Microeconomic Principles
In studying economic activities and concepts, there are two dominant modes of thought that come to the forefront; neoclassicism or the 'mainstream' view and Austrian economics. These two schools of thought have points of contention on many different issues and theories found in the analysis of economic events. Several literary works have been written detailing the differences between the two approaches, although they have been subject to much criticism by the Austrian school. The major distinctions outlined by many authors include: praxeology, indifference, cardinality, continuity, probability, mathematical analysis, and public goods. Praxeological analysis is the basic foundation for the entire Austrian approach to economic observation. Human action is the most important and defining concept in Austrian economics. Human beings act, and the choices they make are based on motives or 'not-yet realized' parts which explain the behavior and thoughts that they exhibit. This basic notion allows for the Austrian school to build an approach based on human action, and the means they use to get to an end. Neoclassical economics differs in the sense that they seek to explain human action in terms of value and choice with their
The crux of the matter in terms of uncertainty and probability is dealing with the presence (or lack thereof) of class and case probability. The Austrians deny that probability can be quantified and future human actions derived from calculations. The neoclassicals advocate the use of quantifiable probability, and defend their stance by referring to games of chance. The Austrians contend that class probability cannot be applied to most economic events, and there is the problem that is preventing neoclassical economists from predicting the future. Neoclassical economic analysis uses extensive models to represent conditions at a certain time, and the reactions to those conditions. Many Austrian economists express the opinion that such a thing is futile as the models are not and cannot be real. Any model that accurately represents conditions and actions is either historical in nature, or is modeling what could be, not what is or will be. Another refutation presented by the Austrians dictates 'that any determinist theory of choice implies an inescapable contradiction.' (Hulsmann, 13) A theory such as that one presupposes a constant relationship with the action being studied and the conditions under which the action took place. This in turn implies that human beings cannot learn, because learning could change action under any given set of conditions, negating the theory and probability calculations. This implies that there are no constant relationships or laws that govern human behavior, and therefore (from the Austrian point of view) all such models are irrelevant and of no use in the explanation of human behavior. The issue of the use of mathematical equations in economic analysis is highly debatable. The Austrians contend that human action is based on value judgments, which have no cardinal value and no unit of measure. Positive economics is of no use to them as they view no constants in human action, and therefore, the study of what is, is always changing. The use of models to construct a stable or controlled environment for which to examine economic conditions should be limited to that use only, in the eyes of the Austrians. Those rules and laws cannot be applied to real everyday human relations as the conditions are always changing. It is stated by one author that the goal of mathematical economists is to describe various phenomen
Some common words found in the essay are:
Buridan's Ass, , human action, austrian economics, human behavior, austrian school, neoclassical economists, constant relationships, economic events, economic analysis, austrian approach, equilibrium prices,
Approximate Word count = 1597
Approximate Pages = 6 (250 words per page double spaced)
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