Mundane Austrian Economics?

This is a response to Peter Klein’s comment to Austrian Economics in America

Karen Vaughn’s Austrian Economics in America: The Migration of a Tradition is one of the best Austrian books I have ever read. It is basically a book that asks, “What is Austrian Economics,” and, “What does the future hold for Austrian economics?” Professor Vaughn’s studies have led her to discover the main two interpretations of Austrian Economics: 1) an interpretation of Austrian economics as a ‘gap filler’ to neoclassical theory (a  suitable complement to neoclassical theory) that is, the view of Israel Kirzner,  and 2) an interpretation of Austrian economics as a complete alternative to neoclassical theory, that is, the view of Ludwig Lachmann. Although both agree on the basic Austrian principles (subjectivity, human action, the view of a market process) and both have the same Austrian influences (Menger, Mises, Hayek), they differ greatly on the implications of the Austrian themes, with one trying to combine neoclassical economics and Austrian economics and the other rejecting neoclassical theory all together and thinking of Austrian economics as an alternative theory. She concludes that while Kirzner was a great influence to Austrian economics, Lachmann provided a more consistent interpretation of Austrian economics. “[I]f Austrian economics is to have a future, it must lead to a complete recasting of the organizing principle of economic theory. Otherwise, it seems inevitable that the ideas of the new Austrians will either fade from view or be absorbed into the neoclassical orthodoxy in ways that Austrians will claim still miss the point.”(p. 9) This is seriously a must read, drop your Rothbard book and get this book.

Not surprisingly though, Ms. Vaughn’s book is looked down upon by the Rothbardians. David Gordon has an unfavorable review on the book, and I will read the review and comment on it one of these days, and it seems that Peter Klein did not like the book as well. The reason why I think they do not like the book is probably because it does criticize Austrian economists on their shortcomings, but Vaughn criticizes the economists out of respect. And her criticisms are very fair (for the most part) and should be taken in consideration by the Austrian circles.

Klein has a quick blog post criticizing the book. Klein states:

“Vaughn consistently characterizes the price theory of Menger, Böhm-Bawerk, Mises, and Rothbard as backward-looking, inconsistent, and often wrong. Their elaborations of mundane economics, she says, are mainly verbal ‘neoclassical’ economics, because they rely heavily on equilibrium constructs; indeed, Menger’s price theory is that of a ‘half-formed neoclassical economist’

1) She never said that she thought Austrian economics was verbal neoclassical economics. She said that one of her colleagues thought that Austrian economics was verbal neoclassical economics, and therefore dismissed Austrian economics for that reason.(p. 1) But the whole point of the book was to show how Austrian economics was a completely alternative theory than that of neoclassical economics. Why would she side with the ‘Lachmannians’ (the Radical Subjectivists),  the branch of Austrian economics most critical to neoclassical economics, if she took that same position as that of her colleague? It would not make sense, and this is clearly not Vaughn’s position.

2) She never stated or implied that Menger was backward-looking… Quite the contrary, the book is about the Mengerian tradition and how Austrians after him branched away from the Mengerian tradition and how (older) Hayek and Lachmann revived the Mengerian aspect into Austrian economics. She does make the point that Austrians (including Menger, excluding Lachmann) failed to extend subjectivism to expectations. But this is a fair statement to make. As I stated before:

[I]n accepting subjective expectations, one also has to accept the fact that markets are not stable. The concept of market instability is something lacking in the Austrian literature, mainly because most Austrians fail to see that the market is an unstable process.

Which the first Austrian that mentioned the concept of market instability due to subjective expectations was in fact Ludwig Lachmann. I think another reason why the Rothbardians do not like this book is simply because the book’s hero is Ludwig Lachmann and not Ludwig von Mises or Murray Rothbard.

-Isaac Marmolejo

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5 responses to “Mundane Austrian Economics?

    • Yes Mr. Klein, that is actually on my ‘to read’ list (your paper is actually in my Kindle already). Unfortunately, I have a lot of stuff on that list, so it will be a while until I actually read your paper.

      On a side note, you are one of the people that encouraged me to take Lachmann’s work more seriously. I studied at the Mises Institute this past summer and your lectures on ‘Uncertainty and Entrepreneurship’ and ‘Production and The Firm’ were fantastic (I even asked for some Lachmann references after one of the lectures from you).

  1. I don’t think so. Note that on I’m describing Vaughn’s view of the founding Austrians’ price theory and “their elaborations of mundane economics,” not their entire outlook. Indeed, as I elaborate in the paper, she is enthusiastic about Menger’s theory of institutions and his account of what we now call spontaneous order. Of course she doesn’t dismiss the entire Austrian tradition, only its price theory, which is the subject of my article.

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