ABSTRACT
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 Mises2
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 programme that has supported social engineering to date, at the same time as the conclusions of the Austrian theoretical analysis on the impossibility of socialism seem to be largely confirmed. In addition, 1996 was 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.3 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 article is divided into the following sections. First, the characteristics that
distinguish the two approaches (Austrian and neoclassical) will be explained and discussed in detail. Second, a summarized account of the Methodenstreit which the Austrian School has been maintaining from 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 article.
Perhaps one of the main features which is lacking in the study programmes of the schools of economics is that, to date, they have not given a complete integrated view of the essential elements of the modern Austrian paradigm vis-à-vis the mainstream neoclassical approach. In Table 2.1, I have tried to
Table 2.1 Essential differences between the Austrian and Neoclassical Schools
