Introduction of Economic Problems and Socialism (Austrian Economists)

The Austrian school of economic thought is based on the methodological individualism that social phenomenon basically results from actions and motivations of individuals. The idea of Austrian economists was opposed methodologically to a Prussian Historical School that is known as Methodenstreit. Among the Austrian School’s early years theoretical contribution is the formulation of an economic calculation problem, marginalism in price theory, and a subjective theory of value, each of the contribution has become mainstream economics’ accepted part. Since the late 1930s, Austrian schools is considered as heterodox as renewed interest was attracted due to it. The main contribution of the Austrian school in the economics is that they introduced specific problems of the economy that were related to socialism.

Austrian School and Socialism of Economic Problems and Socialism (Austrian Economists)

The problem of economic calculation refers to the socialism’s criticism which was started in 1920 for the first time by Max Weber. Subsequently, Mises discussed the idea of Weber with Hayek who was his student and developed the idea in multiple works such as ‘The road to serfdom’. The emphasis of Austrian theory was on an organizing power of the economic markets. It was stated by Hayek that information is reflected by the market prices, the totality of the information that is unknown to individual and ultimately determines the resource allocation of a particular economy. Because price discovery processes and individual incentives lack in the socialist system and by these incentives, individual acts on the personal information that is available to him or her.

Moreover, it was argued by Hayek that planners of socialist economist lack all of the required knowledge that is necessary for the optimal economic decisions. The people who agreed on this criticism by Hayek viewed the criticism as the socialism’s refutation that shows that socialism is not sustainable or viable economic form. In some cases, history has proven that Austrian schools were corrected about the socialism economics as the world has been converted to liberalism or capitalism from socialism.  

Conclusion of Economic Problems and Socialism (Austrian Economists)

In a nutshell, the modern Austrian school of economics' supporters maintain that the critical stance of those economists towards economic organization’s impure form like the mixed economy grew out of Mises and Hayek’s arguments during the debate regarding socialist in the 1930s. Austrian school argued and debated that the ideas provided by them provide the basis for the economic organization’s impure forms’ general rejection. Contrary and above all to modern Austrian economists considering Mises and Hayek’s contribution is consistent essentially, a critique of socialism by Hayek is much more effective than a critique of Mises because it rests on the tacit knowledge’s tacit and on the emergence of capitalist institution’s evolutionary account. Evolutionism of Hayek fails due to the technological approach used by him as it is not influential in ruling out the capitalism’s impure forms’ possibility in the consistent manner that is evolutionary such as ideas and technological.