The Austrian Episode

The Austrian school of economics was well within the mainstream of economic thought into the 1930s. By mid-twentieth century the Austrian school had established a distinct identity, partly because of methodological developments in mainstream economics, but moreso because of its policy conclusions. Austrian school was best known for its claim that rational economic calculation was not possible without markets and market prices, challenging the mainstream view that looked favorably on central economic planning. In addition, the Austrian business cycle theory challenged the Keynesian macroeconomics that dominated macroeconomic thought up through the mid-1970s. While there were methological differences between the Austrian school and the mainstream, these policy differences defined the Austrian episode. By the end of the twentieth century, the Austrian school had won the economic calculation debate, Keynesian macroeconomics had been displaced, and the methodological differences between the Austrian school and the mainstream had narrowed. The Austrian episode had passed. In the twenty-first century, the Austrian school’s ideas, still relevant, have been combined with complementary ideas from other heterodox traditions, diminishing the distinctive identity the Austrian school had in the second half of the twentieth century.