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AUSTRIAN SCHOOL OF ECONOMICS
By Staff Reporters
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A Paradox is a logical self-contradictory statement or a statement that runs contrary to one’s expectation. It is a statement that, despite apparently valid reasoning from true or apparently true premises, leads to a seemingly self-contradictory or a logically unacceptable conclusion. A paradox usually involves contradictory-yet-interrelated elements that exist simultaneously and persist over time. They result in “persistent contradiction between interdependent elements” leading to a lasting “unity of opposites”.
Here are five economic paradoxes from the Austrian School of Economics.
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Prosperity: Why do generations that significantly improve the economic climate seem to generally rear a successor generation that consumes rather than produces?
Thrift: If everyone saves more money during times of recession, then aggregate demand will fall and will in turn lower total savings in the population.
Toil: If everyone tries to work during times of recession, lower wages will reduce prices, leading to more deflationary expectations, leading to further thrift, reducing demand and thereby reducing employment.
Value: [also known as Diamond-Water Paradox]: Water is more useful than diamonds, yet is a lot cheaper.
Productivity: [also known as Solow Computer Paradox]: Worker productivity may go down, despite technological improvements.
Note: The Austrian School of Economics promotes an economic and social thinking that is not trapped in unrealistic, mostly mathematical models. It does not see the economy as an object of state political regulation and central, almost engineering-like control. Rather, its analysis focuses on autonomous entrepreneurial action and the free interaction of individuals in the marketplace, which eludes both the logic of differential equations, and centrally planned political control.
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