Essential Austrian Economics: The Market Process

One of the distinguishing features  of the Austrian School of Economics

is their evolutionary view of the economy.

For many people, including experts, there is a  tendency to think about the economy as a machine.

And that the economic machine just needs  tweaks here and there to operate smoothly.

But, the Austrian school has a fundamentally  different understanding of the economy.

They understand the economy as  complex and constantly evolving

as a result of countless individuals making  choices based on their preferences and values.

The Austrians refer to this organic understanding  of the economy as the Market Process.

For this process to work properly, the  Austrians identified four requirements.

The first is property rights.  People must be allowed to own

property as well as the fruits of their  labour for market exchanges to occur.

Second, prices need to be set, not by government,

but in an open and competitive market that  takes account of the scarcity of resources.

Third, entrepreneurs and businesses  must be allowed to earn profits but

also suffer losses – including bankruptcy.

Prices, profit, and loss prompt entrepreneurs

and businesses to allocate scarce resources  more effectively, and encourages innovation.

The final requirement is that  the market process never ends.

As Austrian economist F.A. Hayek explained,  the only constant in economics is change.

Understanding the constantly  evolving nature of the economy

is key a reason why Austrians advocate  only a limited role for government,

and avoiding trying to protect  against losses and business closures.

The Austrians recognize that these four  pillars support the market process,

which results in ever-improving living standards  and well-being for societies that embrace them.

For more information on Austrian  Economics, visit EssentialAustrians.org

For more information on Essential  Scholars, visit EssentialScholars.org