If you’re like most people you’re probably landing on this page and asking yourself, “What in the world is Austrian Economics?” Here is short series of analogies from PeakProspertity.com that do a great job of introducing the term:
If you have been confused about the differences between the Keynesian and Austrian schools of economics, may I humbly propose an analogy that may help your understanding. If you don’t think this is accurate or helpful then please let me know. I’m new to this myself. Fire policy — In the early 1900s the US Forest Service implemented a new policy to aggressively suppress all forest fires. Citizens didn’t like to see trees burn and the lumber companies saw profits going up in smoke. Over the years they obtained equipment, trained men, and worked out elaborate plans. With a lot of time and money they reduced fire damage considerably. Over the years the forest management experts began to notice problems. Without periodic small fires the undergrowth became thick. It ignited easier, acted as additional fuel making the fire hotter, and sent it up into the crowns of the mature trees. This spread the fire faster and farther, killing more of the forest. With further study they found that in the pasts forest experienced periodic small fires which cleared the undergrowth and burned up the deadwood. They usually did not reach the crowns and burned themselves out without doing great damage. They triggered the tree seeds to sprout and start a healthy new generation. The mature trees also grew better. The old policy of trying to manage nature was counter productive. The policy was changed to allow the natural cycle to return. Keynesian school – All recessions are bad and must be suppressed by government actions. This protects established businesses and jobs. The methods are elaborate and costly, but a benefit to the public overall. Austrian school – When markets stray too far from reality they must be purged by adversity. This clears unneeded or failing enterprises so capital is not allocated wastefully, and new businesses can emerge. Periodic small recessions are the price of a healthy economy.
Now that you have a bit more of an understanding of what Austrian Economics is you’re probably thinking that it sounds interesting. Austrian economic theory seems to offer more insight into how an economy actually works, and that tells us it is probably better at predicting how an economy will behave. Here are some quotes from the leaders of the Austrian movement that will help you see even more what this amazing economic theory is all about: