THE AUSTRIAM SCHOOL OF ECONOMIC THOUGHT
The Austrian school, dominated first by Carl Meneger (1840-1921) then Friedrich von Hayek, Ludwig von Mises, and Joseph P. Schumpeter, rejects the theory of equilibrium analysis. To these scholars the real goal was to study the effects of individual behavior in a market whose disequilibrium was the final effect. As entrepreneurs make decisions to allocate resources, and establish price levels, other players in the market interact with them causing changes to be made in decisions, prices, allocations and so on. The Austrian conviction was that these sequential, yet diverse decisions, all seeking to optimize human action in the exchange process, make up a market processthat is not all in equilibrium. “To the Austrians a wrong turn taken when orthodox economics accepted…the... ‘definition of economics as the allocation of scarce resources among competing ends.’’’21 This direction must conclude in some optimum position or equilibrium, which, according to vonMises, cannot exist. When in the company of individuals who are sensitive to changes that take place in the market, who are “alert to opportunities” in the market and make adjustments accordingly, there cannot be an optimum and state.