ECONOMICS WEBINAR
Featuring Bob Luddy and Dr. William Peterson
Saturday, August 29th at 9:30 AM EDT
There are four major schools of economic thought, which are described below.
Definitions are from Wikipedia, the free encyclopedia.
Chicago School:
The Chicago school of economics describes a neoclassical school of thought
within the academic community of economists, with a strong focus around the
faculty of University of Chicago, some of whom have constructed and
popularized its principles. It is at times referred to as freshwater school of
economics, in contrast to the saltwater school based in coastal universities
(notably Harvard, MIT, and Berkeley). The Chicago school is associated with
neoclassical price theory and libertarianism in its support of radically lower
taxation and private sector regulation, but differs from pure free-market
economics in its support of government-regulated monetary policy.
The "Chicago School" is perhaps one of the better known American "schools" of
economics. In its strictest sense, the "Chicago School" refers to the approach of
the members of the Department of Economics at the University of Chicago over
the past century. In a looser sense, the term "Chicago School" is associated with
a particular brand of economics which adheres strictly to Neoclassical price
theory in its economic analysis, "free market" libertarianism in much of its policy
work and a methodology which is relatively averse to too much mathematical
formalism and willing to forego careful general equilibrium reasoning in favor of
more results-oriented partial equilibrium analysis. In recent years, the "Chicago
School" has been associated with "economic imperialism", i.e. the application of
economic reasoning to areas traditionally considered the prerogative of other
fields such as political science, legal theory, history and sociology.
The school rejected Keynesianism in favor of monetarism until the 1980s, when it
turned to rational expectations. It has affected the field of finance by the
development of the efficient market hypothesis. In terms of methodology the
stress is on "positive economics" – that is, empirically based studies using
statistics to prove theory.
Approximately 70% of the professors in the economics department have been
considered part of the school of thought. The University of Chicago department,
widely considered one of the world’s foremost economics departments, has
fielded more Nobel Prize winners and John Bates Clark medalists in economics
than any other university.
Keynesian Economics:
Keynesian economics (also called Keynesianism (pronounced /ˈkeɪnziәn/) and
Keynesian Theory) is a macroeconomic theory based on the ideas of 20thcentury British economist John Maynard Keynes. Keynesian economics argues
that private sector decisions sometimes lead to inefficient macroeconomic
outcomes and therefore advocates active policy responses by the public sector,
including monetary policy actions by the central bank and fiscal policy actions by
the government to stabilize output over the business cycle. The theories forming
the basis of Keynesian economics were first presented in The General Theory of
Employment, Interest and Money, published in 1936; the interpretations of
Keynes are contentious, and several schools of thought claim his legacy.
Keynesian economics advocates a mixed economy—predominantly private
sector, but with a large role of government and public sector—and served as the
economic model during the latter part of the Great Depression, World War II, and
the post-war Golden Age of Capitalism, 1945–1970, though it lost some influence
following the stagflation of the 1970s. As a middle way between laissez-faire
capitalism and socialism, it has been and continues to be attacked from both the
laissez-faire right and the socialist left.
Public Choice Theory:
Public choice in economic theory is the use of modern economic tools to study
problems that are traditionally in the province of political science.
In particular, it studies the behavior of politicians and government officials as
mostly self-interested agents and their interactions in the social system either as
such or under alternative constitutional rules. These can be represented a
number of ways, including standard constrained utility maximization, game
theory, or decision theory. Public choice analysis has roots in positive analysis
("what is") but is often used for normative purposes ("what ought to be"), to
identify a problem or suggest how a system could be improved by changes in
constitutional rules. A key formulation of public choice theory is in terms of
rational choice, the agent-based proportioning of scarce means to given ends. An
overlapping formulation with a different focus is positive political theory. Another
related field is social choice theory.
Austrian School of Economics:
The Austrian School (also known as the Vienna School or the Psychological
School) is a school of economic thought that emphasizes the spontaneous
organizing power of the price mechanism. Austrians hold that the complexity of
subjective human choices makes mathematical modeling of the evolving market
extremely difficult (or undecidable) and advocate a laissez faire approach to the
economy. Austrian School economists advocate the strict enforcement of
voluntary contractual agreements between economic agents, and hold that
commercial transactions should be subject to the smallest possible imposition of
forces they consider to be coercive (in particular the smallest possible amount of
government intervention).
The Austrian School derives its name from its predominantly Austrian founders
and early supporters, including Carl Menger, Eugen von Böhm-Bawerk and
Ludwig von Mises. Other prominent Austrian School economists of the 20th
century include Henry Hazlitt, Murray Rothbard, and Nobel Laureate Friedrich
Hayek. Though called 'Austrian,’ today supporters and proponents of the Austrian
School can come from any part of the world. The Austrian School was influential
in the early 20th century and was for a time considered by many to be part of
mainstream economics. Austrian contributions to mainstream economic thought
include being one of the main influences in the development of the neoclassical
theory of value, including the subjective theory of value on which it is based, as
well as contributions to the "economic calculation debate" which concerns the
allocative properties of a centrally planned economy versus a decentralized free
market economy. From the middle of the 20th century onwards, it has been
considered a heterodox school and currently contributes relatively little to
mainstream economic thought. However, Austrian School economists' warnings
about the 2007-2009 financial crisis has led to renewed interest in the School's
theories.
Austrian School economists advocate strict adherence to methodological
individualism, which they describe as analyzing human action from the
perspective of individual agents. Austrian School economists argue that the only
means of arriving at a valid economic theory is to derive it logically from basic
principles of human action, a method called praxeology. This method holds that it
allows for the discovery of fundamental economic laws valid for all human action.
Alongside praxeology, these theories traditionally advocated an interpretive
approach to history to address specific historical events. Additionally, whereas
mainstream economists often utilize natural experiments, Austrian economists
contend that testability in economics is virtually impossible since it relies on
human actors who cannot be placed in a lab setting without altering their would-
be actions. Mainstream economists believe that the methodology adopted by
modern Austrian economics lacks scientific rigor; critics have argued that the
Austrian approach fails the test of falsifiability.
Key Economists and Authors:
Milton Friedman, Chicago
Quote (paraphrasing) “Inflation is purely a monetary phenomena, too much
money chasing too few good causes inflation”
Friedrich von Hayek, Austrian
Quote “Spontaneous Cooperation” which is a description of the natural
economy
Ludwig von Mises, Austrian
Quote “Economic Calculation” which explains why socialism fails and the
market economy works
Murray Rothbard, Austrian, Libertarian
Known for this theory of “Sound Money”
Henry Hazlitt, Austrian, Writer for NY Times
Fearless writer describing the free market
H.L. Mencken, Journalist, Iconoclast, Author of Notes on Democracy
Quote “Voters will get what they voted for good and hard”
Hans-Hermann Hoppe, Austrian, Scholar at UNLV
Thomas J. DiLorenzo, Austrian, Author of The Real Lincoln: A New Look At
Abraham Lincoln, His Agenda, and an Unnecessary War
Jim Cox, Austrian, Author of The Concise Guide to Economics
Jörg Guido Hülsmann, Mises Biography author, Austrian Scholar
Frédéric Bastiat, Author of The Law
Dedicated his life to spreading the truth about of economics
Israel Kirzner, Austrian, Attended Mises Seminars
William H. Peterson, Austrian, Attended Mises Seminars
Quote “Americas other Democracy” which is referencing the free market.
Ron Paul, Austrian, Medical Doctor and Politician
Board Member of Mises Institute, Opposes government interventions
Leonard Read, Free Market advocate
Founder of he Foundation for Economic Education, Created the first Free
Market Think tank in America.
Lew Rockwell, Austrian, Founder of The Mises Institute
Author of many books including The Left, The Right and The State
Joseph Schumpeter, Classical liberal and rejected Keynesianism
Quote “Capitalism is Creative Destruction”
Key Terms and Thoughts:
Economics is the science of staying alive - inherent is there is no free lunch
Opportunity Cost: We choose, “no choice” is also a choice, we trade off our
time for one activity vs another.
Profit: Law of scarcity, Profit is a reward for efficiency, Assumes a moral code.
Free Market: Unhampered, any attempt to hamper the market creates
distortions. Mises stated “All Government interventions make things worse”
Free Trade: Provides the lowest cost, highest quality and strong economies.
Protectionism: Leads to economic disaster, Smoot Hawley Tariff Act in 1930
was passed under Hoover and destroyed the US economy.
Private Property: Cornerstone of a free society
Suggested Reading Material:
The Law by Frederic Bastiat
The Concise Guide to Economics by Jim Cox
Economics in One Lesson by Henry Hazlitt
Vision by Leonard Read
**Mises in America by Dr. William H Peterson
www.mises.com Read some current articles under the heading of Daily
**This book has been mailed to you if address has been provided to
[email protected], If you did not receive a book please email Kim Tant at
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