Sunday, March 27, 2011

The Austrians Have Mises All Wrong!

I will be presenting a paper at this year's Austrian Student Scholars Conference making this very point. Information about the program can be found here:

My paper will argue that Austrian economics has developed in ways that contravene Mises' fundamental insights. Central to Mises is the concept of human action. Humans act because they wish to make their condition more tolerable, e.g., removing felt uneasiness. Now this conception of human action is fudamentally opposed to mainstream theorizing. For economists, optimizing behavior is desirable because it causes markets to approximate equilibrium. Now Austrians are no doubt critical of the mainstream's preoccupation with equlibrium states, but their crticisms take the form of "unrealism" and "inadequacy." In other words, mainstream economics doesn't tell the whole story. The market is a process that is always moving towards fleeting equilibria.

But Mises objected to equilibrium theory as a matter of principle. Mises attacked economics by rejecting the idea that equilibrium is a state towards which we should be tending; and he did this on two grounds. First of all, equilibrium is not an identifiable state. Therefore, approximations to and deviations from this "hypothetical" state cannot be measured or talked about intelligently. This is where the Austrians are wrong. How can we say that the market is a process approximating equilibrium if we can never know the definite monetary and quantity values of such a state? And secondly, equilibrium theorizing is fundamentally opposed to human action. Equilibrium reduces man to a vegetative existence. Human action would not exist in equilibrium.

This thesis effectively buries the debate among Austrians over whether the market is equilibrating or disequilibrating. Moreover, it also throws out most of what economics has accomplished in the way of scientific discovery. But most importantly, it turns Mises into a revolutionary --- a figure more radical than Marx, Veblen, or Keynes. To deny the desirability of equilibrium by explicating the meaning of human action is to fundamentally transform the nature and scope of economics.

The transition from Austrian economics to Misesian economics is made by dispensing with the assumed desirability of the equilibrium state.

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