vol. 62, no. 1 (July), 1995, pp.
Austrian Economics in America: The Migration of
by Karen I.Vaughn
New York: Cambridge University Press, 1994, pp. xiv, 198
As both eyewitness and engaging writer, Karen Vaughn retells the history
of the modern Austrian school from the perspective of current internal
debate. Apart from its recurring bouts with schizophrenia, this school
of thought is alive and well and residing (mostly) in the United States—in
New York, Fairfax, Auburn, and elsewhere. Although a self-identified contrarian,
Vaughn has sympathies with the Austrian school, at least in one of its
identities. The two competing identities are defined in terms of their
conflicting goals, one of "supplementing," the other of "undercutting"
the dominant neoclassical paradigm; Vaughn, at heart, is an undercutter.
Overly cautious in her preface,
Vaughn denies that a "fully articulated and importantly distinct" Austrian
economics as yet exists. But soon enough she sets out the boundaries in
terms of methodological precepts, modes of thought, and focus of analysis.
Writing for the New Palgrave, Israel Kirzner [2, pp. 149-50] offered five
different perceptions, or aspects, of the modern Austrian school, aspects
which derive from its (1) origins in the writings of Carl Menger, (2) attention
to the economy's intertemporal capital structure, (3) capacity to bolster
market-oriented policies, (4) focus on equilibrating processes as opposed
to equilibrium states, and (5) acknowledgment of "radical" uncertainty
faced by market participants. Vaughn, in effect, pits the last-listed aspect
(with partial support from the first-listed one) against all the rest.
One of the most insightful
parts of the book is the early chapter on Menger. How was it that the founder
of the Austrian school dedicated his Principles to a member of the Historical
school, did battle (the Methodenstreit) with another member of that same
school, and came to be recognized as key member of the neoclassical school?
Vaughn answers this question with a satisfying and memorable story. Menger
dedicated his book to Wilhelm Roscher, believing himself to be offering
an organizing principle for historical research; Roscher, who did not readily
accept the offer, was eventually overshadowed by Gustav Schmoller, who
opposed all a priori, universal theory. Fellow Austrians in closest sympathy
with Menger's views developed his ideas in a distinct neoclassical direction.
Friedrich von Wieser formalized marginal utility theory and the closely
related notion of opportunity costs; Eugen von Böhm-Bawerk formalized
capital theory, defining the time element in the means-ends framework as
the average period of production. Wieser's contribution has been accepted
into modern neoclassicism; Böhm-Bawerk's has been largely rejected.
But both developments downplayed Menger's "alternative message," which
entailed heavy doses of radical subjectivism in the context of pervasive
Menger owes much of its substance to its Darwinian—as opposed to Newtonian—roots.
Methods and mindsets of evolutionary biology give rise to distinctions
between orders and organizations (pp. 29 ff). The former is spontaneous
and self-directed; the latter is created and managed centrally with a particular
goal in mind. This and the similar distinction between an economy and a
catallaxy (p. 120 ff) were to become an important part of F. A. Hayek's
research agenda. Unfortunately [in the reviewer's judgment but not in the
author's], this agenda in the hands of erstwhile Austrians who more proudly
wear the label "hermeneuticists" became almost totally detached from the
substantive economics that can be traced from Menger to Mises to Hayek.
Austrian as well as neoclassical principles of economics are eclipsed by
the phenomenology of Husserl and the philosophies of Dilthy, Heidegger
The reader soon discovers
that if hermenutics is infused with any economics at all, it is the economics
of John Maynard Keynes, G. L. S. Shackle, and Ludwig M. Lachmann. Keynes's
doubts about the ability of the market to do its job are bolstered by Shackle's
imagery of a "kaleidic society" and by Lachmann's pronouncement that "the
future is unknowable but not unimaginable" (p. 152). In numerous seminars
attended by this reviewer (and undoubtedly in others attended by the author),
Lachmann would tirelessly pose questions of the sort: "How can we be sure
that the forces of equilibrium will prevail over the forces of disequilibrium?"
Vaughn (p. 97, 154 and passim) poses similar questions. Seminar participants
quickly learned that even to attempt an answer to such questions was to
reveal a profound misunderstanding of them. The only "correct" response
was: "Yes, how can we ever be sure?"
Israel Kirzner and
Murray Rothbard, both following Mises, pursued substantive issues as if
they were sure enough; Lachmann, following Keynes and Shackle, allowed
his doubts to dominate his thinking. Vaughn (p. 154) rejects the claim
by Rothbard and others that hermenutics (originally a technique for biblical
exegesis) is "nihilistic." She cites Gerald Johnson to the effect that
hermenutics is a "philosophy of how to study reality" (p. 131) and Don
Lavoie to the effect that hermenutics provides a philosophical justification
for the study of spontaneous order (p. 133).
In her chapter that
defines the Austrian paradigm, Vaughn gives equal billing, along with hermenutics,
to the "economics of time and ignorance," the title phrase of a book by
O'Driscoll and Rizzo . In her judgment, considerations of time and ignorance
weigh in favor of the Lachmannian view of a world in which the equilibrating
forces and disequilibrium forces are stalemated and against the Kirznerian
view of a world characterized by equilibrating tendencies. However, the
phrase itself comes from Keynes's General Theory: "The social object
of skilled investment should be to defeat the dark forces of time and ignorance
which envelop our future" [1, p. 155]. For Keynes, the dark forces seemed
always to win out. It was Hayek who identified equilibrating tendencies
operating within the economy's structure of capital and argued that those
forces will prevail so long as government policy does not push the economy's
growth rate above its natural and sustainable level, which is determined
by the market. This conclusion is more in the spirit of Kirzner than that
In her final chapter
Vaughn asks "Which way forward?" The Austrian school is portrayed as being
at a crossroads with the road signs clearly marked "Kirzner" and "Lachmann."
At this point the reader may well be able to identify still other roads,
and some may believe, Vaughn nothwithstanding, that "Lachmann" marks a
de sac. My own view is that there are several potentially productive
roads but that travelers in all directions should commit themselves to
a broadly shared subject matter. In the words of William Jefferson Clinton:
"It's the economy, stupid." And with the political leadership bent on "growing
the economy" and converting the health-care industry from order to organization,
a clear focus on economic theory and policy is all the more critical for
the Austrian school as well as for all others.
There is more in Vaughn's
book than can be adequately dealt with here. Mises is given his due but
gets some rough treatment on particulars of substance and method. Vaughn
does not preach to the choir. Human Action, which she describes
as a "subversive but incomplete project,"..."was flawed, but it was at
once so learned and complex that it would take decades to unravel its central
contradiction." (p. 70). Stories of South Royalton, where the Austrian
revival began twenty years ago, and characterizations of specific members
of the Austrian school and of divisions within it make for interesting—if
slightly gossipy—reading and are best left as surprises for the reader.
These personal reflections and perceptions add to the flavor of the book
without distracting unduly from its scholarly theme.
Roger W. Garrison
1. Keynes, John Maynard, The General Theory of Employment,
Interest, and Money. New York: Harcourt, Brace, 1936.
2. Kirzner, Israel M. "Austrian School of Economics,"
in John Eatwell, Murray Milgate, and Peter Newman, eds., The New Palgrave:
a Dictionary of Economics, 1987, vol. 1, pp. 145-51.
3. O'Driscoll, Gerald P., Jr.,and Mario Rizzo, The
Economics of Time and Ignorance. Oxford: Basil Blackwell, 1985.