147
Socialist economies saw
themselves as vast production lines,
assembling everything the economy
needed. During World War II this
command style of production line
worked relatively efficiently.on such a worthwhile activity.
The Austrian School does not
accept the concept of market
failure, or at least sees it as trumped
by government failure. It believes
monopoly is caused by governments
rather than by private enterprise.
Externalities (outcomes that are not
reflected in market prices) such as
pollution are taken into consideration
by consumers or solved by voluntary
associations or the responses of
people whose property rights are
affected by the externality.
For the Austrian School one of
the worst forms of government
intervention is interference in the
money supply. They claim that when
governments inflate the supply of
money (by printing more money, for
example) it leads to interest rates
that are too low, which in turn result
in bad investments. The only thing
to do when a bubble bursts is to
accept the commercial failures and
ensuing depression. They recommend
abolishing central banks and
basing money on a real commodity
standard, such as gold. The
Austrian School are firm believers in
laissez-faire (hands-off) government.
In 1900, there were five leading
schools of economics. Marxism, the
German Historical School (which
was also critical of the market
system), and three versions of the
mainstream free market approach:
the British School (led by Alfred
Marshall), the Lausanne School
(centered on general equilibrium
through mathematical equations),
and the Austrian School, led by
Carl Menger (p.335). The British
and Lausanne schools became
mainstream economics, but
the Austrian School trod an
uncompromising path. Only recently,
following the 2008 financial crisis
and the retreat of socialism, has
it begun to grow in popularity. ■Ludwig von Mises
The leader of the Austrian
School, Ludwig von Mises was
the son of a railway engineer.
He was born in Lemberg,
Austria–Hungary, in 1881 and
studied at the University of
Vienna, where he regularly
attended the seminars of the
economist Eugen von Böhm-
Bawerk. From 1909–34, von
Mises worked at the Vienna
Chamber of Commerce,
serving as principal economic
adviser to the Austrian
government. At the same
time he also taught economic
theory at the university, where
he attracted a dedicated
following but never became
professor. In 1934, concerned
by Nazi influence in Austria,
he took a professorship at the
University of Geneva. In
August, 1940, shortly after the
German invasion of France, he
emigrated to New York and
taught economic theory at
New York University from
1948–67. He died in 1973.Key works1912 The Theory of Money
and Credit
1922 Socialism: An Economic
and Sociological Analysis
1949 Human Action: A
Treatise on EconomicsINDUSTRIAL AND ECONOMIC REVOLUTIONS