The history of free banking Kurt Schler

Free banking is a system of competitive issue of bank-notes and deposits, with low legal barriers to entry by competitors and no central control of reserves. In most free banking systems, governments have monopolized coinage and established the monetary standard (usually gold or silver) by law, but a completely laissez-faire approach would allow coinage and the choice of standard to be determined through competition, as they have been in some cases. The first Austrian economist to investigate...

Zenon Zygmont

Privatization is the transfer of the ownership of an asset or enterprise from the public to the private sector. The most frequently cited reasons for privatizing are anticipated improvements in enterprise performance because of increased efficiency and reduced state intervention. However, there are other important justifications for privatizing as well, such as reducing budget deficits, increasing share ownership among citizens and improving the provision of any remaining public sector goods...

Nonprice rivalry W Duncan Reekie

Non-price competition includes rivalry between firms based upon advertising, product differentiation and product and process innovation. The neoclassical approach to the first two is epitomized by the Dorfman-Steiner theorem (1954) which applies the marginal equivalency principle in a normative fashion to describe the partial equilibrium conditions for a profit-maximizing firm. (Specifically, the single product firm should equate each of price elasticity, the marginal sales effect of...

The political economy of price controls EC Pasour

Prices perform a key role in the discovery, coordination and transmission of information to market participants (Hayek, 1948). Despite the importance of price signals in the production and consumption of goods and services, there is a long history of government-mandated price controls (Mises, 1966, chapter 30). Depending upon which groups the political authority wishes to favor, governments sometimes resort to minimum prices, as in the case of farm price supports. In other cases, price ceilings...

Alternative paths forward for Austrian economics

The Foundations of Modern Austrian Economics published in 1976, was the defining work in the resurgence of the Austrian school in the 1970s. The hundredth anniversary of Menger's Principles in 1971, Mises's death in 1973, and Hayek's Nobel Prize in 1974 focused attention on the contributions of this school of thought in the history of the discipline, but it was The Foundations which served as the focal point for renewed interest among younger scholars. The book was comprised of the lectures...

The economic theory of regulation

Economists have long devoted considerable time and attention to the economics of regulation, particularly antitrust regulation. Meanwhile, prior to the 1970s, the problem of why government regulation occurs - that is, the economics of the regulatory process per se - received relatively little attention. This neglect began to end in 1971, with the publication of Stigler's seminal article. Previous to Stigler's contribution, the economics profession mostly held that government regulation was...

Classical liberalism and the Austrian school

The theoretical basis of classical liberalism, of what we shall refer to here simply as liberalism, is the conception of civil society as by and large self-regulating when its members are free to act within the very wide bounds of their individual rights. Among these, the right to private property, including freedom of contract and the free disposition of one's own labor, enjoys a high priority. Historically, liberalism has displayed a hostility to state action, which it aims to reduce to a...

International monetary theory

Austrian analysis of the balance of payments and the exchange inte oriyi lulled in Ludwig von Mises's Theory of Money and Credit, tirsl published in (iorman in 1912 (Mises, 1981, pp. 195-213). In formulating iiis theories, Mises built on the analysis of the monetary adjustment process under a spccle .inndard pioneered by eighteenth-century writers, most notably David Hume and Richard Cantillon, and on the extensions of their analysis to the case of an Inconvertible paper money undertaken by the...

Risk and uncertainty

The concepts of risk and uncertainty are fundamental to what distinguishes modern Austrian economics from other approaches. Nonetheless, these concepts are often as misunderstood within and around the boundaries of the Austrian camp as they are elsewhere in the profession. In the end, what is distinctive about Austrian and related understandings of risk and uncertainty is an emphasis on what we will call structural uncertainty that is, a lack of complete knowledge on the part of the economic...

Erich W Streissler

In (lie preface to his Principles, Carl Menger pointed out It w.e, .1 spi t ml pleasure to me that the field here treated, comprising the most general piim 1 pics of our science, is in no small degree so truly the product ol recent development in German political economy, and that the reform of the most important principles of our science here attempted is therefore built upon a foundation laid by previous work that was produced almost entirely by the industry of German scholars' (Menger, 1976,...

The Coase Theorem Donald J Boudreaux

Coase, winner of the 1991 Nobel Prize in I minim. Science, the Coase Theorem initiated a fundamental overhaul of Ihe ecu nomic theory of regulation. Prior to Coase's analysis, the typical neoclassii nl economist saw negative externalities as a problem to be solved by govern ment regulation or taxation. Regulators would determine the socially optimal amount of externality reduction and require those parties whose activities generate negative externalities to achieve this...

Austrian business cycle theory Robert J Batemarco

Whereas theories of the business cycle currently in vogue are mathematical models of economic aggregates which, in the tradition of positive economics, seek merely to predict quantitatively (that is, mimic) cyclical phenomena (Lucas, 1981, p. 219), Austrian business cycle theory (hereafter referred to as ABCT) is an altogether different kind of theory. Derived using the method Ludwig von Mises dubbed praxeology, it is the logical consequence of the axiom of human action in conjunction with its...

Causality time uncertainty

If action consists of the goal-driven use of scarce means, the attempt to move oneself into a more satisfactory state of affairs (subjectively peu-eived), then action presupposes that the actor (rightly or wrongly) expects that the means he or slu- employe < un auNrtlly achieve Ihe ends. (1 drink water when I'm thirsty, lor instant e ) Wheihn thill purlieu lar causal assumption is true or not will be learned by *pcilrn i uvntn lend' to cure my thirst, wine...

Jack High

Marginal utility formed the bedrock upon which economists crcctnl n iu'vs theory of social action. Within the space of two generations, between IH I and 1912, all of economic theory's heavy beams - consumer choice, I'nctoi pricing, output decisions, the determination of interest rates and the value < i money - were recast and reframed in the light of valuation at the margin. Although modification has continued to the present, the general principles of economics remain as they stood in 1912,...

Austrian welfare economics Tyler Cowen

Welfare economics, the normative side of economic science, encompasses the criteria for analyzing economic policies and how to evaluate trade-offs using these criteria. In neoclassical economics, welfare economics is based on the theory of Paretian optimality and the practical application of cost-benefit analysis. Welfare economics has received only sporadic attention from those economists usually classified as Austrian. In some cases, the Austrians argue explicitly that welfare economics is an...

Phenomenology and economics GB Madison

In recent years a number of scholars have begun to take increasing note of the affinities that exist between Austrian economics and that philosophical movement known as 'phenomenology'. Phenomenology originated at the turn of the century in the work of Edmund Husserl (1859-1938), was subsequently developed in an 'existential' direction by, among others, Martin Heidegger (1889-1976) and Maurice Merleau-Ponty (1907-61) ('existential phenomenology') and is currently represented by what is...

Mergers and the market for corporate control Peter G Klein

The theory of merger is a subset of the theory of the optimal size and shape of the firm, a relatively undeveloped area in the Austrian literature. A firm seeking to expand its activities, whether into new product lines or within existing ones, can do so either via internal growth or by acquiring another firm. Acquisition will be preferred if the firm believes it can buy and redeploy the assets of an existing firm more cheaply than it can purchase new capital equipment and increase its current...

James A Dorn

The events of 1989 and 1990, which led to the collapse of communism and the rise of market liberalism in Eastern and Central Europe and the Soviet Union, brought the Marxist-Leninist vision of a socialist Utopia to an abrupt end. In 1917, Russia began its socialist experiment with the hope of creating a new society where individuals would be free from want and able to realize their full potential. Vladimir Lenin (1963, p. 418) proclaimed 'We have a right to say, with the fullest confidence,...

Richard Langlois

Many if not most of the strands that come together in the cmeiging inpesiiy of the 'new' institutionalism emerge from Ronald Coasc's 'The Problem Social Cost' 1960 . That paper challenged not merely the conclusions luit, more fundamentally, the analytical perspective of conventional welfare eeo nomics as then practiced and indeed still practiced in the tradition of the prewar Cambridge economist A.C. Pigou. Rather than seeing physical extcr nalities as generating divergences between private...

Marxisms and market processes David L Prychitko

Critics of the Austrian school appeared in many forms, from Schmollerian historicists and Veblenian institutionalists to Keynesian interventionists. Compared to their traditional rivals, Austrians seem furthest removed from Marx ism on almost any level we wish to compare. For instance, Austrian methodology is deductive, Marxism's is dialectical the Austrians developed a radically subjective theory of value, while Marxians, with their own unique twists, followed Ricardo's labor theory of value...

Pre Keynes macroeconomics LelandB Yeager

Keynes characterized the doctrines of his predecessors unfairly, perhaps out of inadequate acquaintance with them. He was by no means the pioneer he claimed to be in developing a theory of output as a whole and in integrating monetary theory with general value theory Marget, 1938 1942, II, chapter I . Keynes said General Theory, p. 13 that 'all members of the orthodox school' tacitly assumed that all unemployed workers 'though willing to work at the current wage will withdraw the offer of their...

Praxeology David L Prychitko

Modern economics calls itself the science of choice it studies chokes thai inevitably flow from the fact of scarcity. In contemporary neoclassu id Iheoi y, individuals are modeled as rational agents that maximize utility subject to constraint. The argument is familiar to any student of economics maximization between two scarce goods occurs when an agent chooses a combination ol goods such that the ratio of their marginal utilities equals the price ratio In its generalized form, an 'action' of...

Liv Contributors

Cordato, Lundy-Fetterman School of Business, Campbell University, North Carolina. Robin Cowan, Department of Economics, University of Western Ontario, London. Tyler Cowen, Department of Economics, George Mason University, Fairfax. Thomas J. DiLorenzo, Department of Economics, Loyola University, Baltimore. James A. Dorn, Department of Economics, Towson State University. Kevin Dowd, School of Financial Studies and Law, Sheffield Hallam University. John B. Egger, Department of Economics,...

Gregory B Christainsen

I lie practice of viewing social wholes such as national economies as the pitiduct of individual actions has been a feature of the Austrian school of lt t unomics since its inception. This 'methodological individualism', as it was eventually called, was endorsed by Carl Menger as early as the preface of his Irunds tze der Volkwirthschaftslehre, published in 1871. The methodology to be followed in the social sciences is seen by Austrians ON it fundamental field of study, something to be pursued...