Paths of the Weberian–Austrian Interconnection

This paper centers on the theoretical–methodological interconnections between Weber and the Austrian economists. First, the influence of classical Austrian economics, especially Menger and Böhm-Bawerk, on Weber is reexamined. Then we are concerned with the importance of Weber's ideas in neoclassical Austrian economics, including Schumpeter, Mises and Hayek. Also, Weber's legacy in modern economics is reconsidered. Since little research is done on these interconnections between Weber's sociology and Austrian economics, the paper thereby contributes toward spanning a gap in the present economic and sociological literature.     

1985: A defining year in the history of modern Austrian economics

Mises and Hayek in the 1920s and 1940s thought of their work as within the orthodoxy of economic science. But after WWII it became increasingly obvious that the contributions of Mises and Hayek were out of step with the way the economics profession was evolving. But starting in 1974, due to the organizational efforts of Murray Rothbard and Israel Kirzner, and bolstered by the awarding of the Nobel Prize in Economic Science to FA Hayek, a resurgence of interest in Austrian economics by young scholars was initiated. Starting in 1984, but significantly in 1985, the work of the new generation of Austrian economics started to have an impact in the mainstream outlets in terms of journals and university presses. We argue that this is a defining year in the modern history of the Austrian school and that it reflected both the quality of work being done by the new generation as well as a methodological crisis within the mainstream of economic scholarship. Don Lavoie’s work in comparative economics, as well as his work in methodology, reflected this shift within the economic conversation.     

Remembering Jim Buchanan

James Buchanan was an important influence on the Austrian revival and not incidentally on my own career. By taking the work of Ludwig von Mises, Friedrich Hayek and Israel Kirzner seriously at a time when Austrian economics was ignored by the economics profession and by making his own contributions to subjectivist economics, Buchanan helped make the Austrian perspective professionally respectable, and inspired a generation of young economists interested in the Austrian school.     

Lachmann and the wilderness: On Lachmann's radical subjectivism

Abstract

This paper deals with the question why in the 1940s and 1950s Ludwig Lachmann (1906–1990) failed to revive Austrian economics. Lake Keynes and Hayek, Lachmann pointed out that expectations, and hence knowledge, are important determinants of (cyclical fluctuations in) investment and economic activity. He thereby emphasized that the process of knowledge acquisition is indeterminate and open‐ended. This indeterminateness is difficult to reconcile with neoclassical attempts to provide economics with internally consistent microfoundations. This fundamental difference between his and the neoclassical research agenda explains Lachmann's failure to revive Austrian economics.     

The Microfoundations of Austrian Economics through a New Classical Theoretical Lens

This paper is an attempt to contribute to the microfoundations debate by discussing the distinctive methodological characteristics of the Austrian school, and how they relate to different conceptions of equilibrium and general equilibrium models. Further, we shall focus on one specific branch of the Austrian school (those who see markets as exhibiting equilibrating tendencies) and one specific branch of neoclassical economics (the New Classical School) to highlight some hitherto overlooked points of tangency. Indeed, we shall use the monetary theories of Hayek and Lucas to argue that the limitations of New Classical models may lead to Austrian solutions.     

The view from Vienna: An analysis of the renewed interest in the Mises-Hayek theory of the business cycle

We review the post-crisis literature that engages Austrian business cycle theory and we discuss what is being said that is correct, what is being said that is incorrect, and what is not being said that ought to be said. This last category is important due to the fact that the post-crisis literature engaging Austrian business cycle theory has not addressed advances in the theory made since the days of Mises and Hayek. We also highlight three key areas of contemporary economics where Austrian business cycle theory has the potential to do significant work.     

Spontaneous economic order

This paper provides attempts to formalize Hayek’s notion of spontaneous order within the framework of an Arrow-Debreu economy. Our study shows that, if a competitive economy is sufficiently fair and free, a spontaneous economic order will emerge in long-run competitive equilibria so that social members spontaneously occupy an unplanned distribution of income. Despite this, the spontaneous order may degenerate in the form of economic crises whenever an equilibrium economy approaches the extreme competition. Remarkably, such a theoretical framework of spontaneous order provides a bridge linking Austrian economics and neoclassical economics, where a truth begins to emerge: “Freedom promotes technological progress”.     

Emergence and complexity in Austrian economics

Emergence is often argued to be a deep property of complex systems, with such systems exhibiting wholes that are in some way greater than the sum of their parts. These ideas have played an important part in discussions of spontaneous order within Austrian economics, particularly by Hayek drawing on arguments dating from Mill and Menger, although with other traditions such as that of Böhm-Bawerk not relying on such ideas. Philosophical discussions of these terms are considered that raise questions about the relationship between the emergent whole and the lower level parts that comprise it. A major issue is the role of these ideas and processes within evolution, with Hayek in particular moving strongly towards identifying their linkage, something advocated by many non-Austrian economists and non-economists as well.     

The Property System in Austrian Economics: Ronald Coase's Contribution

This paper argues that contrary to Roy Cordato's claim, Ronald Coase's work on the problem of social cost is an important contribution to Austrian economics. Coase identified a criterion that can be used to establish initial legal rights to control actions that have external effects. In other words, he discovered a criterion that, in some cases, can be directly applied to help establish a property system when there is none. The criterion also helps a government adapt, or maintain, a property system in light of continuing changes that are characteristic of the entrepreneur economy. Cordato's anti-state ethical economics, which he used to criticize Coase, is a deviation from the century-old tradition of Austrian economics. Menger, Mises and Hayek saw economics as a body of logical knowledge that is value free. In addition they recognized a role for government in defining legal rights and in maintaining the property system in light of changing conditions. Accordingly, it is wrong to invoke Austrian economics, properly understood, to criticize this aspect of Coase's work. In this paper, I argue that Cordato has followed a deviant and troubling path by trying to construct an Austrian economics based on ethics, that he has failed to understand that a changeable property system is a prerequisite for the market economy, and that he has correspondingly failed to recognize Coase's contribution to the problem of how to maintain the property system in light of continuing change.     

Profit Expectations and Confidence: Some unresolved issues in the Austrian/Post-Keynesian debate

Austrian and Post-Keynesian economists both continue to make important contributions to subjectivism in economics. Yet, as the ongoing debate between members of the two schools demonstrates, Austrians and Post-Keynesians have very different views about the possibility of intertemporal coordination in a market economy. This paper returns to the debate between Hayek and Keynes in order to respond to a contemporary Austrian critique of Keynes's theory of expectations. The paper shows that the fundamental difference between the two schools ultimately boils down to the nature of conventional expectations and the question of confidence. If the conventional expectation holds to assume the future will look enough like the present to give investors confidence in their decisions, Hayek's arguments about the possibility of intertemporal coordination merit attention. If, however, this convention does not hold, as Keynes thought was sometimes likely, the self-regulating potential of a market economy is called into question.     

Austrian economics and development: The case of Sudha Shenoy’s analysis

The aim of this paper is to describe Sudha Shenoy’s use of Menger, Mises, and Hayek (she explicitly called them ‘the older Austrians’) to explain development and growth. Her aim was to show that the application of Austrian economics, based on the notions of capital structure and division of labor, embedded in a specific legal framework (common law), historically promoted development and growth (as in early modern England); and can promote development and growth in underdeveloped countries (her specific focus was India). Shenoy also claimed that any policymaking as well as government’s intervention are either useless or dangerous, having two main dysfunctional effects, which are often interrelated; namely, make development slower (or even stop it), and increase corruption.     

The microfoundations of the microfoundations of Austrian Business Cycle Theory

The Review of Austrian Economics - The Austrian School interpretation of the Keynes-Hayek debate runs counter to the conventional wisdom that Hayek “lost” the debate. Austrians maintain...     

Austrian Economics as a Progressive Paradigm: Explaining More Complex Economic Phenomena

This article examines two major issues of Austrian economics. The first is the alleged superiority of Austrian over neoclassical economics. The second is the capacity of Austrian economics to support new theoretical research. The analysis shows that Austrian economics has the widest domain of validity for explaining economic phenomena. It is also shown that Austrian economics has a progressive theoretical character due to the fact that there exist a number of analytical phenomena that Austrian economics cannot explain in its present state but that may be explained by means of a leap with continuity from Austrian anthropological presuppositions.     

Austrian Economics,Socialism and Impure Forms of Economic Organisation

Modern supporters of the Austrian school of economics maintain that their critical stance towards impure forms of economic organisation - such as the mixed economy - grew out of the arguments of Mises and Hayek during the socialist calculation debate of the 1930s. The paper assesses the two theorists, contributions in the debate and argues that their ideas cannot provide the basis for a general rejection of impure forms of economic organisation. First of all, and contrary to most modern Austrians, who consider the contributions of Mises and Hayek as essentially consistent, it is argued that Hayek's critique of socialism is much more effective than Mises' as it rests on his concept of tacit knowldge and on an evolutionary account of the emergence of capitalist institutions. However, the paper goes on to argue that, if Hayek's critique of state intervention is to have any relevance for contemporary capitalist economies, it must be in a position to show the non-viability not only of a fully centrally planned economy of the Soviet type but also of the mixed economy. It is argued that it is precisely in this that Hayek's evolutionism fails, for his teleological approach is not persuasive in ruling out the possibility of impure forms of capitalism in a manner that is consistent with truly evolutionary - i.e. non-teleological - ideas.     

Left luggage: finding the relevant context of Austrian Economics

Recently a number of scholars, including Tony Judt and Corey Robin, have attempted to discredit Austrian economics by emphasizing the (cultural) distance between the context in which the Austrians made their contributions and our current society. This article argues that the cultural and social context is indeed relevant for how we understand the contribution of the Austrians, but that the critics fundamentally misunderstand or misrepresent the Austrian and Habsburg context. It is argued that the relevant context, particularly for the interwar contributions of Mises, Schumpeter, Hayek and Popper is the despair about the breakdown of their civilization, which includes the rise of mass political movements such as socialism and fascism. It is only against this background that we can understand the intent of their work, and the problems which they sought to address. It is further argued, in contrast with earlier work which has tended to emphasize the philosophical and methodological context in which they operated, that this cultural and social context is at least as relevant to understand the meaning of their work.     

The economics of Frank H. Knight: An Austrian interpretation

This paper interprets, in the modern Austrian economics perspective, Frank H. Knight's three core contributions; namely, economic methodology, theories of human action, uncertainty and entrepreneurship. Though Knight is regarded as one of the founding fathers of the Chicago School of economics, this paper argues that Knight's contributions are essentially Austrian. Influenced by William James, Henri Bergson and Max Weber, Knight's subjectivist economics can be seen as a link between Carl Menger and Ludwig von Mises in the history of Austrian subjectivism. This paper further suggests that Knight may be more appropriately located in the Austrian-German School, for the reason that the term “Austrian School” is too narrow to accommodate german influences. This paper concludes that Knight's legacies have left much to be appreciated by neoclassical mainstream economists in general and Austrian economists in particular. The author thanks Dian Kwan for her proof reading in this essay.     

Austrian Economics and Game Theory: A Stocktaking and an Evaluation

I discuss the merits and drawbacks of game theory in economics from the perspective of Austrian economics. I begin by arguing that Austrians have neglected game theory at their peril, and then suggest that game theoretic reasoning could be one way of modelling key Austrian insights. However, admittedly some aspects of game theory don't square easily with Austrian economics. Moreover, a major stumbling block for an Austrian acceptance of game theory may lie in the traditional Austrian resistance to formal methods.     

Austrian economics and value judgments: a critical comparison with Neoclassical Economics

This article points out the limits of Austrian economics as far as the passage from positive to normative economics is concerned. We propose a comparison with neoclassical economics and discuss the different theoretical solutions adopted by these two schools of thought in their legitimization of the normative discourse. The bridge from positive to normative economics is analyzed as resting upon two interdependent pillars, one of a technical nature, the other of an ethical one. In neoclassical theory, these two pillars are, respectively, the Pareto principle and the so-called minimal benevolence principle. In the case of Austrian economics, they are the coordination principle and a set of value judgments considered to be ‘quasi-universal’. One problem for Austrian economics is that the coordination principle turns out to be incompatible with process analysis, the latter being a central tenet of the Austrian theory. A second problem, which creates serious difficulties for both schools, has to do with distribution. Our thesis is that whereas the neoclassical solution of the distributive problem is formally consistent (although deeply unrealistic), the Austrian solution is theoretically untenable and based on strong, although implicit, value judgments.     

The irrelevance of normative considerations for founding an Austrian law and economics: Reply to Marciano

In a comment on my paper, ??An Austrian approach to law and economics, with special reference to superstition?? (Leeson 2012), Marciano contends that Posnerian foundations ??may be problematic for an Austrian approach to law and economics??. In this reply I argue that the differences between Posner and Austrians that Marciano uses as the basis for his contention are normative. If, as Austrians claim, Austrian economics is purely positive, those differences are irrelevant to the appropriate foundations for an Austrian law and economics. They pose no problem for a Posnerian founding.     

Pluralism and heterodoxy in economic methodology

Economists work within models that are simplified depictions of reality. An argument for a pluralistic understanding of economics is that different approaches lend insight by looking at different phenomena from different viewpoints. While all economists can benefit from taking a pluralistic approach to understanding economics, Austrian school economists must be more pluralistic in their understanding and presentation of ideas than mainstream economists if they want their ideas to have an impact on mainstream economics. Despite the argument for a pluralistic understanding of economics, in research, as in other activities, specialization increases productivity. While Austrian school economists can benefit from taking a pluralistic approach to understanding economics, they are likely to be most productive in their research by specializing in the development of Austrian school methods and ideas.