Sunday, March 27, 2011

The Economics of Joseph T. Salerno

I think Joseph Salerno is an important member of the contemporary Austrian movement. He is a serious historian of Austrian economics, and has contributed some excellent papers to the literature. Although I find his writing style somewhat difficult to engage and understand, he is clearly the most learned expositor of the Rothbardian economic tradition.

Israel Kirzner also considers Mr. Salerno an important member of Austrian economics. In defending his theory of entrepreneurship, Kirzner repeatedly makes mention of the criticisms of both Ludwig Lachmann and Joseph Salerno. When I first read this, I was shocked to see Kirzner compare the work of Lachmann with that of Mr. Salerno. I resolved immediately to read everything I could find by Professor Salerno. I found a lot of his work really good. I think Salerno is better when it comes to interpreting the historical development of Austrian economics. (His papers "The Place of Human Action in the Development of Modern Economic Thought" and "The Rebirth of Austrian Economics" are excellent.) However, I found his other important paper, "Mises and Hayek Dehomgenized" more difficult, partly because the exposition is executed poorly. But Kirzner has much respect for the ideas contained in this essay. Here is his assessment of Professor Salerno's work:

"Although their position is a relatively new one and has not yet generated sustained debate within the Austrian camp, it has already elicited a good deal of attention, and seems likely to stir up vigorous discussion in the immediate future. Rothbard and Salerno's understanding of the market process sees it not as a continual process of knowledge acquisition, but as a continual process of entrepreneurial decision making which, at each moment, encourages the most perceptive entrepreneurs to make their best judgments in a world of incessant change, through the use of monetary calculation of estimated profits and losses."

Kirzner then goes on to argue that Salerno's entrepreneur does not bring the market into coordination through the acquisiton of knowledge, but rather through his ability to consult market prices. Moreover, according to Mr. Salerno, there is no long run tendency toward equilibrium; "exogenous changes are continually frustrating any tendencies toward eventual equilibration."

A few thoughts. When Kirzner writes that this argument has "already elicited a good deal of attention," I take him to be referring to the debate over economic calculation between Leland Yeager on the one hand, and Hoppe/Herberner/Salerno on the other. Yeager's position is that there is no real substantial difference between Hayek and Mises on the possibility of economic calculation. Salerno et al want to argue that there is.

I have to admit that I have never really understood this argument. Does Salerno reject the idea of market equilibration? If so, then perhaps we should welcome him as a Post Austrian! But I am not so sure he does. It seems that he is simply substituting price calculation for knowledge acquisiton in his understanding of the market process, with the additional assumption of incessant change frustrating any systematic movements toward equilibrium. But how then are we to judge the efforts of the perceptive entrepreneur? What standard are we to use in measuring success against failure? The obvious answer would seem to be profits and losses. Does it not then follow that profits represent systematic market equilibration? If this is not the case, then why?

Any help in these matters would be greatly appreciated. I understand Lachmann's position very well. But I could use a little more help with Salerno's position.

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