Austrian School of National Economy [1]

Austrian School of Economics

The Austrian School represents an antithesis to demand-oriented Keynesianism, but also sets itself apart from the supply-oriented neoclassical doctrine that predominates in economics. Its founder was Carl Menger, who initiated it with the work Grundsätze der Volkswirtschaftslehre, which he published in 1871. Among other things, Menger did fundamental work on marginal productivity theory and marginal utility theory. He was able to explain why a higher price is paid for certain goods, such as gold, even though they have an objectively lower utility than other goods(value paradox). Gold - according to some scoffers - has hardly any practical use and is merely extracted from the ground at great expense, only to be put back into vaults underground and guarded at great expense, whereas, for example, a vital good such as water can be consumed at practically zero cost. Menger reasons that the total utility of water is high but the marginal utility is low, whereas gold has a low total utility but a high marginal utility.[2]

Ludwig von Mises saw inflationary money supply expansion as the cause of excessive economic booms and the subsequent recessions. Money creation by central banks would distort the production process and too low interest rates would lead to excessive investment. An overly expansionary monetary policy would thus lead to distortions in the relationship between consumption and investment. Under a gold standard, the associated current account deficits would be liquidated by gold outflows, combined with a credit contraction as a result of the reduction in the money supply, until the equilibrium relationship between consumption and investment was restored. Without a gold standard - or another way of covering the money supply - such imbalances would be permanent.

Friedrich August von Hayek, who was awarded the Nobel Prize in Economics in 1974, is the best-known member of the school of thought and a figurehead among 20th-century economists. In his view, government intervention in a market economy eliminates incentives to perform, creates inefficiencies, and ultimately makes everyone worse off. The best possible use of resources and an optimal supply of goods, he argued, can only come from a market that is not influenced by the state.[3] He was the grail guardian of the philosophy that markets overcome crises most quickly and efficiently and for the general good when the state does not intervene. Despite this, or precisely because of it, he was an advocate of establishing a world reserve currency backed by precious metals, among other things.