New Austrian macro theory: A call for inquiry

This essay sketches some contours of what we think can reasonably be called New Austrian macro theory. By New Austrian, macro we mean a style of theorizing that incorporates the core of traditional or Old Austrian macro and pushes that core in new directions by using new analytical tools and methods. We would note that New Austrian is not some invention or construction de novo, but is a product of blending some traditional Austrian insights and formulations with new analytical formulations that were never part of the Austrian tradition but which can multiply the analytical oomph of that tradition. In this essay, we explain that the traditional Austrian macro theory suffers not from analytical wrong-headedness but from an underdevelopment of those complementary pieces of intellectual capital that would render Austrian macro once again a significant player in the efforts of economists to theorize about the properties of economic systems in their entirety.     

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 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.     

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.     

Asset Prices and History: The Case of Austria

Historical events are reflected in asset prices. Looking at Austrian government bond prices traded on the Swiss stock exchange during WWII provides therefore a useful way of interpreting the importance the thousands of people directly and indirectly engaged in stock markets attributed to various war events. An econometric analysis of the relationship between government bond values and events in Austrian history reveals that some generally considered crucial events connected with WWII are clearly reflected in Austrian government bond prices. This holds, in particular for the beginning and the end of the war. The annexation of Austria by Germany in 1938 which seemingly looked as being overwhelmingly and passionately welcomed by the Austrian population negatively affected the evaluation of Austrian government bonds, i.e. it was considered to be to the disadvantage of Austria by the people who put their own personal fortune at risk.     

Accounting for the business cycle: Nominal rigidities, factor heterogeneity, and Austrian capital theory

An Austrian interpretation of the New Keynesian small menu cost model of the business cycle is proposed. Austrian and New Keynesian business cycle theories share the feature that the cycle is generated by rigidities which prevent the economy from adapting instantaneously to changing conditions. Austrian business cycle theory is capital-based, focusing on credit expansion which artificially lowers interest rates and causes an investment boom and unsustainable business expansion. In contrast, the New Keynesian small menu cost model of the business cycle is based on nominal rigidities which prevent markets from clearing. Small menu costs introduce dichotomous behavior, where firms find it locally optimal to avoid instantaneous output price adjustments in the face of the cost, but this local optimum results in economy-wide output and employment fluctuations which are much greater in relative magnitude. The small menu cost model of the business cycle is extended and reinterpreted in light of Austrian business cycle theory with heterogeneous, multiply-specific capital, thus providing a rigorous formalization of the Austrian business cycle. The Austrian interpretation of this New Keynesian model fortuitously addresses several of its shortcomings. JEL classification B53, E12, E23, E32     

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.     

Austrian Demography and Housing Demand: Is There a Connection

This paper analyses the role of demographic factors in the Austrian housing market. Linking demographic issues, in conjunction with the Austrian private housing finance, to the housing demand is the focus of the empirical model developed in this paper. We find statistical support that the demographic factors help to explain for housing demand. However, we emphasize that demographic factor such as the adult population with net migration effect is only one of the key variables which contributes in understanding the Austrian housing demand. Some of our other empirical findings indicate that the Austrian housing demand is inelastic to various economic factors is a concern for some housing policies.     

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.     

How Much Does the State of the Economy Influence the Popularity of Austrian Parties? An Empirical Investigation

We estimate popularity functions for the Austrian parties Austrian People’s Party (ÖVP), Social Democrats (SPÖ) and Austrian Freedom party (FPÖ) between 1987 and 2010 (using annual data) as well as vote functions for the same Austrian parties in the 86 election districts in the national elections in 1999, 2002, 2006 and 2008. In most cases we find a statistically significant and theoretically predicted influence of three economic variables, namely the unemployment rate, inflation rate and growth rate of income, on both popularity and voting behavior. However, this influence is not robust and shows a tendency to decline over time.     

Capital gains taxation in an economy with an ‘Austrian sector’

This paper examines the effects of a proportional capital gains in an economy with an Austrian sector (with wine and trees) and an ordinary sector. We analyze the effect of capital gains taxation (on both an accrual and a realization basis) on the efficiency with which resources are used within the Austrian sector. Since time is the only input which can be varied in the Austrian sector, this amounts to looking at the effect of capital gains taxation on the harvesting time or selling time of assets. Accrual taxation decreases the selling time of Austrian assets. Realization taxation decreases the selling time of some Austrian assets and leaves it unchanged for others. Inflation further reduces the selling time of assets taxed on an accrual basis; often, but not always, inflation increases the selling time of Austrian assets taxed on a realization basis. We also examine the effect of the special tax treatment of capital gains at death and find that the current U.S. tax system, under which capital gains taxes are waived at death, encourages investors to hold assets longer.In contrast to these results — which suggest that the capital gains tax can reduce the holding period of an asset — we show that there is a sense in which such taxes (at least when levied on a realization basis) discourage transactions and increase holding periods. It is never profitable to change the ownership of an Austrian asset between the time of the original constraint and the ultimate harvesting of the asset for final use.Capital gains taxation diverts resources from the Austrian sector to the ordinary sector. The effects on the efficiency of the allocation of investment between sectors are complicated and not easy to summarize.     

Science lost,science found in the post WWII Austrian economics movement: The case of Emil Kauder

The Review of Austrian Economics - In studies of the Austrian School of Economics, Emil Kauder frequently gets lost in the shuffle. This article reconstructs his intellectual biography. His...     

James M. Buchanan: An appreciation

James M. Buchanan co-founded the field of Public Choice. He was influenced by Austrian economics, and in turn influenced Austrian economics. In particular, he advanced the understanding of subjectivist cost theory. His individualist approach to public policy making has been adopted by many Austrian economists. With Richard Wagner, he analyzed the politics of Keynesian economics. They explained why Keynesianism in practice led to a larger government, permanent deficits and inflationary monetary policy.     

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.     

奥地利学派对理论经济学前提的追问——论米塞斯的经济认识论

奥地利经济学有着坚实的哲学认识论基础.在社会科学的定位上,奥地利经济学反对逻辑上的心理学要素,反对本能主义、行为主义和整体主义,主张有机的自由主义;在经济学的定位上,奥地利经济学反对笼统地划分理性与非理性,反对对经济学作表面层次的物质主义的定义,强调稀缺性由其引致的自由选择才是经济学的根本前提.     

Ludwig Lachmann’s peculiar status within Austrian economics

Lachmann occupies a strange position within modern Austrian economics. He is viewed as something of an outsider and his views are often regarded as outside the mainline of modern Austrian thought. But, on several key issues – especially subjectivism and institutions – Lachmann’s positions are the dominant positions within the school. This article argues that, with little fanfare but in several important respects, Austrian economics has moved in a decidedly Lachmannian direction.

     

Economic calculation and the organization of markets

The Review of Austrian Economics - Austrian economists have had mostly mixed feelings about transaction costs-based theories of the organization of economic activities. We argue that the two...     

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.     

Foundations of The Economics of Time and Ignorance

The Economics of Time and Ignorance grew out of the need to reinvigorate the Austrian School in light of the challenges of contemporary economics. It did this by re-examining the foundations of the Austrian tradition and by making explicit many of its hidden assumptions and implications. The book also attempted to make Austrian economics more of an open system than it had been in the conservationist decades of the 1950s, 60s, and 70s. The degree to which it has been successful is examined in this essay.     

The legacy of Max Weber and the early Austrians

The Review of Austrian Economics - This paper explores Max Weber’s intellectual relationship to the first generations of the Austrian School. Challenging his portrayal as a one-sided...