The ongoing methodenstreit of the Austrian school

Jesús Huerta de Soto
Professor of Political Economy
King Juan Carlos University of Madrid, Spain

“What distinguishes the Austrian School and will lend it immortal fame is precisely the fact that it created a theory of economic action and not of economic equilibrium or non-action.”

Ludwig von Mises

Notes and Recollections, Libertarian Press, 1978, p. 36

1. Introduction

2. The essential diferences between the Austrian and Neoclassical schools

(Points of comparison) 

Austrian paradigm / Neoclassical paradigm

Theory of action (Austrians) versus theory of decision (neoclassicals)

Subjectivism (Austrians) versus objectivism (neoclassicals)

Entrepreneur (Austrians) versus homo oeconomicus (neoclassicals)

Entrepreneurial error (Austrian) versus ex post rationalization of all past decisions (neoclassical)

Subjective information (Austrians) versus objective information (neoclassicals)

Entrepreneurial coordination (Austrian) versus general and/or partial equilibrium (neoclassical)

Subjective costs (Austrians) versus objective costs (neoclassicals)

Verbal formalism (Austrians) versus mathematical formalism (neoclassicals)

Relation with the empirical world: the different meaning of “prediction”

3. The rounds of the methodenstreit

First round: Carl Menger versus the German Historical School (27)

Second round: Böhm-Bawerk versus John Bates Clark (and also versus Marshall and Marx)

Third Round: Mises, Hayek and Mayer versus Socialism, Keynes and the Neoclassicals

Fourth round: Neo-Austrians versus the mainstream and methodological nihilisms

4.Two different ways of conceiving macroeconomics

Austrian School / Neoclassical School (Monetarists and Keynesians)

5.replies to some criticisms and comments


The Austrians should not criticize the neoclassicals for using simplified assumptions which held to understand reality.

The Austrians fail when formalizing their theoretical propositions

The Austrians carry out very little empirical work.

The Austrians renounce prediction in the economic field.

The Austrians do not have empirical criteria to validate their theories.

The accusation of dogmatism.

6.Conclusion: evaluating the successes and failures of the two approaches

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* I thank Leland Yeager, Israel M. Kirzner and two anonymous referees for their kind remarks on this paper. A previous version of its content was presented at the Mont Pèlerin Society General Meeting held in Vienna, September 1996.