It Is in Spain, in the School of Salamanca, that We Find the Intellectual Roots of the Austrian School of Economics

In short, the Scholastics of the Spanish Golden Age were able to articulate what would later become the key theoretical principles of the Austrian school of economics, specifically: first, the subjective theory of value (Diego de Covarrubias y Leyva); second, the correct relationship between prices and costs (Luis Saravia de la Calle); third, the dynamic nature of the market and the impossibility of realizing the equilibrium model (Juan de Lugo and Juan de Salas); fourth, the dynamic concept of competition understood as a process of rivalry between sellers (Castillo de Bovadilla and Luis de Molina); fifth, the principle of time preference (rediscovered by Martín de Azpilcueta); sixth, the profoundly distorting effect inflation exerts on the real economy (Juan de Mariana, Diego de Covarrubias and Martín de Azpilcueta); seventh, the critical analysis of fractional-reserve banking (Luis Saravia de la Calla and Martín de Azpilcueta); eighth, the recognition that bank deposits form part of the money supply (Luis de Molina and Juan de Lugo); ninth, the impossibility of organizing society via coercive commands, since the information necessary to give such commands a coordinating quality is lacking (Juan de Mariana); and tenth, the libertarian tradition that all unjustified intervention in the market constitutes a violation of natural law (Juan de Mariana).

Hence there are well-founded reasons to conclude that though the dynamic, subjectivist conception of the market was taken up again and given a definitive boost by Menger in 1871, it originated in Spain. It is there, namely in the School of Salamanca, that we find the intellectual roots of the Austrian economic tradition. Like the modern Austrian school, and in stark contrast to the neoclassical paradigm, the School of Salamanca is above all characterized by the great realism and rigor of its analytical premises.

—Jesús Huerta de Soto, The Austrian School: Market Order and Entrepreneurial Creativity (Cheltenham, UK: Edward Elgar, 2008), 33-34.

The Samuelson-Hicks Neoclassical-Keynesian Synthesis

The three decades between the end of the Second World War and 1975 saw the triumph of the “neoclassical-Keynesian synthesis” and of the mathematical formalism of equilibrium analysis in our discipline. Indeed, during this period, equilibrium analysis became master of economic science, though we should note that economists fell into two major camps concerning their use of the notion of equilibrium.

One camp followed Samuelson, who, after the publication of his Foundations of Economic Analysis,  joined Hicks in pioneering the neoclassical-Keynesian synthesis. Samuelson expressly embraced Lange and Lerner’s theory on the possibility of market socialism, and thus he blindly adopted the stance of these neoclassical authors regarding the challenge posed by the theorem of the impossibility of socialism, which Mises had discovered.

--Jesús Huerta de Soto, The Austrian School: Market Order and Entrepreneurial Creativity (Cheltenham, UK: Edward Elgar, 2008), 95.

Böhm-Bawerk Rejects the Marshallian View of Determining the Supply Side by “Objective” Considerations of Given and Known Production Costs

Böhm-Bawerk reproached Marshall for blocking, in the English-speaking world, the clear reception of the subjectivist revolution that Menger had started and, specifically, for attempting to rehabilitate Ricardo’s old objectivism, at least on the supply side, in using supply and demand functions to explain price determination. Indeed Marshall used the metaphor of the famous scissors with two blades (supply and demand) that jointly set (equilibrium) prices in the market. While Marshall accepted that demand is basically determined by subjective considerations of utility, he believed that the supply side was mainly determined by “objective” considerations involving the historical (that is, “given” and known) cost of production.

--Jesús Huerta de Soto, The Austrian School: Market Order and Entrepreneurial Creativity (Cheltenham, UK: Edward Elgar, 2008), 53.