Free Markets Series E12: The Austrian School of Economics

Most economists think of the economy as a machine and try to apply the methods of the natural sciences to economics, argues Steven Horwitz in this insightful interview. In contrast, economists from the Austrian School consider their field to be among the humanities. Instead of trying to develop elaborate mathematical models, Austrians focus on people’s choices and perceptions and on how prices help everyone spontaneously coordinate with everyone else.

In terms of banking and money, Austrian economists, like Congressman Ron Paul, want to abolish the Federal Reserve. They favour a return to a gold standard and competing currencies, which served us well in the past. Central banks, on the other hand, cause inflation and the boom-​and-​bust business cycles that lead to recessions and depressions. Says Horwitz, “The analogy I sometimes use is [central banks] turn all the traffic lights green. And when all the lights are green, cars are gonna crash into each other.”

Central banking is actually an example of a monopoly, which most people have the good sense to be skeptical of in other areas. But Austrians are not in favour of antitrust laws, which are ostensibly a remedy for monopoly power. This is because such laws tend to get used by some businesses to hobble other businesses, and do not really help consumers. “As long as the market is competitive and consumers can vote with their dollars, firms […] that can’t please people will find themselves losing out to firms that do.”

Viewers will also learn about Professor Horwitz’s views on foreign policy, social programs, and how government welfare has crowded out market solutions and civil society. While pessimistic in the short term, he is optimistic in the long term, banking on our intelligence and creativity and our basic desire to improve our lot.