University Economics versus Austrian Economics

Article excerpt

Some time ago my wife asked me to define economics for her.

"Ah," I said, sensing an opportunity to sound intelligent. There was long silence. I sat up, cleared my throat, and said "Ah" again.

Truth was I wasn't sure how to answer her. Of course, I could have spouted some answer with lots of "scarcities" and "resources" (after all, years of teaching college courses had taught me how to sound intelligent without being clear), but I wanted something better for my wife. To date, I still haven't attempted to answer her, but I have, as they say in mystery novels, made inquiries.

One source I queried was, naturally, the Internet. I did a Google search of university economics department Web pages to learn how they, the trainers and certifiers of today's economists, define their science. The results are a little disheartening.

Many of the economic departments I found defined economics as the study of how societies choose what to produce and then how to allocate what has been produced. If definitions mention individuals at all, it is usually in conjunction with society as a whole.

Perhaps a benchmark definition for this view of economics is one by the Nobel laureate and best-selling textbook author Paul A. Samuelson. It's quoted prominently by one economics department. Samuelson writes economics is "[T]he study of how men and society end up choosing, with or without the use of money, the employment of scarce productive resources, which could have alternative uses, to produce various commodities over time and distribute them for consumption, now and in the future, among various people and groups in society."1

This emphasis on "society" makes sense if you presuppose the existence of interventionism and see the economist as someone who can choose for society at large whether to produce guns or butter or a little of each. Since this presupposition almost certainly does exist in the minds of most academics, politicians, and citizens, it makes sense that economics departments would reflect this in their definitions of economics.

One department's definition nicely sums up this perspective: "Our main motivation [as economists] is to find mechanisms which encourage efficiency in the production and use of material goods and resources, while at the same time producing a pattern of income distribution which society finds acceptable."2

Another department put it this way: Economics is the study of "how society provides for its material well being. It concerns the production, distribution and use of goods and services. It studies the allocation of scarce resources among alternative uses."3

In addition to (and perhaps as a result of) this highly collectivist view, many departments also take a highly inductive and quantitative view of economics. They present the economist as a sort of white-coated laboratory experimenter, tirelessly seeking "a socially efficient equilibrium" where, as one department explains, "no individual can be made better off without making others worse off."4

One department states: "Economists are scientists. We design experiments, test hypotheses, make predictions, etc. As such, a good economist requires the same sort of skills needed by a good chemist or physicist. . . . [E]conomists work in the laboratory of everyday human and organizational behavior."5

Another says: "Many economists use mathematical models to explain and predict economic behavior and econometric analysis to test these models against observed data from the real world."6

Austrian Approach

Those two notions, that economics is about allocating society's resources and that it is largely an inductive and quantitative science, are both at odds with the Austrian school's approach to economics. First, Austrian economists do not focus on things (resources, goods, and services) but rather on human action. As perhaps the greatest Austrian economist, Ludwig von Mises, wrote, "Economics is not about things and tangible material objects; it is about men, their meanings and actions. …