What is the Austrian School of Economics?

Today, policy makers and the mainstream investment community generally follow the Keynesian school of economics, which adheres to the writings of John Maynard Keynes, a famous British Economist of the 20th century.  In short, Keynesians believe government, through significant regulation, spending, and the printing of money, can steer economies towards prosperity while minimizing economic downturns.

In contrast, a free-market based economic theory began in the late 19th century with the publication of Principles of Economics by Carl Menger.  As Menger and many early leading economists hailed from Austria, it became known as the “Austrian School of Economics”.  Austrian economic theory was honored by the 1974 award of the Nobel Prize in economics to F.A. Hayek, and it has grown in recognition with the founding of the Ludwig von Mises Institute. Understanding the Austrian economic theories of Inflation and Recessions provide powerful advantages for investors.