Austrian School
What is Austrian School?
The Austrian School is a tradition in economics built on individual choice, subjective value, and market prices as signals of widely dispersed knowledge.
The Austrian School treats the economy as the outcome of choices made by individuals who value goods subjectively and act with limited, scattered information. Its writers argue that market prices work as a discovery process: they summarize knowledge no single planner could collect, which is the basis of the Austrian case that central planning cannot compute rational prices. Austrian business cycle theory holds that when credit expansion pushes interest rates below the level savers would set, firms start long projects that later prove unsustainable, so the bust corrects earlier malinvestment. Austrians generally prefer verbal, deductive reasoning to statistical modeling of aggregates. That last point separates them from monetarists, who share a skepticism of fine-tuning but build formal models of the money supply and recommend a steady money growth rule.
Austrian School: a worked example
The socialist calculation debate is the clearest case. Ludwig von Mises argued that a planning board owning all the factories has no market for capital goods, so it has no prices for them, and without prices it cannot compare a steel bridge against a concrete one. Friedrich Hayek pressed a second point: the knowledge that matters is local and changes constantly, held by the manager who notices a machine running hot, so no central office can gather it in time. Economists on the other side, including Oskar Lange, replied that planners could imitate markets by adjusting trial prices until shortages disappeared. The exchange defined the school's central claim.
The mistake students make with austrian school
Students often treat the Austrian School as another name for monetarism or for the Chicago School, since all three are skeptical of activist policy. The traditions are separate. Monetarists work with aggregate data and a money growth rule, while Austrians reject aggregate models and locate the cycle in distorted interest rates and the structure of capital. The name refers to where the founders taught, not to the economy of Austria.
Austrian School questions
Is the Austrian School on the AP Economics exam?
Austrian School doctrine is not part of the AP Economics course outline, so you will not be asked to name or apply it. The course works with the classical, Keynesian and monetarist frameworks built into the AD/AS, money market and Phillips curve models. Austrian ideas about prices carrying information do overlap with what you learn about how markets allocate resources.
Who founded the Austrian School?
Carl Menger founded the school with his work on marginal value at the University of Vienna, and Eugen von Böhm-Bawerk and Friedrich von Wieser extended it. Later figures include Ludwig von Mises, Friedrich Hayek and Israel Kirzner. Hayek shared a Nobel Memorial Prize in economics for work on money and economic fluctuations.
Why do Austrians criticize mathematical economics?
Austrians argue that economic laws follow from the logic of human choice, so they cannot be confirmed or refuted the way a laboratory result can. From that starting point they read statistical estimates as history rather than as stable relationships you can forecast from. Critics answer that this makes Austrian claims hard to test, which is one reason the approach sits outside the mainstream.
Related terms
Common comparisons
Get AP Econ exam tips in your inbox
Occasional emails with study tips, new interactive graphs, and exam-season reminders. Free, no spam.
No spam. Unsubscribe anytime. Read our privacy policy.
Keep track of what you have studied
A free EconLearn account adds progress tracking, your quiz history, and achievements. Studying here is free either way, and there is nothing to pay for as a student.
Create a free accountAlready have one? Sign in
Last updated