Comparison Essay. Austrian economics vs Classical political economists

Student’s Name
Professor’s Name
Course
Date
Comparison between Austrian economics and Classical political economists
The inception of Austrian economics dates back to the work of Carl Menger- a vital player in the marginalism economics and contributor to the development of subjective value and theory of diminishing marginal returns. Menger analysis emphasized on marginalism, subjectivism, and utility (Alter, np). Other representatives of this Austrian economic perspective such as Ludwig Von Mises and Friedrich Wieser expanded the elements to include other core concepts such as opportunity costs, monetary theory of crises, methodological individualism, focus on the entrepreneur, fundamental uncertainty, laissez-faire policy, relevance of prices and free competition, aprorism and strong deductivism (Boettke, 130).
On the other hand, classical economics is a school of “economic thought” that can be traced back to the 18th century with the work Adam Smith, David Ricardo, and John Stuart Mill. Classical economics school stresses on economic freedom, free competition, and laissez-faire philosophies. Smith maintained that free competition and trade that is not interfered by the government promote strong economic growth (Meacci & Carmelo, 315). Further, he observed that in a free-enterprise system, vendors make profits through the production of goods that other people are willing to buy. Similarly, buyers only spend money only on the products and services they need most. Smith observed that the cooperative economic system occurs voluntarily through individual choice as opposed to central direction. Similarly, Ricardo declared that under competitive conditions the value (price) of a product is determined by its demand and supply (Pohoaţă, 77).
While Austrian economists hold that the value of products is determined by subjective factors, classical economists maintain that the prices of goods and services are determined by supply and demand. According to Luther & McElyea (14), these subjective factors include individual beliefs, knowledge, perception, and expectations. Austrian economists argue that the coordination of an individual’s plans for supply and demand is difficult due to uncertainties in the marketplace such as changes in technology, preferences, and knowledge. Further, the information required to arrive at equilibrium is distributed throughout participants in the market making the aggregation impossible (Boettke, 130). On the other hand, classical economists hold that prices, wages, and rates are flexib...