1. Introduction

The fall of real socialism a few years ago and the crisis of the Welfare State has meant a heavy blow for the mainly neoclassical research program that has supported social engineering to date, at the same time as the conclusions of the Austrian theoretical analysis on the impossibility of socialism seems to be largely confirmed. In addition, 1996 has been the 125th anniversary of the Austrian School which, as we know, came into official existence in 1871 with the publication of Carl Menger’s Grundsätze.(1) It seems, therefore, that this is the appropriate moment to return to an analysis of the differences between the two approaches, Austrian and neoclassical, together with their comparative advantages, in the light of both the latest events and the most recent evolution of economic thought.

This paper is divided into the following sections. Firstly, the characteristics that distinguish the two approaches (Austrian and neoclassical) will be explained and discussed in detail. Secondly, a summarized account of the Methodenstreit which the Austrian School has been maintaining since 1871 to date will be presented discussing its different “rounds” and implications. A reply to the most common criticisms made of the Austrian approach, together with an evaluation of the comparative advantages of the two points of view, will conclude the paper.


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

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(1). Carl Menger, Grundsätze der Volkswithschaftslehre, ed. Wilhelm Braumüller, Vienna 1871. Translated by James Dingwall and Bert F. Hoselitz, with and “Introduction” by F.A. Hayek, Principles of Economics, New York University Press, New York and London 1981.