Differences between the austrian and neoclassical schools of economics

Question 1

theory backing each

Answer 1

Theory of human action understood as a dynamic process (praxeology)

Theory of decision: rational and based on constraint maximisation

Question 2

methodological starting point

Answer 2

Subjectivism

Stereotype of methodological individualism (objectivist)

Question 3

protagonist of the social processes

Answer 3

creative entrepreneur

homo oecenomicus

Question 4

view on profits and errors

Answer 4

possibility that the actors err a priori and nature of entrepreneurial profits: pure or sheer entrepreneurial error and ex post regret exist

There are no regrettable errors because all past decisions are xplicable in terms of cost benefit analysis. Profits are considered a payment of the services of a factor of production

Question 5

nature of information

Answer 5

knowledge and information are subjective, disperse and change constantly (entrepreneurial activity). Radica distinction between scientific knowledge (objective) and practical knolwedge (subjective)

Complete, objective, and constant information on ends and means is assumed. There is no distinction between practical (entrepreneurial) knowledge and scientific knowledge

Question 6

seperation between micro and macro?

Answer 6

General process with a coordinating tendency. There is no distinction between micro and macro: all economic problems are studied in relation to each other

model of equilibrium (general or partial). Separation between microeconomics macroeconomics

Question 7

concept of competition

Answer 7

Process of entrepreneurial rivalry

Situation or model of perfect competition

Question 8

concept of cost

Answer 8

Subjective (depends on the alertness of the entrepreneur for the discovery of new alternate ends)

Objective and constant (it may be known by a third party and measured)

Question 9

formalism

Answer 9

Verbal logical (abstract and formal) which allows the integration of subjective time and human creativity

Mathematical formalism (symbolic language typical of the analysis of constant atemporal phenomena

Question 10

Relation with the empirical world

Answer 10

Aprioristic-deductive reasoning. Radical separation and, at the same time, co-ordination between theory (science) and history (art). History cannot prove theories.

Empirical falsation of hypotheses (at least rhetorically)

Question 11

Possibilities of specific prediction:

Answer 11

Impossible, since what happens depends on future entrepreneurial knowledge has not yet been created. Only qualitative and theoretical “pattern predictions” on the discoordinating consequences of interventionism may be made

Prediction is a deliberately sought objective

Question 12

Present situation of the paradigm

Answer 12

Notable re-emergence over the last 20 years (especially after the crisis of Keynesian and the fall of real socialism)

Situation of accelerated crisis and change