Why Is Austrian Economics Called the “Austrian” School?

The Austrian School as an intellectual movement was born out of the Methodenstreit, a major academic controversy between German economists and Austrian economists over the epistemological status of economics as a science and what its proper methodology should be. The German economists argued that, through an empirical/positivist approach to contingent and accidental historical cases, one could derive inductive generalizations and discover the laws governing economic phenomena in the same way as in the natural sciences. By contrast, the Austrian economists maintained that only the approach of causal realism was the correct methodology for economics.

From Menger and Mises onward, and even beyond them, the common feature shared by economists classified as members of the Austrian School is the belief that the domain of knowledge dealt with by economics is not subject to verification or falsification through empirical/positivist experimentation. Causal realism is the position that, through logical deduction from irrefutable and self-evident truths about human nature and the nature of action, one can discover economic laws that are causally and really connected to human nature and are therefore likewise irrefutable and self-evident.

In economics, this view could be found in the 15th- and 16th-century Spanish Scholastics, later in the French Physiocrats, and in parts of the British classical school. However, the first scholar to formulate and present it in the most logically systematic way was Menger of Vienna, Austria. And the figure who reinforced the logical consistency of the epistemology and methodology presented by Menger and clearly articulated the core of the Austrian School was Ludwig von Mises. For this reason, many modern Austrian economists also call themselves Misesians.

The term “Austrian economics” was first used by Gustav Schmoller, the dominant scholar in the German-speaking academic world. At the time, Austrians were looked down upon compared to Germans, so Schmoller mockingly referred to the school of economic thought centered in Vienna as the “Austrian School” as an insult. Later, however, the term remained and became the standard designation for that school.

Murray Rothbard, an American scholar who left a major mark on the Austrian School, always emphasized that the tradition of economic thought referred to by that term extended far beyond the specific geographical condition of Austria.

Taking Ludwig von Mises as the dividing point, the Austrian School is divided into the older generation before him—centered on Menger, Wieser, and Böhm-Bawerk and active mainly in Vienna—and the newer generation, including Mises, Hayek, and Rothbard, active mainly in the United States. The former is often called the Vienna school of economics.

The early Austrian School was often called the Psychological School because of its emphasis on methodological individualism and subjectivism. This name stood in clear contrast to Schmoller’s German Historical School, which adopted methodological holism, and likewise highlighted its difference from mainstream modern economics, which has also largely departed from the traditions of individualism and subjectivism.

In the late 19th century, Austria’s leading philosopher was the philosopher of psychology Franz Brentano, famous as Edmund Husserl’s teacher. Brentano’s approach was somewhat Cartesian, and one might say it was perhaps the last stage of development in the Cartesian tradition before Husserlian phenomenology. Austrian economics, too, being Austrian in origin, was very clearly and distinctly influenced by Brentano’s rationalist tradition. The methodology and epistemology of the Austrian School are clearly rationalist and phenomenological. This characteristic may be seen as the reason the Austrian School came to be called the “Psychological School of economics.”

However, even if the Austrian School’s methodology and epistemology are closely related to the philosophies of Brentano or Husserl, they are entirely unrelated to modern psychology, which has largely embraced positivism. Therefore, calling the Austrian School the Psychological School in the 21st century is highly problematic. For example, the fundamental reason the Austrian School came to be called the Psychological School of economics was Menger’s achievement in showing that the cause of goods having value lies in the individual value judgments of economic agents—that is, that economic value depends on the psychology of individual economic actors—and that these subjective value judgments lead to exchange in the market and therefore form prices. Yet it is not accurate to call this “psychological.” The fact that individual economic agents make value judgments is always true independently of any empirical or positivist study of human psychology, and psychology is generally regarded as a positive science.

As an aside, Frank Fetter, who is classified as a first-generation Austrian economist in the United States, and John Bates Clark, who was not very distant from the Austrian School, were also sometimes called the American psychological school.

Modern Austrian economics is broadly divided into two positions. One is the Austrian School at George Mason University, and the other is the Austrian School at the Mises Institute. (Recently, many students who follow the position of the Mises Institute have been entering George Mason University.) If the Austrian School as a school of thought can be defined as a group of scholars who follow the epistemological and methodological positions of Menger and Mises, then the former is fundamentally not Austrian. This is because it denies the absolute centrality of Menger and Mises and instead regards Adam Smith, who is in many respects quite distant from the Austrian School, as a more important founder. In the classical sense, the only true Austrian School is the Austrian School of the Mises Institute.

Joseph Salerno, who oversees the academic field at the Mises Institute, has argued that the Austrian School is a school of thought that follows Mises’s praxeology, and that because praxeology is the central core of the Austrian School, any departure from it means one is no longer part of the Austrian School. If one accepts this claim, then if one had to find a term to replace “Austrian” in “Austrian School,” the most appropriate alternative would be the “Praxeological School.”

---

Original title: 오스트리아학파 경제학은 왜 '오스트리아'학파인가

Author: Kyeong-hun Kim

Date: 2021-06-29

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&pn=10&idx=24010