The Austrian School of Economics (L7) Flashcards
What are the main critiques of the Austrian School against the mainstream approach?
Key Points:
Rejects mathematical models and formalizations.
Emphasizes deductive reasoning over empirical data.
Criticizes central planning and Keynesian macroeconomic methods.
How does the Austrian School explain the origin of money?
Key Points:
Money emerges spontaneously from market interactions to overcome barter inefficiencies.
Commodity money (e.g., gold) preferred for durability, divisibility, and portability.
Role of government: Minimal, as money originates from voluntary exchange.
What is the Austrian perspective on business cycles?
Key Points:
Caused by central bank credit expansion and artificially low interest rates.
Boom phase: Misallocations and speculative bubbles.
Bust phase: Corrections through reallocation of resources.
Policy recommendation: Avoid central bank intervention and maintain sound money.
How does the Austrian School view government intervention in the economy?
Key Points:
Necessary for enforcing private property and contracts.
Harmful when it distorts market signals (e.g., subsidies, bailouts).
Ineffective as markets naturally self-regulate.
In what ways is the Austrian School similar to the Post-Keynesian School?
Key Points:
Both critique mainstream reliance on mathematical models.
Emphasize the role of uncertainty and individual expectations in economic behavior.
How would the Austrian School explain the 2008 Financial Crisis?
Key Points:
Central bank policies (e.g., low interest rates) created credit expansion.
Malinvestment in housing led to overproduction and speculative bubbles.
Government bailouts prolonged distortions instead of allowing corrections.
What is the Austrian critique of fiat money and central banking?
Key Points:
Fiat money lacks intrinsic value, leading to inflation and distorted economic calculations.
Central banks manipulate money supply and interest rates, causing business cycles.
Advocates for free banking and sound money systems (e.g., gold standard).
What is the Austrian School’s perspective on fiscal and regulatory policies?
Key Points:
Fiscal Policy:
Balanced budgets; avoid deficit spending and high taxes.
Reduce government spending to prevent market distortions.
Regulatory Policy:
Minimal government intervention.
Focus on protecting property rights and enforcing contracts.
How does the Austrian Method differ from the German Historical School?
Key Points:
Austrian Method: Deductive reasoning, starting with general principles.
German Historical School: Inductive reasoning, starting with specific observations.
Methodenstreit: Debate over the appropriate methodology in economics.
Why is sound money central to the Austrian School?
Key Points:
Enables accurate economic calculation and rational decision-making.
Prevents inflation and resource misallocation associated with fiat money.
Supports long-term stability and entrepreneurial innovation.
What is the Austrian critique of government bailouts during crises?
Key Points:
Prevents necessary market corrections by prolonging malinvestments.
Creates moral hazard, encouraging risky behavior by firms and banks.
Delays recovery by distorting resource allocation.
How does the Austrian School explain the role of entrepreneurship in the economy?
Key Points:
Entrepreneurs identify opportunities and drive market innovation.
Key to efficient resource allocation in uncertain and dynamic environments.
Markets rely on entrepreneurial discovery to adapt to changing conditions.
How do Austrian economists critique the use of mathematical models in economics?
Key Points:
Economics is a social science, not a natural science; human behavior is unpredictable.
Over-reliance on models abstracts away from real-world dynamics.
Deductive reasoning provides a better understanding of economic laws.
What is the Austrian perspective on private property?
Key Points:
Essential for individual freedom and efficient resource use.
Encourages entrepreneurship and voluntary exchanges.
Protecting property rights is the primary role of government.
How does the Austrian School define economic freedom?
Key Points:
Freedom to engage in voluntary exchanges without government interference.
Decentralized decision-making allows markets to function efficiently.
Emphasis on individual liberty and responsibility.
