Austrian and Keynesian Economics

Have you ever wondered why the money supply that circulating in the country is controlled by the government intervention? Here is the story behind it.

Source: Michael Steinberg

In the past, the economics perspective is divided by two which is Austrian and Keynesian. Austrian economics comes from the Austrian Empire in the mid-1800s. Austrian economists such as Carl Menger, Ludwig von Mises, and Friedrich Hayek believed the free market was the most efficient means of allocating resources. Keynesian economics comes from economist John Maynard Keynes, author of the 1936 book “The General Theory of Employment, Interest and Money.” Keynes believed the government could manage demand to maximize economic growth and employment.

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Source: Rostislav Uzunov

Both of them have a different perspective about the value of money and how to manage the inflation. Austrian economics preferred items or services can be sold by subjective which means that they become the price maker based on the individual customer perception. However increasing the supply of goods decreases their perceived value, an idea that later became known as diminishing marginal utility. The Austrian school of economics emphasizes macroeconomic ideas such as free markets, private property, and minimal central bank intervention. They believe that central bank intervention can make the economy worse during an economic recession since they are the ones who control interest rates too low for a long time. Austrian economics perspective mostly likes to use tangible assets like gold reserves as the back of money rather than using fiat currencies. They are more to free market because it’s more efficient and protects money supply to avoid devaluing currencies and creating inflation.

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Source: Pixabay

Keynesian economics preferred to make a stable price and add the money supply circulating in their country to minimize inflation and unemployment. The idea that the government should expand the money supply during economic downturns is known as expansionary fiscal policy. Keynesian economics is more focused to employment than minimalizing inflation. They also believe that the free market is inefficient and volatile since it dislikes government intervention to make policies. The government can make policies that will be implemented and stabilize the economic to mitigate recession.

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Source: Worldspectrum

In 2024, I think that cryptocurrencies have become a valuable asset like the Austrian perspective where the price of Bitcoin, Ethereum, Altcoins, etc are based on the people’s perspective. It makes the price become volatile. Most people that already involved and experience in cryptocurrencies will think that fiat is less valuable since it can be manipulated by the central bank by increasing the total supply.

What do you think about Austrian and Keynesian economics? Let me know your thoughts!

Reference:

https://money.usnews.com/investing/articles/keynesian-economics-vs-austrian-economics