Austrian Economics in America: The Migration of a Tradition.

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 its 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 a 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 Bohm-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; Bohm-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 uncertainty.

The extra-neoclassical 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 are spontaneous and self-directed; the latter are created and managed centrally with a particular goal in mind. This and the similar distinction between catallaxy and economy [pp. 120 ff] were to become an important part of F. A. Hayek's research agenda. But in the hands of erstwhile Austrians who more proudly wear the label "hermeneuticists," this agenda 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 and Gadamer.

The reader soon discovers that if hermeneutics 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 [pp. 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] disputes the claim by Rothbard and others that hermeneutics (originally a technique for biblical exegesis) is "nihilistic." She cites Gregory Johnson to the effect that hermeneutics is a philosophy of how to study reality [p. 131] and Don Lavoie as claiming that hermeneutics provides a philosophical justification for the study of spontaneous order [p. 133].

In her chapter defining the Austrian paradigm, Vaughn gives equal billing, along with hermeneutics, to the "economics of time and ignorance," the title phrase of a book by O'Driscoll and Rizzo [3]. In her judgment, considerations of time and ignorance weigh in favor of the Lachmannian view of a world in which the equilibrium forces and disequilibrium forces are stalemated and against the Kirznerian view of a world characterized by equilibrating tendencies. It is worth noting here that 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 forces 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. This conclusion is more in the spirit of Kirzner than of Lachmann.

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 see still other roads, and some may believe, Vaughn notwithstanding, that "Lachmann" marks a cul 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 transplanting the health-care industry from (relative) order to organization, a clear focus on the substantive issues is all the more critical for the Austrian school as well as for all others.

There is more in this book than can be adequately dealth with here. Mises' Human Action, which is described 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]. Vaughn does not preach to the choir. 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 Auburn University

References

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 The New Palgrave: A Dictionary of Economics, edited by John Eatwell, Murray Milgate, and Peter Newman. 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.