New Directions in Austrian Economics

A Critique of Neoclassical and Austrian Monopoly Theory

D. T. Armentano

University of Hartford

One of the most controversial areas in Austrian economics, and one where even long-established Austrian theorists differ sharply, is monopoly theory. Indeed, as we shall see below, the differences are not merely semantic, nor are they confined to detail or some minor theoretical implication. Rather, there are major and fundamental disagreements between some of the leading Austrians, and these disagreements are created by wholly different theories concerning the definition of monopoly, the origins of monopoly, and the supposed effects of monopoly on consumer sovereignty and efficient resource allocation.

NEOCLASSICAL MONOPOLY THEORY

By way of contrast, and in order to place the Austrian theories of monopoly in perspective, it is perhaps necessary to review and criticize the traditional (neoclassical) theory of monopoly.1

A monopolist in neoclassical analysis is a firm that faces the entire demand for the product under consideration. In order to maximize its profits, it produces an output where the marginal revenue associated with the last unit sold is just equal to the marginal costs associated with producing and selling that final unit. But since the demand function facing the monopolist is necessarily sloped downward (perhaps even steeply downward), the price charged for the output is greater than both marginal revenue and marginal cost.

This situation, it is argued, compares “unfavorably” with price and output (and cost) under competitive conditions. Under competitive conditions, since price and marginal revenue are equal, price is always identical with marginal cost when profits are maximized. Further, under competitive equilibrium conditions, price is always driven down to the minimum point of the average cost function, so that production tends to take place at its most “efficient” point. Therefore, monopoly prices are higher than competitive prices, outputs are less, and average costs greater than under comparable competitive (cost) conditions.

But, importantly, how is a firm able to obtain a monopoly position in the market and, thus, “misallocate” economic resources? In the first place the monopoly could simply be due to governmental prohibition of competitive entry, and there is certainly a recognition of this source of monopoly in the neoclassical literature. However, more recently it has been popular to stress certain nonlegal “barriers to entry” that, allegedly, preserve monopoly and resource misallocation.2 These barriers would include any difficulty or impediment that a new firm might have to overcome in order to compete successfully with an existing firm (monopolist). Thus, scale economies enjoyed by an existing firm, or commercially successful product differentiation employed by such a firm, becomes, in the new jargon, a barrier to entry that limits competition and reduces society’s “welfare.”

CONTEMPORARY MONOPOLY THEORY: A CRITIQUE

There are two avenues of criticism that one might take with respect to neoclassical monopoly theory. In the first place, one might criticize the purely competitive model which is employed as a benchmark and as a basis of comparison with monopolistic situations. And secondly, one might criticize the whole concept of nonlegal barriers to entry, arguing, instead, that it is simply consumer preference that “limits competition” and that consequently no misallocation of resources occurs.

Most economists would agree that pure competition is not actually possible. Some would agree, perhaps reluctantly, that it might not even be desirable or optimal if it could exist. (If they agree to this, of course, then they must also agree that moving toward pure competition is not necessarily desirable, either.) But few economists have noticed or emphasized the fundamental flaw of the purely competitive model, namely, that it is not a description of competition at all.3 Pure competition is a static, equilibrium condition whose very assumptions are such that competitive process is ruled out by definition. Or to put the matter more charitably, while pure competition may describe the final outcome of a particular competitive situation, the ultimate end result, it does not describe the competitive process that produced that particular outcome. The purely competitive theory is not a theory of competition as such.

The neoclassical habit of confusing competitive process with a final, static equilibrium condition makes for gross errors in economic analysis. For instance, product differentiation, advertising, price competition (including price discrimination), and innovation are rather routinely condemned as “monopolistic” and, thus, as resource misallocating and socially undesirable. This condemnation follows “logically” since not one of these activities is possible under purely competitive conditions. Hence everything that is truly competitive in the real world, truly rivalrous, gets labeled as “monopolistic” and resource misallocating in the Alice-in-Wonderland, purely competitive world. The analytical conclusions one is forced to come to, employing the purely competitive perspective, are not just wrong, not just unrealistic, but the very opposite of the truth. Far from being able to “predict,” or tell us anything meaningful concerning competitive behavior, pure competition can only describe what things would be like if the world contained zombie-like consumers with homogeneous tastes, atomistically structured firms identical in every important respect, with no locational advantages, no advertising, no entrepreneurship, and no rivalry whatever. Surely this is the major flaw and absurdity inherent in the purely competitive perspective.4

BARRIERS TO ENTRY: A CRITIQUE

Discussions about the nonlegal barriers to entry suffer from the same difficulties. The two most popular and important “barriers to entry” are product differentiation and scale economies. Product differentiation limits competition since it makes competitive entry more costly. To use a favorite neoclassical example, the fact that the major automobile companies change styles every year increases the costs of competing in this industry. Would-be competitors must be willing and able to undergo the same or similar procedures, else they simply cannot compete. Even worse, once competition is “limited,” the auto companies routinely pass along the higher costs in the form of higher prices, which contributes, it is alleged, to a real reduction in consumer welfare.

On the other hand—indeed, on the opposite hand—scale economies also limit competition. The fact that certain firms realize lower costs per unit because of large volumes gives these firms the “power” to exclude smaller firms, or smaller potential entrants, from the market. Ergo, we are supposed to regret the reduced competition and consequent resource misallocation since inefficient firms cannot compete with efficient ones.

Actually, of course, the neoclassical theorists have gotten the matter completely and precisely backward. It is because, and only because, consumers find resources satisfactorily allocated that would-be competitors find entry difficult or impossible. Product differentiation, especially differentiation that does raise prices, can only act as a barrier to entry if consumers prefer that differentiation, and pay the presumably higher prices associated with, say, new annual auto styles. If consumers do not prefer such differentiation and, instead, reward the firms that change styles less often, or not at all, then product differentiation could hardly act as a barrier to competitive entry. Indeed, in the case just postulated, product differentiation would be an open invitation to entry and to competition.

To condemn commercially successful product differentiation as a misallocation of scarce resources, therefore, is to condemn the very “resource allocations” that consumers apparently prefer. It is the neoclassical economist’s allegedly “optimal” allocation of resources under purely competitive conditions that product differentiation upsets, and not any allocation that can be associated with free consumer choice.

The same sort of argument can be made—and even more obviously—with respect to scale economies. Consumers do not regret the economies nor the consequent reduction in competition. Consumers could “increase competition” any time they choose to by indicating their willingness to pay higher prices to cover the higher costs of the smaller firms. That they do not usually do this indicates the resources are correctly allocated so far as they are concerned. Again, it is the economist’s vision of the purely competitive wonderland that is upset by the large, efficient firm, and not allocative efficiency from a consumer perspective.

The final absurdity in this area is to observe where such incorrect theories of competition are likely to lead. If product differentiation limits competition, i.e., limits the number of competitors, then more competition can be obtained by limiting product differentiation—by law. If efficient techniques of production or scale economies limit competition, i.e., the number of competitors, then more competition can be obtained by raising either costs or prices for the efficient companies—by law. Thus, to take the barriers-to-entry theory seriously is to end up proposing as rational public policy—in the name of consumer welfare—the very procedures that consumers would likely find most harmful. The only thing sadder than all of this is that such ideas have actually been taken seriously in some antitrust circles and by the courts, and we have had some real world legal decisions that reflect such theoretical nonsense.5

As should be quite clear from the above review and critique, there is much dissatisfaction with the traditional notions of monopoly and competition, and with the simplistic antitrust policies (antimerger policy, for instance) founded on such assumptions. But if the neoclassical approach to monopoly and competition is defective, what is the correct approach in this area? Indeed, is there a logical and rational theory of monopoly and, accordingly, an appropriate public policy to complement that theoretical approach? In the sections below we will turn to a critical examination of Austrian monopoly theory in an attempt to answer these questions. The views of von Mises, Kirzner, and Rothbard will be taken as representative of various Austrian positions concerning monopoly.

MISES’ MONOPOLY THEORY

Monopoly exists for Ludwig von Mises when “. . . the whole supply of the commodity is controlled by a single seller or a group of sellers acting in concert.”6 This condition puts the monopolist (or cartel) in the position of being able to restrict supply in order to raise market price without having to “fear that his plans will be frustrated by interference on the part of the other sellers of the same commodity.”7 Mises holds, however, that monopoly prices do not result unless the restriction in supply produces prices that actually increase the monopolist’s “total net proceeds.” Only if the demand for the product is inelastic in the price range under discussion could “monopoly prices emerge as differentiated from competitive prices.” Hence, it is not “monopoly” as such that is catallactically relevant for Mises, but only the “configuration” of the demand function and the emergence of monopoly prices.8

Importantly if such monopoly prices do exist, then they are an “infringement of the supremacy of the consumers and the democracy of the market.”9 Mises even goes further:

Monopoly prices are consequential only because they are the outcome of a conduct of business defying the supremacy of the consumers and substituting the private interests of the monopolist for those of the public. They are the only instance in the operation of a market economy in which the distinction between production for profit and production for use could to some extent be made. . . .10

And again:

The characteristic feature of monopoly prices is the monopolist’s defiance of the wishes of the consumers.11

Mises also argues that although most monopolies and monopoly prices are made possible by government intervention in the free market (tariffs, licenses, etc.), there are certain instances in which monopoly (and monopoly prices) arise in the unhampered market. He specifically mentions natural resource monopoly,12 geographic monopoly,13 limited-space monopoly,14 and monopoly that might arise because consumers place a “special confidence . . . on the individual or firm concerned on account of previous experience,”15 as with certain trademarked drugs.

KIRZNER’S MONOPOLY THEORY

Professor Kirzner’s theory of monopoly can be derived logically from his well-articulated theory of the competitive process.16 Kirzner views the market process as one in which market sellers are continually attempting to inch ahead of rivals by offering more attractive opportunities to potential buyers. And he views this process as inherently competitive since the key ingredient that makes the process function—entrepreneurship—can never be monopolized. For Kirzner, pure entrepreneurship requires no resources whatsoever; hence the freedom to enter the market is absolute since no obstacles to entry can ever exist in a free market.

However, the exercise of entrepreneurship is quite another matter. Here the exclusive ownership or control of “all the current endowment of a certain resource” is defined by Kirzner to be monopoly, can indeed block entry into the production of some specific good, and can hamper competition and “impede the course of the market process.” A monopoly producer for Kirzner is one whose “exclusive input blocks competitive entry into the production of his products.”17 To employ Kirzner’s example, without access to oranges, “production of orange juice is blocked.”18

Kirzner notes that monopoly should not refer to a producer who—in the absence of resource monopoly—is the single supplier of some product in the market. That firm, he reasons, is still fully subject to the market process since entry into competitive production is always possible. On the other hand, when “needed resources” are restricted because of monopoly ownership or control of a certain resource, the very possibility of competition—and the benefits to consumers that are the consequences of competition—are eliminated.19 Here, according to Kirzner, the monopolist is completely “immune from the competition of other entrepreneurs who might, in other circumstances, enter his field of activity.”20

Kirzner is quick to note, however, that the monopolist is not immune from the competitive process itself. Although entry into some specific activity is by definition blockaded, entry into similar activities is not. Monopoly control over a resource simply diverts the competitive, entrepreneurial process into other similar activities, employing other resources which create a “turbulence” that surrounds and impinges upon the monopolist’s original activity.

Importantly, Kirzner hints that the equilibrium tendency of a market containing resource monopoly is to produce a higher than “competitive-equilibrium price” for the resources and also a higher “surplus” for the product produced with that resource. This surplus can be accomplished by withdrawing some of the stock from the market and “forcing” up the market price.21 Thus, consumers might be harmed by such activity since scarce monopolized resources are not being employed to the “fullest extent compatible with the pattern of consumer tastes in the market.”22

ROTHBARD’S MONOPOLY THEORY

Professor Rothbard’s analysis of monopoly, monopoly price, and the welfare implications of such economic conditions differs radically from that of both Mises and Kirzner. Indeed, in his discussion of monopoly, Rothbard is sharply critical not only of the neoclassical monopoly theories, but also implicitly critical (and occasionally explicitly critical) of views held by his fellow Austrian theorists as well.23

As far as Rothbard is concerned, there are three possible definitions of monopoly: one, the single seller of any given good; two, a grant of special privilege by the state, reserving a certain area of production to one particular individual or group; and three, “a person who has achieved a monopoly price.”24

Although Rothbard admits that the first definition (single seller) is a coherent and even a “legitimate” one, he rejects it as impractical because it is too broad and all-inclusive. The impractical nature of this definition can be illustrated, Rothbard argues, by noting that any difference (differentiation) in any two goods or resources and, more importantly, any consumer-perceived difference in any two commodities or resources will make them unique (specific) goods and thus, by definition, “monopoly.” Hence, “the single seller of any given good” could always reduce to the notion that everyone is a monopolist since each person in a market system is presumed to have exclusive ownership of his own (unique) property. But a definition that makes everything monopoly and everyone a monopolist is barren, “confusing,” and “absurd” according to Rothbard.25

Rothbard clearly prefers the second definition of monopoly—i.e., a grant of privilege from the state restricting competitive production or sale. This is a monopoly since entry into the privileged activity is prohibited by the state; logically, no such monopoly could ever exist in a free market. This definition will be adopted as the “proper” one should the final alternative definition prove nonsensical or illegitimate.26

Rothbard’s criticism of the theory of “monopoly price” (as well as his criticism of the theory of “competitive price”) is certainly a controversial contribution to the literature on monopoly. For here he argues that in a free market there is simply no way of conceptually distinguishing “monopoly price” from a free-market competitive price.

On the free market there is no way of distinguishing a “monopoly price” or a “subcompetitive price” or of establishing any changes as movements from one to the other. No criteria can be found for making such distinctions. The concept of monopoly price as distinguished from competitive price is therefore untenable. We can speak only of the free market price.27

It has been common, of course, to speak of monopoly price as that price accomplished when output is restricted under conditions of inelastic demand, thus increasing the net income of the supplier. Even Mises, it will be recalled, employed the term in this manner and drew some fairly dismal welfare implications from the “restriction.”

Rothbard argues, however, that there is no objective way to determine that such a price is a monopoly price or that such a “restriction” is antisocial. All we can know, according to Rothbard, is that all firms attempt to produce a stock of goods that maximizes their net income given their estimation of demand. They attempt to price (other things being equal) such that the range of demand above the asking price is elastic. If they discover that they can increase their monetary income by producing less—or even destroying existing stock—in the next selling period, then they do so.

Rothbard maintains that to speak of the initial price as the “competitive” price, and the second-period price as the “monopoly” price makes no objective sense. How, he asks, is it to be objectively determined that the first price is really the “competitive” price? Could it, in fact have been a “subcompetitive” price? Indeed, the entire discussion is absurd for Rothbard since there are no independent criteria that would allow either determination. All that can be known for sure, he argues, is that the prices both before and after the supply change are free-market prices.

Rothbard also argues that “monopoly” prices cannot be inferred by comparing such prices to prices charged for similar factors. So long as the factors are not perfectly identical in the eyes of buyers, the differences in price (or profits) are simply free-market determinations of value for different goods. And any talk of monopoly price or monopoly “gain” when two different factors or goods are being compared is analytically incorrect.28

Finally, the welfare implications concerning alleged monopoly prices would not follow even if such prices could exist. Since the inelasticity of demand for Rothbard is “purely the result of voluntary demands” of the consumers, and since the exchange (at the higher prices) is completely “voluntary” anyway, there is no way to conclude that consumers or their “welfare” have been injured.29 Thus, for Rothbard there is no social “problem” associated with monopoly in a free market. Monopoly prices cannot be defined logically, let alone established in a free market.

CRITICAL REVIEW OF AUSTRIAN MONOPOLY THEORY

The views of Kirzner and Mises that monopoly consists of exclusive control over the whole supply of some specific resource creates a number of familiar difficulties. In the first place, there would appear to be no objective way to define beforehand some “homogeneous” stock of resources that might be monopolized. All individually owned stocks of a resource could be differentiated at least with respect to location; in addition, the private-property system itself necessarily imparts a “differentiation” to all privately owned stocks. Further, even identical units of some given stock might be regarded differently by potential users, and there would be no way to determine this beforehand. Hence, this view of monopoly could reduce logically to the notion that each and every unit of everyone’s property stock is owned “monopolistically.”

Rothbard, it will be recalled, was critical of this definition of monopoly because its all-inclusiveness made it “impractical,” confusing, and, ultimately, “absurd.” But we can be critical of it on different grounds, employing Professor Kirzner’s own (correct) view of the competitive market process. It will be recalled that Kirzner had argued that the key to competition was freedom of entry and that entry was impossible if potential entrepreneurs could not gain access to monopolized resources.30 Yet, as has been noted above, if all individual stocks of resources are, in fact, monopolized, it would seem to follow that Kirzner’s definition of monopoly would completely negate his own views on competition and market process. Indeed, it is difficult to understand how any competition or market process would even be possible with this definitional approach. How could an); competition occur if all resources are monopolized?

Even if it were to be assumed for the moment that resources are not uniquely specific and are, instead, completely homogeneous, additional difficulties remain. Why, for instance, ought monopoly ownership to preclude the possibility of competition from potentially rivalrous entrepreneurs that purchase needed resources? Indeed, Kirzner himself has already stated that the market process is “always” competitive so long as there is freedom to buy and sell in the market.31 Even monopoly ownership does not erase the freedom to buy and sell since it is possible that access to resources could be obtained, say, through purchase. Yet Kirzner argues that the “very possibilities themselves” of competition may be eliminated by monopoly ownership of a resource.32

Another difficulty with Professor Kirzner’s approach is his use of the qualifying term, “current endowment of a certain resource.”33 Obviously, nothing prevents potentially rivalrous entrepreneurs from exploring for and exploiting new supplies of a specific resource. Indeed, “current endowment” of a resource is an ambiguous phrase since supplies of resources are normally classified as “proved,” “probable,” and “possible.”

If Kirzner means to imply that a monopoly over the current proved endowment of a particular resource precludes the possibility of competition and allows the resource owner to be “immune from entrepreneurial competition,”34 he would be arguing a tenuous point at best. Clearly such a “monopoly” allows no such thing. In this example, future35 entry is clearly possible and cannot be precluded a priori. And since the entire Austrian tradition in this area is to treat the competitive process as one that unfolds through time anyway, how are the potential entrepreneurs effectively blocked from “discovering unexploited opportunities for profit”?

As a final point, monopoly over a resource would appear to make rational economic calculation difficult (if not impossible) since no “market” would then exist for the resource.36 Without markets economic calculation is impossible since objective prices cannot be determined. A firm that monopolized “oranges” for instance, would have no objective way of knowing, subsequently, whether it was employing its resources efficiently in the production of “orange juice,” or even whether it ought to be producing orange juice at all. This “definition” of monopoly, therefore, would appear to be operationally self-destructive. The monopoly position would tend to generate inevitable irrationalities in production since entrepreneurs would have no objective way to calculate “costs.”

Mises, it will be recalled, realized the inherent difficulties of defining monopoly, and so he moved on to the catallactic significance of monopoly: obtaining the monopoly price and, thus, frustrating “the wishes of the consumers.” Professor Kirzner, although he denies that the elasticity of the demand function has any bearing whatever on whether a monopoly exists or not, nonetheless does argue that resource monopoly is likely to result in a restricted employment of such resources, higher prices, and larger surpluses for the producer employing the resource.37 Importantly, such ownership (at least in the short run) has “harmful effects” since it creates an incentive “for not using a scarce resource to the fullest extent compatible with the pattern of consumer’s tastes in the market.”38

It is really difficult to see, however, why any of this argument necessarily follows. The “pattern of consumer tastes in the market” would appear to be, simply, consumer demand. Consumer demand is the variable amount of some homogeneous stock that consumers would be willing and able to purchase at various prices. The important point to be made here is that in a free market such “demand” determinations by consumers are completely voluntary on their part, and all price-output combinations on that hypothetical function faithfully reflect that choice and relate those “wishes” to the producers. Consequently, consumers are at all times in complete control of (fully sovereign over) their own property at any given price-output combination.

It appears completely arbitrary to argue that only “low” prices, or “lower” prices induced by “supply increases,” or only the “elastic” portions of a consumer’s demand function are compatible with consumer sovereignty. Why are not consumers fully “sovereign” throughout the entire price-output range of their own demand function? After all it is they who determine, in certain instances, that they will trade greater volumes of dollars for fewer units of some good. Indeed, to prevent them from engaging in such exchanges would more accurately infringe upon their “sovereignty.” If and when consumers become dissatisfied with such combinations, they are perfectly free to change the “elasticity” of their own demand to combinations that they do prefer.

If the above analysis is correct, it follows that resource owners or producers that voluntarily “restrict” their supplies to obtain higher prices (not “force” them up as Professor Kirzner asserts)39 have committed no socially harmful act. Restricted supplies and higher prices relative to what? All suppliers in free markets restrict their supplies in the sense that they only supply as much of a good or resource as they determine will maximize their monetary or physic income. But, importantly, this is precisely what the “monopolist” does. If his action is “harmful,” then so is the economic activity of all other suppliers in the market.

Alternatively, it cannot be argued that what distinguishes “monopoly” supply from “competitive” supply is the consequently higher prices. In the first place we have already argued that the new price-output combination is perfectly compatible with expressed consumer demand and, therefore, with consumer sovereignty. Secondly, prices are always “high” relative to lower prices could exist, but do not. Indeed, any price at all is “high,” “frustrates” consumers, and reduces their ultimate utility from consumption. But surely the ability to charge a lower price than the prevailing market price, or no price at all, can hardly be a correct criterion for judging whether a supply is competitive or monopolistic. Indeed, since producers are also sovereign under free-market conditions, we must conclude that any supply is competitive and any price is “compatible” with consumer sovereignty and consumer satisfaction.

ROTHBARD’S MONOPOLY THEORY RECONSIDERED

Rothbard it will be recalled had defined monopoly as “a grant of special privilege from the State reserving a certain area of production to one particular individual or group.” This definition of monopoly would appear to be immune from the sort of criticism employed above against both the neoclassical and Mises-Kirzner theories of monopoly. In the first place, we can be confident that competition is “lessened” by this sort of monopoly, and that resources are nonoptimally allocated so far as consumers are concerned, since governmental monopoly restricts by law both competitive entry and, consequently, free consumer choice. Legal barriers to entry restrict entry by definition. Areas of production that are truly “naturally” monopolistic would hardly require governmental entry restrictions. Consequently, consumer choice must be distorted, and the subsequent resource allocations must be “inefficient,” since consumers are prevented by law from making choices that differ from those already made for them by the political authority. Hence, we conclude that governmental monopoly always restricts competition, always violates consumer (and producer) sovereignty, and always “injures” consumer welfare.

It would be tempting to argue that these “restrictions” and “injuries” are, perhaps, minor in the case of “minor” legal impediments to either production or exchange. Yet, there is no satisfactory way to cardinally measure either “competition” or consumer “utility.” Since utility is a completely subjective notion, and since interpersonal comparisons of utility are not possible, there is no objective way to determine how severe even “minor” state impediments to entry and competition actually are. It is completely possible, for instance, that what may appear to be an extremely inoffensive governmental regulation, i.e., setting minimum safety standards for sellers, may in fact be harmful in the extreme with respect to certain potential businessmen and specific classes of consumers.

We conclude, therefore, that any and all state restrictions are “monopolistic,” competition reducing, and destructive of consumer satisfaction vis-à-vis alternative free-market situations. We also conclude, in summary, that this particular theory of monopoly is the only theory that meets all the standard critical objections and remains entirely consistent with the general Austrian methodology.

 

NOTES

40. For a review of this position see, for instance, Edwin Mansfield, Microeconomics, Second Edition (Norton, 1975), Chapters 9 & 10.

41. Willard F. Mueller, A Primer on Monopoly and Competition (Random House, 1970), Chapter 2.

42. Israel M. Kirzner, Competition and Entrepreneurship (University of Chicago Press, 1973).

43. D. T. Armentano, The Myths of Antitrust: Economic Theory and Legal Cases (Arlington house, 1972), Chapter 2.

44. Ibid., pp. 212–15, 246, 267–68.

45. Ludwig von Mises, Human Action (Yale University Press, 1963), p. 358.

46. Ibid.

47. Ibid., pp. 358–60.

48. Ibid., p. 358.

49. Ibid., p. 371.

50. Ibid., p. 373.

51. Ibid., p. 371.

52. Ibid., p. 373.

53. Ibid., p. 375.

54. Ibid., p. 364.

55. Kirzner, op. cit., Chapter I.

56. Ibid., p. 21.

57. Ibid., p. 103.

58. Ibid.

59. Ibid., p. 105.

60. Ibid., p. 110.

61. Ibid., p. 111.

62. Murray N. Rothbard, Man, Economy, and State, Volume II (D. Van Nostrand Company, Inc., 1962), pp. 561–66. See also Journal of Economic Literature, September-October, 1974, pp. 902–3.

63. Rothbard, op. cit., pp. 590–93.

64. Ibid., p. 591.

65. Ibid., p. 593.

66. Ibid., p. 614.

67. Ibid., pp. 608–9.

68. Ibid., p. 564.

69. Kirzner, op. cit., p. 103.

70. Ibid., p. 20. This statement would seem to refute Kirzner’s entire position on monopoly. If markets are always competitive so long as there is freedom to buy and sell, then in a free market there is always competition and never any monopoly.

71. Ibid., p. 103.

72. Ibid., p. 21.

73. Ibid., p. 110.

74. And “future” in an entrepreneurial sense can mean the next moment competitive supply appears or threatens to appear.

75. See Rothbard’s discussion of similar problems for cartels in Man, Economy, and State.

76. Kirzner, op. cit., p. 110.

77. Ibid., p. 111.

78. Ibid., p. 110.

• 1. F. A. Hayek, The Counter-Revolution of Science (Glencoe, 1952), p. 31.
• 2. J. A. Schumpeter, History of Economic Analysis (1954), p. 847, footnote 8.
• 3. G. L. S. Shackle, Epistemics and Economics (Cambridge, 1972), p. 245.
• 4. A. C. Pigou, “The Value of Money,” Quarterly Journal of Economics (November 1917), pp. 42–43.
• 5. J. M. Keynes, A Treatise on Money (1930), Volume I, Chapter 15.
• 6. John Hicks, Critical Essays in Monetary Theory (Oxford, 1967), pp. 61–82.
• 7. Tjalling C. Koopmans, Three Essays on the State of Economic Science (McGraw-Hill, 1957), pp. 146–47.
• 8. K. J. Arrow, “Limited Knowledge and Economic Analysis,” American Economic Review (March 1974), pp. 1–10.
• 9. F. H. Hahn, On the Notion of Equilibrium in Economics (Cambridge, 1973).
• 10. Shackle, op. cit., p. 72.
• 11. John Hicks, A Theory of Economic History (Oxford, 1969).
• 12. Carl Menger, Problems of Economics and Sociology (Urbana, 1963), pp. 151–59.
• 13. My phrase “abstract logic of preference” is obviously modelled after Hayek’s “Pure Logic of Choice,” but fits my purpose better.
• 14. See especially: Mises, Human Action, pp. 350–57; Rothbard, Man, Economy, and State, pp. 277–80.
• 15. George Stigler, Production and Distribution Theories (New York: Macmillan, 1946), p. 181.
• 16. Kirzner, Competition and Entrepreneurship, p. 68.
• 17. Some of the following is based upon Ayn Rand, “Introduction to Objectivist Epistemology,” which appeared in various issues of The Objectivist between July 1966 and February 1967.
• 18. Gerard Debreu, Theory of Value (New York: Wiley, 1959).
• 19. Bertrand Russell, Principles of Mathematics (New York: Norton, n.c.d.), p. 3. Originally published in 1903.
• 20. Morris R. Cohen, A Preface to Logic (New York: Holt, 1944), pp. 9–11.
• 21. I have been informed both by a philosopher and by a mathematician that Russell failed in his lifelong attempt to prove the identity between logic and mathematics.
• 22. W. Stanley Jevons, The Theory of Political Economy, 5th ed. (New York: Kelley & Millman, Inc., 1957), p. 3.
• 23. James R. Newman, The World of Mathematics, 4 vols. (New York: Simon and Schuster, 1956), III, p. 1830.
• 24. Jevons, op. cit., pp. 4–5.
• 25. Several critics of this paper have pointed out that words are symbols which represent concepts. Of course I accept this, and urge that my “symbols” in the following be interpreted as “second-order symbols,” standing for words.
• 26. One or more of these advantages have been claimed by many economists. For one example, see Josef Hadar, Mathematical Theory of Economic Behavior (Reading, Mass.: Addison-Wesley, 1971), pp. 5–7.
• 27. Mr. Roger Garrison points out that the verbal phrase expresses causality while the symbolic expression does not. His observation is absolutely correct, and it strengthens all of my subsequent points about the relative natures of mathematical and verbal analyses.
• 28. Rand, op. cit., passim.
• 29. Hayek, “Economics and Knowledge,” p. 33, passim.
• 30. Richard von Mises, Probability Statistics and Truth (London: George Allen and Unwin Ltd., 1961), first published in 1928.
• 31. See Mises, Human Action, op. cit., pp. 105–18; also, G. L. S. Shackle, Expectation in Economics (Cambridge: University Press, 1952), pp. 5, 109–27.
• 32. See, for example, J. Hadar and W. R. Russell, “Rules for Ordering Uncertain Prospects,” American Economic Review, LIX, No. 1 (1969), pp. 25–34.
• 33. Karl Popper, The Logic of Scientific Discovery (New York: Harper and Row, 1968), p. 40.
• 34. Hayek, “Economics and Knowledge,” p. 44, passim.
• 35. It seems to me as if those who argue that entrepreneurship is always moving toward and never away from an equilibrium must adopt this viewpoint.
• 36. Carl Menger, Principles of Economics (Glencoe: The Free Press, 1950), pp. 257–71; Ludwig von Mises, The Theory of Money and Credit (Irvington-on-Hudson, NY: Foundation for Economic Education, 1971), pp. 97–123. See also Philip H. Wicksteed, The Common Sense of Political Economy, 2 vols. (London: Routledge & Kegan Paul, 1967), I, pp. 136–37.
• 37. See F. A. Hayek, “The Facts of the Social Sciences,” in Individualism and Economic Order, p. 66.
• 38. It has been pointed out to me that although these terms are now in common use, they are often not applied in the consistently subjectivist Austrian manner.
• 39. Hayek, “The Facts of the Social Sciences,” pp. 64–65.
• 40The first, and most prominent, feature of Austrian 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 during the last hundred years was a further step in the consistent application of subjectivism.”
• 41Secondly, Austrian economics displays an acute awareness of the many facets of time that are involved in the complex network of interindividual relations. Time, as the dimension of the interval between input and output, is important, but it is not all-important. Menger’s rejection of Böhm-Bawerk’s theory of capital was largely, if not solely, prompted by the latter’s disregard of all those economically relevant aspects of time that do not fall under the headings “time preference” and “period of production.” 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 of all change. It is impossible for time to elapse without the constellation of knowledge changing. But knowledge shapes action, and action shapes the observable human world. Hence it is impossible for us to predict any future state of this world.
• 42To acting man time is no continuum. The future is uncertain, the past alone known, or at least knowable. “We cannot have experience of actuality at two distinct ‘moments’. The moment of actuality, the moment in being, ‘the present’, is solitary. Extended time, beyond the moment, appears in this light as a figment, a product of thought.” As time is continuously flowing across the threshold of the present, it is undergoing a change of quality. With regard to our knowledge, then, time is heterogeneous, comprising the unknowable and the knowable. Hence Austrian economists, compelled by their commitment to subjectivism to view all problems in the perspective of the actor, cannot but look askance at all theories employing the mathematical notion of time as a continuum and will cast a suspicious eye on expressions such as dY/dt. To acting man, time means something different.
• 43The following year, Mises took the first step in the direction of subjectivism by stressing the important role of individual cash balances. In Cambridge, Pigou tried to subjectivize the rigors of the Quantity Equation by means of the “Cambridge k.” The discovery of the variability of bank credit played its part. While commodity money “exists” in a physical form, the creation and maintenance of a volume of credit requires acts of choice. An element of subjectivism entered into the supply of money.
• 44In 1930 Keynes, in the Treatise, introduced the distinction between the industrial and the financial circulation, later called active and idle money. We have here a clear case of a dissolution of a macroaggregate (M) into smaller aggregates amenable to choice, the choice between money to use and money to hold. And in 1934, for a fleeting moment, a few economists even became aware of what was happening, viz. that night in November 1934 when young Dr. Hicks read his paper, “A Suggestion for Simplifying the Theory of Money,” with its emphasis on subjectivism, to a baffled London Economic Club most of whose members felt that something important had been said, but could not quite make out what.
• 45In 1930 Keynes, in the Treatise, introduced the distinction between the industrial and the financial circulation, later called active and idle money. We have here a clear case of a dissolution of a macroaggregate (M) into smaller aggregates amenable to choice, the choice between money to use and money to hold. And in 1934, for a fleeting moment, a few economists even became aware of what was happening, viz. that night in November 1934 when young Dr. Hicks read his paper, “A Suggestion for Simplifying the Theory of Money,” with its emphasis on subjectivism, to a baffled London Economic Club most of whose members felt that something important had been said, but could not quite make out what.
• 46To our knowledge, Professor Koopmans first launched the attack in 1957, criticising what he called “the overextended belief of the liberalist school of economic thought in the efficiency of competitive markets as a means of allocating resources in a world full of uncertainty.” He continued, “To my knowledge no formal model of resource allocation through competitive markets has been developed, which recognizes ignorance about all decision makers’ future actions, preferences, or states of technological information as the main source of uncertainty confronting each individual decision maker, and which at the same time acknowledges the fact that forward markets on which anticipations and intentions could be tested and adjusted do not exist in sufficient variety and with a sufficient span of foresight to make presently developed theory regarding the efficiency of competitive markets applicable. . . . In particular, the economics profession is not ready to speak with anything approaching scientific authority on the economic aspects of the issue of individual versus collective enterprise which divides mankind in our time.”
• 47In a similar vein Professor Arrow, in a recent Presidential Address to the A.E.A., told his listeners, “Even as a graduate student I was somewhat surprised at the emphasis on static allocative efficiency by market socialists, when the nonexistence of markets for future goods under capitalism seemed to me a much more obvious target.”
• 48In February 1973, Professor Hahn, in his well-known Inaugural Lecture in Cambridge, employed the same argument to show that general equilibrium theory has its practical uses in providing a sophisticated critique of the market economy. “The argument will here turn on the absence of futures markets and contingent futures markets and on the inadequate treatment of time and uncertainty.” He continued, “Practical men and ill-trained theorists everywhere in the world do not understand what they are claiming to be the case when they claim a beneficent and coherent role for the invisible hand” (p. 14).
• 49Following what was said above, we have to distinguish between the unknowable future and the knowable past. In neoclassical thought this problem does not arise, since one is ostensibly engaged in finding “laws” applying as much to the one as to the other. But there are the well-known puzzles among which the problem of ceteris paribus, our inability to specify all the conditions under which the laws are to hold, takes prominence. Austrians simply have to face the fact that the autonomy of the mind precludes determinism: If knowledge shapes action and action shapes the human world, the future is unpredictable. “But if theory pretends only to give an account of particular, peculiar and special moments (such as may be scarcely ever attained in fact) and repudiates any hope of connecting them by any intelligible, permanent mechanism allowing prognosis, then the theory ought explicitly to be a classificatory one, putting situations in this box or that according to what can happen as a sequel to it. Theories which tell us what will happen are claiming too much.”
• 50Above all, Austrian economists will want to trace market processes of the past. To identify economic history with the evolution of the market economy is a bold idea at the application of which Sir John Hicks tried his hand a few years ago. A good deal might be done within this framework.
• 51As the heirs of Menger, Austrian economists will take a particular interest in how the market evolves those “organic institutions” it needs. But the degeneration of these institutions is a subject that no less deserves our attention. It might be worth our while to attempt to find out when exactly, and in what circumstances, the downward inflexibility of money wage rates became the prominent feature of the Western world it today unfortunately is. It would be even more interesting to link it to the evolution of the institutions of collective bargaining. History offers many instances of institutions which, created for one purpose, came to serve another. The parallel with malinvestment is obvious.
• 52Concentration upon this latter set of issues constitutes the Austrian differentia. The distinction cannot be appreciated from a simple statement removed from the context of the above remarks, but it appears correct to argue that: whereas most contemporary microtheory focuses upon the abstract logic of preferences, the Austrian School focuses upon action.
• 53The above comments may help to clarify some of the claims made by the Austrian School writers: although the “abstract logic of preferences” can employ the technique of mutual determination via the solution of sets of simultaneous equations, an analysis of the plans underlying these preferences and how plans are modified must incorporate the concepts of purpose and learning. “Purpose” in this sense cannot refer simply to the a prioristic universal goal of “utility maximization”; it refers to some specific goal the individual wishes to achieve and consequently to how his actions and plans are likely to be modified when he learns that the economic environment is going to be different from that which he anticipated when he developed his initial plans. Simultaneous determination may govern the logical analysis of preferences, but the “older concept of cause-and-effect” is the only technique appropriate to the study of learning and the modification of inconsistent plans. The “cause,” of course, is the individual’s subjective perception of an opportunity to improve his situation, and the “effect” is a change in his way of acting, or in his plans.
• 54The above comments may help to clarify some of the claims made by the Austrian School writers: although the “abstract logic of preferences” can employ the technique of mutual determination via the solution of sets of simultaneous equations, an analysis of the plans underlying these preferences and how plans are modified must incorporate the concepts of purpose and learning. “Purpose” in this sense cannot refer simply to the a prioristic universal goal of “utility maximization”; it refers to some specific goal the individual wishes to achieve and consequently to how his actions and plans are likely to be modified when he learns that the economic environment is going to be different from that which he anticipated when he developed his initial plans. Simultaneous determination may govern the logical analysis of preferences, but the “older concept of cause-and-effect” is the only technique appropriate to the study of learning and the modification of inconsistent plans. The “cause,” of course, is the individual’s subjective perception of an opportunity to improve his situation, and the “effect” is a change in his way of acting, or in his plans.
• 55Professor Kirzner’s important work refers to the “alertness to information” as entrepreneurship. But the importance of the Austrian viewpoint is more clear if we realize that this ability is precisely what differentiates man from other living beings, that “entrepreneurship” in general is indistinguishable from use of the rational faculty, from the ability to conceptualize, from thinking.
• 56Professor Kirzner’s important work refers to the “alertness to information” as entrepreneurship. But the importance of the Austrian viewpoint is more clear if we realize that this ability is precisely what differentiates man from other living beings, that “entrepreneurship” in general is indistinguishable from use of the rational faculty, from the ability to conceptualize, from thinking.
• 57If we are to analyze the function of mathematical terminology in economics, we must analyze it at its best. The difficulties associated with the use of differential and integral calculus are well-known (e.g., the requirements that products and factors be infinitely divisible, that individuals consider infinitesimal changes relevant, that all preference orderings be representable by a total utility function and production relations by a total product function), so analyses using differentiable and integrate objective functions are no longer at the frontiers of mathematical economics, except perhaps in the study of uncertainty. The more general approach of set theory has been developed largely since Debreu (1959), and it is a real and significant improvement over differential calculus in economics. Those who wish to criticize mathematical economics must take on its best.
• 58Bertrand Russell contends that “pure mathematics is the class of all propositions of the form ‘p implies q’ . . . .” The claim of equivalence between pure logic and pure mathematics is sometimes attributed to Russell and Whitehead’s Principia Mathematica (1910–13), but the same idea is presented forcefully in the first few pages of Russell’s 1903 work. Russell was led to this conclusion by the discovery that numbers are sets, that ordinary algebra is therefore an application of set theory, and that any statement of implication can be rewritten in set-theoretic terms: e.g., “p implies q” is identical to “q is a subset of p.” Venn diagrams even give us pictures.
• 59Bertrand Russell contends that “pure mathematics is the class of all propositions of the form ‘p implies q’ . . . .” The claim of equivalence between pure logic and pure mathematics is sometimes attributed to Russell and Whitehead’s Principia Mathematica (1910–13), but the same idea is presented forcefully in the first few pages of Russell’s 1903 work. Russell was led to this conclusion by the discovery that numbers are sets, that ordinary algebra is therefore an application of set theory, and that any statement of implication can be rewritten in set-theoretic terms: e.g., “p implies q” is identical to “q is a subset of p.” Venn diagrams even give us pictures.
• 60Bertrand Russell contends that “pure mathematics is the class of all propositions of the form ‘p implies q’ . . . .” The claim of equivalence between pure logic and pure mathematics is sometimes attributed to Russell and Whitehead’s Principia Mathematica (1910–13), but the same idea is presented forcefully in the first few pages of Russell’s 1903 work. Russell was led to this conclusion by the discovery that numbers are sets, that ordinary algebra is therefore an application of set theory, and that any statement of implication can be rewritten in set-theoretic terms: e.g., “p implies q” is identical to “q is a subset of p.” Venn diagrams even give us pictures.
• 61Jevons felt that economics was by nature mathematical because it deals with numbers. Modern mathematicians prefer to identify the roots of their subject with the theory of sets. A set is a collection of undefined “elements,” which may represent any property we wish to attribute to them, and the theory of sets consists of the logical relations among them. Because of the completely general nature of these sets and elements, we can embrace a much wider view of the nature of mathematics than can those who restrict themselves to, say, functional notation; James R. Newman’s cursory sampling of a few modern mathematicians’ views of their own subject indeed suggests that the boundary between logic and mathematics is becoming increasingly blurred.
• 62Jevons felt that economics was by nature mathematical because it deals with numbers. Modern mathematicians prefer to identify the roots of their subject with the theory of sets. A set is a collection of undefined “elements,” which may represent any property we wish to attribute to them, and the theory of sets consists of the logical relations among them. Because of the completely general nature of these sets and elements, we can embrace a much wider view of the nature of mathematics than can those who restrict themselves to, say, functional notation; James R. Newman’s cursory sampling of a few modern mathematicians’ views of their own subject indeed suggests that the boundary between logic and mathematics is becoming increasingly blurred.
• 63Furthermore, either logical relations or mathematics—whatever the distinction may be—is capable of expression in either verbal or abstract symbolic terms. Jevons was correct in this regard: one cannot identify the basically mathematical or nonmathematical nature of a discipline according to whether or not it is expressed verbally.
• 64From this viewpoint it appears as if Austrian School writers’ criticisms of mathematics in general—rather than of crude mathematics, or of symbolic mathematics—are, in essence, criticisms of pure logic, which is not always (sometimes, perhaps, but not always) what they intend. The real issue is: are there advantages to be gained from the substitution of symbols for words in economics?
• 65The advantages claimed for this substitution include economy, precision, and rigor. The economy arises simply from the fact that a symbol (e.g., x) is more brief than the set of words it denotes (e.g., “the number of oranges he buys per week”). The precision and rigor follow from the abstract nature of symbols: once a set of symbols is appropriately defined (i.e., related verbally to the problem of interest) the entire corpus of the formal theory of relations among these symbols becomes applicable to one’s problem. The ability to draw on the pure, abstract theory of logic (or mathematics) provides the rigor, and the exactness required in the definition of symbols forces the precision.
• 66It is clear enough that representation with symbols is always possible: by defining f() and x appropriately we can represent “absence makes the heart grow fonder” by “f1(x)>0.” The question is, why bother? What advantages might such symbolism offer? There will be advantages—economy, precision, rigor—only if the symbols will be used repeatedly in the course of some logical analysis.
• 67To evaluate the process of symbolic analysis outlined above, we must consider the epistemological significance of language. Words are concrete audiovisual representations of the abstractions called concepts, in which form all knowledge is retained. As a consequence, any mathematically derived symbolic propositions which are to be meaningful must be translated into words. (If they are merely translatable then they are merely potentially meaningful.) Thus, the long sequence of intermediate steps in a logical derivation must be expressed verbally if it is to be related to human experience. But without subsidiary hypotheses about how people learn, these intermediate steps are not meaningful as guides to the comprehension of behavior and cannot be related directly to human experience. Only the conclusion can, in the sense that it describes an “equilibrium” state toward which actions are headed. Equilibrium theorists who make extensive use of mathematical symbolism are, in fact, saving a great deal of paper and time. The fact that causality is lost is irrelevant to one concerned only with descriptions of equilibria.
• 68Those who perceive economic theory as a set of propositions which are logically implied by initially hypothesized preference sets and production possibilities understandably find symbolic logic and mathematics a powerful tool: economical, precise, rigorous. But the analysis of the conditions specific to an equilibrium presupposes that the conditions necessary for equilibrium exist. This is hardly much to ask if one restricts his viewpoint to static conditions, in the sense discussed earlier in this paper—that is, to search for a price vector logically consistent with the individuals’ preferences at a specific moment. If one sees the central purpose of economics as the analysis of action, however, the relevant equilibrium is the dynamic one, and its preconditions—interpersonally consistent future plans or expectations—cannot be merely hypothesized. One must attempt to examine the ways in which this interpersonal consistency of expectations can be brought about. This requires the introduction into one’s analysis of empirical (nondeduced) statements about what reactions individuals are likely to have when confronted with unexpected developments. If these reactions were implicit in the initial propositions and therefore could be logically derived from them using their symbolism, they would not be reactions to unexpected developments at all: they would simply be preprogrammed behavioral changes in accordance with perfectly foreseen changes in data and would be empty of learning.
• 69The relative-frequency concept of probability is not applicable to human action with its unique events. For discussion I will simply assume here something which I am by no means convinced is legitimate: that there is an appropriate subjective probability concept according to which future states can be ordered by cardinal degrees of belief.
• 70The relative-frequency concept of probability is not applicable to human action with its unique events. For discussion I will simply assume here something which I am by no means convinced is legitimate: that there is an appropriate subjective probability concept according to which future states can be ordered by cardinal degrees of belief.
• 71Modern analyses using this approach are, like their deterministic counterparts, inevitably static. Even the most sophisticated of the techniques, that of “stochastic dominance,” which permits the entire subjective distribution (rather than only its mean and variance) to be considered, necessarily involves the reduction of an alternative to a “certainty equivalent,” an ordinal which can be value ranked against other alternatives. Essentially, a hypothetical and certain alternative is manufactured—one which has the same value as the uncertain state—and preferences are constructed on the basis of this hypothetical alternative. For example, a man may be indifferent to the choice between $40 and a 50–50 chance at $100 or nothing. In determining preferences he will act as if $40 were actually the alternative; market prices of lottery tickets, for example, will be determined in this manner.
• 72What implications do the foregoing comments have for methodology? How are propositions about economics to be developed? The formal study of patterns of consistent preferences—which I have called the “abstract logic of preference”—may employ the techniques of formal logic and mathematics, particularly set theory. The study of consistent plans, and how inconsistencies in interpersonal expectations are eliminated through learning, requires a technique (if it may be so called) different from the abstract symbolism of mathematics. It requires that specific nondeduced hypotheses be advanced about how an individual’s plans and preferences change when he is confronted with unexpected events. The fact that these propositions about learning cannot be logically derived from other accepted statements may make the analysis appear unscientific, because of course it renders the conclusions dependent upon the accuracy of the empirical hypotheses. But if one accepts Popper’s terminology, the possibility of falsification is precisely that which makes a proposition scientific rather than unscientific.
• 73But this introduction of nondeduced hypotheses does not imply that “anything goes”; the nature of these hypotheses is governed by the introspective and experiential evidence that people learn from experience; that when confronted with plan inconsistencies they tend to revise their plans in the direction of consistency. The development of an “Austrian process analysis” consists largely of an examination of how individuals are likely to interpret market or nonmarket changes as evidence that their own expectations must be revised. If different inconsistencies are brought to light when they proceed to act on these revised expectations, some further changes in plans (perhaps, this time, the plans of the other people) will be required. It is always possible to advance some reasonable hypothesis about the nature of the plan changes.
• 74The role of symbolic mathematical analysis consists of the determination of the specific conditions which would exist under plan consistency. Whether there “really are” such consistent plans implicit in current expectations but somehow unrecognized, deep below the level of awareness, or whether (as is far more likely) current expectations are fundamentally inconsistent so that some hypothesis must be invented about what plans would be like if they were consistent, this state of plan consistency is the benchmark, the goal providing a general direction to entrepreneurial activity. But the process by which it is approached must be analyzed with unfailing sensitivity to what the acting individual finds in the course of his actions and how he is likely to revise his expectations when he learns these things.
• 75As an example of what difference all this makes, we could consider literally any process in time, especially a process we could consider evolutionary. The monetary theory of Menger and Mises provides an excellent example because Mises’ conclusion—the regression theorem—provides the solution to the so-called monetary-value theory dichotomy still challenging today’s monetary theorists.
• 76The differentia of the Austrian School is its focus upon the plans—the action-relevant plans—of the individual rather than upon his preferences. Preferences can be treated in an abstract fashion, as the preponderance of contemporary economic theory demonstrates, and such analyses make correct and beneficial use of mathematical symbolism. But the study of plans and how they are brought into interpersonal consistency requires a much more sensitive reading of the nature of human thought and action. Hypotheses about learning and changes in expectations can be based only upon such introspective philosophizing as the attributing of one’s own thought processes to others and guessing, again based upon one’s own personal experiences and hypothetical behavior in similar circumstances, about the specific purpose of the other’s behavior.
• 77What of the big issues on which the School seems to offer special insight? It is tempting, at first, to try to “define” the School by simply listing them: time preference, opportunity cost, business-cycle theory, monetary theory, imperfect information, entrepreneurship, capital theory, the role of time, analysis without symbolic mathematics. Time preference and opportunity cost are now part of conventional economics. But the others are still special to Austrians, and the particular Austrian outlook arises—in each of these cases—from the approach I have outlined here: emphasis upon action (not preferences), recognition that action takes time and that because plans may be inconsistent the results of actions are uncertain, and willingness to adopt a method appropriate to this outlook.
• 78. . . the most marked tendency of the development of scientific thought in modern times. . . . has been correctly described as one toward the progressive elimination of all “anthropomorphic” explanations from the physical sciences. Does this really mean that we must refrain from treating man “anthropomorphically”—or is it not rather obvious, as soon as we put it in this way, that such an extrapolation of past tendencies is absurd?