A Brief Summary of the Austrian School of Economics

The Austrian School of Economics emerged in the late 19th century, with Carl Menger, Eugen von Böhm-Bawerk, and Friedrich von Wieser as its founders. The school is based on the idea that individuals have subjective values that they use to make economic decisions. The school also holds that the economy is a complex system that cannot be fully understood using mathematical models, but requires the use of qualitative analysis.

Bohm-Bawerk, in particular, made significant contributions to the Austrian School of Economics. He believed that the interest rate was determined by the interplay of supply and demand in the market for loanable funds. According to Bohm-Bawerk, the interest rate represents the time preference of savers and borrowers. If savers prefer present consumption over future consumption, they demand a higher interest rate to lend their funds to borrowers who prefer future consumption over present consumption. On the other hand, if borrowers have a higher preference for present consumption, they will be willing to pay a higher interest rate to obtain funds.

Bohm-Bawerk's time preference theory of interest rates was important in shaping the Austrian School's understanding of the business cycle. He argued that changes in the interest rate could impact the economy's capital structure, leading to fluctuations in economic activity.