The Austrian School

A small group of brilliant thinkers in the 1870s has greatly contributed to our modern understanding of economics. Here you can find a small guide to the Austrian School of Economics – and with this also to the most important aspects of the history of economic thought in the 20th century.

Vienna at the turn of the century was a fascinating place full of intellectual activity that brought forth numerous memorable personalities whose ideas have shaped our contemporary way of looking at the world. Around this time, significant progress was made in the fields of psychology (Sigmund Freud), in the arts (Gustav Klimt), in music (Arnold Schoenberg, Gustav Mahler), in medicine (Theodor Billroth), in physics (Ernst Mach) and in philosophy (Ludwig Wittgenstein). But did you know that Vienna was also the birthplace of our modern understanding of economics?

While Freud revolutionized psychology, a group of leading economists, led by Carl Menger, Eugen von Böhm-Bawerk and Friedrich von Wieser, used similar principles to reinvent economic science. These men rejected the mechanistic and deterministic approach of their colleagues in mainstream economics and instead proposed some form of “pure” economics, which allowed for the consideration of the importance of human action and individual preferences. Because it departed so drastically from the mainstream of economic science, this approach was quickly and derisively labeled as the “Austrian” School of Economics – a title that we happily take as a compliment today.

It is worth noting that many of the ideas originally thought up by Carl Menger have, whether acknowledged or not, become part of mainstream economic thinking today: methodological individualism, the subjective theory of value (as opposed to the labour theory of value), marginalism, and opportunity cost. Moreover, the Austrian School recognized at a very early stage the special importance of risk and uncertainty in economic life and started to incorporate these concepts into its theorizing.

The tradition was picked up by luminaries such as Ludwig von Mises and Friedrich August von Hayek, who helped to spread the Austrian School’s ideas to the United States and the United Kingdom. They fell on fertile ground and were adopted by politicians whose policies allowed for immense wealth creation, growth, and prosperity.

Nowadays, the tradition of the Austrian School of Economics is perhaps even more vivid and lively than it has ever been since its founding. In the 1970s, amidst the oil crisis and the failure of the predominant Keynesian paradigm, the Austrian School came back in full force, symbolized by the Nobel Prize in Economics being awarded to Friedrich August von Hayek in 1974 for his work on monetary and business cycle theory. By now there are thousands of proponents and supporters of the Austrian approach and interested students can even obtain degrees in Austrian Economics.

Click on the photos below to find out more about some of the most important thinkers in the Austrian School tradition.