Carl Menger s Principles Of Economics - 1344 Words

Carl Menger has been given credit to the modern Austrian Economic model. He wrote â€Å"Principles of Economics† in 1871 (Snowdon and Vane 474). What separates Austrian Economics from other schools of thought is the emphasis put individuality. The individual is the driving force of the Austrian school of thought. Because of this, Austrian Economics is very subjective. The needs of one individual differ from those of another individual. Put simply, people will want to better their lives. Manoj Singh said that â€Å"One more extra dollar in the hands of a billionaire would hardly make any difference, although the same dollar would be invaluable in the hands of a pauper† (Singh). There is an incentive for people to better themselves.†¦show more content†¦In an economy with no growth, the Austrians believe that the current level of savings is just enough to offset capital depreciation. Also, in a no growth economy the consumable output (products that busin ess produce) is constant. This is represented in the first two periods of the graph. If savings are in excess of capital depreciation, the economy grows. Period 3 shows the decrease in consumable output when consumer preferences change in favor of savings. The assumption is that because businesses are not producing as many products, they have freed up resources. The Austrians would say they need to invest these freed up resources into their company in order to eventually increase their level of consumable outputs at an increased rate in conjunction with the future increase in consumption brought about by the current increase in savings. This is depicted in period 4 and continues throughout the end of the graph. These three graphs are the model that Austrians use to determine output and interest rates in the economy. The graph on the top left represents the stages of production by firms with stages of production on the x-axis and consumable output (goods) on the y-axis. In the economy some products require fewer stages of production than others. At each stage of production there are more goods produced, but only up to the hypotenuse. If the economy