Understanding "Austrian" Economics, Part 2

By Hazlitt, Henry | Ideas on Liberty, November 2003 | Go to article overview

Understanding "Austrian" Economics, Part 2


Hazlitt, Henry, Ideas on Liberty


After the passing of its three founders-Carl Menger, Friedrich von Wieser, and Eugen von BohmBawerk-Austrian economics fell for a long time into eclipse. It was not so much refuted as neglected. English-speaking economists began devoting themselves to such matters as mathematical treatment of problems of "general equilibrium." The Austrian view was revived mainly by one man, an Austrian by birth as well as an "Austrian" by conviction-Ludwig von Mises (1881-1973). He made his influence felt both by his written works and by his oral teachings. Among his early distinguished students and followers were Gottfried Haberler, Fritz Machlup, Oskar Morgenstern, Lionel (subsequently Lord) Robbins, and, most influential of all, F. A. Hayek.

Ludwig von Mises was prolific, but his principal contributions were made in three masterpieces. These were The Theory of Money and Credit, first published in German in 1912, Socialism: An Economic and Sociological Analysis, also first published in German in 1922, and Human Action, which grew out of a first German version appearing in 1940, but was not published in Mises's own rewritten English version until 1949.

Mises on Human Action

Though there is now a gratifying number of able young American economists writing in the Austrian tradition, Human Action still stands as the most complete, powerful, and unified presentation of Austrian economics in any single volume. Mises always generously acknowledged his indebtedness to his predecessors. He recalled in a short autobiography (Notes and Recollections, 1978) that around Christmas 1903 he read Monger's Principles of Economics for the first time. "It was the reading of this book," he wrote, "that made an 'economist' of me."

It would carry me to too great length to itemize and explain all the contributions to economics that Mises made, and I will content myself with mentioning only two. He was the first to prove that it was impossible for socialism to undertake "economic calculation"; and he made one of the most important contributions of any economist toward solving the problem of "the trade cycle."

Because Mises so uncompromisingly rejected government interventionism in all its forms, he acquired the reputation of a "laissez-faire extremist" during most of his lifetime, and was scandalously neglected by the majority of academic economists. But because Hayek elaborated his own ideas in a more conciliatory form, his writings attracted more attention from the academic world, and he leapt into prominence in 1931 with his own contribution to the theory of the trade cycle, Prices and Production, along lines similar to Mises's. The result is entitled to be called the "Mises-Hayek" theory.

Hayek is also a prolific writer, but though he has written volumes on money, on the trade cycle, on inflation, and on The Pure Theory of Capital (1941), he has never attempted a comprehensive book on economic principles. Of late years he has turned his attention mainly to the realms of politics, ethics, and law, and has written profound and widely discussed treatises on The Constitution of Liberty (1960) and a three-volume work on Law, Legislation and Liberty, completed in 1979. He has been more widely influential in his own lifetime than was Mises, and was awarded the Nobel Prize in Economics in 1974.

Today's zealous group of younger "Austrian" economists, though all acknowledging their great debt to Mises, do not treat his Human Action as the final word on the subject, but are exploring a whole range of economic problems with a new vigor. Murray Rothbard [1926-1995], a student of Mises, produced a two-volume treatise, Man, Economy, and State (1962), along Misesian lines, with notable clarity of exposition, and making important contributions of his own, pointing out the fallacies, for example, in the prevailing theories of "monopoly price."

Israel M. Kirzner (b. 1930), professor of economics at New York University, another former Mises student, although he has not undertaken a comprehensive book of "principles," has explored individual problems in five separate volumes: The Economic Point of View (1960), Market Theory and the Price System (1963), An Essay on Capital (1966), Competition and Entrepreneurship (1973), and Perception, Opportunity, and Profit (1979). …

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