As a newcomer to Austrian Economics I would like for someone to give me a crash course on it and how it differs from classical economic thought. I have been reading articles from Mises for quite a while now and have learned quite a bit, but I feel my knowledge on AE is a sort of patch work job right now. So someone give the some of the foundational beliefs of AE.
I understand that AE holds that the unpredictability in human behavior makes the task of scientific modeling of the market extremely difficult which leads us to the logical conclusion of laissez faire capitalism being the only efficient economic model where the price mechanism is left unhampered for efficient allocation of resources. So assuming that the statement above is correct where else does AE differ from the thought of Adam Smith and classical economic theory?
For one, adam smith concluded that the service sector was deleterius to national wealth.
Also, smith believed that labor was the source of value and wealth.
Menger and co (Jevons, Walras, etc) split from the classical objectivist theories of value that had dominated traditional economic thinking of the time.
Much of the work in classical economics assumes a market in equilibrium. AE usually says the market tends towards equilibrium but never reaches it. AE takes into account the effect of entrepreneurship on the market while classical economics largely avoids that.
There is also a distinction between microeconomics and macroeconomics in the classical school. No such distinction or division exists in AE. (as far as I can tell)
AE uses an axiomatic, rational, deductive approach. Classical economics tends to make use of an empirical approach.
Do you have any evidence that classical economists had made such a distinction? I have read some of the classics, but never encountered anything like this. I suspect that the micro/macro distinction is due to the incompatibility of Keynesianism with standard microeconomics.
"I cannot prove, but am prepared to affirm, that if you take care of clarity in reasoning, most good causes will take care of themselves, while some bad ones are taken care of as a matter of course." -Anthony de Jasay
I'm not too versed in it, but I think things like the theory of foreign or international trade would fall under macro, and their theory of the firm would fall under micro.
I've only had introductory college education in economics + what I've learned here about AE in the past year or two. So I don't claim to have much of an informed opinion with respect to this specific thing. I'm probably conflating classical with neoclassical.
Smith didn't seem to see that distinction, nor did Ricardo. In fact, absolute advantage and comparative advantage was thought to work the same way between households as between nations.
"Smith didn't seem to see that distinction, nor did Ricardo. In fact, absolute advantage and comparative advantage was thought to work the same way between households as between nations."
Really, I find that very interesting, especially since I've read in some places on this site that Mises was original in generalising it, though he always refers to it crediting Ricardo, calling it the "Ricardian law of association."
"When the King is far the people are happy." Chinese proverb
For Alexander Zinoviev and the free market there is a shared delight:
"Where there are problems there is life."
What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom.
I'm probably conflating classical with neoclassical.
Well, macroeconomics is now grounded thoroughly in microeconomics; constrained optimization and general equilibrium, although as I understand it, game theoretic approaches are being incorporated. You may not agree with the microeconomics, but there is no longer the dichotomy there once was.
"You don't need a weatherman to know which way the wind blows"
Bob Dylan
That is mostly true, but to a large extent since the latest recession, many macroeconomists have reverted back to Vulgar-Keynsianism. I can't really explain why this happened and am up for hearing hypothesis.
I spoke to a TA of mine about this not long ago. I told him that I read a piece in The Economist that suggested some sort of monumental shift in the way macro is done, towards what you called a more "vulgar Keynesianism", and asked what he thought of it. He told that me it really isn't true, it's largely a fiction that's been perpetuated by journalists and a few prominent pieces of deadwood, mainstream macroeconomists are still doing exactly what they were before the financial crisis, DSGE.
"Well, macroeconomics is now grounded thoroughly in microeconomics; constrained optimization and general equilibrium"
Just more of the same. Utterly useless mathematical models of static equilibrium , still no adequate theory of capital and intertemporal coordination of the structure of production. Still no theory of entrepreneurship and no adequate theory of money, credit, and interest rate.