By Jack Parkos | United States
When it comes to economics, libertarians tend to subscribe to one of two schools of thought: The Chicago School and Austrian School. Both of these ideologies are rooting in laissez-faire capitalism and believe in the power of the free market. Yet both have unique differences between them that can divide people who believe in free market capitalism. It is important to understand the differences between the two for one to decide which school they agree with.
The Chicago School, which is sometimes called the Monetarist School, belongs to the neoclassical school of thought. It tends to get more attention from “mainstream” economists and politicians. Milton Friedman, arguably the most famous and influential economist of the Chicago School, served as an unofficial advisor to President Ronald Reagan as well as winning many awards for his books. While many Austrians have won awards for their work, they are not nearly as “popular” as their Chicago counterparts. In a high school economics course, you’re more likely to learn about Milton Friedman and Chicago economics than Ludwig von Mises and Austrian economics. Austrians are seen as outside the mainstream, meaning it is “heterodox”. Perhaps someone may be asking why this occurs.
Difference in Methods
One reason that Austrians tend to be seen as economic “outcasts” is that they tend to use different methods to come to conclusions. As stated before, Austrians are not seen in the mainstream, unlike their Chicago counterparts.
This is mainly due to the fact that Chicago economists tend to use similar methods as most other economists. Monetarists tend to use mathematics to test their theories. Chicago economists believe economics is like a science with rules that cannot be broken. Meanwhile, the Austrians believe that since the economy is based on the actions of individuals, no mathematical formulas can accurately predict how people would act. Thus, Austrians base their work on philosophy, logic, and reasoning. Praxeology, the study of human nature, is an important part of the Austrian School of economics.
While both schools criticize the Federal Reserve, they have different reasoning for it. The Chicago school calls out the Federal Reserve’s failures but still believe it should exist and be used in the right way. Monetary policy is a big part of Chicago economics, hence sometimes being called the Monetarist School. For example, Milton Friedman criticized the federal reserve for not printing enough money during the Great Depression. Friedman also believed the monetary supply should be increased by about 2.5-3.5% each year.
Meanwhile, the Austrians do not believe the government should print more money ever. They tend to believe in a fixed supply, typically a standard based off of precious metals. The Austrians do not want the government inflating the currency at all. They blame many economic problems on government creating inflation through printing money.
Here are some famous economists from the Austrian and Chicago schools.
Ludvig Von Mises- Big leader and teacher of the Austrian school of thought.
Murray Rothbard- A leading pioneer of both Anarcho-Capitalism and Paleo-Libertarianism.
Frédéric Bastiat- Developed the concept of opportunity cost.
Milton Friedman- Won Presidential Award for Freedom, possibly most famous Chicago economist.
Thomas Sowell- National Humanities Award winner, theorist on welfare economics.
Gary Becker- Awarded Nobel Memorial Prize in Economic Sciences.
Friedrich Hayek (who also belonged to the Austrian School) – Award-winning economist who contributed to the Business Cycle Theory and The Economic Calculation Problem.
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