Austrian Economics, What?

This is in contrast to the Keynesian Economics post.

Austrian economics is far less complicated than Keynesian Economics, especially since it does not deal with numbers/math/formulas/etc. The reason for this is that the Austrian school focuses more on the market and human psychology as opposed to banking statistics. The reason for this style is the belief that economic conditions are decided by human interaction with the market; the bulk of which cannot be isolated and studied under laboratory conditions.

One of the more critical points that Austrian economics drives home is the need for a lack of government regulation in a free-market economy. This is especially evident in the fact that, according to Austrian economics, inflation is not the rise in price of objects but rather the increase in money supply, that raises the nominal value of money and erodes the real value of money (more dollars in circulation = lower buying power per dollar). The central banking system falls under heavy scrutiny because it controls the fluctuation of money by artificially altering interest rates and creating speculative “bubbles” that eventually burst and cause an economic downturn.

The trick here is in paying attention. The government would have you think that inflation is, by definition, the increase of the price of goods and that it, therefore has some pervasive cause that is essentially incurable and happens within any economy. However, inflation is, according to Austrian theorists, the devaluation of currency:

Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term “inflation” to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation. It follows that nobody cares about inflation in the traditional sense of the term. As you cannot talk about something that has no name, you cannot fight it. Those who pretend to fight inflation are in fact only fighting what is the inevitable consequence of inflation, rising prices. Their ventures are doomed to failure because they do not attack the root of the evil. They try to keep prices low while firmly committed to a policy of increasing the quantity of money that must necessarily make them soar. As long as this technological confusion is not entirely wiped out, there cannot be any question of stopping inflation. – Ludwig von Mises

Austrian economics stands in direct opposition to Keynesian economics on the field of regulation because Austrian scholars feel that it is the central bank’s attempt to curve the business cycle and make it less drastic that, in all actuality, causes unexpected, dangerous downturns. It is the actions of the central bank’s artificially lowered interest rates that cause inflation and, as such, the lessened purchasing power of the dollar.

Austrian scholars generally advocate a return to “sound monetary policy” such as the gold standard. Doing such would ensure that the growth of the monetary supply would never spiral out of control and therefore inflation would cease to be a major issue.

Austrian economics also stands strongly against any sort of socialist economic policies, declaring that the market value of goods produced by a socialist country would not be representative of a true economy because all means, resources, and products would be owned by the government, free from exterior competition. As such, no absolute or competitive value could be attributed to any socialist product and socialism, as a standalone economic standard, would fail.

Source.