The following excerpt from “The Austrian School of Economics.” provides a good description of the distinguishing characteristics of the Austrian School.
Fritz Machlup later looked back and formulated the six most important characteristics of the Austrian School, in an English article for an anthology celebrating the hundredth birthday of Ludwig von Mises (most of the emigrated Austrian economists made contributions), as follows (cf. Machlup 1981, pp. 9–10):
1. Methodological Individualism: The explanation of economic phenomena stems from the actions (or inactions) of individuals; groups or “collectives” cannot act except through the actions of individual members.
2. Methodological Subjectivism: Economic phenomena stem from individual judgments and are based on personal knowledge and subjective expectations toward the future.
3. Taste and Preferences: Subjective valuations of goods and services determine the demand for them; in turn, consumers determine types of goods, quantities, and prices.
4. Opportunity Costs: The economic actor takes into account alternative possible applications; choosing one possible use means sacrificing other possible uses.
5. Marginalism: Economically relevant valuations are determined by the significance of the last unit added to or subtracted from the total.
6. Time Structure of Production and Consumption: Production and consumption are determined by subjective time preferences. Machlup pointed out that within the Austrian school, the economic notion of time is regarded in different ways.
Finally, Machlup introduced two further characteristics that were particularly applicable to Mises and his students:
7. Consumer Sovereignty: Consumer demands are the optimal drivers of production, distribution, prices, and allocation of resources, so long as they are not hindered by the external intervention of laws, public authority measures, or cartel agreements.
8. Political Individualism: Political freedom requires economic freedom. Political and economic restrictions lead, sooner or later, to the extension of coercive measures on the part of the state and undermine individual freedom. [Page 175]
The three basic assumptions of neoclassical economics (optimization behavior, fixed order of preference, and equilibrium) was diametrically opposed, then as now, to the basic positions of the Austrians—expedient action, individual preferences, and dynamic processes (cf. Boettke 1994a, pp. 602, 604). [Page 182]