August 23, 2023
When most Austrian-sympathetic, intelligent lay observers hear that question, they pause, take stock of the world, catalogue policy’s failure to conform to some free-market ideal, and conclude “no.”
But Austrian economics itself, as well as Public Choice, has developed compelling explanations for why policy deviates from the “ideal.”
It’s been said a million times, but bears repeating: Economics—regardless of the tradition—is about explanation, not prescription. It’s not about telling policymakers what to do. It’s not normative at all.
So, in answering this question by way of a recent foreword, Louis Rouanet offers a “qualified yes.”
In Elgar’s recently-published, “A Research Agenda for Austrian Economics,” Rouanet observes:
“Austrians prevailed academically more than most academics—including Austrians—know or care to admit. They convinced a large part of the economics profession, among other things, that utility was ordinal, that government ownership was ineffective, that economics could be applied to all human behavior, that macroeconomics should be price-theoretic, that macroeconomics should be dynamic as opposed to static theories, that socialism was unworkable, that institutions are crucial for explaining economic development, etc…”
Of course, this “absorption” of AE by the mainstream is incomplete—see my last post.
But Rouanet’s “etc…” bucket is significant. You could reasonably add the idea of opportunity cost, (some version of) subjectivism, (some version of) marginalism, a compelling explanation for the Great Depression’s duration (though Austrian analysis of the cause is less accepted) and (probably) widespread economist resistance to state theories of money.
Rouanet, again:
“…references to the ‘Austrian school’ are somewhat unfortunate as it was never a school, and although it originated in Austria, it was never exclusively Austrian. Instead, the ‘Austrian school’ could be better described as the Austrian tradition; that is, as ways of thinking about the fundamentals of economic reasoning, passed down and developed through successive generations of members of that tradition…Austrian economics is not a preconceived set of answers, but rather a set of priors about how to think about human behavior. It is the economic way of thinking par excellence.”
Perhaps most provocatively of all:
“…Mises defended with much greater fervor the economic approach to human behavior than Becker, Friedman, or Coase ever did.”
I don’t agree with every point Rouanet packs into this little essay (e.g. the value of indifference analysis and utility functions, action in disequilibrium). But I find the overarching themes valuable (AE has been more successful than most think, it could be more successful with a renewed interest on empirics, it’s better thought of as a “tradition” than a “school,” etc…) He offers a fresh take on an old debate about just how much of AE has been incorporated into the mainstream.
It would also be valuable to trace out the extent to which Austrians have actually been responsible for the (good) shifts in the mainstream that Rouanet identifies.
In short: even if readers don’t agree with every point, the introduction is stimulating, as are the essays included in the volume.
A recent paper by Peter Boettke and Chris Coyne in the top-ranked Annual Review of Economics should be read alongside Rouanet’s.
As is clear from Coyne and Boettke’s abstract, Austrian economics is not an antiquated episode in the history of economic thought:
“This paper discusses the unique features of Austrian economics and some of the recent
contributions of this school of thought. We organize these contributions in different research
“buckets” in the hope that this will be a useful guide to readers while demonstrating the ongoing relevance of the contemporary Austrian school of economics for advancing scientific discourse. The research buckets discussed include robust political economy, macroeconomics, monetary economics, entrepreneurship and the market process, development economics, behavioral economics, governance, social economy, collective action challenges related to natural disaster recovery and infectious disease, and war and defense.”
AE is, as they say, a “progressive research program.” At the same time, AE should not be considered “heterodox.” Coyne and Boettke write:
“To varying degrees, these propositions have been absorbed into conventional economics
discourse. For instance, many economists embrace methodological individualism, the non-neutrality of money, the role of institutions, and the rhetoric of the invisible hand. Yet, rarely are the incorporation of these propositions into mainstream economics viewed as satisfactory to the proponents of the Austrian perspective.”
A snippet from the section on governance:
“In order to take advantage of economic calculation and engage in social cooperation, certain institutions are required. The requisite institutions, however, cannot be assumed to exist. Rajan (2004), argues that well-functioning formal institutions cannot be taken for granted and that it is often more realistic to “assume anarchy” as a starting point of analysis in developing societies. This opens the door to the exploration of a broader notion of governance, which refers to the various arrangements that allow people to live together peacefully. These arrangements include rules, norms, traditions, beliefs, and various organizational structures. Government, an organizational form with a monopoly over violence, is one type of governance, but it is not the only one. Scholars working in the Austrian tradition have explored the emergence and operation of governance in a variety of settings with a focus on how these arrangements facilitate coordination while checking opportunism with guile.”
A great introduction to contemporary, applied, and exciting work in AE.