The Austrian School of economics traces its roots to the School of Salamanca in medieval times. The scholastics of Salamanca, in turn, were influenced by the canon jurists from the University of Bologna, demonstrating the rich and historic roots of Austrian economics.
It is hard to find an article in the past century more influential in economic methodology than Milton Friedman’s “The Methodology of Positive Economics.”
Mainstream economists today examine economic phenomena from a “black box” perspective in which they look at inputs and outputs without trying to understand causal mechanisms that make the outcomes possible.
The Austrian school recognizes that economic analysis is timeless and the ancient story of “The Poor Man of Nippur” provides an excellent example. From time preference to the structure of production, many of the lessons are contained in this story.
Modern academic economics is based upon the methodologies used to study the natural sciences. However, such methodologies are inappropriate to study economics, which must be based upon causal-realism.
Austrian economics today needs critics. It doesn‘t need the critics (like Paul Krugman) who cannot give valid and accurate criticisms, but rather people who actually understand the concepts upon which Austrian thinking is built provide a real challenge.
The original Mont Pelerin Society meeting in 1947 featured Ludwig von Mises, whose warnings about the dangers of socialism and totalitarianism had gone unheeded. In the wreckage of World War II, the truth of his message should have been obvious. It wasn't.
Mainstream economists often base their analysis upon assumptions that do not square with reality. Austrian economics, on the other hand, is built upon realistic assumptions and the acknowledgement that good economics must reflect human action.
Modern academics are relentless in trying to find any nuances they can from the works of Karl Marx, but they miss the larger issues with his work. Marx was alive and active when the marginalists logically took apart his value theory, but hope springs eternal for Marx‘s supporters.
Employing the Labor Theory of Value, Marx claimed that entrepreneurial profits arise from exploitation of workers. In reality, entrepreneurs earn profits when they correctly gauge markets. Exploitation has nothing to do with it.
