Heterodox Economics: The Austrian School

Authors: ARNAU REIG and EDUARD SUBIRÀ

Abstract

This paper explores the nature of Economics, examining its core definitions and delving into its philosophical underpinnings. Unlike the natural sciences, Economics lacks a universally accepted object of study and relies on fabricated indicators like GDP and inflation. The discussion highlights the Austrian School of Economics, which, rooted in praxeology and the a priori principles of human action as articulated by Ludwig Von Mises, presents a heterodox view. This perspective challenges conventional Neoclassical and Keynesian approaches, emphasizing logical deduction over empirical methods. Additionally, the paper critiques the use of mathematics in Economics from the Austrian viewpoint, arguing that mathematical models oversimplify human behavior and fail to capture the dynamic, subjective nature of economic interactions.

1. What is economics?

All sciences are based around the object of their study: physics is the study of physical phenomena, like movement, chemistry is the study of chemical reactions, biology is the study of phenomena related to organisms, and so on. If we consider Economics as a science, we may ask then: what is the object of its study? There is no widely accepted definition. Some say Economics is the study of the wealth of nations, others say that it’s the study concerned with the production, consumption, and transfer of wealth and goods, we can also define it as the study of social behaviors related to scarcity. None of these definitions are incorrect, and all of them shed some light on what economics is and what economists do. Still, we would like to find the deeper relations of what Economics is, and what we truly mean when we talk about “the economy”. To take upon ourselves this task is to consider economics from a more philosophical perspective, we have to assume an attitude whose achievement requires no special knowledge in advance, neither scientific nor philosophical, for here only one thing is required: readiness to put the essence of Economics at risk in thinking that which grounds this essence.

First and foremost a crucial observation must be made: Economics as Macroeconomics is not a natural phenomenon. That is to say unlike in physics or chemistry, the object of our observation does not have a physical basis, it is not akin to the physical motion of a ball which can be described mathematically with Newton’s formulas, but rather a subjective selection of a set of economic indicators that we have invented to measure what we call “the economy”. In this set of indicators, we find well-known terms like “GDP”, “inflation”, “investment”, “consumption”, indicators that have a real basis, that is, they express measurements of real phenomena, that we have bundled together and used to describe whether the economy is growing or recessing. It has come to our attention that the different weights that we attribute to these economic indicators may change our perception of whether the economy is going well or not, and that this selection is rather arbitrary and subjective, not akin to an objective truth like the motion of a ball.

This observation begs the question: what is Economics? What exactly are we trying to measure? “Wealth”? “Happiness”? “Prosperity”? These are all very imprecise measurements because there are no rigorous definitions of what each of those things is.

We have now shed light on the main problem – the fact that we do not exactly know what we are trying to measure, having arrived at this impasse we must now make a decision: is Economics to be concerned with the well-being of individuals? That is, to measure economic prosperity taking into account how economic conditions affect the health, personal lives, and happiness of the individuals, or is Economics to be concerned only with material, measurable wealth? That is, to measure economic prosperity simply in terms of debt, GDP, consumption, investment, inflation, exports, imports. . .

In school and the great majority of formal education related to Economics, they mostly only teach the Neoclassical view of Economics, or what later became the Keynesian view. This view was a very important development in the 20th century, and many economists today use its principles as their main way of evaluating Economic issues. Economics students will be familiar with many of the Neoclassical concepts, such as perfect competition, general equilibrium, market failure, and an overall Econometric approach to Economics as a science, primarily based on empiricism. What we want to show in this paper is a heterodox view of Economics; the Austrian School, although having some parts in common with the Neoclassical view, is a more libertarian perspective, and it differs especially in the fundamentals, the principles of what Economics is and how to evaluate it.

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