Austrian economic theory and the classical economic tradition

Among the many misunderstandings of classical economic theory that have emerged since the Keynesian revolution is that classical economic theory is closely reflected by Austrian economic theory as it is now structured. The chapter examines the Austrian theory and its major differences from classical, with the most important difference being its demand-side orientation. The focus on utility has obscured presuppositions embedded within Austrian theory that assume away much of the classical supply-side understanding of the operation of a market economy. Perhaps creating even more of an obstacle to making sense of classical theory is the assumption that classical economists held beliefs that were similar to the generally laissez-faire attitudes to policy that are now common among Austrian economists. Finally, while Austrian business cycle theory has features in common with the classical theory of the cycle, and was one particular version, it is significantly different in many ways.