Austrian Economics

Drawing on the Austrian school of economics and the structure-conduct-performance (s-c-p) paradigm of industrial organization, the authors present and test a dynamic model of competitive activity and performance. They examine the model in two stages. First, they explore the influence of industry-level and firm-level cooperative mechanisms on firm-level competitive activity. Second, they examine the effect of firm-and industry-level competitive activity on firm performance. The authors use the dynamic model of competitive activity to examine the complex linkages between the firm's environment, its actions, and its performance outcomes. They report a longitudinal analysis of a sample of 1,903 competitive moves undertaken in the software industry. Hypothesis testing supports the relationships in the model argued from the Austrian perspective, but provides only partial support for those derived from the s-c-p paradigm. Firm-level cooperative mechanisms are found to increase the firm's competitive activity, and firm-level competitive activity is related positively to the firm's return on assets and return on sales. Contrary to expectation based on the s-c-p paradigm, industry-level cooperative mechanisms are not related to the firm's competitive activity or to its performance. Consistent with the IO paradigm, however, a measure of industry rivalry that directly captures industry-level competitive activity is related negatively to firm-level performance.

This paper discusses the inherent tension in the notion of entrepreneurship as developed by Ludwig von Mises and Israel Kirzner. Given that entrepreneurship is an omnipresent aspect of human action, it cannot also be the "cause" of economic development. Rather, for economic development to take place, certain institutions must be present in order for the entrepreneurial a spect of human action to flourish. After further developing this theoretical insight, an in-depth analysis of the institutions necessary for entrepreneurship are considered.

This article compares the types of knowledge democracy and the market require to rationally allocate resources. I argue that high levels of public ignorance, and voters’ inability to compare the effects of different parties’ policies, make it difficult for parties and elections to rationally allocate resources. Markets mitigate these problems because the simultaneous existence of multiple firms’ products facilitates comparisons that mimic the conditions of scientific experimentation. The economy of knowledge involved in such comparisons indicates there are epistemic advantages to using firms and markets, instead of political parties and elections, to allocate scarce resources. However, in contrast to arguments that markets merely provide better information than political decisions, I argue markets’ epistemic advantages are derived from the way they facilitate comparisons that minimize decision makers’ need for knowledge or understanding.

The equilibrium-based approaches that dominate entrepreneurship research offer useful insights into some aspects of entrepreneurship, but they ignore or downplay many fundamental entrepreneurial phenomena such as individuals' creative imaginations, firms' resource (re)combinations, and markets' disequilibrating tendencies-and the genuine uncertainty and widespread heterogeneity these imply. To overcome these limitations, scholars have recently introduced a nonequilibrium approach to entrepreneurship based on Ludwig Lachmann's "radical subjectivist" brand of Austrian economics. Here, this radical Austrian approach is extended beyond Lachmann to include the work of radical subjectivism's other noted theorist: George Shackle. More important, the article extends entrepreneurship research by systematically comparing and contrasting the nascent, radical Austrian approach to entrepreneurship with three dominant equilibrium-based approaches: neoclassical, Kirznerian, and Schumpeterian economics. Specifically, the article (a) explicates the paradigmatic philosophical assumptions about the nature of individuals, firms, and markets that underlie these approaches; (b) demonstrates how metaphor is employed as a device to concretize these assumptions; (c) examines the research questions that arise from the assumptions these metaphors reflect; and (d) uses the Japanese "beer wars" of the 1980s and 1990s to illustrate one methodological approach (hermeneutics) researchers can adopt to apply these assumptions, metaphors, and questions to study entrepreneurial phenomena from a radical subjectivist perspective.

Frank A. Fetter is often classified as an American representative of the Austrian school, yet surprisingly, there is practically no published record of his views of the Austrians or theirs of him, and there is no indication that he ever seriously interacted with them after the First World War. However, Fetter enjoyed many personal and professional relationships with the Austrians, and they shared a reciprocal influence on each other's ideas that deeply influenced their respective research programs. This paper draws on unpublished archival records to explore Fetter's unique place in the history of economics, in particular, his positive and negative interactions with the leading individuals and institutions of the Austrian school. Their half-century of influence sheds light on Fetter and his role in American economics, but also brings to light a wide range of information about the lives, works, and personal relations of the Austrians that have not been included in their biographies or institutional histories.

The immediate post-war period was defined by shifts in capitalism's socioeconomic and institutional underpinnings. Commonly known as Fordism, until the early-1970s models of standardized industrial mass-production and robust state planning and intervention were relatively successful in maintaining secular growth in employment, productivity and demand as well as establishing the national economy and society as unified, governable fields. This paper considers how migration controls in Canada and Australia enhanced and extended such arrangements. In simultaneously boosting production and demand, diversifying and integrating industrial activities and assimilating European migrants into a mass consumer culture while excluding non-Europeans perceived as disruptive of material and sociocultural homogeneity, such policies provided central vectors of economic and cultural nationalism that complemented other monopolistic and redistributive interventions.

The Austrian School of Economics since WWII has increasingly claimed a unique position within the scientific community of economists. This paper argues that the most persuasive way to make this claim to uniqueness is to focus on the distinction scholars in the Austrian tradition place between information and knowledge in their work. In other words, it is the epistemic-cognitive turn that the Austrian school took in the wake of the socialist calculation debate that separates the school from other branches of neo-classicism within economic science that constitutes its best case for analytical uniqueness. . I would also like to acknowledge the financial support of the J. M. Kaplan Fund. The usual caveat applies.

Musgravean public economics, as the dominant public policy framework of the post-WWII era, argued that the government can and should supplement the price mechanism in order to create a social order within which a democratic society can flourish. Starting with the late 1970s, this project of public economics has been challenged by the growing dominance of neoliberalism as a form of governmentality that extends the economic logic of markets into the domain of the state and its mode of exercising sovereignty over its subjects. After outlining the historical and the disciplinary context of this challenge, the article maintains that endogenous theoretical confrontations internal to public economics should also be taken into consideration to provide a fuller account of the eclipse of the Musgravean public economics in the era of neoliberalism.

This paper investigates the relationship between methodological individualism (MI) and agent-based simulation (ABS). We use a thesis defended by Caterina Marchionni and Petri Ylikoski (2013) as the starting point of our approach. According to this thesis, since MI is often considered to be a reductionist orientation, it is confusing and meaningless to assume that ABS, which is a non-reductionist and emergentist explanatory model, is committed to MI. We criticise this view and focus on the problem of the proper definition of MI. We explain that MI is compatible with the ABS strategy because reductionism is only the most simplistic variant of MI and argue that ABS explanations must be regarded as explanations in terms of non-reductionist MI.

Robust Political Economy (RPE) is a research program that combines insights from Austrian economics and public choice to evaluate the performance of institutions in cases of limited knowledge and limited altruism, or “worst-case scenarios.” Many critics of RPE argue that it is too narrowly focused on the bad motivations and inadequacies of social actors while smuggling in classical liberal normative commitments as part of a purported solution to these problems. This paper takes a different tack by highlighting the ways that RPE as currently understood may not be robust enough to particularly bad conduct. It suggests that depending on the parameters of what constitutes a worst-case scenario, classical liberal institutions, especially a minimal state, may turn out to be less robust than some conservative or social democratic alternatives.

The present lack of instruments for measuring entrepreneurial opportunity is hampering progress in entrepreneurship research and fundamental hypotheses about opportunity variance are not being tested. This paper sets out to validate a measure of market newness in new ventures based in Austrian Economics, assuming a view of opportunity as objective and discoverable. Empirically, a sample of 250 new internal ventures in gestation was examined regarding to whom these ventures presented something new in terms of geographical extension or new customer groups. The measure improves on existing instruments by providing more intrinsic range while being firmly anchored in an Austrian Economics framework.

Inspired by the success of geographical clustering in California, many governments pursue cluster policy in the hope to build the next Silicon Valley. In this paper we critically assess the relationship between geographical clustering and public policy. With the help of a range of theoretical insights and case study examples we show that cluster policy in fact is a risky\ venture, especially when it is tried to copy the success of regional ‘best practices’. Therefore, we advice policy makers to move away from the Silicon Valley model and to modestly start from a place-specific approach of ‘Regional Realism’.

Substantially increased wealth inequality across the developed world has prompted many philosophers, economists and legal theorists to support comprehensive taxes on all forms of wealth. Proposals include levying taxes on the basis of total wealth, or alternatively the change in the value of capital holdings measured from year-to-year. This contrasts with most existing policies that tax capital assets at the point they are transferred from one beneficiary to another through sale or gifts. Are these tax reforms likely to meet their aims of greater economic and political equality? We argue that these policies are likely to fail because, following neoclassical economic theory, they are based on a conception of capital as possessing given values in what amounts to a static equilibrium. This mischaracterizes the dynamic and subjective character of market economies and the contested value of real instantiations of capital goods. This makes them very difficult, often impossible, to value apart from at the point of voluntary transfer or profit realization. This means most taxes levied on a mark-to-market basis will be arbitrary and unfair. We propose alternative policies based on an income realization approach to taxation that are more likely to curb excessive wealth holdings. This includes introducing international treaties that prohibit preferential tax treatment for individual companies and specific sectors, and broadening the income tax base to include the imputed rent of personal housing wealth.

This article shows that the incorporation of right-wing libertarians into the Alt Right coalition was the end result of a schism in the neoliberal intellectual movement in response to the egalitarian challenge of the 1960s. In a symmetry with developments on the post-Marxist Left, one group of Austrian School economists associated with F. A. Hayek took a cultural turn. Performing their own critique of “economism,” they perceived human nature as rooted primarily in culture, adaptable over time through social learning and selective evolution. The other group of Austrian economists, linked to Murray Rothbard and culminating in the racist-libertarian alliance of the Alt Right, saw difference as rooted in biology and race as an immutable hierarchy of group traits and abilities. While many observers have described the Alt Right as a backlash against the excesses of neoliberalism, this shows that an important current of the Alt Right was born within and not against the neoliberal movement.

Hayek’s The Road to Serfdom has been interpreted as a general warning against state intervention in the economy. We review this argument in conjunction with Hayek’s later work and discern an institutional thesis about which forms of state intervention and economic institutions could threaten personal and political freedom. Economic institutions pose a threat if they allow for coercive interventions as described by Hayek in The Constitution of Liberty: by giving someone the power to force others to serve one’s will by the threat of inflicting harm, in the absence of general rules of conduct. According to the logic of the argument, welfare-state provisions are not coercive insofar as they do not allow the identification and discriminatory treatment of individuals. By contrast, we claim that a structure of coercion is likely to emerge from the command-and-control nature of protectionist institutions and immigration restrictions currently advocated by the Radical Right.

Whereas few members of the Austrian School of Economics claimed that their concept of economic value could be extended beyond their discipline, the philosophers of the Brentano School and their intellectual heirs thought of value in a more general way. An attempt at elaborating a unified theory of value must therefore start from the Brentanian view of value as an intentional mental act that has a component structure. By reconstructing the essential elements shared by both schools (and by other Austrian attempts at understanding value), a basis is defined for a general theory of value and thus for reembracing an intellectual enterprise that, in most circles, has long been abandoned.

As the entrepreneurship discipline grows, it increasingly faces unique research challenges. Recently, "interactive, activity based, cognitively hot, compassionate, and prosocial" approaches to the study of entrepreneurship have arisen to meet these challenges. This paper reflects and builds on recent discussions by emphasizing, in addition, the persistent value of economic foundations for a progressive research agenda in entrepreneurship. A realist economic perspective is both fundamental for entrepreneurship and complements newer research trends. It has also stood the test of time: economic questions relating to methodological individualism, uncertainty, judgment, opportunities, social motivations, and incentives have not only set the tone for past research, but continue to offer starting points and insights for contemporary work. This note thus makes two contributions: first, it explains the relevance of each of these concepts for contemporary work in entrepreneurship studies, and second, it uses them to pose novel research questions. These questions complement the abovementioned emerging trends in entrepreneurship.

The paper deals with the continuities and discontinuities between some
classical, Austrian and neo-Austrian authors with regard first to the theory of capital and then to the theory of entrepreneurship. Part I focuses on the elements of continuity between the classical and the Austrian theory of capital. These elements have been singled out by dealing first with the distinction between individual and national capital;
and then with the difference between the resulting circulating-fixed capital and free-invested capital distinctions in the light, first, of the concept of roundaboutness and, then, of the method of vertical integration. Part II focuses on the elements of continuity between the Austrian theory of individual behaviour and the classical theory of national wealth. The distinctions between logical and historical time and between economics of time and economics in time are used to assess the links between the theory of capital as developed by the classics and Böhm-Bawerk, on the one hand, and the theory of entrepreneurship as developed by the neo-Austrians, on the other.

Carl Menger's theory of invisible-hand explanations is rooted in his methodology of the social sciences. Contrary to his 18th-century Scottish forerunners he explains both the emergence and the persistence of unplanned social institutions exclusively by the individual pursuit of perceived self-interest. Contrary to Hayek's evolutionary functionalism, Menger's theory is not con®ned to the explanation of ef®cient or bene®cial institutions. And contrary to Buchanan and Vanberg's constitutional contractualism, it does not require that people form stable preferences over rules.

Frank Fetter's contributions to entrepreneurship and the theory of the firm are usually overlooked, even though his original treatments are relevant to both the history of economic thought and contemporary entrepreneurship research. I highlight three ways Fetter's work adds to our understanding of the entrepreneurial process. First, entrepreneurs direct their enterprises via the careful delegation of authority to managers, thereby maintaining residual control over the firm; similar views were pioneered by Frank Knight and the Austrian economists, who continue to study cognate problems like judgmental decision-making and " proxy-entrepreneurship. " Second, Fetter foreshadows Knight's influential distinction between risk and uncertainty, arguing that entrepreneurs bear uncertainty through their investment decisions; however, Fetter adds to Knight's work by explicitly considering the role chance and luck play in entrepreneurial success, a problem still debated in entrepreneurship studies. Third, Fetter argues that scarcity implies the active investment of resources, and thus, the need for entrepreneurship; this view hints at current research on entrepreneurial bricolage, as well as work emphasizing investment rather than opportunity as the defining concept of entrepreneurship. It also provides " microfoundations " for strategic entrepreneurship research.

This paper argues that Austrian economics allow us to identify a number of weak spots in the modern economics of organization. Thus, neither the dispersion of tacit and subjectively knowledge in organizations, nor the entrepreneurial discovery process are comprehensively treated in this body of thought. Thinking about these issues in the context of the firm leads to a different, but perhaps complementary perspective on economic organization.

This paper addresses the question of whether the Austrian theory of interventionism helps us understand what growth economists call decelerations or slowdowns. It is proposed that the theory of stagnation based on non-productive entrepreneurship (Coyne, Sobel and Dove 2010) complements the theory of interventionism, and when they are combined, a theory of slowdowns is the result. The consequences of this theory are used in an empirical investigation whose strategy is based on two hypotheses. One is that the interventionist process has institutional determinants which can be derived from the theory. The other is that interventionism is the mechanism of the slowdown of economic growth not only for those countries that have experienced relatively high growth rates in the past but also for those with normal growth rates. Using logit regressions it is shown that reductions in any area of economic freedom can be seen as one of the causes of slowdowns.

Many economists, including Austrian economists, have argued that the market process is essentially an experimental process. We briefly try to clarify this conceptualization, and then argue that we may understand the firm in much the same light. A basic view of the firm as an experimental entity is derived, drawing on property rights insights.

This essay draws on the transaction costs model of the firm and an Austrian perspective on the knowledge problem in centrally planned orders to propose an empirically useful Austrian theory of central planning. After an initial review of existing theories of the firm, part two develops insights from the calculation debate to sketch a theory of planning centered on the interrelated problems of purpose, information and control in both individual and central planning. Part three joins this theory to the basic framework of the transaction cost model to produce an Austrian theory of the private firm that addresses the relation between knowledge and power in planned orders, and illustrates its principal themes through a discussion of the historical development of American manufacturing in the fifty years prior to World War I.

While the Viennese origins of key neoliberal intellectuals is well known, the formative influence of the Habsburg Empire on their thought is surprisingly understudied. This article argues that the empire was a silent and open partner in the writings of Austrian economist Ludwig von Mises on international order, especially on questions of migration and the management of a polyglot population. After 1918 Mises conceived of robust forms of multinational governance capable of protecting a world of what he called 'perfect capitalism' with total global mobility of labour, capital and commodities. Yet, by 1945 he had scaled back his proposals to the effective recreation of the Habsburg Empire. I show that Mises's international theory was cleft by a faultline between a normative theory of an open borders world and the empirical reality of a closed borders world, underwritten by what he saw as the stubborn obstacles of human ignorance and racial animus.

an anonymous referee for helpful comments and, in particular, Nicola Giocoli and Robert Leonard for making unpublished typescripts available to me. Of course, any remaining errors and omissions are mine. Finally, for permissions to quote from unpublished sources I am very grateful to Dorothy Morgenstern Thomas and

N.C. The author thanks Bruce Caldwell, Ronald Hamowy, Philip Mirowski, and an anonymous referee for their comments. The usual caveats apply. 1 The key histories of spontaneous order are Barry (1982) and Hamowy (1987). Hamowy and Ross (1987) give Hayek credit for coining the term "spontaneous order." For a more recent article on Hayek and the spontaneous order tradition, see Horwitz (2001). 2 Caldwell (2004, p. 294) cites Jacobs on Polanyi's use of "spontaneous order" and related terms/concepts, but defers judgement on the issue of influence, stating, "I should think it nearly impossible to untangle questions of influence in this case." While granting the difficulty of the question, this paper attempts a tentative answer nonetheless.

This paper traces the intellectual trajectories of the first stand-alone theories of action, understood as both axiologically neutral and quasi-scientific from a methodological point of view. I argue that the rise of action theory of this kind corresponds to a particular moment of dissatisfaction within Western thought, and as such, it tells us far more about the history of philosophy than the subject itself. I conclude by explaining why subsequent failures to provide an acceptable theory of action are not accidental. On the contrary, such failures owe themselves probably to the fact that formulating a theory of action is neither propitious nor useful. Thus, the most valuable lesson we can learn from philosophical desires for a theory of action is that we should take co-action as the starting point in our normative investigations, rather than positing action simpliciter as a problem to solve. That is, instead of postulating a theory of action, we should think of a paradigm shift, whereby we move away from a representational paradigm in philosophy towards a co-actional one.

Using an 'Austrian' economic framework, rather than the traditional neoclassical economic or progressivism framework, this paper explores the extent to which accrual based accounting measurement systems add to or detract from value relevant accounting information, in public sector settings. Austrian economics provides insights to this issue by offering a more nuanced theoretical account of the role of knowledge, institutions and subjectivism in analyzing economic phenomena, than do traditional neoclassical economics or progressivism. The paper concludes that Austrian economics are a potential framework that informs us about the problem of misuse of information in public, noncompetitive situations.

Purpose -First, to look closely and critically at Hayek's treatment of science in The Sensory Order. This provides hints as to the difficulties in maintaining a theory of scientific knowledge as a selective sum of the identifiable contributions of individual scientists. Second, to generalize from Hayek's theory of how the brain generates an individual's knowledge to a theory of how science generates scientific knowledge, knowledge that is not a simple sum of individual contributions. Third, to apply this picture of science to understanding developments in postpositivist philosophy and post-Mertonian sociology of science.

Contemporary Austrian‐school economists reject neoclassical welfare theory for being founded on the benchmark of a perfectly competitive general equilibrium, and instead favor a formal theory deemed consistent with the notions of radical subjectivism and disequilibrium analysis. Roy Cordato advances a bold free‐market benchmark by which to formally assess social welfare, economic efficiency, and externalities issues, as does Murray Rothbard.  Like all formalist, a priori theory, however, Cordato's and Rothbard's reformulation cannot meet its own standards, being theoretically and empirically flawed, and perhaps ideologically suspect.

Critical Review, 7 (4), 1993: pp. 567-592

This paper adapts the entrepreneurial theory developed by Richard Cantillon, Frank Knight, and Ludwig von Mises to the theory of “political entrepreneurship.” Political entrepreneurship is an outgrowth of the theory of the market entrepreneur, and derives from extending entrepreneurial theory from the market into the political sphere of action. By applying the theory of the entrepreneur to political behavior, we provide a basis for identifying political entrepreneurs, and for separating them analytically from other government agents. The essence of political entrepreneurship is the redirection of production from the path it would have taken in an unregulated market. Nevertheless, this production does produce an income stream to political entrepreneurs which closely resembles the profit of market entrepreneurs.

Karl R. Popper proposed that the method of explanation in economics, or situational logic, should become the general model for analyses across the social sciences. This article makes good Popper's proposal by extending situational logic to a social problem outside the traditional scope of economics: crime. Specifically, the discussion reviews models developed by economist Gary S. Becker and criminologist Ronald V. Clarke. Becker's 'economic approach' to crime incorporates essential features of situational logic. Clarke's 'situational crime prevention' offers an even better demonstration; it explicitly incorporates the ideas of piecemeal social engineering and unintended social repercussions. Popper took situational logic from Menger and the Austrians, making this emerging area of criminology an extension of Austrian economics.

This paper analyzes the theory of “entrepreneurial incentives” in the work of Israel Kirzner. It argues that there is a logical problem with the notion of profit opportunities as exogenous causal agents: Without additional assumptions, the existence of opportunities alone does not sufficiently explain the alertness of entrepreneurs. The paper considers both stronger and weaker versions of this problem. It also questions the relation between entrepreneurial incentives and the tendency toward entrepreneurial success. Finally, it provides some commentary on the relevance of entrepreneurial incentives for an overall theory of the entrepreneur, and identifies several potential solutions to the problems discussed.