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Is Austrian economics a form of supply-side theory?

June 10, 2016

I am finishing off a paper on supply-side economics, which I argue is only represented by classical economic theory, and is not fully embodied in Austrian theory since its focus is on marginal utility as the central driver of activity. It is also a problem – to me, anyway – that Austrian theory does not incorporate Say’s Law, again because it is demand-side driven. Your thoughts would be welcome on this, as well as on this passage from the paper:

In the modern versions of Austrian economics, the approach often taken is to reject all interventions in the market and to leave the market to fulfil its role in allocating resources without government involvement. This is not a necessity within the theory itself, but as noted by Holcombe, is to a large extent the political preferences of those who focus on Austrian economic theory.

“Economic purists might argue that Austrian economics and libertarian politics are completely separate, but casual observation confirms that self-proclaimed members of the Austrian school tend to have more libertarian political views than the general population. This connection follows from the idea that the economy and society more generally, is a self-regulating complex system that is the result of human action but not of human design, and that attempts to intervene in that system are likely to result in negative unintended consequences.” (Holcombe 2014: 108)

Yet this is not entirely consistent with the views of Mises himself, who was more “classical” in his approach, or at least was in some of his earlier writings.

“If government buys milk in the market in order to sell it inexpensively to destitute mothers or even to distribute it without charge, or if government subsidizes educational institutions, there is no intervention. However, the imposition of price ceilings for milk signifies intervention.” (Mises [1929] 1977: 20)

I completely agree with Mises [1929] on this, but I wonder if that would still be part of the approach of an Austrian economist today.

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