New Directions in Austrian Economics (original) (raw)

1979, Southern Economic Journal

In a decade in which the neoclassical consensus no longer holds sway, many economists are looking for new paradigms, lessexacting to our creduUty and more in conformity with what common experience teaches us about the daily flow of knowledge from man to man and our inability to know the future. Here Austrian economics presents three distinct features by which it maybe distinguished from other contemporary schools of economic thought. The first, and most prominent, feature ofAustrian economics is a radical subjectivism, today no longer confined to human preferences but extended to expectations. It found its perfect expression many years ago in Hayek's statement, "It is probably no exaggeration to say that every important advance in economic theory duñng the last hundred years was a further step in the consistent application of subjecfivism. "1 Secondly, Austrian economics displays an acute awareness of the many facets of time that are involved in the complex network ofinterindividual relaons. Time, as the dimension of the interval between input and output, is important, but it is not allimportant. Menger's rejection of B6hm-Bawerk'stheory ofcapi-New Directions in Austrian Economics tal2 was largely, if not solely, prompted by the latter's disregard of all those economica]ly relevant aspects of time that do not fall under the headings "Üme preference" and "period of producnon." To Menger, time was, in the first place, the dimension in which the complex network of interindividual relations presents itself to us. Austrian economics has retained and cultivated this Mengerian perspective. Time is the dimension ofall change. Iris impossible for time to elapse without the constellation of knowledge changing. But knowledge shapes actíon, and acUon shapes the observable human world. Hence ir is impossible for us to predict any future state of this world. The third feature ofAustrian economics, a coroUary ofsubjec-Üvism and awareness of the protean character of time, is a distrust of all those formalizaUons of economic expeñence that do not llave an identifiable source in the mind of an economic actor. Such distrust naturally engenders skepticism about macroeconomic aggregates. To Austrians, MIeconomic thought is thought within the context of means and ends implying choice. Austrían economics is certainly more than "a pure logic of choice." At some stage, we have to introduce"subsidiary assumptions." Expectaons area good example, the granting of credit is another. But Austrians wiU not accept formalizations of economic experience that altogether defy the category "means and ends," concepts that ale nothing but formalizations of records of statistical observations in which the events recorded appear devoid of their histoñcal character and meaning. In what follows, the impfications of these three feamres will be explored by applying them to a number of problems with which Austrian economists have good reason to concern themselves. But, quite apart from the three features, the Austrians, being such stout defenders of the market economy, are namrídly involved in every attack on ir. An argument currently in fashion among the would-be sopbísticated says that the existence of so few forward markets in the real world proves that the effectiveness of the market process in coordinating economic plans and actíon is gravely hampered. In the climate of our time, the ímplication that here is a promising f'_.ld of government inter