Austrian and mainstream economics : how do they differ?

Abstract

In the aftermath of the 2008 financial and economic crisis, mainstream economics (ME) was accused of being unable to predict, prevent, and alleviate it. In this situation, one might be curious if alternatives to mainstream economics are of any value. The aim of this paper is to answer whether the theory of the Austrian school of economics (ASE) can be considered a serious alternative to ME. This is done by examining its methodology and especially its attitude towards the use of mathematics in economic theory. Some shortcomings of the ASE's methodology are considered that make it a less attractive alternative than might initially be assumed. Next, the arguments of the ASE economists against the use of mathematics in economics are reviewed careful examination indicates that they are not sound. All of this shows that the ASE cannot be considered a serious alternative to ME. Finally, this conclusion is illustrated with a comparison of methods with which theories of business cycles are arrived at and analyzed in the two approaches.