Review of Austrian Economics
Austrian Economics in America: The Migration of a Tradition. By Karen I. Vaughn. Historical Perspectives on Modern Economics. New York and Melbourne: Cambridge University Press, 1994. Pp. xiv, 198. $49.95. ISBN 0–521–44552–3.
Some books are distinguished by inaccuracies, stilted or idiosyncratic interpretations or by a simple lack of scholarship. These are simply forgettable with “the only bad review being only an obituary.” Others are this and plenty more—they do actual and discernible damage to the subject they seek to treat. Such is the case with this book that seeks to “clear away the underbrush so that the hoped-for revolution [an Austrian revolution] can have a more hospitable soil in which to take root.” Not only does it not clear “the underbrush” (a silly and inapt metaphor), Vaughn’s book shows little appreciation for the development of Austrian economics in the United States or anywhere else, or for its present or future status. Austrian economics fortunately is made of sterner stuff and will survive this treatment. Vaughn does serious damage to fair interpretation nonetheless. In my view (and I am more a sympathizer than a card-carrying Austrian), her stance, if it is really taken seriously, builds a catafalque for this critically important area of economic thought.
The title of this book, if not the content, suggests three possibly important issues that Vaughn might have considered. First, what is the nature of the tradition, history, and economic theory of the Austrian school? Second, does Austrian economics stand as a separate and coherent theory today? Finally, has an expanded neoclassical analysis paralleled or “absorbed” Austrian notions of ignorance, time, the entrepreneur, and knowledge requirements? This book fails to contribute in any meaningful way to any of these matters.
The historiography of Austrian thought and the “tradition” of which Professor Vaughn speaks is reduced to a few well-known figures and ideas (chapters 2–5) flavored only with Vaughn’s stilted interpretations. I find both the older and the more modern writers of the Austrian school to be critically misrepresented in this account.
Consider the older tradition, whose font was the triumvirate of Carl Menger, Friedrich von Wieser, and Eugen von Böhm-Bawerk. Vaughn devotes two chapters to Menger and “Mengerian themes” (found in Hayek in particular) in a summary of well-known literature. Her treatment boils down to an assertion that Menger’s themes of knowledge, ignorance, time, and process were the singular essences of Austrian economics. Wieser and Böhm-Bawerk are depicted as not having “a Mengerian vision” (p. 7). This is utter nonsense. Vaughn believes that Menger’s “themes” were resurrected in the socialist calculation debates between Ludwig von Mises and the “neoclassicals.” She should consider Wieser’s Natural Value, his Social Economics, and the writings of Böhm-Bawerk more closely.
In Natural Value (1883), Wieser outlines and then destroys the theoretical case for socialism by directly confronting the argument that profits and interests are necessary payments but not necessary receipts (the socialist argument). I further suggest that her dismissal of Wieser (see pp. 33–35) as a closet neoclassical is preposterous when one reads his Social Economics (completed in 1914 but not published until after World War I). In it Wieser made giant strides toward the development of a number of contemporary Austrian themes, including (a) the emergence of institutions as the result of spontaneous order; (b) the depiction of competition as a rivalrous process opposed to (simply) a static model; and (c) the key role of the entrepreneur in the economic process. The integration of economic theory into a theory of institutional change, a clear extension of Menger’s work on the development of money, is perhaps the most important of these genuine achievements, especially given the concerns of some contemporary Austrian and neo-institutional economists.1
The dismissal of Wieser and Böhm-Bawerk as Austrians of the older school is, unfortunately, only one example of Vaughn’s serious lapse of accuracy and incompleteness.2 Her spotty and sparse attention to the Austrian tradition in America is an even more glaring and disastrous omission. While Mises, who was Böhm-Bawerk’s (not Menger’s) student, and Hayek get some summary treatment, it is as if economists such as Joseph Schumpeter, Gottfried Haberler, Oskar Morgenstern, Fritz Machlup, and Paul Rosenstein-Rodan did not even exist, let alone constitute an inextricable part of the “tradition.” A footnote or two (see p. 36 n. 22) and a blanket dismissal of these game players as “neoclassical sympathizers” just doesn’t get to the core of these critical contributions to the Austrian way of thinking.
1 know, for example, that Oskar Morgenstern considered himself, first, last, and always, a direct descendant of and a worker in the fields of the Austrian tradition. In 1969, when he visited Texas A&M for several long stints, Morgenstern lectured to my “thought” classes on Austrian economics and its development in America. My yellowing notes reveal that Morgenstern had a clear grounding in Mengerian principles and that grounding was a vital part of Morgenstern’s research at the time (on stock market prices, I believe). He had my class reading his Accuracy of Economic Observations, written in 1950 (second edition 1963). While purporting to recount “the Austrian tradition,” Vaughn virtually ignores the work which most clearly explains why the all-too-frequent misuse of econometrics should be taken with a grain of salt—a very modern Austrian predilection.
Vaughn’s non-treatment of serious scholars whose works flow into both Austrian and non-Austrian mainstreams reflects a more basic problem in her entire treatment. Her treatment is itself based on an idiosyncratic interpretation of what Austrian economics or neoclassical economics (for that matter) is.3 The limited perspective is furthered by her very interpretation of Austrian economics as essentially (only?) the economics of time and ignorance. Great attention is lavished (pp. 92–178) on this idée fixe which occupies almost half of the book. At the risk of trite paraphrase, this view may be summarized: Since we cannot know what we cannot know (the future), and since econometrics is of no help, predictive models are useless or are “severely limited.” This, at least to this reviewer’s mind, is the core problem with the book, and the reason why it damages the topic it seeks to venerate.
Ludwig Lachmann and his coven, including the hermeneuticians, have driven a wing of the Austrian movement to an anti-scientific theological view of “what Austrian economics is.” Radical views of knowledge and knowledge requirements force a retreat to deconstructive anti-science with which Vaughn flirts. (On this point I am in full agreement with the late Professor Murray Rothbard.) Pursuit of this Holy Grail will leave Austrian economics and any other branch of thought that embraces it exactly nowhere.4 Hermeneutics is, root and branch, a surrealist stupidity reminiscent of the Roman Church’s attacks on science or the fundamentalist attack on biology. There is no “middle-of-the-road” in this war that does not, of necessity, spit on science and scientific principles. Perhaps the romance with hermeneutics or its variations might end in the creation of a magic decoder ring.5
Large chunks of this book are devoted to sterile and unnecessary attempts on the part of some Austrians, including the author, to “find themselves” and define a new paradigm. It would be facile to dismiss this book as a patchy-idiosyncratic summary of some Austrian ideas, because the errors and lapses go much deeper than that. Even though there is little new in the book, the interpretation she provides is a call to nihilism. From that undiscovered country, as Hamlet noted in another context, no traveler returns. When the direction of economic activity cannot be predicted or predicated upon some solid behavioral responses, markets do not matter, and their defense is irrelevant much as they are at the hands of the rational mechanics that the Austrians so fondly (and correctly) assail.
Fortunately, Austrian endeavors and prospects are more solid and promising than Vaughn proposes. Rather than simply being the “economics of time and ignorance,” Austrian concerns bridge and intimately connect with a number of areas with a complexity that belies this book’s simplistic treatment. Indeed, other reviews of this book (by Austrians) have noted some of these areas. Fortunately, it represents a small, angst-ridden wing of the Austrian movement—those with a penchant for internecine methodological warfare—and not its more vital quarters. A number of young Austrians really do economics and interesting economics at that. Austrian-flavored analyses of monetary theory, macroeconomic and growth theory, antitrust, and law and economics are being promulgated by writers such as George Selgin, Larry White and Don Boudreaux, to mention only a few. And Israel Kirzner continues to enlarge our knowledge and analysis of the role of the entrepreneur. Perhaps someday soon, an Austrian will provide a work that reveals the real complexity of the area without the Heraclitan highjinks and theological overtones that pervade this treatment.
Robert B. Ekelund, Jr.
Auburn University
Review of Austrian Economics 10, no. 2 (1997): 133–38
ISSN: 0889–3047
- 1Historical Statistics of the United States, part 1 (Washington, D.C.: 1975), series D-86 for unemployment rates and series F-32 for gross national product. Throughout this article, the standard data series for unemployment rates are used, with recognition that there has been a challenge to the validity of those data during the Great Depression years. See Michael R. Darby, “Three-and-a-Half Million U.S. Employees Have been Mislaid: Or An Explanation of Unemployment, 1934–1941,” Journal of Political Economy 84, 1976.
- 2A.C. Pigou, Industrial Fluctuations, 1st ed. (London: Macmillan, 1927), p. 176.
- 3A.C. Pigou, Theory of Unemployment (London: Macmillan, 1933), p. 252. Pigou makes his arguments in a variety of other places. For example, see his “Real and Money Wage Rates in Relation to Unemployment,” Economic Journal 47, 1937, and “Money Wages in Relation to Unemployment,” Economic Journal 48, 1938.
- 4It is perhaps something of an exaggeration to ascribe this position entirely to Pigou. A number of other economists espoused similar views. Recognizing that the list is incomplete, we cite a few, beginning with Jacob Viner, Balanced Deflation, Inflation, or more Depression (Minneapolis, Minn.: University of Minnesota Press, 1933), especially pp. 12–13. See also W.H. Beveridge, Causes and Cures of Unemployment (London: Longmans, Green and Co., 1931), p. 25, and Unemployment, A Problem of Industry (London: Longmans, Green and Co., 1930), chapter 16; Wilford I. King, The Causes of Economic Fluctuations (New York: Ronald Press Co., 1938), chapter 8; and Lionel Robbins, The Great Depression (New York: Macmillan, 1934).
- 5John A. Hobson, The Economics of Unemployment (New York: Macmillan, 1923), p. 84.
