The Austrian school of economics was founded by Carl Menger in the late 19th century. Menger, along with fellow economists Friedrich von Wieser and Eugen von Böhm-Bawerk, is considered one of the founders of the school.

Menger’s book “Principles of Economics” was published in 1871 and was a major contribution to the development of the Austrian school. In it, he introduced the concept of marginal utility, which became a central part of the Austrian theory of value. More about that later.

Böhm-Bawerk, who was Menger’s student, is known for his work on capital and interest, which helped to establish the Austrian theory of the business cycle.

The Austrian school of economics was further developed by Ludwig von Mises, who is considered one of the most important figures in the history of the school. Mises was a leading advocate of the idea of the market as a discovery process, in which individuals make decisions based on their subjective valuations of goods and services.

In the 20th century, the Austrian school was represented by economists such as Friedrich Hayek, who won the Nobel Prize in Economics in 1974, and Murray Rothbard, who was a leading proponent of the ideas of laissez-faire capitalism and individual liberty.


Austrian economics is a school of economic thought that emphasizes the role of the individual in decision making and the importance of the subjective factors that influence their choices. It is based on the idea that individuals act rationally to maximize their own self-interest and that the market is the best way to allocate resources.

One of the key principles of Austrian economics is the concept of marginal utility. This refers to the additional satisfaction or benefit that a person derives from consuming one more unit of a good or service. For example, the first ice cream cone on a hot day might provide a lot of utility, but each additional cone will provide less and less enjoyment. This means that people will be willing to pay more for the first cone than for subsequent ones.

Another important concept in Austrian economics is the idea of opportunity cost. This is the cost of choosing one option over another. For example, if you decide to go to the movies instead of studying for a test, the opportunity cost is the potential grade you could have earned on the test. In a market economy, people make choices based on the opportunity cost of their actions, and this helps to determine the price of goods and services.

Austrian economists also believe that the market is inherently unpredictable and that it is impossible to accurately forecast future events. This means that attempts to centrally plan the economy, such as through government intervention, are likely to be ineffective. Instead, they believe that the market should be allowed to self-regulate and that individuals should be free to make their own economic decisions.

The concept of capital and interest also plays a central role in the theory of the business cycle and the determination of prices.

According to the Austrian theory of capital and interest, capital goods (such as factories, machinery, and equipment) are the result of savings and investment. When individuals save part of their income, they are able to use those savings to fund the production of capital goods. The capital goods, in turn, are used to produce consumer goods, which are sold to the individuals who saved their income.

The interest rate is the price of capital and reflects the time preferences of individuals. Those who prefer to consume goods in the present will be willing to pay a higher interest rate to borrow money and consume now, while those who prefer to save and consume in the future will be willing to lend money at a lower interest rate.

The Austrian theory of capital and interest also explains how changes in the interest rate can affect the economy. For example, if the interest rate is low, individuals will be more willing to borrow and invest in capital goods. This can lead to an increase in the production of consumer goods and a higher level of economic activity. However, if the interest rate is too low for too long, it can lead to an overproduction of capital goods and a subsequent economic downturn.

The concept of capital and interest is an important part of the Austrian theory of the business cycle and helps to explain how changes in the interest rate can impact the economy.

One of the main criticisms of Austrian economics is that it assumes that individuals always act rationally and in their own self-interest. However, this is not always the case, and people may make decisions that are influenced by a variety of factors, including emotions and social norms. Additionally, some argue that the market is not always the best way to allocate resources and that government intervention may be necessary in certain situations, such as to address market failures or provide public goods.

Today, the Austrian school continues to be an influential school of thought in economics, with proponents around the world. It remains committed to the idea of individual freedom and the power of the market to allocate resources efficiently.