LELAND B. YEAGER (*)
HENRY GEORGE HAS been widely pigeonholed and dismissed as a single-taxer. Actually, he was a profound and original economist. He independently arrived at several of the most characteristic insights of the "Austrian" School, which is enjoying a revival nowadays. Yet George scorned the Austrians of his time, and their present-day successors show scant appreciation of his work. An apparent lapse in intellectual communication calls for repair.
THE AUSTRIAN SCHOOL traces to the work of Carl Menger, one of the leaders of the marginal-utility revolution of the 1870s, and his fellow-countrymen, Eugen von Bohm-Bawerk and Friedrich von Wieser. Notable contributors of a later generation include Ludwig von Mises, F. A. Hayek, and Ludwig Lachmann, each of whom worked first in Austria or Germany and later in the United States, and also the American Frank A. Fetter. In a still later generation, eminent Austrians--the word no longer carries any implications about nationality or mother tongue--include Murray Rothbard and Israel Kirzner. Some eminent young members of the school are Dominick Armentano, Gerald O'Driscoll, Mario Rizzo, Steven Littlechild, and Karen Vaughn; and apologies are in order for not extending the list further. (1)
What follows is an impression of the leading characteristics of Austrian economics.
(i) Austrians are concerned with the big picture--with how a whole economic system functions. They avoid tunnel vision; they do not focus too narrowly on the administration of the individual business firm and the individual household. They investigate how the specialized activities of millions of persons, who are making their decisions in a decentralized manner, can be coordinated. These diverse activities are interdependent; yet no particular agency takes charge of coordinating them, and none would be competent to do so. The relevant knowledge--about resources, technology, human wants, and market conditions--is inevitably fragmented among millions, even billions, of separate human minds.
(ii) Austrians take interest in how alternative sets of institutions can function. Von Mises in particular, and later Hayek, demonstrated the impossibility of economic calculation--scheduling of economic activities in accordance with accurate assessment of values and costs-under socialism. Centralized mobilization of knowledge and planning of activities is admittedly conceivable. In a Swiss Family Robinson setting, the head of the family could survey the available resources and technology and the capabilities and needs and wants of family members and could sensibly decide on and monitor production and consumption in some detail. In a large, modern economy, however, sensible central direction is not possible. Austrians are alert to possibilities of unplanned order and to what Hayek (1967) has called "the results of human action but not of human design." They investigate how the market and prices function as a vast communications system and computer, transmitting information and incentives and so putting to use scattered knowledge that would otherwise necessarily go to waste.
(iii) Not only do Austrians appreciate the implications of incomplete, imperfect, and scattered knowledge; they also appreciate the implications of change, uncertainty, and unpredictability in human affairs. They take these facts of reality seriously not only in confronting supposed theoretical and econometric models of the economy but also in assessing alternative sets of institutions and lines of policy.
(iv) In connection with the implications of fragmented knowledge, change, and unpredictability, Austrians pay attention to disequilibrium, process, and entrepreneurship. While not totally scornful of elaborate analysis of the properties of imaginary equilibrium states and of comparative-static analysis, they recognize how incomplete a contribution such analyses can make to the understanding of how economic systems function. …