Examining social processes with agent-based models

It is plain that the Austrian revival that began in the 1970s has yet to succeed in convincing the mainstream of the academy to jettison their physics-based mathematical models in favor of the sort of models and forms of argumentation that contemporary Austrians advocate. Agent-based computational modeling is still in its relative infancy but is beginning to gain recognition among economists disenchanted with the neoclassical paradigm. The purpose of this paper is to assuage concerns that readers might have regarding methodological consistency between agent-based modeling and Austrian economics and to advocate its adoption as a means to convey Austrian ideas to a wider audience. I examine models developed and published by other researchers and ultimately provide an outline of how one might develop a research agenda that leverages this technique. I argue that agent-based modeling can be used to enhance Austrian theorizing and offers a viable alternative to the neoclassical paradigm.     

Menger’s causal-realist analysis in modern economics

Carl Menger pioneered a unique theoretical research method which served as the foundation of the early Austrian school of economics. Menger’s causal-realist analysis was revived and formalized just before and after World War 2 by Ludwig von Mises as the “praxeological method.” Murray Rothbard, a student of von Mises’, utilized the method in formulating a comprehensive system of economic theory in his treatise, Man Economy, and State published in the early 1960s. Rothbard’s treatise became the foundational work for the “Austrian revival” in the 1970s. In this paper, we address several issues related to the role of Menger’s method in modern economics. First, ample evidence is adduced that von Mises and Rothbard each expressed a surprising ambivalence with respect to his own work in relation to the early Austrian school. Second, von Mises viewed Rothbard’s treatise as beginning a new epoch in economic theory. Third, contrary to the conventional view, a careful analysis of his treatise shows that Rothbard drew heavily on the contemporary neoclassical literature in developing his theoretical system and that his intent was never to set up a heterodox movement to challenge mainstream economics. Rather, his main aim was to consistently apply the praxeological method to rescue economics from what he considered the alien methodology of positivism, which was imported into economics after World War 2. Lastly, I will tentatively suggest that the term “Austrian economics” as the designation for the intellectual movement that coalesced in the early 1970s may now have outlived its usefulness. This term, which initially served an important strategic purpose in promoting the revival of the broad Mengerian tradition, may have come to obscure the meaning and importance of the praxeological research paradigm that Menger originated.     

Post Keynesianism,Heterodoxy and Mainstream Economics

After briefly presenting the concepts of orthodox, mainstream and heterodox economics, and applying them to the contemporary period, this article discusses the Post Keynesian school and its relation to contemporary orthodox and mainstream economics. While opposed to the neoclassical orthodoxy, the Post Keynesian school has some positive unifying ideas, although some internal tensions remain. There are also some overlaps between Post Keynesianism and other approaches, and a careful combination of contributions from different approaches and different disciplines is not only possible, but also necessary. Post Keynesianism is located outside current mainstream economics, although this argument partly depends on a more precise specification of the concept of uncertainty. The non-mainstream character of Post Keynesian economics has at least two types of important implications. The first involves the approach's ability to influence the economy and the danger of ‘the scholastic fallacy’; the second refers to a reproductive difficulty inside academia.     

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.     

Perspectives for Post-Keynesian Economics

The paper reviews and assesses the negative and positive advice which has been offered by various fellow economists to heterodox economists in general, and Post-Keynesian economists in particular, in light of changes that have occurred within neoclassical economics and in light of the rising hegemony of mainstream economics in economics departments. Various strategies are considered, among which is more engagement with orthodox dissenters, but it is concluded that the majority of heterodox economists ought instead to engage more with other heterodox economists and possibly other social sciences, developing and expanding their own agenda around real-world problems.     

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.     

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.     

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.     

Disagreement over the emergence of private property rights: alternative meanings, alternative explanations

This paper is an exercise in the history of thought, which compares Austrian and neoclassical theories of the emergence of private property rights, and examines, in part, the extent to which Austrians can be said to offer a commonly-agreed upon explanation that parallels Carl Menger's exemplary story of the emergence of money. We address the sources of disagreement (and apparent conflict) among emergence theorists in both schools. We try to show that some of the disagreement hinges on an unclear meaning of the term “emergence,” which is resolvable, while other sources of disagreement are fundamental at the methodological level. JEL Code B25, E40, E53     

Austrian economics behind the iron curtain: The rebirth of an intellectual tradition

This article documents the spread of the Austrian school of economics in central and eastern Europe following the fall of the Berlin Wall. Extensive research based on interviews, fieldwork and archival analysis records the development of distinct epistemic communities throughout the region and the subsequent networks that have emerged to unite them. In doing so, we provide a rare history of ‘centre-right’ political ideas in eastern Europe, a chronology of the development and influence of libertarianism, cursory intellectual biographies of neglected Austrian economists and empirical evidence that contributes to the epistemic communities approach to the study of idea diffusion. The findings support the view that the policy reforms during the transition process were built on neoclassical orthodoxy rather than ‘neoliberalism’ or ‘market fundamentalism’ but point to a fast-growing epistemic community that has had increasingly significant policy influence.     

Post Keynesians and Others

I begin by considering four alternative positions on the correct relationship between Post Keynesians and mainstream economics: opposition, cooperation, neglect and stealth; I argue that sustained opposition is the only viable strategy. Next I discuss the appropriate relationship between Post Keynesians and mainstream dissenters, concluding that relatively little can be expected to come from it. I then assess the link between Post Keynesians and other schools of heterodox economics, which I consider to be one of friendly pluralism rather than fundamental unity. I conclude that Post Keynesians should remain open to ideas from other heterodox traditions, and might also benefit from becoming more inter-disciplinary.     

Orthodox Core–Heterodox Periphery? Contrasting Citation Networks of Economics Departments in Vienna

ABSTRACT

The notion of an ‘orthodox core–heterodox periphery’ structure and the extent of interdisciplinary links have been widely discussed, and partially investigated bibliometrically, within economic discourse. We extend this research by applying tools from social network analysis to citation data of three economics departments located in Vienna, two mainstream and one non-mainstream, to assess their relative citation patterns. We show that both mainstream economics departments follow the asserted core–periphery pattern and have a mono-disciplinary research focus, while the citation network of the non-mainstream department has a polycentric structure and is both more heterodox and interdisciplinary. These findings suggest that discussions about the future of heterodox economics should pay more attention to the organizational level and seek allies from other disciplines.     

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 market as a social space: On the meaningful extraeconomic conversations that can occur in markets

Prominent economic sociologist Richard Swedberg has argued that economists have failed to develop a theory of the market that recognizes it as a “social phenomenon in its own right.” While this may be true of mainstream economics, the Austrian school’s theory of the market is much richer than the standard view. For Austrians, the market has always been a central concern. And Austrians have always argued that the market is a social structure where both exchange and competition occurs. Still, Austrians give little more than scant attention to the noneconomic sociality that occurs in markets. The market, however, is both a conversation and an arena where meaningful conversations can occur. This paper is an effort to focus attention on the market as a social space where social activity (beyond competition and exchange) takes place and where noneconomic relationships and economic relationships develop.     

The theory of the firm: The Austrians as precursors and critics of contemporary theory

Conclusion In the above, I have taken the theme of Austrian economics and economic organization through several variations. I hope to have taken steps towards establishing that not only were the Austrians important precursors of the contemporary theory of economic organization, but they may also contribute to existing theory as well as provide their distinctive perspective on economic organization. Space limitations have dictated, however, that I have been able to only scratch the surface. Assuredly, there is much more to be done on all the three themes I have been discussing, particularly on the last, constructive one.A number of excellent comments from Murray Rothbard and three anonymous referees is gratefully acknowledged. All remaining errors are the author's.     

Towards Sustainability Economics: Principles and Values

Synopsis  Radical alternatives, in terms of our ideas about science in society, about economics, ideology and institutional arrangements, should be included among possibilities considered within the scope of a pluralistic philosophy. While all these aspects of our mental maps are interrelated and important, economics plays a key role in attempts to get closer to a sustainable society. Mainstream neoclassical economics is not enough. The tendency to exclusively rely on this particular theory is considered part of the problems faced. A ‘sustainability economics’ more in line with dominant ideas of democracy is proposed, emphasizing the ethical, ideological and political elements. Reference is made to institutional theory but the principles and concepts suggested are in many ways similar to other kinds of heterodox economics and developments in other social sciences. Neoclassical economics is used as a point of reference in pointing to alternative ideas about human beings, organizations, markets, decision- making, efficiency, rationality, progress in society and institutional change processes. Predilection for such an alternative conceptual framework (or for neoclassical economics) is not exclusively a scientific choice but as much a matter of political and ideological preferences. One paradigm may be dominant at a time, but because of the ideological specificity of each paradigm, competing theoretical perspectives should be accepted and even encouraged in a democratic society.      

The common law as central economic planning

Central economic planning traditionally has set goals and allocated resources by supplanting the price system with central direction. Planners engaged in industry-by-industry and firm-by-firm decision making, all to achieve predetermined targets. The neoclassical approach to law and economics posits that common law judges engage in a similar activity, in rendering decisions that maximize wealth. A significant feature of this approach is the placement of judges in the position of calculators of comparative values. Neither advocates of central planning nor those of judicial wealth maximizing address or solve the economic calculation problem. The various aspects of that problem hold two implications for common law judges. First, they cannot accomplish the tasks that the neoclassical approach sets out for them. Second, a recognition of the calculation problem leads to a rejection of balancing and the choice of rights-based, bright-line rules that return actual and potential litigants' decisions to the market. An earlier version of this essay was prepared for a Liberty Fund, Inc., Conference on “The Problems of Economic Calculation under Socialism,” New York City, January 26–27, 1986. Some time after the completion of the 1986 draft, I received working papers from Louis De Alessi and Bob Staaf. They were pursuing the same themes that this paper explores, but in a more focused manner. I gained greatly from their work, for it gave me confidence that these ideas are worth pursuing. I thought it appropriate to revisit this paper for a volume in Bob Staaf's memory. I have also benefitted greatly from extended discussions with Andrew Kull and Paul Rubin.     

Financial crisis of metaphor

This paper presents an analysis of the mathematical models of the prevailing orthodoxy within the field of financial economics in light of the financial crisis. The financial crisis presents a challenge to the language of orthodox financial economics. From an Austrian perspective, this challenge to the language of orthodox financial economics is centred on a small number of pressure points stemming from the mathematical-quantitative nature of the prevailing orthodoxy, especially the distortion of or obstruction to the communication of pertinent ‘knowledge’ by the adoption of a formalism that pushes aside many of the most important aspects of the human action represented in financial markets. The result is a crystalline structure of mathematical models that suffer from serious salience imbalance. The highly salient features of mathematical objects are not directly applicable to and have a low salience in the list of features of the financial economic reality. The financial crisis has accentuated this salience imbalance. The orthodoxy has experienced a financial crisis of metaphor.     

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.

What If There Are No Conventional Price Mechanisms?

Inspired by Frederic (“Fred”) S. Lee’s theoretical contribution to institutional-heterodox economics, I make the case that the neoclassical price mechanism is not only flawed, but also irrelevant for the study of actual coordination mechanisms, hence the price mechanism — as a theory as well as a way of thinking — should be discarded. While this position was addressed by early institutionalists, starting with Thorstein Veblen, later institutionalists have not completely rejected the price mechanism. The sympathy for the price mechanism has prevented institutionalists (and other heterodox economists) from fully developing an alternative theoretical framework concerning how actual economic activities are organized. I, therefore, provide an institutionalist-heterodox framework of the provisioning process focusing on business enterprise activities. This framework shows how institutional economics becomes more refined and useful when it is married to other traditions in heterodox economics, in particular, Marxian, social, and post-Keynesian economics. Such an integrative approach is what Fred Lee showed through his work toward producing a better theory and policy for the underlying population.