HSCAE/lessonplan.pdf PDF Lesson Plan & Study Guide])
** [http://mises.org/freemarket_detail.aspx?control=562 "Why Home Study?"] by [[Robert P. Murphy]] (republished as Mises Daily [http://mises.org/daily/1901 here])
* [http://mises.org/media.aspx?action=category&ID=89 Introduction to Austrian Economic Analysis] lecture series with [[Joseph T. Salerno]]
* [http://mises.org/media/category/176The-Austrian-School-of-Economics-An-Introduction The Austrian School of Economics: An Introduction] lecture series
* [http://vforvoluntary.com/austrian-economics Austrian economics lectures] (selected lectures, including "Introduction to Austrian Economics" by [[Jörg Guido Hülsmann]] and [[Hans-Hermann Hoppe]])([http://www.youtube.com/playlist?list=1AD95D0593508BD8 YouTube])
* [http://mises.org/media/5618/media.aspx?action=author&ID=1619 "Why Does Economics Matter?"] lecture by [[Mark Thornton]], November 2010
* [http://mises.org/media/4288/The-Core-of-What-Economics-Teaches "The Core of What Economics Teaches"] lecture by [[Bob Murphy]], November 2009
* [http://mises.org/media/6143/The-Core-of-What-Economics-Teaches "The Core of What Economics Teaches"] lecture by [[Mark Thornton]], April 2011
* [http://mises.org/media/5722/Why-Should-We-Care-About-Economic-Theory "Why Should We Care About Economic Theory?"] lecture by [[Lew Rockwell]], January 2011
* [http://mises.org/quiz.aspx Are You an Austrian?] quiz at Mises.org

[[Category:Austrian School of Economics|*]]

Paul Krugman

2012-12-09T00:11:29Z

77.86.125.199: fixed quite an odd sentence. That inflation refers to change in prices and not the money supply is fact, not opinion.

[[File:Paul Krugman.jpeg|thumb|right|Paul Krugman]]

'''Paul Krugman''' is an American economist and [[Nobel Memorial Prize in Economic Sciences|Nobel laureate]]. He is also an op-ed columnist and blogger for the [[New York Times]]. Krugman is well known for following the theories of [[John Maynard Keynes]] and continually advocates for more inflation and government intervention in the economy. Krugman's blog posts repeatedly reiterate the fact that inflation is a measurement of prices and not the quantity of money<ref>[http://krugman.blogs.nytimes.com/2010/11/09/inflation-delusions-2/] "Inflation delusions"</ref><ref>[http://krugman.blogs.nytimes.com/2010/11/06/are-rising-commodity-prices-an-inflationary-signal/] "Are rising commodity prices an inflationary signal?"</ref><ref>[http://krugman.blogs.nytimes.com/2010/11/04/generating-inflation-expectations/] "Generating inflation expectations"</ref> and printing money can help an economy in a depression.<ref name="Krugman_Phantoms">Paul Krugman. [https://www.nytimes.com/2012/11/26/opinion/krugman-fighting-fiscal-phantoms.html "Fighting Fiscal Phantoms"], ''New York Times'', Published: November 25, 2012. Referenced 2012-11-26. See also the [http://krugman-in-wonderland.blogspot.com/2012/11/krugman-channels-his-inner-crank.html response] from William Anderson.</ref>

For these and other views is Krugman frequently criticized by Austrian economists.{{Fact}} A blog created by [[William L. Anderson|William L. Anderson]] is devoted to "Analysis and criticism of America's most prominent public intellectual and champion of Keynesian economics."<ref name="Anderson_Krugman">William L. Anderson. [http://krugman-in-wonderland.blogspot.com/ "Krugman-in-Wonderland"], referenced 2010-11-16.</ref> In October 2010, Krugman was challenged to a [[Murphy-Krugman debate|debate]] over Austrian vs. Keynesian business cycle theory by economist [[Robert Murphy]].

==Broken window fallacy==
The [[broken-window fallacy]] was seen in a column by Princeton University professor Paul Krugman after the terrorist attack on the World Trade Center:<ref name="Williams_lunacy">Walter. E. Williams. [http://www.washingtontimes.com/news/2004/nov/22/20041122-095742-3613r/ "Economic lunacy"], November 22, 2004, Washington Times. Referenced 2011-01-05.</ref> "Ghastly as it may seem to say this, the terror attack -- like the original day of infamy, which brought an end to the Great Depression -- could even do some economic good."<ref name="Krugman_Horror">Paul Krugman. [http://www.nytimes.com/2001/09/14/opinion/reckonings-after-the-horror.html "Reckonings; After The Horror"], September 14, 2001, The New York Times. Referenced 2011-01-05.</ref>

In 1998, Krugman said: "During phases of weak growth there are always those who say that lower interest rates will not help. They overlook the fact that low interest rates act through several channels. For instance, more housing is built, which expands the building sector. You must ask the opposite question: why in the world shouldn't you lower interest rates?" To the question "...because that would only promote inflation instead of growth?" he responded "There is no danger of that!"<ref name="Hanke_Zinsen">Thomas Hanke. [http://www.zeit.de/1998/51/Runter_mit_den_Zinsen_ "Runter mit den Zinsen!"] (in ''German'', "Down with the rates!"), ''Die Zeit'', 51/1998. [http://www.pkarchive.org/global/welt.html Translation by Peter Bartl]. Referenced 2011-01-05.</ref>

In June, 2011, Paul Krugman declared that a new war would solve the nation’s looming economic problems: "If we suddenly had a threat of war and a military build up, you’d be amazed how fast the economy would recover."<ref name="Krugman_ABC">Paul Krugman. [http://abcnews.go.com/ThisWeek/video/roundtable-jobs-13765518 "Roundtable: Where are the Jobs?"] (video, from ~4:56), ''ABC News'', 06/05/2011. 2011-06-09.</ref>

==Krugman on Austrian Economics==
In 1998, Krugman wrote that he regarded the "Austrian theory" of the [[Austrian Business Cycle Theory|business cycle]] "about as worthy of serious study as the phlogiston theory of fire".<ref name="Krugman_Hangover">Paul Krugman. [http://www.slate.com/id/9593 "The Hangover Theory"], ''Slate'', December 4, 1998. Referenced 2011-01-25.</ref> In 2011, he conceded that (in his understanding of) the Austrian explanation both is theoretically possible and actually happens in the real world:<ref name="Krugman_Reply">Robert P. Murphy. [http://mises.org/daily/4993 "My Reply to Krugman on Austrian Business-Cycle Theory"], ''Mises Daily'', January 24, 2011. Referenced 2011-01-25.</ref>

<blockquote>So what is the essence of this Austrian story? Basically, it says that what we call an economic boom is actually something like [[China|China's]] disastrous [[Great Leap Forward]], which led to a temporary surge in consumption but only at the expense of degradation of the country's underlying productive capacity. And the unemployment that follows is a result of that degradation: there's simply nothing useful for the unemployed workers to do.

I like this story, and there are probably other cases besides China 1958–1961 to which it applies. But what reason do we have to think that it has anything to do with the business cycles we actually see in market economies?<ref name="Krugman_Leaps">Paul Krugman. [http://krugman.blogs.nytimes.com/2011/01/19/great-leaps-backward/ "Great Leaps Backward"], ''The New York Times'', January 19, 2011. Referenced 2011-01-25.</ref></blockquote>

==Krugman in Support of the 2000’s US Housing Bubble==

===Recommending the Federal Reserve lower interest rates to create a housing bubble:===
undated:<blockquote> “During phases of weak growth there are always those who say that lower interest rates will not help. They overlook the fact that low interest rates act through several channels. For instance, more housing is built, which expands the building sector. You must ask the opposite question: why in the world shouldn’t you lower interest rates?” <ref name="Housing Bubble undated">Paul Krugman. [http://www.pkarchive.org/global/welt.html "DIE ZEIT"], ''DIE ZEIT- INTERVIEW WITH KRUGMAN - Translation by Peter Bartl'', undated. Referenced 2011-01-26.</ref></blockquote>

2001-05-02:<blockquote> I've always favored the let-bygones-be-bygones view over the crime-and-punishment view. That is, I've always believed that a speculative bubble need not lead to a recession, as long as interest rates are cut quickly enough to stimulate alternative investments. But I had to face the fact that speculative bubbles usually are followed by recessions. My excuse has been that this was because the policy makers moved too slowly -- that central banks were typically too slow to cut interest rates in the face of a burst bubble, giving the downturn time to build up a lot of momentum. That was why I, like many others, was frustrated at the smallish cut at the last Federal Open Market Committee meeting: I was pretty sure that Alan Greenspan had the tools to prevent a disastrous recession, but worried that he might be getting behind the curve.
However, let's give credit where credit is due: Mr. Greenspan has cut rates since then. And while some of us may have been urging him to move even faster, the Fed's four interest-rate cuts since the slowdown became apparent represent an unusually aggressive response by historical standards. It's still not clear that Mr. Greenspan has caught up with the curve -- let's have at least one more rate cut, please -- but the interest-rate cuts do, cross your fingers, seem to be having an effect.
If we succeed in avoiding recession, this will mark a big win for let-bygones-be-bygones, and a big loss for crime-and-punishment. And that will be very good news not just for this business cycle, but for business cycles to come. <ref name="Housing Bubble 2001-05-02">Paul Krugman. [http://www.nytimes.com/2001/05/02/opinion/reckonings-dodging-the-bullet.html "Reckonings; Dodging the Bullet"], ''The New York Times'', May 2, 2001. Referenced 2011-01-26.</ref></blockquote>

2001-07-18:<blockquote> KRUGMAN: "I think frankly it’s got to be — business investment is not going to be the driving force in this recovery. It has to come from things like housing, things that have not been (UNINTELLIGIBLE)."

DOBBS: "We see, Paul, housing at near record levels, we see automobile purchases near record levels. The consumer is still very much in this economy. Can he or she — or I should say he and she, can they bring back this economy?"

KRUGMAN: "Well, as far as the arithmetic goes, yes, it is possible. Will the Fed cut interest rates enough? Will long-term rates fall enough to get the consumer, get the housing sector there in time? We don’t know" <ref name="Housing Bubble 2001-07-18">Paul Krugman. [http://www.pkarchive.org/economy/ML071801.html "LOU DOBBS MONEYLINE"], ''LOU DOBBS MONEYLINE, July 18, 2001: Interview with Paul Krugman'', July 18, 2001. Referenced 2011-01-26.</ref></blockquote>

2001-08-14:<blockquote> Still, as former Treasury Secretary Larry Summers says, you don't have to refill a flat tire through the puncture. To reflate the economy, the Fed doesn't have to restore business investment; any kind of increase in demand will do. How might demand increase? Consumers, who already have low savings and high debt, probably can't contribute much. But housing, which is highly sensitive to interest rates, could help lead a recovery… But there has been a peculiar disconnect between Fed policy and the financial variables that affect housing and trade. Housing demand depends on long-term rather than short-term interest rates -- and though the Fed has cut short rates from 6.5 to 3.75 percent since the beginning of the year, the 10-year rate is slightly higher than it was on Jan. 1... Sooner or later, of course, investors will realize that 2001 isn't 1998. When they do, mortgage rates and the dollar will come way down, and the conditions for a recovery led by housing and exports will be in place. <ref name="Housing Bubble 2001-08-14">Paul Krugman. [http://www.nytimes.com/2001/08/14/opinion/reckonings-delusions-of-prosperity.html “Reckonings; Delusions of Prosperity''] ''The New York Times'', August 14, 2001. Referenced 2011-01-26.</ref></blockquote>

2001-08-22:<blockquote> KRUGMAN: "I’m a little depressed. You know, inventories, probably that’s over, the inventory slump. But you look at the things that could drive a recovery, business investment, nothing happening. Housing, long-term rates haven’t fallen enough to produce a boom there. The trade balance is going to get worst before it gets better because the dollar is still very strong. It’s not a happy picture." <ref name="Housing Bubble 2001-08-22">Paul Krugman. [http://www.pkarchive.org/economy/ML082201.html “LOU DOBBS MONEYLINE"], ''LOU DOBBS MONEYLINE, August 22, 2001: Interview with Paul Krugman'', August 22, 2001. Referenced 2011-01-26.</ref></blockquote>

2001-10-07:<blockquote> Post-terror nerves aside, what mainly ails the U.S. economy is too much of a good thing. During the bubble years businesses overspent on capital equipment; the resulting overhang of excess capacity is a drag on investment, and hence a drag on the economy as a whole.
In time this overhang will be worked off. Meanwhile, economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer. <ref name="Housing Bubble 2001-10-07">Paul Krugman. [http://www.nytimes.com/2001/10/07/opinion/reckonings-fuzzy-math-returns.html “Reckonings; Fuzzy Math Returns"], ''The New York Times'', October 7, 2001. Referenced 2011-01-26.</ref></blockquote>

2001-12-28:<blockquote> The good news about the U.S. economy is that it fell into recession, but it didn't fall off a cliff. Most of the credit probably goes to the dogged optimism of American consumers, but the Fed's dramatic interest rate cuts helped keep housing strong even as business investment plunged. <ref name="Housing Bubble 2001-12-28">Paul Krugman. [http://www.nytimes.com/2001/12/28/opinion/could-ve-been-worse.html “Could've Been Worse"], ''The New York Times'', December 28, 2001. Referenced 2011-01-26.</ref></blockquote>

2002-08-02:<blockquote> The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble. <ref name="Housing Bubble 2002-08-02">Paul Krugman. [http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html “Dubya's Double Dip?"], ''The New York Times'', August 2, 2002. Referenced 2011-01-26.</ref></blockquote>

===Opposing the Federal Reserve raising interest rates:===
2008-03-03:<blockquote>One argument I’ve been hearing a lot lately runs as follows: “Low interest rates got us into this mess, so it’s crazy to think that low interest rates are the solution.”
Now, I don’t actually buy the first premise: I blame Greenspan for ignoring warnings about subprime and housing, but I still think keeping the Fed funds rate at 1% for a long time was justified by the economy’s weakness, which lasted until late 2003 or even beyond. But it’s true that we had an orgy of over-borrowing in the housing market. So the question remains: does an effort to encourage even more borrowing make sense?
Yes. <ref name="Housing Bubble 2008-03-03">Paul Krugman. [http://krugman.blogs.nytimes.com/2008/03/03/hair-of-the-dog "Hair of the dog"], ''Conscience of a Liberal: New York Times Blog'', March 3, 2008. Referenced 2011-01-26.</ref></blockquote>

2004-08-10:<blockquote>Oh, and on a nonpolitical note: even before Friday's grim report on jobs, I was puzzled by Mr. Greenspan's eagerness to start raising interest rates. Now I don't understand his policy at all.<ref name="Housing Bubble 2004-08-10">Paul Krugman. [http://www.nytimes.com/2004/08/10/opinion/spin-the-payrolls.html "Spin The Payrolls"], ''The New York Times'', August 10, 2004. Referenced 2011-01-26.</ref></blockquote>

===Crediting the housing bubble for the mid-2000’s economic recovery:===
2008-02-19:<blockquote>In fact, I’d say that the sources of the economy’s expansion from 2003 to 2007 were, in order, the housing bubble, the war, and — very much in third place — tax cuts. <ref name="Housing Bubble 2008-02-19">Paul Krugman. [http://krugman.blogs.nytimes.com/2008/02/19/bush-is-right-about-something "Bush is right about something"], ''Conscience of a Liberal: New York Times Blog'', February 19, 2008. Referenced 2011-01-26.</ref></blockquote>

2008-01-24:<blockquote>What finally created a convincing recovery was the housing boom. But that turned into a bubble, which has burst big time. <ref name="Why worry">Paul Krugman. [http://krugman.blogs.nytimes.com/2008/01/24/why-worry-about-a-poor-stimulus-plan/ "Why Worry About a Poor Stimulus Plan"], ''Conscience of a Liberal: New York Times Blog'', January 24, 2008. Referenced 2011-08-11.</ref></blockquote>

2006-10-30:<blockquote>'''Neeraj Mehra, Amritsar, India''': Mr. Greenspan has done a disservice to the nation by creating the housing boom. As a layman-observer, that’s the lingering thought I’ve had. Your article reaffirms it.
The question I have is this: Did he do the right thing — acting morally by engineering a housing boom, more as a bridge loan, until something else showed up at the horizon to shore up the economy — because he didn’t have a choice, or did he undertake a path of mere political expediency? And, that’s a question that’s nagging me for a while.
Would appreciate it if you could shed some light.

'''Paul Krugman''': As Paul McCulley of PIMCO remarked when the tech boom crashed, Greenspan needed to create a housing bubble to replace the technology bubble. So within limits he may have done the right thing. But by late 2004 he should have seen the danger signs and warned against what was happening; such a warning could have taken the place of rising interest rates. He didn’t, and he left a terrible mess for Ben Bernanke.<ref name="Credit where credit is due">Paul Krugman. [http://krugman.blogs.nytimes.com/2006/10/30/credit-where-credit-is-due/ "Credit Where Credit is Due"], ''Conscience of a Liberal: New York Times Blog'', October 30, 2006. Referenced 2011-08-11.</ref></blockquote>

2005-05-27:<blockquote>As Mr. McCulley predicted, interest rate cuts led to soaring home prices, which led in turn not just to a construction boom but to high consumer spending, because homeowners used mortgage refinancing to go deeper into debt. All of this created jobs to make up for those lost when the stock bubble burst.
Now the question is what can replace the housing bubble.<ref name="Housing Bubble 2005-05-27">Paul Krugman. [http://www.nytimes.com/2005/05/27/opinion/27krugman.html "Running Out of Bubbles"], ''The New York Times'', May 5, 2007. Referenced 2011-01-26.</ref></blockquote>

===Denials:===
2012-07-03:<blockquote>Give me a break... If you actually read that [August 2, 2002] article, actually read it... I was joking. I was saying that, I was talking about, the difficulty of responding purely with monetary policy to the kind of slump that we were then experiencing. And it's a measure, I might say, of the intellectual bankruptcy of a large part of this debate, that the best they can do is keep on claiming that I was actually advocating the creation of a housing bubble. I obviously wasn't doing that.<ref name="Krugman_Housing_joke">Paul Krugman. [https://www.youtube.com/watch?v=EX55BH97quk&feature=player_embedded Paul Krugman: "¡Acabad ya con esta crisis!"] (video). Parts of the video are in Spanish; question starts at 1:40:00; Krugman's answer from 1:41:30. Discussion of the book "End This Depression Now!", held on July 3, 2012 at the ''Fundación Rafael del Pino''. Referenced 2012-07-11.</ref><ref name="Diego Sanchez">Diego Sánchez de la Cruz. [http://diego-sanchez-de-la-cruz.libremercado.com/2012/07/04/958/3 "Krugman el bromista"], ''LibreMercado'', July 4, 2012. Referenced 2012-07-13.</ref></blockquote>

2009-06-17:<blockquote>One of the funny aspects of being a somewhat, um, forceful writer is that I’m regularly accused of all sorts of villainy. I was personally responsible for the demise of Enron; my nonexistent son worked for Hillary; etc.. The latest seems to be that I called for the creation of a housing bubble — in fact, the bubble is my fault! The claim seems to be based on this piece.
Guys, read it again. It wasn’t a piece of policy advocacy, it was just economic analysis. What I said was that the only way the Fed could get traction would be if it could inflate a housing bubble. And that’s just what happened.<ref name="Grassy Knoll">Paul Krugman. [http://krugman.blogs.nytimes.com/2009/06/17/and-i-was-on-the-grassy-knoll-too/ "And I was on the grassy knoll, too"], ''Conscience of a Liberal: New York Times Blog'', June 17, 2009. Referenced 2012-07-13.</ref></blockquote>

==Criticism==
===Partisanism===

''[[The Economist]]'' cites critics of Krugman stating that "his relentless partisanship is getting in the way of his argument". In addition, a website (titled "Lying in Ponds") that tracks [[Partisan (political)|partisanship]] among public intellectuals rated Krugman second in the overall partisan slant of his columns, behind only [[Ann Coulter]].<ref name=economist/> As [[Richard Posner]] and economist [[Mark J. Perry]] note, the site, which uses careful statistical analysis to make assessments political partisanship, has ranked Paul Krugman the number 1 or number 2 most biased every single year from 2002-2008.<ref name=posner/><ref>{{Cite web | last = Perry | first = Mark J. | authorlink = Mark J. Perry | title = Paul Krugman: #1 Most Partisan Columnist in U.S. | date = 2008-10-14 | year = 2008 | url = http://mjperry.blogspot.com/2008/10/paul-krugman-1-most-partisan-columnist.html | accessdate = 2011-08-10}}</ref>

''The Economist'' magazine supported the finding, noting the vast majority of Krugman's columns feature attacks on [[Republican Party (United States)|Republicans]] and almost none criticize [[Democratic Party (United States)|Democrats]], making him "a sort of ivory-tower folk-hero of the American [[Left-wing politics|left]]—a thinking person's [[Michael Moore]]" and that "a glance through his past columns reveals a growing tendency to attribute all the world's ills to [[George W. Bush|George Bush]]."<ref name=economist>{{Citation | title = The one-handed economist | newspaper = [[The Economist]] | pages = | year = 2003 | date = 2003-11-13 | url = http://www.economist.com/node/2208841 | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref> And speaking on Krugman's recent "prophecy of doom" regarding the [[United States elections, 2010|2010 election]], the magazine calls it a "baseless partisan freakout".<ref>{{Citation | title = Krugman's prophecy of doom | newspaper = [[The Economist]] | year = 2010 | date = 2010-10-29 | url = http://www.economist.com/blogs/democracyinamerica/2010/10/another_partisan_freakout | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref>

A study published in the [[peer-reviewed]] ''[[Econ Journal Watch]]'' examined statements from 17 economists from 1981 through 2009, and gauged the consistency of their stances on deficit spending and reduction during Republican and Democratic administrations. According to the study, Krugman was the only economist of the 17 to "significantly" change his stance on the federal budget deficit for partisan reasons.<ref>{{Citation | last = Barkley | first = Brett | title = When the White House Changes Party, Do Economists Change Their Tune on Budget Deficits? | journal = [[Econ Journal Watch]] | volume = 7 | issue = 2 | pages = 119-156 | date = 2010-05 | year = 2010 | month = May | url = http://econjwatch.org/articles/when-the-white-house-changes-party-do-economists-change-their-tune-on-budget-deficits | jstor = | doi = | id = | mr = | zbl = | jfm = }}</ref>

This finding of inconsistency was supported when ''[[The Wall Street Journal]]'' (WSJ) showed that Krugman contradicted his own findings in order to criticize Republican policy. When Republican [[United States Senate|Senator]] [[Jon Kyl]] stated that unemployment relief doesn't create new jobs and in fact is a disincentive for unemployed individuals to seek new work, Krugman called it a "bizarre point of view" and stated that "What Democrats believe is what textbook economics says [...] But that's not how Republicans see it". [[James Taranto]] of the WSJ reproduced a passage from a textbook called ''Macroeconomics'' which states: "The drawback to [unemployment benefits] is that it reduces a worker's incentive to quickly find a new job." The authors of the textbook are Paul Krugman and [[Robin Wells Krugman|his wife]].<ref>{{Citation | last = Taranto | first = James | author-link = James Taranto | title = Mirror, Mirror | newspaper = [[The Wall Street Journal]] | year = 2010 | date = 2010-03-05 | url = http://online.wsj.com/article/SB10001424052748703915204575103720332317434.html | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref> This led [[John H. Hinderaker|John Hinderaker]] of the [[Conservatism in the United States|conservative]] [[Claremont Institute]] to proclaim: "only the existence of [[Frank Rich]] prevents Krugman from being the world’s worst columnist."<ref>{{Cite web | last = Hinderaker
| first = John | authorlink = John H. Hinderaker | title = Krugman Vs. Krugman | publisher = [[Power Line]] | date = 2010-03-06 | url = http://www.powerlineblog.com/archives/2010/03/025752.php | accessdate = 2011-08-10}}</ref>

In 2008, economist [[Peter Boettke]] noted: "[Over the years] Krugman's work devolved from science to [[ideology]] and finally to political partisanship" and that Krugman "has used his platform as an economist and as a columnist for the New York Times for his Democratic partisanship purposes."<ref>{{Cite web | last = Boettke | first = Peter | authorlink = Peter Boettke | title = Political Economist | publisher = [[Forbes]] | date = 2008-10-13 | archiveurl = http://web.archive.org/web/20081016034623/http://www.forbes.com/opinions/2008/10/13/krugman-nobel-economics-oped-cx_pb_1013boettke.html | archivedate = 2008-10-16 | url = http://www.forbes.com/opinions/2008/10/13/krugman-nobel-economics-oped-cx_pb_1013boettke.html | accessdate = 2011-08-10}}</ref>

Author and [[United States Court of Appeals for the Seventh Circuit|federal appeals court judge]] [[Richard Posner]] called Krugman "an unabashed Democratic partisan who often goes overboard in his hatred of the Republians." [sic]<ref name=posner>{{Citation | last = Posner | first = Richard | author-link = Richard Posner | title = The Good Paul Krugman and the Bad Paul Krugman | newspaper = [[The Atlantic]] | year = 2009 | date = 2009-06-03 | url = http://www.theatlantic.com/business/archive/2009/06/the-good-paul-krugman-and-the-bad-paul-krugman/18718/ | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref>

Economist [[Donald J. Boudreaux|Donald Boudreaux]] has stated that Krugman does "a disservice to non-'liberal' scholars as well as to scholarship generally" by asserting that serious thinking is done only by Krugman himself and other liberals.<ref>{{Citation | last = Boudreaux | first = Don | author-link = Donald J. Boudreaux | title = Open Letter to Paul Krugman | date = 2011-06-19 | year = 2011 | url = http://cafehayek.com/2011/06/open-letter-to-paul-krugman-2.html | accessdate = 2011-08-10}}</ref>

Liberal journalists also openly point out Krugman's obvious political bias: ''[[New York Magazine]]'' called Krugman "the leading exponent of a kind of liberal purism" that he is "not altogether comfortable with, but it is [a role] he has sought."<ref name=nymag>{{Citation | last = Wallace-Wells | first = Benjamin | author-link = | title = What’s Left of the Left | newspaper = [[New York Magazine]] | pages = | year = 2011 | date = 2011-04-24 | url = http://nymag.com/news/politics/paul-krugman-2011-5/ | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref> [[American liberalism|Liberal]] journalist and author [[Michael Tomasky]] in ''[[The New York Review of Books]]'' stated "Many liberals would name Paul Krugman of The New York Times as perhaps the most consistent and courageous—and unapologetic—liberal partisan in American journalism."<ref>{{Citation | last = Tomasky | first = Michael | author-link = Michael Tomasky | title = The Partisan | newspaper = [[The New York Review of Books]] | year = 2007 | date = 2007-11-22 | url = http://www.nybooks.com/articles/archives/2007/nov/22/the-partisan/ | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref>

Liberal historian [[Michael Kazin]] has stated Krugman’s account of the [[Right-wing politics|right]] succumbed to the [[Marxist]] flaw of false consciousness: "Unlike what Krugman says, conservatism is not some kind of smoke screen for another agenda."<ref name=nymag/>

===Contradictions===
Krugman has garnered a reputation for contradicting himself on many occasions. When documenting such inconsistencies several writers have made references to such an occurrence being commonplace: "It's not newsworthy when Paul Krugman contradicts himself."<ref name=states/> "Not that you needed any more evidence that New York Times columnist Paul Krugman is a flip-flopping charlatan..."<ref name=entitlement/> "This just in: New York Times columnist Paul Krugman is a raging hypocrite. You'll be shocked to find out, I'm sure."<ref>{{Citation | last = Markay | first = Lachlan | author-link = | title = Paul Krugman Favored Raising Retirement Age Until GOP Proposed It | newspaper = [[NewsBusters]] | date = 2011-04-26 | url = http://www.newsbusters.org/blogs/lachlan-markay/2011/04/26/paul-krugman-favored-raising-retirement-age-until-gop-proposed-it | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref>

In addition to the instance reported in the WSJ ([[Paul Krugman#Partisanism|see above]]), a single article published in the conservative online magazine ''[[The American Thinker]]'' documents Krugman making contradictory statements in a wide variety of topics. He is documented as stating that when [[deficit]]s are high [[interest rate]]s are low, and when governments run up a deficit, interest rates rise. He argued that higher [[national debt]] and spending were bad for people early in their careers, as they would have to pay for it later in life, and nearly twenty-five years later, he argues that the national debt is not a problem, as it never needs to be paid off. Krugman argued it is not the debt that matters, but rather the [[debt-to-GDP ratio]]. But in an open letter to [[Alan Greenspan]] he asserted, "...you obviously realize that the ratio of debt to G.D.P. is a highly misleading number." He has argued that [[Social Security]] is sustainable and unsustainable, opposed government-run health care before supporting government-run health care, and opposed the bailout of [[Fannie Mae]] before congratulating the government for the bailout of Fannie Mae.<ref name=contradiction/>

Krugman has stated [[labor unions]] and higher wages cause [[unemployment]], as well as stating labor unions create a stable [[middle class]], and lower wages have a [[Recession|contractionary]] effect on the economy (which is characterized in part by unemployment). He has argued that governments do not cause recessions and are not responsible for [[business cycle]]s, but he also blames the [[Presidency of George W. Bush|Bush administration]] for the current [[recession]]. Krugman claimed that nothing the government has done has had an impact on the economy, and states that government actions are like using a water pistol to shoot an elephant -- but he also claims that "big government" saved the economy. He declared that workers' fears of losing jobs to workers in China and India due to [[globalization]] aren't irrational, when he earlier stated that those who blamed the global economy for the loss of jobs were "silly."<ref name=contradiction>{{Citation | last = Kumar | first = Arvind | title = Paul Krugman, the Self-Contradicting Economist | newspaper = [[The American Thinker]] | year = 2010 | date = 2010-06-23 | url = http://www.americanthinker.com/2010/06/paul_krugman_the_selfcontradic.html | archiveurl = http://www.webcitation.org/60M5qaItY | archivedate = 2011-07-21 | accessdate = 2011-08-10}}</ref>

[[Conservatism in the United States|Conservative]] blogger and political commentator [[Michelle Malkin]] noted that in April 2011, Krugman assailed [[entitlement]] reform advocates, lamenting that "the fervor with which Washington types call for raising eligibility ages is a ‘tell’: it shows how disconnected they are from the way the other half lives (and dies)" and called life expectancy "more and more a class-related issue." But in 1996 he called similar proposals (such as raising the age of eligibility for federal entitlements) "sensible".<ref name=entitlement>{{Cite web | last = Malkin | first = Michelle | authorlink = Michelle Malkin | title = Paul Krugman: For entitlement reform before he was against it | date = 2011-04-26 | year = 2011 | url = http://michellemalkin.com/2011/04/26/paul-krugman-for-entitlement-reform-before-he-was-against-it/ | accessdate = 2011-08-10}}</ref>

In 2007, Krugman berated then-Senator [[Barack Obama]] for worrying about the future of Social Security, stating Obama had been misled by "decades of scare-mongering about Social Security’s future from conservative [[ideologue]]s." Economist and former Chairman of the [[Council of Economic Advisors]] [[N. Gregory Mankiw|Greg Mankiw]] responded by stating that "Paul's interpretation seems to be based on either a faulty memory or an especially inclusive definition of what constitutes a conservative ideologue", pointing out that not only did [[Democratic Party (United States)|Democratic]] President [[Bill Clinton]] voice similar concerns, but that he was under advisement of well-known economist and non-conservative [[Edward Gramlich]], whom Krugman had in the past praised as being particularly prescient.<ref>{{Cite web | last = Mankiw | first = Greg | authorlink = N. Gregory Mankiw | title = In Search of Ideologues | date = 2007-11-16 | url = http://gregmankiw.blogspot.com/2007/11/in-search-of-ideologues.html | accessdate = 2011-08-10}}</ref> In addition, less than a month prior, Mankiw had previously pointed out Krugman's contradiction on Social Security when he quoted from an interview in which Krugman stated it is "one of the best" federal government programs in terms of funding, and that it's not for certain the program has a problem. However, as Mankiw shows, Krugman himself stated ten years earlier that crisis loomed ahead when the baby boomers would start to retire around year 2010.<ref>{{Cite web | last = Mankiw | first = Greg | authorlink = N. Gregory Mankiw | title = Krugman vs Obama | date = 2007-10-28 | url = http://gregmankiw.blogspot.com/2007/10/krugman-vs-obama.html | accessdate = 2011-08-10}}</ref>

In an open letter to ''[[The New York Times]]'' [[Donald J. Boudreaux|Donald Boudreaux]] pointed out that Krugman suggested trade with low-wage countries poses real problems for high-wage America, despite years earlier penning a paper stating that wages are determined by worker productivity.<ref>{{Cite web | last = Boudreaux | first = Donald J. | authorlink = Donald J. Boudreaux | title = Strange Case of Dr. K and Mr. K | date = 2008-01-05 | url = http://cafehayek.com/2008/01/strange-case-of.html | accessdate = 2011-08-10}}</ref>

Columnist Tom Bevan asked in 2009 how Krugman reconciles a call for [[economic stimulus]] while at the same time arguing that additional environmental regulations and taxes are needed to avert the "utter catastrophe", outlining that stricter environmental policies such as carbon taxes, capping emissions, and additional regulations come at a cost to the economy.<ref>{{Citation | last = Bevan | first = Tom | author-link = | title = Krugman's Contradiction | newspaper = [[RealClearPolitics]] | date = 2009-07-13 | url = http://www.realclearpolitics.com/articles/2009/07/13/krugmans_contradiction_97433.html | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref>

Economist [[Robert P. Murphy|Robert Murphy]] has documented so many contradictions made by Krugman that he has coined the term "Krugman Kontradiction" or "Klassic Krugman".<ref name=states>{{Cite web
| last = Murphy
| first = Robert P.
| authorlink = Robert P. Murphy
| title = Caught: Krugman's Shifting Arguments
| work =
| publisher = [[Ludwig von Mises Institute]]
| date = 2011-03-03
| url = http://mises.org/daily/5086
| accessdate = 2011-08-10}}</ref>
<ref name=austerity>{{Cite web
| last = Murphy
| first = Robert P.
| authorlink = Robert P. Murphy
| title = A Krugman Kontradiction?
| date = 2010-06-10
| url = http://consultingbyrpm.com/blog/2010/06/a-krugman-kontradiction.html
| accessdate = 2011-08-10}}</ref>
<ref name=QEcontra>{{Cite web
| last = Murphy
| first = Robert P.
| authorlink = Robert P. Murphy
| title = Yet Another Krugman Kontradiction
| date = 2010-11-23
| url = http://consultingbyrpm.com/blog/2010/11/yet-another-krugman-kontradiction.html
| accessdate = 2011-08-10}}</ref>
<ref name=PIGS>{{Cite web
| last = Murphy
| first = Robert P.
| authorlink = Robert P. Murphy
| title = Yet Another Krugman Kontradiction?
| date = 2011-03-30
| url = http://consultingbyrpm.com/blog/2011/03/yet-another-krugman-kontradiction-2.html
| accessdate = 2011-08-10}}</ref>
<ref name=stimulus>{{Cite web
| last = Murphy
| first = Robert P.
| authorlink = Robert P. Murphy
| title = Klassic Krugman Kontradiction
| date = 2011-05-19
| url = http://consultingbyrpm.com/blog/2011/05/klassic-krugman-kontradiction.html
| accessdate = 2011-08-10}}</ref>
<ref name=WW2>{{Cite web
| last = Murphy
| first = Robert P.
| authorlink = Robert P. Murphy
| title = Another Krugman Kontradiction?
| date = 2010-07-07
| url = http://consultingbyrpm.com/blog/2010/07/another-krugman-kontradiction.html
| accessdate = 2011-08-10}}</ref>
<ref name=hangover>{{Cite web
| last = Murphy
| first = Robert P.
| authorlink = Robert P. Murphy
| title = Krugman In Support of the Hangover Theory?
| date = 2010-12-30
| url = http://consultingbyrpm.com/blog/2010/12/krugman-hangover-theory.html
| accessdate = 2011-08-10}}</ref>
<ref name=hangover>{{Cite web
| last = Murphy
| first = Robert P.
| authorlink = Robert P. Murphy
| title = Krugman Has Booted the Hackers From His Blog Account
| date = 2010-06-11
| url = http://consultingbyrpm.com/blog/2010/06/krugman-has-booted-the-hackers-from-his-blog-account.html
| accessdate = 2011-08-10}}</ref>

===False claims===
Columnist Richard Baehr has written several pieces documenting false and contradictory statements by Krugman. In August 2005, Baehr published a series of articles detailing Krugman's continuous misrepresentation of facts surrounding the [[United States presidential election, 2000|2000 Presidential election]] and votes cast in Florida.<ref name=biglie>{{Citation | last = Baehr | first = Richard | title = Krugman's Big Lie | newspaper = [[The American Thinker]] | date = 2005-08-20 | url = http://www.americanthinker.com/2005/08/krugmans_big_lie.html | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref><ref>{{Citation | last = Baehr | first = Richard | title = More baloney from Krugman | newspaper = [[The American Thinker]] | date = 2005-08-23 | url = http://www.americanthinker.com/2005/08/more_baloney_from_krugman.html | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref> (A gaffe that was also noted by [[Michelle Malkin]]<ref>{{Cite web | last = Malkin | first = Michelle | authorlink = Michelle Malkin | title = The Krugman Correction | date = 2005-08-26 | url = http://michellemalkin.com/2005/08/26/the-krugman-correction/ | accessdate = 2011-08-10}}</ref><ref>{{Cite web | last = Malkin | first = Michelle | authorlink = Michelle Malkin | title = Krugman's Correction | date = 2005-09-15 | url = http://michellemalkin.com/2005/09/15/krugmans-correction/ | accessdate = 2011-08-10}}</ref><ref>{{Cite web | last = Malkin | first = Michelle | authorlink = Michelle Malkin | title = Yet Another Krugman Korrection | date = 2005-10-02 | url = http://michellemalkin.com/2005/10/02/yet-another-krugman-korrection/ | accessdate = 2011-08-10}}</ref>, [[Donald Luskin]]<ref>{{Citation | last = Luskin | first = Donald | author-link = Donald Luskin | title = It’s the Truth that Counts | newspaper = [[National Review]] | date = 2005-08-24 | url = http://www.nationalreview.com/nrof_luskin/luskin200508240848.asp | accessdate = 2011-08-10}}</ref><ref>{{Cite web | last = Luskin | first = Donald | authorlink = Donald Luskin | title = Krugman Officially Corrects His Florida 2000 Lies | newspaper = | date = 2005-08-26 | url = http://www.poorandstupid.com/2005_08_21_chronArchive.asp#112503484243947813 | accessdate = 2011-08-10}}</ref><ref>{{Citation | last = Luskin | first = Donald | author-link = Donald Luskin | title = Third Time’s Not a Charm | newspaper = [[National Review]] | date = 2005-09-13 | url = http://old.nationalreview.com/nrof_luskin/luskin200509130821.asp | accessdate = 2011-08-10}}</ref><ref>{{Cite web | last = Luskin | first = Donald | authorlink = Donald Luskin | title = Hell Freezes Over at The New York Times | newspaper = | date = 2005-10-01 | url = http://www.poorandstupid.com/2005_09_25_chronArchive.asp#112822299822124760 | accessdate = 2011-08-10}}</ref>, [[Mickey Kaus]]<ref>{{Citation | last = Kaus | first = Mickey | author-link = Mickey Kaus | title = The "Two Atta" Theory | newspaper = [[Slate (magazine)|Slate]] | date = 2005-08-21 | url = http://www.slate.com/?id=2124546&%2523overfisk | accessdate = 2011-08-10}}</ref>, and Patterico<ref>{{Cite web | last = Patterico | first = | title = Paul Krugman Just Can’t Get It Right | date = 2005-08-26 | url = http://patterico.com/2005/08/26/paul-krugman-just-cant-get-it-right/ | accessdate = 2011-08-10}}</ref><ref>{{Cite web | last = Patterico | first = | title = Paul Krugman Prettifies His Own History of Misstatements | date = 2005-09-16 | url = http://patterico.com/2005/09/16/paul-krugman-prettifies-his-own-history-of-misstatements/ | accessdate = 2011-08-10}}</ref>, among others.) Baehr closed the series stating: "The continuous rise of the internet has enabled critics to hyperlink source material proving Krugman's lack of integrity. Krugman simply could not get away with his lies if he were required to post hyperlinks [...] Why is the New York Times still employing a serial liar in its op ed pages?"<ref>{{Citation | last = Baehr | first = Richard | title = More Krugman lies: the Great Unraveling continues | newspaper = [[The American Thinker]] | date = 2005-08-26 | url = http://www.americanthinker.com/2005/08/more_krugman_lies_the_great_un.html | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref>

In 2010 Baehr detailed Krugman's August 23 column on extending the Bush tax cuts as being "not merely misleading; it is an outright and deliberate fabrication."<ref>{{Citation | last = Baehr | first = Richard | title = Paul Krugman Is a Liar: Does the New York Times Care? | newspaper = [[The American Thinker]] | date = 2010-08-23 | url = http://www.americanthinker.com/2010/08/paul_krugman_is_a_liar_does_th.html | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref>

In 2003 Krugman falsely accused conservatives of embracing the [[lump of labour fallacy]], when the paper he cited did not commit the error.<ref name=economist/>

James D. Agresti documented Krugman claiming total government spending had fallen under the Obama administration, then changing his claim to say it had remained flat, both of which were shown to be false according to the data published by the federal [[Bureau of Economic Analysis]].<ref>{{Citation | last = Agresti | first = James D. | author-link = | title = Paul Krugman's Jihad | newspaper = [[The American Thinker]] | date = 2010-10-27 | url = http://www.americanthinker.com/2010/10/paul_krugmans_jihad_1.html | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref> This led economist [[Robert P. Murphy|Robert Murphy]] to ask: "Is Krugman just lying now?"<ref>{{Cite web | last = Murphy | first = Robert P. | authorlink = Robert P. Murphy | title = Is Krugman Just Lying Now? | date = 2010-10-11 | url = http://consultingbyrpm.com/blog/2010/10/is-krugman-just-lying-now.html | accessdate = 2011-08-10}}</ref>

Economist [[Robert Higgs]] noted that in a telephone news conference Krugman commented the [[Late-2000s recession]] "in fact" resembles the [[Great Depression]]. Higgs mentions various measures, including the [[unemployment rate]], [[Gross domestic product|GDP]] decline, commercial bank failures, and others, all which empirically contradict Krugman's claim.<ref name=depression/>

===Economics===

''[[The Economist]]'' notes that in addition to his obvious partisanism, "even [Krugman's] economics is sometimes stretched." He used [[game theory]] to argue that [[George W. Bush|President Bush]] was probably encouraging [[North Korea]] to become a more dangerous nuclear power. The magazine notes that while "this probably did not convince most game theorists", it still in effect gives lay readers "the illusion that Mr Krugman's perfectly respectable personal political beliefs can somehow be derived empirically from economic theory." Krugman is also said to have embraced the concept of the [[There ain't no such thing as a free lunch|free lunch]]—"even though as an economist he should know better."<ref name=economist/>

Economist and former [[United States Secretary of the Treasury]] [[Lawrence Summers|Larry Summers]] has stated Krugman has a tendency to favor more extreme policy recommendations because "it’s much more interesting than agreement when you’re involved in commenting on rather than making policy."<ref name=nymag/>

Krugman's contradictions and alleged poor economic reasoning have led to much attention, particularly in the [[blogosphere]] and the economics community. "[Krugman] has made a habit of distortion [...] Several website [sic] have sprung up to deconstruct each Krugman column,and others respond to specific errors, which are routine."<ref name=biglie/> Economist [[William L. Anderson|Bill Anderson]] maintains a website dedicated solely to documenting Krugman's errors and inconsistencies, called "Krugman-in-Wonderland".<ref>{{Cite web | last = Anderson | first = William L. | authorlink = William L. Anderson | title = Welcome to Krugman-in-Wonderland! | date = 2010-01-20 | url = http://krugman-in-wonderland.blogspot.com/2010/01/welcome-to-krugman-in-wonderland.html | accessdate = 2011-08-10}}</ref> [[United States House of Representatives elections in Massachusetts, 2012|U.S. House Republican candidate]] Jeff Semon founded a similar website titled "KrugmanIsWrong.com" to document Krugman's inaccuracies.<ref>{{Cite web | last = Semon | first = Jeff | authorlink = | title = About | work = | publisher = KrugmanIsWrong.com | url = http://www.krugmaniswrong.com/about/ | format = | accessdate = 2011-08-10}}</ref>

Calling him a "doctor of (bad) economics", [[Sheldon Richman]] has pointed out inconsistencies and conflicting notions in Krugman's prescription for [[international trade]] and domestic [[social safety net]]s.<ref>{{Citation | last = Richman | first = Sheldon | author-link = Sheldon Richman | title = Paul Krugman, Doctor of (Bad) Economics | newspaper = [[The Freeman]] | date = 2008-01-04 | url = http://www.thefreemanonline.org/columns/tgif/the-goal-is-freedom-paul-krugman-doctor-of-bad-economics/ | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref>

In 2002 [[William L. Anderson|Bill Anderson]] documented Krugman's notion that health care is the only industry in which improvements in knowledge and the development and acquisition of capital drive ''up'' costs, not reduce them, as laws of economics dictate. Anderson says Krugman's assessment "provides ample proof that one can be called an 'economist,' yet not know much about economics."<ref>{{Cite web | last = Anderson | first = William L. | authorlink = William L. Anderson | title = "Bad Medicine" or Bad Economics? | publisher = [[Ludwig von Mises Institute]] | date = 2002-03-20 | url = http://mises.org/daily/917 | accessdate = 2011-08-10}}</ref>

Economist and former Chairman of the [[Council of Economic Advisors]] [[N. Gregory Mankiw|Greg Mankiw]] stated he was left scratching his head when Krugman claimed a [[Tobin tax]] on foreign exchange trades is possible because "modern trading is a highly centralized affair", with a majority of transactions settled at a single London-based institution. Mankiw points out that if taxes made transacting in London even slightly more expensive, companies could easily move elsewhere, thus making the tax useless, and Krugman's claim null.<ref>{{Citation | last = Mankiw
| first = Greg | author-link = N. Gregory Mankiw | title = Is a Tobin Tax feasible? | date = 2009-11-27 | year = 2009 | url = http://gregmankiw.blogspot.com/2009/11/is-tobin-tax-feasible_27.html | accessdate = 2011-08-10}}</ref>

Investor and businessman [[Jim Rogers]] said of Krugman "He doesn't know anything about economics. He's an idiot."<ref>{{Cite video | people = [[Jim Rogers]] | title = Freedom Watch | medium = Television production | format = [[Flash video]] | publisher = [[Fox Business Network]] | url = http://www.youtube.com/watch?v=fWe3jyqRo-4 | location = [[New York City]] | date = 2010-10-16 | accessdate = 2011-08-10}}</ref>

===Nobel Prize===
Upon Krugman's award of the [[Nobel Memorial Prize in Economic Sciences|Nobel Memorial Prize in Economics]], many in the economic community voiced disapproval. [[Peter Boettke]] stated "the Swedes just made perhaps the worst decision in the history of the prize today in naming Paul Krugman the 2008 award winner [...] today I would say is a sad day for economics, not a day to be celebrated."<ref>{{Cite web | last = Boettke | first = Peter | authorlink = Peter Boettke | title = You Cannot Be Serious! Paul Krugman's Nobel Prize | date = 2008-10-13 | url = http://austrianeconomists.typepad.com/weblog/2008/10/you-cannot-be-s.html | accessdate = 2011-08-10}}</ref> Economist [[William L. Anderson|Bill Anderson]] deemed the announcement indicative "that outright political partisanship is not a deterrent to winning."<ref>{{Citation | last = Anderson | first = William L. | author-link = William L. Anderson | title = A Socialist Laureate | newspaper = [[Forbes]] | date = 2008-10-13 | url = http://www.forbes.com/2008/10/13/krugman-nobel-economics-oped-cx_wla_1013anderson.html | archiveurl = | archivedate = | accessdate = 2011-08-10}}</ref> [[Russell Roberts (economist)|Russell Roberts]] of [[George Mason University]] called it "just another reminder that those of us who believe in liberty are in for a long time in the intellectual wilderness."<ref>{{Cite web | last = Roberts | first = Russell | authorlink = Russell Roberts (economist) | title = Krugman's prize | date = 2008-10-13 | url = http://cafehayek.com/2008/10/krugmans-prize.html | accessdate = 2011-08-10}}</ref> [[Robert Higgs]] stated Krugman’s selection made a travesty of the prize and constitutes "an insult to the few excellent economists [...] who have received the prize in the past." Higgs wrote: "For economists who would like the Nobel Prize to mean something, today is a very sad day."<ref name=depression>{{Cite web | last = Higgs | first = Robert | authorlink = Robert Higgs | title = Krugman’s Bizarre Comparison | publisher = [[The Independent Institute]] | date = 2008-10-13 | url = http://blog.independent.org/2008/10/13/krugmans-bizarre-comparison/ | accessdate = 2011-08-10}}</ref>

In a 2010 [[video blog]], [[investment broker]] and financial-economic commentator [[Peter Schiff]] stated "if they ever took away Nobel Prizes for something that shows a complete lack of understanding of economics, certainly Paul Krugman would be the first candidate where the commission asked for their Nobel Prize back."<ref>{{cite video |people = [[Peter Schiff]] |date = 2010-03-16 |title = Dollar, Paul Krugman |url = http://www.youtube.com/watch?v=11WlFlO_mDg |format = [[Flash video]] |publisher = Schiff Report |medium = [[Video Blog]] |location = [[Stamford, Connecticut|Stamford]] |archiveurl =|archivedate= |accessdate = 2011-08-10}}</ref>

==Praised by Austrians==
While noting the many differences with Paul Krugman, James Miller has pointed out that many bloggers who promote the Austrian point of view commend Krugman's older, lesser-known book, ''Pop Internationalism''. The book is a collection of 13 essays highlighting the benefits of free trade and showing the fallacies of protectionism. After all, Krugman won the Nobel Prize for his contributions to "new trade theory," not for his continuing calls for massive stimulus spending and raising taxes on the rich, nor for accusing conservatives of being monsters bent on impoverishing the whole country.

Krugman's basic premise throughout the book is that free and globalized trade is not something a wealthy country such as the United States should fear, but rather something it should embrace. Protectionist fears of free trade such as "massive unemployment" and "trade deficits" are unjustified according to Krugman, because:

{{cquote|what drives trade is comparative rather than absolute advantage. Maintaining productivity growth and technological progress is extremely important; but it is important for its own sake, not because it is necessary to keep up with international competition.}}

Krugman points out that the idea of a country adopting an industrial policy to help certain "high-value" industries to be competitive in the world economy is superfluous. "Why," Krugman asks, "weren't private markets already doing their job?" He goes on to state that "the productivity of the average American worker is determined by a complex array of factors, most of them unreachable by any government policy."

To top off his embrace of market efficiency over government policy, he even goes on to acknowledge that government intervention to improve competitiveness can ultimately lead to "misallocations of resources." That is not a far cry from the inflation-induced "[[malinvestment]]s" that the likes of Mises, Hayek, and Rothbard have warned about for the past century.

Throughout Pop Internationalism, Paul Krugman makes a great case for how free trade and the global economy raise the living standards of both wealthy and impoverished nations. Despite the book's flaws, writes Miller, Krugman does a great job at dismissing unfounded fears about free trade.<ref name="Miller_5296">James E. Miller. [https://mises.org/daily/5296/The-Good-Krugman "The Good Krugman"], ''Mises Daily''. Referenced 2012-11-18.</ref>

==Notes==
{{reflist|2}}

==Links==
* [http://mises.org/daily/3194 Consumers Don't Cause Recessions] by Robert P. Murphy, November 2008, about 'demand-side' economics
* [[Wikipedia:Paul Krugman|Paul Krugman]] on Wikipedia
* [http://topics.nytimes.com/top/opinion/editorialsandoped/oped/columnists/paulkrugman/index.html "Paul Krugman Columnist Page - The New York Times"]
* [http://pkarchive.org/ "pkarchive - The Unofficial Paul Krugman Archive"]
* {{md|105|Epstein Responds|Gene Epstein|December 1998}}
* [http://mises.org/journals/qjae/pdf/qjae6_4_2.pdf Apoplithorismosphobia] (pdf) by Mark Thornton, 2003
* [http://mises.org/daily/5086/Caught-Krugmans-Shifting-Arguments Caught: Krugman's Shifting Arguments] by Robert P. Murphy, March 2011
* [http://mises.org/daily/4121 Krugman Fails to "Get It" on Japan] by William L. Anderson, March 2010
* [http://web.mit.edu/krugman/www/ricardo.htm Ricardo's Difficult Idea] by Paul Krugman, March 1996
* {{cb|2012/04/paul-vs-paul-the-video/|Paul vs. Paul: the Video|Daniel J. Sanchez|April 2012}}
* {{md|6055|Charting Fun with Krugman|Robert P. Murphy|May 2012}}
* [http://www.valuewalk.com/2012/06/paul-krugman-versus-kenneth-rogoff-on-europe/ Paul Krugman versus Kenneth Rogoff on Europe] by Jacob Wolinsky, June 2012
* [https://www.youtube.com/watch?v=EX55BH97quk&feature=player_embedded Paul Krugman: "¡Acabad ya con esta crisis!"] (video, partially in Spanish; esp. watch from 35:20 economist Pedro Schwartz; from 48:20 Krugman's reply)

{{DEFAULTSORT:Krugman, Paul}}
[[Category:Economists]]
[[Category:Nobel Prize in Economics]]

Austrian School

2012-12-08T23:57:06Z

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The '''Austrian School of Economics''' is a defunct [[Schools of economic thought|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 [[Mises Institute|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.<ref>[http://mises.org/daily/3582 Keynesians Can't Predict], [[L. Albert Hahn]], ''The Freeman'', October 6, 1952</ref> Its proponents tend to advocate the strong protection of private property rights and the strict enforcement of voluntary contractual agreements between economic agents, but otherwise advocate a laissez-faire approach to the economy and hold 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==
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 [[William Stanley Jevons|Jevons]], [[Léon Walras|Walras]], and [[Carl Menger|Menger]]) which introduced the idea of the [[subjective theory of value]] and began what has been called “the [[marginal revolution]]” in economic thought.<ref>{{Citation | title = School of Thought: The Austrian School of Economics | publisher = [[Online Library of Liberty]] | url = http://oll.libertyfund.org/index.php?option=com_staticxt&staticfile=show.php%3Fcollection=8&Itemid=29&s=1 | accessdate = 2011-05-19}}</ref>

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===
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 [[School of Salamanca|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."<ref name="Hulsmann_scholastics">Jörg Guido Hülsmann. [http://www.mises.org/books/moneyproduction.pdf "Ethics of Money Production"], online version, Introduction p. 12, referenced 2009-05-10.</ref>

The first general treatise on economics, [http://socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/cantillon/index.html 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 [[price]]s 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 [[Paradox of value|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 [[Frédéric Bastiat|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 [[good]]s. In one of his many economic allegories, Bastiat spelled out the "[[Parable of the broken window|broken-window fallacy]]" later popularized by [[Henry Hazlitt]].

Despite the theoretical sophistication of this developing pre-Austrian tradition, the [[Classical economics|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===
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 [[Value|economic value]], and fully explained, for the first time, the theory of [[Utility|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 [[Wikipedia:Historical school of economics|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.<ref name="School">[http://mises.org/about/3467#Austrian_Economics "FAQ: What is Austrian Economics"], ''[[Mises Institute]]'', referenced 2009-04-27.</ref>

As professor of economics at the University of Vienna, and then tutor to the young but ill-fated [[Wikipedia:Rudolf, Crown Prince of Austria|Crown Prince Rudol]]f 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]]<ref name="Fetter">Jeffrey Herbener. [http://mises.org/about/3231 "Frank A. Fetter (1863-1949): A Forgotten Giant"], ''[[Mises Institute]]'', referenced 2009-04-28.</ref>).

Böhm-Bawerk's ''[[Positive Theory of Capital]]'' demonstrated that the normal rate of business profit is the interest rate. Capitalists [[Saving|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 [[Marxian Economics|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===
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]]<ref name="Mises">Murray N. Rothbard. [http://mises.org/about/3248 "Ludwig von Mises (1881-1973)"], ''[[Mises Institute]]'', referenced 2009-04-26.</ref>, 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 [[Utility|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|British Currency School]], [[Knut Wicksell]]'s theory of [[interest rate]]s, and Böhm-Bawerk's theory of the structure of production, Mises presented the broad outline of the [[Austrian Business Cycle Theory|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 Anderson|Benjamin M. Anderson, Jr.]]<ref name="Anderson">Mark Thornton. [http://mises.org/about/3226 "Benjamin Anderson (1886-1949)"], ''[[Mises Institute]]'', referenced 2009-04-26.</ref>, an economist at [[Chase National Bank]]. (Mises's book was panned by [[John Maynard Keynes]], who later admitted he could not read German.{{Fact|reason=It would be cool to quote this somewhere.}})

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.{{fact|reason=It would be great to have a resource on this.}} 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 (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 [[Friedrich Hayek|Hayek]], [[Wilhelm Roepke]]<ref name="Roepke">Shawn Ritenour. [http://mises.org/about/3241 "Wilhelm Röpke (1899-1966): Humane Economist"], ''[[Mises Institute]]'', referenced 2009-04-27.</ref> , and [[Wikipedia:Lionel Robbins|Lionel Robbins]]. Mises began holding a private seminar in his offices at the Chamber of Commerce that was attended by [[Wikipedia:Fritz Machlup|Fritz Machlup]]<ref name="Machlup">Mark Thornton. [http://mises.org/about/3237 "Biography of Fritz Machlup (1902-1983)"], ''[[Mises Institute]]'', referenced 2009-04-27.</ref>, [[Wikipedia:Oskar Morgenstern|Oskar Morgenstern]], [[Wikipedia:Gottfried von Haberler|Gottfried von Haberler]]<ref name="Haberler">[http://mises.org/journals/aen/aen20_1_1.asp "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.</ref>, [[Wikipedia:Alfred Schutz|Alfred Schutz]]<ref name="Schutz">Peter Kurrild-Klitgaard. [http://mises.org/journals/qjae/pdf/qjae6_2_2.pdf "The Viennese Connection: Alfred Schutz and the Austrian School"](pdf), ''The Quarterly Journal Of Austrian Economics'' Vol.6, no.2, referenced 2009-04-27.</ref>, Richard von Strigl<ref name="Strigl">Jörg Guido Hülsmann. [http://mises.org/about/3243 "Richard von Strigl (1891-1942)"], ''[[Mises Institute]]'', referenced 2009-04-27.</ref>, [[Wikipedia:Eric Voegelin|Eric Voegelin]], [[Wikipedia:Paul Rosenstein-Rodan|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 [[Historical school of economics|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 in Economic Sciences|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]]'' ([http://books.google.com/books?id=wK49AAAAIAAJ&dq=Law,+Legislation+and+Liberty&printsec=frontcover&source=bl&ots=YAvviNdntc&sig=ZdwmZeD_vlQzvUM5nIIs2xmqp50&hl=en#PPP1,M1 online]) elaborated on the Late Scholastic approach to law, and applied it to criticize egalitarianism and [[nostrums]] like [[social justice]].

===Outside of Austria===
In the late 1930s, after suffering from the [[Great Depression|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 [[Graduate Institute of International Studies|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.<ref name="Documents">Richard M. Ebeling. [http://www.fff.org/comment/ed0397e.asp "The Discovery of the Lost Papers of Ludwig von Mises"], ''The Future of Freedom Foundation'', March 1997, referenced 2009-04-28.</ref>

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]]<ref name="Rothbard">David Gordon. [http://mises.org/about/3249 "Murray N. Rothbard (1926-1995)"], ''[[Mises Institute]]'', referenced 2009-04-28.</ref> 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 [[The Failure of the New Economics|critique]] of Keynes's ''[[The General Theory of Employment, Interest and Money|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===

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. 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.

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, 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]] [[Inflation|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.<ref>[http://www.lewrockwell.com/rothbard/rothbard40.html The Great Society: A Libertarian Critique], Murray Rothbard</ref><ref>[http://www.lewrockwell.com/rothbard/rothbard53.html The Noble Task of Revisionism], Murray Rothbard</ref><ref>[http://www.lewrockwell.com/rothbard/rothbard37.html The Fallacy of the 'Public Sector'], Murray Rothbard</ref>

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.<ref>''For a New Liberty'', Chapter 3</ref> 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.<ref>[http://www.lewrockwell.com/rothbard/rothbard24.html Tax Day], Murray Rothbard</ref> He also considered [[central bank]]ing and [[fractional reserve banking]] under a monopoly [[fiat money]] system a form of state-sponsored, legalized financial [[embezzlement|fraud]], antithetical to [[Libertarianism|libertarian]] principles and ethics.<ref>Rothbard, Murray. [http://www.mises.org/Books/mysteryofbanking.pdf ''The Mystery of Banking''] Ludwig von Mises Institute. 2008. p. 111</ref><ref>{{cite news |url=http://www.accessmylibrary.com/coms2/summary_0286-2737288_ITM |title=Has fractional-reserve banking really passed the market test? (Controversy). |date=January 2003 |format= |work= Independent Review|accessdate=}}</ref><ref>[http://www.fff.org/freedom/0999c.asp The Case for the 100% Gold Dollar], Murray Rothbard</ref><ref>See also Murray Rothbard articles: [http://www.lewrockwell.com/rothbard/rothbard191.html Private Coinage]; [http://www.lewrockwell.com/rothbard/rothbard190.html Repudiate the National Debt]; and [http://www.lewrockwell.com/rothbard/rothbard181.html Taking Money Back]</ref>

It was Rothbard who firmly established the Austrian School and classical liberal doctrine in the U.S., especially with ''[[Conceived in Liberty]]'' (volumes [http://mises.org/books/conceived1.pdf I], [http://mises.org/books/conceived2.pdf II], [http://mises.org/books/conceived3.pdf III], [http://mises.org/books/conceived4.pdf 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]]'' ([http://www.mises.org/rothbard/ethics/ethics.asp 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 [[Mises Institute|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.<ref>[http://www.nationalreview.com/articles/255968/who-ron-paul-interview Ron Paul Interview], National Review Online</ref>

==Methodology==
Austrian School economists advocate strict adherence to [[methodological individualism]] – analyzing human [[action]] from the perspective of individual agents.<ref name="Mises_Individualism">Ludwig von Mises [http://mises.org/humanaction/chap2sec4.asp "The Principle of Methodological Individualism"], ''[[Human Action]]'' online edition, [[Mises Institute]]. Referenced 2009-04-24}.</ref> 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 [[Econometrics|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. Von Mises called this discipline "[[praxeology]]" – a term he adapted from [[Alfred Espinas]] (but which had been in use by others).<ref>Ludwig von Mises, Nationalökonomie (Geneva: Union, 1940), p. 3; Human Action (Auburn, Ala.: Mises Institute, [1949] 1998), p. 3.</ref>

The Austrian praxeological method is based on the heavy use of logical [[deductive reasoning|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.<ref>Hans-Hermann Hoppe, Economic Science and the Austrian Method (Auburn, Ala.: Mises Institute, [1995] 2007), p. 63.</ref>

Austrian school theorists, like [[Ludwig von Mises]], insist that praxeology must be [[positive economics|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 [[Law of unintended consequences|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-capitalism|anarcho-capitalist]] solutions. These recommendations are similar to, but further reaching than the [[minarchism|minarchist]] ideas of [[Chicago school of economics|Chicago School]] economists, and frequently address issues that other schools ignore, such as [[monetary reform]].<ref>{{cite book | last = Skousen | first = Mark | title = Vienna & Chicago, Friends or Foes? | publisher = Capital Press/Regnery Pub | location = Washington | year = 2005 | isbn = 0-89526-029-8 }}</ref>

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. In this, their views do not differ far from those of the Chicago school.

As with neoclassical economists, Austrian economists reject [[classical economics|classical]] cost of production theories, most famously the [[labor theory of value]]. Instead, they explain value by reference to the [[Subjective theory of value|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 order]]s, 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.<ref>Frank van Dun. [http://www2.units.it/etica/2003_2/index.html ''Natural Law: A Logical Analysis'']. Etica & Politica, 2003.2. Dipartimento di Filosofia, Lingue e Letterature, Università di Trieste.</ref>

===Criticism of mainstream practices===
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:<ref>[http://mises.org/daily/3582 Keynesians Can't Predict], L. Albert Hahn, ''The Freeman'', October 6, 1952</ref>

{{quote|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.<ref>[http://www.lewrockwell.com/orig11/rosen-e1.1.1.html What is the Current State of Economic Science?], Erwin Rosen</ref> 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).<ref>[http://mises.org/daily/5146/Over-to-You-H-Parker-Willis Over To You H. Parker Willis], James Grant</ref> For example, H. Parker Willis co-authored the 1936 text ''The Theory and Practice of Central Banking'' and wrote the following:

{{quote|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.<ref>[http://www.lewrockwell.com/orig11/rosen-e1.1.1.html What is the Current State of Economic Science?], Erwin Rosen</ref><ref>[http://www.lewrockwell.com/thornton/thornton38.html You Heard It Here First], Mark Thornton, LRC</ref><ref>[http://mises.org/media/4019 Business Cycles and Prediction, Mark Thornton]</ref> However, some Austrian adherents have themselves been labeled as "Chicken Littles" for continually making predictions of "catastrophic" financial crises.<ref>[http://www.goldensextant.com/SavingtheSystem.html Saving the System], Robert K. Landis</ref><ref>{{cite news
|last=Brodie
|first=Lee
|title=Is This Market Heading For A Serious Correction?
|date=2009-08-17
|work=CNBC
|url=http://www.cnbc.com/id/32441070/Is_This_Market_Heading_For_A_Serious_Correction }}
</ref><ref>[http://www.youtube.com/watch?v=FPxYg6mgGpE Inflation is There], Peter Schiff</ref>

==Contributions==
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 [[economic equilibrium|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 [[Karl Marx|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 [[Carl Menger|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 [[Ludwig von Mises|von Mises]], [[George Reisman]], in his book, ''Capitalism''.
* An emphasis on [[opportunity cost]] and reservation demand in defining [[marginal theory of value|value]], and a refusal to consider supply as an otherwise independent cause of value.<ref>"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)</ref> (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 rate]]s inconsistent with individual time preferences.
* Mises and Hayek's view of prices as permitting agents to make use of [[dispersed knowledge|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 [[Wall Street Crash of 1929|the great crash]] of 1929.<ref>{{cite book |title=The Making of Modern Economics |last=Skousen |first=Mark |authorlink=Mark Skousen |year=2001 |publisher=M.E. Sharpe |isbn=0-7656-0479-5 |page=284 }}</ref><ref>{{cite web |url=http://nobelprize.org/nobel_prizes/economics/laureates/1974/press.html |title=The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1974 |accessdate=2008-10-12 |publisher=[[Nobel Foundation]] |date=1974-10-09 }}</ref> In February 1929, Hayek warned that a coming financial crisis was an unavoidable consequence of reckless monetary expansion.<ref>{{cite book |title= Keynes and Hayek |last= Steele |first=G. R. |year=2001 |publisher= Routledge |isbn= 0-415-25138-9 |page=9 }}</ref>
* 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==
===Economic calculation problem===
{{Main|Economic calculation problem}}
The economic calculation problem was first proposed by Ludwig von Mises in 1920 and later expounded by Friedrich Hayek.<ref name="Mises">{{cite book |title=Economic calculation in the Socialist Commonwealth |accessdate=2008-09-08 |last=Von Mises |first=Ludwig |authorlink=Ludwig von Mises |year=1990|format=pdf |publisher=[[Ludwig von Mises Institute]] |url=http://mises.org/pdf/econcalc.pdf |isbn=0945466072 }}</ref><ref>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.</ref> 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 goods|public]] and [[common good (economics)|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.''<ref name="School">[http://cepa.newschool.edu/het/essays/paretian/social.htm The socialist calculation debate]</ref>
[[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.<ref name="School" /> This led him to declare "…that rational economic activity is impossible in a socialist commonwealth."<ref name="Mises" />

===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.<ref>[http://mises.org/daily/5407/Is-Higher-Inflation-Inevitable Is Higher Inflation Inevitable?], Thorsten Polleit</ref>

Given that all major economies currently have a [[central bank]] supporting the private [[bank]]ing system, money can be supplied into these economies by way of private bank-created credit (or [[debt]]).<ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], [[Jorg Guido Hulsmann]] (includes detailed commentary on [[central banking]], [[inflation]] and [[fractional reserve banking|FRB]])</ref> 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.<ref>[http://www.lewrockwell.com/north/north803.html Why Deflation Is not Inevitable (Sadly)], Gary North</ref><ref>[http://www.marketoracle.co.uk/Article25964.html QE is Nothing New], Mike Hewitt</ref>

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.<ref>[http://www.marketoracle.co.uk/Article25964.html QE is Nothing New], Mike Hewitt</ref> Austrian School economists maintain the most effective cure is the strict maintenance of a stable money supply.<ref>{{cite web|url=http://mises.org/story/908 |title=Defining Inflation |accessdate=2008-09-20 |last=Shostak, Ph.D |first=Frank |date=2002-03-02 |publisher=Mises Institute }}</ref> [[Ludwig von Mises]], the seminal scholar of the Austrian School, asserts that:

<blockquote>
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.<ref>{{Cite book |first=Ludwig |last=von Mises |chapter=Economic Freedom and Interventionism |editor1-first=Bettina B. |editor1-last=Greaves |title=Economics of Mobilization |publisher=The Commercial and Financial Chronicle |location=Sulphur Springs, West Virginia |pages= |year=1980 |isbn= |chapterurl=http://mises.org/efandi/ch20.asp |ref=harv}}</ref>
</blockquote>

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.<ref>Ludwig von Mises Institute, "[http://mises.org/content/nofed/chart.aspx?series=TMS True Money Supply]"</ref><ref>Joseph T. Salerno, (1987), Austrian Economic Newsletter, "[http://www.mises.org/journals/aen/aen6_4_1.pdf The "True" Money Supply: A Measure of the Medium of Exchange in the U.S. Economy]"</ref><ref>Frank Shostak, (2000), "[http://www.mises.org/journals/qjae/pdf/qjae3_4_3.pdf The Mystery of the Money Supply Definition]"</ref>

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.<ref>[[Lew Rockwell]], interview on "[http://mises.org:88/Now NOW with Bill Moyers]"</ref> Because of the disruptive and dislocating effects of inflation, many Austrian School economists support the abolition of the [[central bank]]s and the [[fractional-reserve banking]] system, and advocate instead a return to money based on the [[gold standard]], or less frequently, [[free banking]].<ref>Ludwig von Mises Institute, "[http://mises.org/books/goldstandard.pdf The Gold Standard]"</ref><ref>Ron Paul, "[http://mises.org/books/caseforgold.pdf The Case for Gold]"</ref> 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:<ref>[http://www.goldensextant.com/SavingtheSystem.html Saving The System], Robert K. Landis</ref>

<blockquote> 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.</blockquote>

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.<ref>Murray Rothbard, "[http://mises.org/rothbard/100percent.pdf The Case for a 100 Percent Gold Dollar]"</ref><ref>Ludwig von Mises Institute, "[http://mises.org/story/2870 Money, Banking and the Federal Reserve]"</ref>

In relation to the current [[central bank]]-managed [[fractional reserve banking|fractional reserve]] [[fiat currency]] [[debt-based monetary system|system]], Austrian economist [[Murray Rothbard]] stated the following:<ref>Rothbard, Murray. [http://www.mises.org/Books/mysteryofbanking.pdf ''The Mystery of Banking''], p. 261</ref>

{{quote|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:

<blockquote>
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.<ref>{{cite book |last=von Mises |first=Ludwig |authorlink=Ludwig von Mises |coauthors= |title=The Theory of Money and Credit |publisher=Liberty Fund, Inc. |date=1981-07-01 |location= |pages=Chapter 21 |url=http://mises.org/story/2276 |doi= |id= |isbn=0-913966-71-1 |nopp=true }}</ref>
</blockquote>

===Business cycles===
{{Main|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]]:<ref>{{Cite journal
| last = Salerno
| first = Joseph
| author-link = Joseph Salerno
| title = Why We're Winning: An Interview with Joseph T. Salerno
| journal = The Austrian Economics Newsletter
| volume = 16
| issue = 3
| pages =
| date =
| origyear =
| year = 1996
| month =
| url = http://mises.org/journals/aen/aen16_3_1.asp
| archiveurl =
| archivedate =
| doi =
| id =
| ref = harv }}
</ref>
{{quote|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 [[Murray Rothbard|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 "[[economic bubble|bubbles]]" and "artificially" low savings.<ref>Thorsten Polleit, [http://mises.org/story/2810 Manipulating the Interest Rate: a Recipe for Disaster], 13 December 2007</ref>

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).<ref>[http://mises.org/daily/5407/Is-Higher-Inflation-Inevitable Is Higher Inflation Inevitable?], Thorsten Polleit</ref> 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 [[money supply|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 [[malinvestment]]s, 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 [[historical revisionism|revisionist]] work, ''[[America's Great Depression]]'':<ref>[[Murray Rothbard]], [http://mises.org/rothbard/agd/chapter1.asp#cluster_of_error|''America's Great Depression'', 2005, 5th Edition, Ludwig von Mises Institute, Chapter 1, ''The Cluster of Error''].</ref>

{{quote|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 [[Great Recession|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.<ref>{{Cite web |url= http://www.cato.org/pub_display.php?pub_id=10100 |title=The Fed's Modus Operandi: Panic | Cato Institute: Commentary |first=Steve H. |last=Hanke |work=cato.org |accessdate=17 July 2010 }}</ref> 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.<ref>[http://mises.org/journals/qjae/pdf/qjae13_1_1.pdf ABCT and the GFC: Confessions of a Mainstream Economist] by Jerry Tempelman</ref>

===Monetary Reform===
{{Main|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.<ref>See for example these [[Murray Rothbard]] articles: [http://www.mises.org/money.asp What Has Government Done to Our Money?], [http://www.mises.org/story/1829 The Case for the 100% Gold Dollar]; [http://www.lewrockwell.com/rothbard/cartelization.pdf The Fed as Cartel], [http://www.lewrockwell.com/rothbard/rothbard191.html Private Coinage], [http://www.lewrockwell.com/rothbard/rothbard190.html Repudiate the National Debt]; [http://www.lewrockwell.com/rothbard/rothbard181.html Taking Money Back], [http://www.lewrockwell.com/rothbard/rothbard163.html Anatomy of the Bank Run], [http://www.lewrockwell.com/rothbard/rothbard128.html Money and the Individual]</ref>

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.<ref>[http://mises.org/story/3108 Sound Money], [[Lew Rockwell]]</ref><ref>[http://mises.org/story/1971 Our Money Madness], [[Lew Rockwell]]</ref> 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.<ref>[http://www.lewrockwell.com/wenzel/wenzel87.1.html Senior Fed Economist Calls Ron Paul a Pinhead], Robert Wenzel</ref>

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.<ref>[http://mises.org/daily/5407/Is-Higher-Inflation-Inevitable Is Higher Inflation Inevitable?], Thorsten Polleit</ref><ref>[http://mises.org/story/3108 Sound Money], [[Lew Rockwell]]</ref><ref>[http://mises.org/story/1971 Our Money Madness], [[Lew Rockwell]]</ref> 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 [[malinvestment]]s and wrenching and disruptive business cycles.<ref>[http://mises.org/daily/5407/Is-Higher-Inflation-Inevitable Is Higher Inflation Inevitable?], Thorsten Polleit</ref><ref>[http://mises.org/daily/4880 The Faults of Fractional-Reserve Banking], Thorsten Polleit</ref>

However, Austrian scholars are divided on the optimal solution to this urgent problem.<ref>[http://mises.org/daily/4898 ''Free Banking''], review by John P. Cochran</ref>

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.<ref>[http://mises.org/daily/4898 ''Free Banking''], review by John P. Cochran</ref>

Advocates of this system of banking include Lawrence White, Steven Horwitz, George Selgin, and Kevin Dowd, amongst others.<ref>[http://mises.org/daily/4898 ''Free Banking''], review by John P. Cochran</ref> 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.<ref>[http://www.mises.org/store/Free-Market-Monetary-System-A-P553.aspx?AFID=14 ''Free Market Money System''] by [[F.A. Hayek]]</ref>

Other Austrian scholars advocate "full-reserve banking", considering fractional-reserve banking to be inherently unethical, disruptive and dysfunctional, akin to embezzlement.<ref>See for example these [[Murray Rothbard]] articles: [http://www.mises.org/money.asp What Has Government Done to Our Money?], [http://www.mises.org/story/1829 The Case for the 100% Gold Dollar]; [http://www.lewrockwell.com/rothbard/cartelization.pdf The Fed as Cartel], [http://www.lewrockwell.com/rothbard/rothbard191.html Private Coinage], [http://www.lewrockwell.com/rothbard/rothbard190.html Repudiate the National Debt]; [http://www.lewrockwell.com/rothbard/rothbard181.html Taking Money Back], [http://www.lewrockwell.com/rothbard/rothbard163.html Anatomy of the Bank Run], [http://www.lewrockwell.com/rothbard/rothbard128.html Money and the Individual]</ref> [[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]],<ref name="The Mystery of Banking">[http://www.mises.org/Books/mysteryofbanking.pdf ''The Mystery of Banking''], Murray Rothbard</ref><ref name="The Case for a 100% Gold Dollar">[http://mises.org/story/1829 The Case for a 100% Gold Dollar], Murray Rothbard</ref> [[Jesus Huerta de Soto]],<ref>[http://www.mises.org/books/desoto.pdf ''Money, Bank Credit, and Economic Cycles''], Jesus Huerta de Soto, First English edition (2006), pp. 98-114</ref> and [[Jörg Guido Hülsmann]],<ref>[http://mises.org/media/4014 The Economics of Legal Tender Laws], [[Jorg Guido Hulsmann]] (includes detailed commentary on [[central banking]], [[inflation]] and [[fractional reserve banking|FRB]])</ref><ref name=FBFB>[http://mises.org/journals/rae/pdf/RAE9_1_1.pdf Free Banking and the Free Bankers], Jörg Guido Hülsmann, Quarterly Journal of Austrian Economics (Vol. 9, No. 1)</ref><ref>[http://www.lewrockwell.com/lewrockwell-show/2011/01/04/181-hyperinflation-ahead/ Interview with Jörg Guido Hülsmann], The Lew Rockwell Show</ref> amongst others.<ref>[http://mises.org/daily/4880 The Faults of Fractional-Reserve Banking], Thorsten Polleit</ref>

==Criticism of the Austrian School==
Critics argue that modern Austrian economics generally lacks scientific rigor,<ref name="white1">{{Cite journal |title=The research program of Austrian economics |publisher=Emerald Group Publishing Limited |first=Lawrence H. |last=White |journal=Advances in Austrian Economics |year=2008 |pages=20 |url=http://www.emeraldinsight.com/books.htm?chapterid=1775479&show=pdf}}</ref> which forms the basis of the most prominent criticism of the school. Austrian theories are not formulated in formal mathematical form,<ref>{{cite web |first=Deborah L. |last=Walker |title=Austrian Economics |publisher=Library of Economics and Liberty |url=http://www.econlib.org/library/Enc1/AustrianEconomics.html |accessdate=2010-01-23 }}</ref> 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."<ref name="Friedman1969">{{cite book|last=Friedman |first=Milton |title=The Optimal Quantity of Money and Other Essays |publisher=Aldine |location=Chicago |pages=261–284 |chapter=The Monetary Studies of the National Bureau, 44th Annual Report}}</ref><ref name="Friedman93">{{cite journal|last=Friedman|first=Milton|title=The 'Plucking Model' of Business Fluctuations Revisited|journal=Economic Inquiry|pages=171–177|url=http://onlinelibrary.wiley.com/doi/10.1111/j.1465-7295.1993.tb00874.x/abstract}}</ref><ref name="Friedman_ABCT_false">{{cite book|last=Friedman |first=Milton |title=The Optimal Quantity of Money and Other Essays |publisher=Aldine |location=Chicago |pages=261–284 |chapter=The Monetary Studies of the National Bureau, 44th Annual Report | quote=The Hayek-Mises explanation of the business cycle is contradicted by the evidence. It is, I believe, false. }}</ref> In addition to Milton Friedman's criticism, noted liberal [[Neo-Keynesian Economics|neo-Keynesian]] economist [[Paul Krugman]] has criticized the theory.<ref name="Krugman">{{cite web|url=http://www.slate.com/id/9593 |title=The Hangover Theory |last=Krugman |first=Paul |date=1998-12-04 |publisher=Slate |accessdate=2008-06-20}}</ref>

[[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).<ref>{{cite journal|title=The Social Welfare State, Beyond Ideology |last=Sachs|first=Jeffrey |date=October 2006 |journal=Scientific American |url=http://www.sciam.com/article.cfm?id=the-social-welfare-state |accessdate=2008-06-20|ref=harv }}</ref> 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.<ref>{{cite news |url=http://online.wsj.com/article/SB116355956112023480.html?mod=opinion_main_commentaries|title=Dismal Science|accessdate=2008-09-07|author=[[William Easterly]]
|date=2006-11-15|publisher=[[The Wall Street Journal]]}}</ref>

==Seminal works==
* ''[[Principles of Economics]]'' (1871) by [[Carl Menger]]
* ''[[Capital and Interest]]'' (1884–1921) by [[Eugen von Böhm-Bawerk]]
* ''[[Human Action]]'' (1940–1949) by [[Ludwig von Mises]]
* ''[[Economics in One Lesson]]'' (1946) by [[Henry Hazlitt]]
* ''[[Individualism and Economic Order]]'' (1948) by [[Friedrich Hayek]]
* ''[[Man, Economy, and State]]'' (1962) by [[Murray Rothbard|Murray N. Rothbard]]
* ''[[Competition and Entrepreneurship]]'' (1973) by [[Israel Kirzner|Israel M. Kirzner]]

==See also==
* ''[[The Austrian School of Economics]]''
* ''[[An Introduction to Economic Reasoning‎]]''
* ''[[An Introduction to Austrian Economics]]''
* ''[[The Historical Setting of the Austrian School of Economics]]''
* ''[[Austrian Economics: An Anthology]]''
* ''[[Economic Science and the Austrian Method]]''

==References==
{{Reflist|3}}

==Links==
{{store|http://mises.org/store/Home-Study-Course-in-Austrian-Economics-P211.aspx|Home Study Course in Austrian Economics|https://mises.org/store/The-Framework-P10468.aspx|The Framework}}
{{Academy|http://academy.mises.org/courses/ae1/|Austrian Economics 1: Praxeology through Price Theory|http://academy.mises.org/courses/production/|Production and the Market Process|http://academy.mises.org/courses/money-monopoly-market-intervention/|Money, Monopoly, and Market Intervention|http://academy.mises.org/courses/microeconomics/|Austrian Microeconomics}}
===Writings===
* What is economics (Austrian perspective)
** [http://mises.org/daily/987 "What is Economics? Why Study It?"] by [[Gene Callahan]] (excerpt from ''[[Economics for Real People]]'')
** [http://mises.org/daily/6118 "What Is Economics?"] by [[Percy L. Greaves, Jr.]] (excerpt from ''[[Understanding the Dollar Crisis]]'')
** [http://mises.org/daily/1294 "Why Study Economics?"] by Stephen Carson, April 2003
** {{md|2025|What Is A Priori Science, and Why Does Economics Qualify As One?|Gene Callahan|February 2006}}
** {{mb|8056|The Real Problem With Non-Austrian Economics|Stefan Karlsson|April 2008}}

* Austrian School tenets & methodology
** [http://mises.org/etexts/austrian.asp What is Austrian Economics?] from the [[Mises Institute]] (republished in Mises About [http://mises.org/about/3223 here])
** [http://mises.org/resources/1200 "Why Austrian Economics Matters"] by [[Lew Rockwell]]
** [http://www.econlib.org/library/Enc/AustrianSchoolofEconomics.html Austrian School of Economics] from The Concise Encyclopedia of Economics
** [http://homepage.newschool.edu/het//schools/austrian.htm The Austrian School] from the History of Economic Thought page
** [http://mises.org/daily/5091 "The Austrian School in Brief"] by Schulak and Unterköfler (excerpt from ''[[The Austrian School of Economics]]'')
** {{md|1665|To Be an Austrian: A Primer|Sean Corrigan|November 2004}}
** [http://mises.org/daily/3561 Understanding "Austrian" Economics] by [[Henry Hazlitt]], February 1981
** [http://mises.org/daily/4390 A Primer on Austrian Economics] by Jonathan M. Finegold Catalan, June 2010
** [http://www.cobdencentre.org/literature/primer/ Austrian economics primer] list of resources by [[Cobden Centre]]
** [http://www.tomwoods.com/blog/austrian-economics-is-unscientific/ Austrian Economics Is ‘Unscientific’] by [[Tom Woods]], November 2011
** [http://www.tomwoods.com/blog/austrian-economists-called-unscientific/ Austrian Economists Called ‘Unscientific’] [[Jeffrey M. Herbener]] interview by Tom Woods, August 2012
** [http://mises.org/daily/3512 "Mises Introduces the Austrian School"] (Excerpt from [[Memoirs (Mises)|Memoirs]])
** "Ludwig von Mises and the Austrian School of Economics" ([http://mises.org/journals/rae/pdf/rae5_2_2.pdf PDF]) by Jeffrey M. Herbener, 1991
** [http://mises.org/resources/1004 "Hermeneutics vs. Austrian Economics"] by [[David Gordon]], 1986
** [http://blog.mises.org/15965/adventures-in-austrian-economics/ "Adventures in Economics"] Interview with [[Richard M. Ebeling]], March 2011
** [http://mises.org/resources/204/ "The Austrian School and the Theory of Value"] by [[Friedrich Wieser]], 1891
** [http://mises.org/resources/976/ "Austrian School of Economics at the University of Vienna"] lecture by Ludwig von Mises, May 1962
** [http://mises.org/daily/2200 "The Philosophical Origins of Austrian Economics"] by David Gordon, 1994
** [http://ontology.buffalo.edu/smith/articles/menger.html "Aristotle, Menger, Mises: An Essay in the Metaphysics of Economics"] by Barry Smith, 1990

* Collections
** [http://mises.org/literature.aspx?action=subject&Id=1 Overview of the Austrian School of Economics] literature collection at [[Mises.org]]
** [http://mises.org/literature.aspx?action=subject&Id=116 Austrian core] literature collection at Mises.org
** [http://mises.org/literature.aspx?Id=3&action=subject Methodological Foundations] literature collection at Mises.org
** [http://mises.org/literature.aspx?action=subject&Id=127 Austrian Methodology for the Social Sciences] literature collection at Mises.org
** [http://www.fee.org/category/intro-to-austrian-economics/ Intro to Austrian Economics Category] article collection at [[Foundation for Economic Education|FEE.org]]

* {{wplink}}

===Recommendations===
* [http://mises.org/store/For-Beginners-C9.aspx "For Beginners"] - Mises Store reading list
* [http://www.garynorth.com/public/3112.cfm "Ten Steps to Understand Austrian Economic Theory"] - [[Gary North]] recommended reading list (in order of difficulty)
* [http://blog.mises.org/8831/how-do-i-get-started-with-austrian-economics/ "How Do I Get Started with Austrian Economics?"] by [[Thomas E. Woods]], October 2008
* [http://austrianomics.com "Learn Austrian Economics"] - Tom Woods' recommended reading list
** {{mb|19148|Learn Austrian Economics|Justin Ptak|November 2011}}
*"[http://www.cobdencentre.org/2010/06/review-how-an-economy-grows-and-why-it-crashes/ And Then There Were Three]" by Andy Duncan, June 2010

===Media and interactive===
{{See also|Where to study Austrian Economics}}
* [http://academy.mises.org/ Mises Academy]
* [http://mises.org/classroom/default.asp The Mises Classroom] - study in Austrian economics and libertarian theory ([http://mises.org/resources/2022/ MP3 downloads])([http://mises.org/HSCAE/lessonplan.pdf PDF Lesson Plan & Study Guide])
** [http://mises.org/freemarket_detail.aspx?control=562 "Why Home Study?"] by [[Robert P. Murphy]] (republished as Mises Daily [http://mises.org/daily/1901 here])
* [http://mises.org/media.aspx?action=category&ID=89 Introduction to Austrian Economic Analysis] lecture series with [[Joseph T. Salerno]]
* [http://mises.org/media/category/176The-Austrian-School-of-Economics-An-Introduction The Austrian School of Economics: An Introduction] lecture series
* [http://vforvoluntary.com/austrian-economics Austrian economics lectures] (selected lectures, including "Introduction to Austrian Economics" by [[Jörg Guido Hülsmann]] and [[Hans-Hermann Hoppe]])([http://www.youtube.com/playlist?list=1AD95D0593508BD8 YouTube])
* [http://mises.org/media/5618/media.aspx?action=author&ID=1619 "Why Does Economics Matter?"] lecture by [[Mark Thornton]], November 2010
* [http://mises.org/media/4288/The-Core-of-What-Economics-Teaches "The Core of What Economics Teaches"] lecture by [[Bob Murphy]], November 2009
* [http://mises.org/media/6143/The-Core-of-What-Economics-Teaches "The Core of What Economics Teaches"] lecture by [[Mark Thornton]], April 2011
* [http://mises.org/media/5722/Why-Should-We-Care-About-Economic-Theory "Why Should We Care About Economic Theory?"] lecture by [[Lew Rockwell]], January 2011
* [http://mises.org/quiz.aspx Are You an Austrian?] quiz at Mises.org

[[Category:Austrian School of Economics|*]]

Say's law

2012-12-08T23:11:05Z

77.86.125.199: Undo revision 21331 by John James (talk) Marx's and Keynes' refutations of the law, are sufficiently well known that they need to be mentioned. It also provides balance.

{{stub}}

'''Say’s Law''' or '''Say’s Law of Markets''' is a principle attributed to French businessman and economist [[Jean-Baptiste Say]], stating that there can be no demand without supply.
He theorized that the activity of production opens a demand for the products produced. Thus the mere creation of one product immediately opens an avenue for other products. To put it another way, Say was making the claim that production is the source of demand. One’s ability to demand goods and services from others derives from the income produced by one’s own acts of production. Wealth is created by production not by consumption. My ability to demand food, clothing, and shelter derives from the productivity of my labor or my nonlabor assets. The higher or lower that productivity is, the higher or lower is my power to demand other goods and services.

==Other Formulations==

In 1820, [[David Ricardo]], writing to [[Thomas Malthus]], said: <blockquote>"Men err in their production; there is no deficiency of demand."<ref name="Ricardo">[[David Ricardo]], [http://www.archive.org/stream/lettersofdavidri00ricaiala#page/174 Letters of David Ricardo to Thomas Robert Malthus] p. 174</ref></blockquote>

[[Henry Ford]], in his autobiography ''[[My Life and Work]]'' (1922), implies Say's Law when he says:

<blockquote>"When a great many people want to buy, there is said to be a shortage of goods. When nobody wants to buy, there is said to be an overproduction of goods. ''I know that we have always had a shortage of goods, but I do not believe we have ever had an overproduction.'' We may have, at a particular time, too much of the wrong kind of goods. That is not overproduction—that is merely headless production. We may also have great stocks of goods at too high prices. That is not overproduction—it is either bad manufacturing or bad financing."<ref name="ford">Ford, Henry. "IX. Why Not Always Have Good Business." In My life and work: an autobiography of Henry Ford. S.l.: BN Publishing, 2008.</ref> (emphasis added)</blockquote>

[[John Maynard Keynes]], in 1936, famously formulated Say's Law as:

<blockquote>"From the time of Say and Ricardo the classical economists have taught that ''supply creates its own demand''..."<ref name="keynes_1">Keynes, John Maynard. "2. The Postulates of The Classical Economics." In The general theory of employment, interest, and money . New York: Harcourt, Brace & World, 1965. 18.</ref> (emphasis added) </blockquote>

==Criticisms==

Say's law was famously refuted, first by [[Karl Marx]]:

<blockquote>"The expansion of value, which is the objective basis or main-spring of the circulation M-C-M, becomes his subjective aim, and it is only is so far as the appropriation of ever more and more wealth in the abstract becomes the sole motive of his operations, that he functions as a capitalist . . . Use-values must therefore never be looked upon as the real aim of the capitalist. Neither must the profit on any single transaction. The restless never-ending process of profit making alone is what he aims at. This boundless greed after riches, this passionate chase after exchange-value, is common to the capitalist and the miser; but while the miser is merely a capitalist gone mad, the capitalist is a rational miser. The never ending augmentation of exchange value, which the miser strives after, by seeking to save his money from circulation, is attained by the more acute capitalist, by constantly throwing it afresh into circulation.''..."<ref name="Marx_1">Marx, Karl Heinrich. "4. The General Formula for Capital." In Capital . Moscow: Progress Publishers 1867. 170. </ref> </blockquote>

and later by [[John Maynard Keynes]], in [[The General Theory of Employment, Interest and Money]].

==References==
{{reflist}}

== Links ==
* [[Wikipedia:Say's law|Say's law]] on Wikipedia
* [http://www.martinfrost.ws/htmlfiles/sayslaw.html Say's law]
* [http://mises.org/journals/scholar/sayslaw.pdf Say's Law: Were (Are) The Critics Right] (pdf), by William L. Anderson
* [http://mises.org/daily/1803 Lord Keynes and Say's Law] by Ludwig von Mises
* [http://mises.org/Books/sayslaw.pdf A Rehabilitation of Say's Law] (pdf), W.H.Hutt
* [http://mises.org/daily/1264 Say's Law in Context] by Peter Anderson, July 2003
* [http://www.thefreemanonline.org/featured/understanding-says-law-of-markets/ Understanding Say’s Law of Markets] by Steven Horwitz,
* [http://books.google.co.uk/books?id=sxQl44nJmjwC&printsec=frontcover&dq=marx+capital&hl=en&sa=X&ei=ZmDCUL_MBMep0AX-moGgCg&ved=0CDIQ6AEwAA#v=onepage&q=marx%20capital&f=false Capital: a Critique of Political Economy] on [http://books.google.com Google Books].
* [http://books.google.com/books?id=dQD9o31F1N4C&lpg=PP1&ots=l_pxEnOKZz&dq=keynes%20general%20theory&pg=PP1#v=onepage&q&f=false The General Theory of Employment, Interest and Money] on [http://books.google.com Google Books].

January 1997
[[Category:Economic concepts]]