The complex role of Karl Menger in the Viennese economic theory

This paper is focused on the relation between economics and mathematics in the Wiener Kreis and in the Mathematische Kolloquium. In the 1930s, the economic theory became a part of Otto Neurath’s project of Unified Science, but in Menger’s Kolloquium, the reformulation of the model of general economic equilibrium (GEE) distanced it greatly from the Kreis’s neopositivist point of view. The role of Karl Menger is fundamental to understand the methodological and epistemological cleavage that arose in Mathematische Kolloquium. His role was very important also for understand the relation between the economic theory of the Austrian school and mathematical economics.

Origins of Menger’s thought in French liberal economists

Carl Menger, who became regarded as the founder of the Austrian School, did not only confront the German Historical School and criticize British Classical Political Economy, he also read the French Liberal economists. The link between Say and Menger has already been asserted, but on an intuitive basis. It seemed necessary to give substantial proof of its true extent, as well as to document it with proper archival work—that is done in the present article. Menger’s reading of other French authors: Count Pellegrino Rossi, who succeeded Say at the Collège de France, Michel Chevalier, a major name of the French Industrialization, Frédéric Bastiat, the famous defender of free-trade, is less known. It is also documented here, bringing to light first-hand material, mainly from the Menger Collection located in Japan, and the Perkins Library at Duke University. Thus are acknowledged the origins of Menger’s thought in French liberal economists.

The economic analysis of social norms: A reappraisal of Hayek’s legacy

This paper is organized as follows: first, we show that the reference to the notion of group selection is coherent with the other parts of Hayek’s thought. Second, we develop the idea that recent works in terms of the emergence and evolution of social norms corroborate in part Hayek’s theses in this domain. Finally, we put to the fore some drawbacks in Hayek’s approach and propose means to solve them.

Are residual economic relationships normally distributed? Testing an assumption of neoclassical economics

In both theoretical and applied contexts, neoclassical economics typically assumes that residual economic relationships are mean-zero, finite-variance, normally distributed random variables. However, many have challenged this view, from various perspectives. The Austrian economists, specifically in the tradition of Mises and Rothbard, reject outright the effort to mathematically model human choices. This Austrian view is often derided as unscientific. However, some of the most mathematically sophisticated work in financial economics also rejects the orthodox bell curve. In this paper, we test Benoit Mandelbrot’s “stable Paretian” hypothesis on ten major macroeconomic data sets and reject the normal distribution in nine of them. We further argue that the stable Paretian hypothesis (and, more generally, the field of “chaos theory”) is far more compatible with the Austrian position than one might initially suspect.

Thought experiments, counterfactuals and comparative analysis

This article discusses the problem of “thought experiments” in Austrian economics and takes as a starting point Lawrence Moss’ argument on the divide between the older Austrian economists—for whom thought experiments were crucial—and the new generation that, in Moss’ view, has “abandoned” such methods. The article is an attempt not only to bridge this alleged divide but also to contribute to the development of the Austrian methodology. It is argued that what may be perceived as “abandonment” bolsters rather than precludes the role of thought experiments in the Austrian paradigm. The article identifies an entire family of comparative and counterfactual analysis research strategies available to the Austrians, all enjoying a solid epistemological and methodological grounding. The “comparative-counterfactual analytics” pattern threads together the conjectural histories, spontaneous orders and empirical case studies of the contemporary Austrians, with the classic tradition of older works. Consequently, the recent evolution of Austrian scholarship should not be seen as an aberration or abandonment but as a deliberate, natural and commendable development.

From scholarly idea to budgetary institution: the emergence of cost-benefit analysis

Cost-Benefit Analysis (CBA) is typically portrayed as a technique for promoting efficiency in government. We don’t deny that CBA can be used in this manner, but instead focus on a different property of CBA, namely, its evolution from scholarly musings into a framing institution within which budgetary processes operate. The evolution of CBA into institutional status, moreover, shows the value of bringing a polyarchical perspective to bear on fiscal organization, wherein budgetary outcomes emerge through structured interaction among participants. CBA is a product of interaction within a political ecology, as distinct from being the product of some person’s optimizing choice.

Situational logic in social science inquiry: From economics to criminology

Karl R. Popper proposed that the method of explanation in economics, or situational logic, should become the general model for analyses across the social sciences. This article makes good Popper's proposal by extending situational logic to a social problem outside the traditional scope of economics: crime. Specifically, the discussion reviews models developed by economist Gary S. Becker and criminologist Ronald V. Clarke. Becker's ‘economic approach’ to crime incorporates essential features of situational logic. Clarke's ‘situational crime prevention’ offers an even better demonstration; it explicitly incorporates the ideas of piecemeal social engineering and unintended social repercussions. Popper took situational logic from Menger and the Austrians, making this emerging area of criminology an extension of Austrian economics.

The origins and evolution of democracy: an exercise in history from a constitutional economics approach

In this article the conditions for the rise and fall of representative regimes are explored. High citizen mobility and unexploited opportunities for investment create the need of reassuring factor owners against the tax hunger of the State. This may lead to the emergence of representative institutions of government, a process that reverts when those conditions disappear. Factors that facilitate or restrain the mobility of citizenry are identified, mainly in the domain of military technology. Thus, a number of interrelations between production and war technologies, political development and economic performance are revealed, giving rise to an interpretation of historical evolution.

The effect of capital requirement regulation on the transmission of monetary policy: evidence from Austria

This paper analyzes the role of banks’ regulatory capitalization in the transmission of monetary policy. We use a confidential dataset for Austrian banks spanning from the first quarter of 1997 to the fourth quarter of 2003. We find evidence that Austrian banks react in an asymmetric way to monetary policy depending on their regulatory excess capitalization, i.e. low capitalized banks react more restrictively to a monetary tightening than their highly capitalized peers.

Buchanan’s constitutional political economy: exchange vs. choice in economics and in politics

This article discusses the methodological foundations of Buchanan’s constitutional political economy. We argue that Buchanan is a constitutional economist because he is an economist or a political economist. In other words, Buchanan is a constitutional economist—he insists on the necessity of focusing on constitutions and to analyze the “rules of the social game”—because he defines economics as a science of exchange. Buchanan’s definition of economics is not only specific, it is also opposed to the definition of economics that other economists retain and, above all, opposed to the definition of economics that many public choice theorists use. The latter have, in effect, adopted the Robbins 1932 definition of economics as a science of choice that Buchanan criticizes and rejects. Buchanan’s constitutional economics can be a branch of public choice only under certain conditions.

Advancing economic analysis beyond the equilibrium framework

Twentieth century economics was dominated by the development and refinement of the concept of economic equilibrium. While it is worthwhile to understand the properties of economic equilibrium, equilibrium concepts have dominated economic thought to the point that they have obscured some of the more important issues economists have always strived to understand. At least since Adam Smith’s time, economists have tried to understand the causes of prosperity, and how economic welfare can be enhanced, but these issues are best understood outside the equilibrium framework. The foundations provided by the Austrian school point toward ways that economic analysis can expand beyond the equilibrium framework.

On Laidler regarding the Austrian business cycle theory

The authors welcome criticisms emanating from neoclassical critics of Austrian economics. We congratulate Laidler for transcending the usual modes of macroeconomic analysis to take on praxeological considerations. This paper should be interpreted as a welcome for his efforts in the hope that they will be widely emulated within the profession.

Choosing one’s own informal institutions: on Hayek’s critique of Keynes’s immoralism

In the main, Hayek favored rules that apply equally to all and located such rules in tradition, beyond conscious construction. This led Hayek to attack Keynes’s immoralism, i.e., the position that one should be free to choose how to lead one’s life irrespective of the informal institutions in place. However, it is argued here that immoralism may be compatible with Hayek’s enterprise since Hayek misinterpreted Keynes, who did not advocate the dissolving of all informal rules for everybody. By avoiding this misinterpretation, immoralism can be seen as institutional experimentation at the margin, which Hayek himself favored.

The concept of choice: why and how innovative behaviour is not just stochastic

The goal of this paper is to highlight the importance of the concept of choice. To do so, a synopsis of the most important contributions to this topic—featuring an eclectic set of scholars across disciplines—is provided. As central to the argument, John von Neumann’s contributions, game theory and simulation techniques on von Neumann machines, are identified. Innovation (economic and theoretic) as the driving force behind human evolution seems to head for a new scientific paradigm based on von Neumann’s ideas.

Ludwig von Mises on the epistemological foundation for social sciences reconstructed

This paper focuses on Ludwig von Mises’s attempt to establish an epistemological/methodological foundation for the social sciences (praxeology). I reconstruct Mises’s writings by disentangling the distinct realms of ontology and epistemology in his arguments. Although Mises’s line of reasoning is squarely based on the distinction between ontology and epistemology, he nonetheless tends to mix ontological and epistemological viewpoints in his argumentation, thereby clouding the issue involved. I believe this is one reason why the writings of Mises appear to be so difficult and engendered different as well as competing readings amongst Austrian economists. Furthermore, this analysis also allows us to assess whether or not Mises offers a sound theory of knowledge. I conclude that praxeology displays internal tensions and explain the reasons for these tensions.

On good government

Besley’s treatment of principled agents is a major contribution to public choice and political economy. By focusing on politics as an agency problem, he has shown the way to a new generation of research on the interface of politics and economics.

F. A. Hayek’s influence on Nobel Prize winners

F.A. Hayek’s broad research program has led some to conclude that his impact on economics has been minimal. This citation study examines the frequency of Nobel laureates cited by other laureates in the official Prize Lectures to understand how elite economists influence other elite economists. It finds that Hayek is the second most frequently mentioned laureate in the Prize Lectures, and he has the second most publication citations of the laureates. Hayek’s influence on the top tier of economists is substantial.

Social Market Economy: origins,meanings and interpretations

This paper investigates various possible meanings of ‘Social Market Economy’—60 years after its political initiation in Germany. We focus on the variety of intellectual sources that influenced the formation and interpretation of the concept in Germany during the first half of the last century. Our particular attention is on Müller-Armack’s definition of a rather dualistic concept of ‘social’ versus ‘market economy’ and the subtle differences it has with an original (Freiburg School) view of ordo-liberalism that lends itself more easily to a constitutional economics perspective.

Liberty and national security in Adam Smith’s possible world

Thomas P. M. Barnett argues that globalization’s spread presents the United States and other liberal democracies with two unprecedented national-security problems, and proposes an ambitious military strategy for their solution. This work argues that a successful strategy to solve one of these problems must also include rational policy, public policy that makes Adam Smith’s simple system of natural liberty a reality. Thus, Barnett’s military strategy and rational policy become complementary elements of a more comprehensive strategy to solve this national-security problem. Knowledge that Smith’s simple system of natural liberty moves the world toward peace can create a need for rational policy among voters.

America’s neglected debt to the Dutch,an institutional perspective

America’s early constitutional development owes a good deal to the experience and policies of the Dutch republic. Many of the parallels are direct: In the late 16th century, the Dutch fought a successful war to secede from a major empire. They wrote a declaration of independence and adopted a federal model of Republican governance almost exactly two hundred years before the Americans. Somewhat later, the Dutch republic and its political institutions subsequently inspired and protected enlightenment scholars. Its leading political family and army played a crucial role in curtailing English absolutism in England and in England’s American colonies, and its federal template provided a model for early American institutions.