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The Austrian School of Economics by: Anmol Mirakhur , Mark P. piazza, and Jack Estill

The Austrian School of Economics by: Anmol Mirakhur , Mark P. piazza, and Jack Estill. Jack Estill Economics 158 8/27/13. Introduction:. Founded in 1871 by Carl Menger , William Stanley Jevons, and Leon Walras . Developed the marginal revolution in economic analysis.

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The Austrian School of Economics by: Anmol Mirakhur , Mark P. piazza, and Jack Estill

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  1. The Austrian School of Economicsby: AnmolMirakhur,Mark P. piazza, and Jack Estill Jack Estill Economics 158 8/27/13

  2. Introduction: • Founded in 1871 byCarl Menger, William Stanley Jevons, and Leon Walras. • Developed the marginal revolution in economic analysis. • The name Austrian School was considered a derogatory term by Gustav Schmoller.

  3. Austrian School • Economic analysis is universally applicable • Explained by Marginal Analysis • The logic of choice is emphasized • Individual preferences • The choice theory is the foundation of having a universal valid economic theory. From Left: EugenBawerk & Friedrich Wieser

  4. German Historical School • Scientific research consists of historical examination • Economic science incapable of generating universal principles • Believed that English economists created economic laws that transcended time and national boundaries. Gustav Schmoller

  5. After the 1930s • The Austrian School expanded to Britain and the United States. • London School of Economics, New York University, George Mason University, etc. • Ideas were promoted by leading economists such as Friedrich Hayek & Ludwig Von Mises

  6. The Austrian School of Economics: The 10 Propositions The Propositions

  7. Proposition 1: Only Individuals Choose • A individual is the beginning of all economic analysis. • Only individuals choose. • The primary task of economic analysis is to make economic phenomena intelligible by basing it on individual purposes and plans. • Objective is to trace out unintended consequences of individual choices.

  8. Proposition 2: The Study of the Market is About Exchange and Its Supporting Institutions (Catallactics) • from the Greek origin “Katallaxy”. • Catallactics: • Focuses analytical attention on the exchange relationships that emerge in the market. • The bargaining that characterizes the exchange process. • The institutions within which exchange takes place.

  9. Proposition 3: Facts are what people believe and think • Human Science • Begins with understanding the purpose and plans of individual actors. • “We are what we study.” • Intelligibility, not prediction. • Not reproducible • NaturalScience • Scientific understanding of the environment around us. • Rely on knowledge from without rather than within. • Reproducible VS

  10. Proposition 4: Utility and Costs are subjective (Micro) • Marshall & the price system • Scissor theory: • Value is subjective. Costs are objective. • Alternate Scissor Theory: • Value and costs are subjective due to the alternative uses of scarce resources. • Alternatives in choices lead to the term opportunity cost. • An individual weighs the expected benefits & costs of alternative activities.

  11. Proposition 5: The Price System Economizes Information (Micro) • Prices provide the most relevant information to individuals. • Helps them realize the mutual exchange that can occur in the market. • The frequent change in market prices helps individuals economize on resource use.

  12. Proposition 6: Rational Econ Calculation Requires Private Ownership (Micro) • Private Ownership • Provides incentives to individuals for allocating resources efficiently. • Allows rational calculation of alternative uses of resources. • Determines prices for the produced output. • Socialism and Ludwig Von Misesperspective: • Socialism focused on limiting market behavior rather than providing incentives to individuals. • Absence of private ownership in factors of production • No market & no real price structure for individuals to choose.

  13. Proposition 7: The Competitive Market is a Process of Entrepreneurial Discovery (Micro) • Competition is an activity and not a state of affairs. • Entrepreneurs drive the competitive market. • No growth without entrepreneurs. • The Entrepreneur • a profit seeker/arbitrager • Destroys the old by creating the new. • Ensures the most efficient use of resources.

  14. Proposition 8: Money is Non-Neutral (Macro) • Money • Monetary policy • The purpose of monetary policy • Distorting the monetary unit creates unnecessary inflation. • Anticipated Inflation = Confiscates people’s wealth • Unanticipated inflation = debtors gain, creditors lose • Inflation always distorts the pattern of exchange and production.

  15. Proposition 9: The Capital Structure Consists of Heterogeneous Goods (Macro) • Capital goods are heterogeneous & multi-specific. • Every product requires different stages of investment. • The market determines prices for each aligned product. • Product prices determine the value of the underlying resources • The structure of capital is decided by consumers based on price signals and the economic calculations of investors.

  16. Proposition 10: Social institutions are the result of human action not human design. (Macro) • Institutions and practices are a by-product of human action not human design. • People intend to improve their own lives, but their actions result in helping others as well.

  17. Important takeaways • Only individuals choose - Tacit Knowledge • The entrepreneur drives the market process and growth. • The price system economizes information. Entrepreneurial Arbitrage

  18. Conclusion • Austrian School of Economics follows the practice of the Wealth of Nations (spontaneous order). • Believes that economic analysis is universally applicable. • Marginal Analysis • Logic of choice • The appropriate unit of analysis is a person and his choices. • Individual subjective preferences and the margin on which decisions are made.

  19. Thank You for Listening. Do you have questions.

  20. Citations: Content: Pictures: http://mises.org/page/1449/Biography-of-Eugen-von-BohmBawerk-18511914 http://upload.wikimedia.org/wikipedia/commons/thumb/5/5e/Wieser.gif/220px-Wieser.gif http://upload.wikimedia.org/wikipedia/commons/thumb/e/e5/Schulte_-_Gustav_von_Schmoller.jpg/220px-Schulte_-_Gustav_von_Schmoller.jpg http://images.cpcache.com/merchandise/514_400x400_NoPeel.jpg?region=name:FrontCenter,id:34197650,w:16 http://thumbs.imagekind.com/2980990_650/Hayek-Is-My-Homeboy.jpg?v=1268038140 http://wiiliamsplace.net/wp-content/uploads/2013/01/barter-cartoon.jpg https://sphotos-a.xx.fbcdn.net/hphotos-ash4/487860_455032794527257_686235816_n.jpg http://www.worldpoliticaleconomy.com/site/?p=682

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