Chicago and Vienna

October 30, 2011

by Jerry O’Driscoll

In the last two days, two prominent economists have asked me essentially the same question: what is the difference between Chicago and Austrian economics? It is interesting that both asked, particularly since one has a Ph.D from Chicago.

The second economist asked me specifically if Armen Alchian wasn’t really an Austrian. I’ll respond as I did to him. I learned most of my Austrian economics in the UCLA graduate economics program. (At that time, UCLA was known as Chicago West.) I was never an Alchian student, but one read lots of Alchian anyway. And his influence pervaded the department. It was obvious to me that Mises had influenced Alchian. Also Hayek, as is made clear in a video of Alchian interviewing Hayek.

Hayek’s classic essays on prices and information were on various reading lists at UCLA. Fisher was used as a text in Hirshleifer’s capital theory class. For purposes of learning capital theory, Fisher was as Austrian as Bohm-Bawerk (and much more accessible). Both Hayek and Mises thought Fisher had improved on BB.

It was by taking Leijonhufvud’s macro course that I became acquainted with Prices and Production. I wrote a term paper on it for that class, which eventually became my dissertation (Economics as a Coordination Problem).

When Harold Demsetz arrived, the influence of Mises on his theory of property rights was evident. We read a lot of Ronald Coase, and his relationship with Hayek at London is well documented by James Buchanan in Cost and Choice.

The relationship between Vienna and Chicago proper is more complex, mainly because Chicago is complex. There was an Old Chicago School of Frank Knight, Henry Simons, Lloyd Mints, Paul Douglas, et al. Some have viewed it as leftwing. It was “Keynesian” on fiscal policy before Keynes. Simons was frequently criticized by classical liberals, yet Hayek defended him vigorously. Simons proposal for 100% reserve banking was adopted as first best by Milton Friedman and second best (to free banking) by Hayek (who thought both systems would be an improvement, but not politically possible).

The new Chicago School, heavily influenced by Friedman and Stigler, struck out on its own. Its relationship with the old school blurred as time passed. On micro topics like competition, there was heavy overlap with modern Austrians. Demsetz and Kirzner made common cause on competition. Hayek was never fond of monetarism, however.

The modern Chicago School of rational expectations and real business cycles is a topic unto itself. But, yes, there is still a connection as John Cochrane and others understand.

Those are my thoughts in a nutshell.

44 Responses to “Chicago and Vienna”

  1. Allan Walstad Says:

    As an avocational Austrian (versus professional physics teacher), may I test my understanding and ask Jerry’s or someone’s indulgence to confirm or deny? My understanding is that the Chicago school goes in for ordinal utility and mathematical optimization, neither of which Austrians view favorably.

  2. Greg Hill Says:

    Very interesting. Thanks, Jerry.


  3. This is very interesting, especially considering similar essays that concentrate on tertiary considerations such as natural rights and the status of Ronald Coase. I hope it gets a full lenght article treatment some day.

    Still, I would have thought that your explanation would have centered around time and ignorance, given the title of your 1985 book. Good economists, Austrian or Chicagoan, take some level of ignorance and time into account I suppose.

  4. Allan Walstad Says:

    Looks like I got the words “ordinal” and “cardinal” confused, and it wouldn’t be the first time. But as I understand it, Chicagoans like other mainstreamers entertain the idea of utility being in some sense quantifiable as a magnitude, whereas Austrians allow only for ranking. The former leads to the mainstream obsession with mathematical models. This is the substantive answer I would have given regarding the difference between the schools.


  5. My main goal was to show that contrasting “Chicago” and “Austrian” economists is unhelpful. Both schools were made up of individuals who learned from and influenced members of the other school.

    Moroever, the schools evolved over time. I emphasized that with Chicago, but it is also true of Vienna. Wieser could be used to support either a cardinal or ordinal view of utility.

    Was Schumpeter an Austrian? Was Fisher? I would be loath to give an unequivocal answer for either.


  6. [...] O’Driscoll on the relationship between Chicago and Vienna. [...]

  7. Roger Koppl Says:

    I think you’re making an important point, Jerry. As you know, the same point goes for Austrian vs. public choice or “Virginia Political Economy.” Lots of common influences, diversity of thought even among the core, founding group, and so on. What makes it a good thing to have an Austrian school is the high marginal return on inquiries from that perspective, not anything like a supposed absolute superiority to all other schools of thought, whatever that might even mean. Let a hundred flowers bloom.

  8. Allan Walstad Says:

    Ok, I’m going to take one more shot at this. Presumably, if there is an Austrian School and a Chicago School as well as other identifiable schools, there must be intellectual differences by which they may be distinguished. “What is the difference between Austrian and Chicagoan” is a perfectly reasonable question that I should think Austrians would be prepared to answer, along with pointing out the advantages of their view. If the Austrian perspective illuminates nothing extra, nothing more clearly, then why have an Austrian school at all?

    If anyone welcomes a diversity of theoretical models, I do. But whereas one’s preferences in flowers are a matter of taste, models or paradigms are properly subject to criticism, for example with respect to their clarity, usefulness, and faithfulness to what we take to be the real world. Treating utility as quantifiable points straight down the path to optimization, to a preoccupation with mathematical models of equilibrium that don’t do justice to the dynamic reality of human action. I thought that was a fairly incisive Austrian criticism of much of the neoclassical mainstream, including Chicago.

    My intention not to enforce a rigid dogma, which does seem to be the tendency in some parts of the Austrian community. Economists are individuals whose views will not necessarily fit into neat categories. It makes little sense to try to draw a fine line by which absolutely to rule every economic thinker in or out of the Austrian camp. And yes, people from different perspectives can usefully influence and collaborate with each other and make valid contributions.

    But I disagree that comparing, contrasting, and criticizing different perspectives has no value.

  9. Roger Koppl Says:

    Allan,

    We could have a discussion of the Austrian differentiae and, indeed, many of us have written on that theme. But quick and dirty demarcation criteria are probably not helpful, as Jerry is trying to suggest. The notion that Chicago utility theory is “cardinal” is not really right. Standard VNM utility is unique up to an affine transformation. Is that “ordinal” or “cardinal”? If an Austrian uses game theory, has he therefore quit Vienna for Chicago? If so, there may not be many “Austrian economists” left.

    Pete Boettke lays out ten propositions tend to characterize “Austrian” economists.
    http://www.econlib.org/library/Enc/AustrianSchoolofEconomics.html
    If you line up closely enough on a large enough number of these propositions, then you would probably count as “Austrian,” with due consideration for various sorts of exceptions. More or less. I suppose. In a general sort of way. As a first approximation.


  10. I’d like to ask about what *I* think is a fundamental difference between Austrians and Chicago: Chicago focuses exclusively on equilibrium modeling and denies the usefulness (and coherence) of disequilibrium thinking.

    Furthermore, wiithin micro Friedman, Stigler, et al. argued there are two fundamentally useful models: perfect competition and Monopoly (monopolistic competition is a bastardization of the two, in their view). (Machovec vs. Stigler comes to mind here.)

    Austrians, OTOH, think equilibrium only makes sense as an analytic tool if we can explain some learning/discovery process that would show how people in disequilibrium could ever get their expectations and actions sufficiently coordinated to even approximate equilibrium.

    Yes?


  11. @ Allan: Neoclassical utility is not cardinal, but ordinal. the utility function is defined only up to any monotonic transformation. The actual “utils” don’t matter. neoclassical utility theory doesn’t even have (or need) diminishing marginal utility as a result.

    Expected utility is cardinal. Binmore has a proof of this (I think he attributes it to Harsanyi, actually). But it is really an analytic convenience, or a hypothesis about how people evaluate uncertain situations — in the end the “cardinality” isn’t very important except for this.

    Mainstream econ doesn’t even need utility to talk about preference relations, of course. For them, utility in either of the above forms is ultimately an analytic convenience. It’s unclear to me that this *necessarily* conflicts with the Austrian conceptions, so long as we remember this is all a sort of ceteris paribus assumption.

  12. Roger Koppl Says:

    “Austrians, OTOH, think equilibrium only makes sense as an analytic tool if we can explain some learning/discovery process that would show how people in disequilibrium could ever get their expectations and actions sufficiently coordinated to even approximate equilibrium.”

    Tom Sargent would agree, Charles.


  13. In Economics of Time and Ignorance, Mario and I made our case for what — at least a quarter century ago — Austrian economics is and what makes it distinctive. There were no simple, hardline distinctions to be made. Austrians believe in the importance of time, but what conception of time? We spilled a lot of ink on that one. And so on.

    For those interested, there will be a session at the Southern Economic Association meeting in DC on the book after 25 years. Some of the issues raised here will surely come up.

  14. Allan Walstad Says:

    Roger, a discussion of differences between the Austrian and Chicago schools (and/or other schools) would have been interesting. That’s what I would have expected on a thread that starts with Jerry saying that two prominent economists have enquired about those differences. Instead, I can’t avoid the impression that you and Jerry would rather people avoid the discussion. Also, one can be interested (as I am) in the differences (and relative merits) among the schools without being obsessed with exactly where to build a fence and who’s in or out. Anyway, thanks for the reference to Pete Boettke’s piece. I think I’ve seen it before in passing but will take a closer look now.

  15. John Says:

    Can someone point me to specific resources where Hayek details his thoughts on monetarism? What was his main gripes with it?


  16. John,

    It appears in various places in which Hayek’s reminiscences appear. He couldn’t credit the constancy or stability of velocity.

  17. Roger Koppl Says:

    Allan,

    Jerry co-authored a book on the topic as he notes above. I have published several that include discussions of what “Austrian” means. The latest being: “Market Processes and Entrepreneurial Studies,” with Maria Minniti, in Acs, Z.J. and D.B. Audretsch, ed. Handbook of Entrepreneurial Research, revised edition, Spinger, 2010. I gave you a link to a piece by Peter Boettke. So I don’t think anyone is dodging the issue or trying to suppress discussion thereof. I am resisting, and I think Jerry is resisting, any notion that any differences that might exist between Chicago and Vienna imply that one group is wrong and the other is right. I don’t think you were making that suggestion, but I think that needed to be said. I’m afraid you were kind of guilty of looking for a quick and dirty set of criteria to distinguish Chicago and Vienna. I resist that too. And I think it’s pretty clear that Jerry does as well. I don’t think it’s fair to suggest, if you were, that either of us has to, like, lay out here and now a position on what the differences and similarities might be, which points of different are relatively unambiguous, what counts as “Chicago school” and so on. Indeed, Jerry has explicitly said, “I would be loath to give an unequivocal answer for” questions like whether Schumpeter was an Austrian. So, you know, constraints of time and space.

  18. Roger Koppl Says:

    Oops, I meant I have published several *pieces* . . .

  19. Allan Walstad Says:

    Roger, I would have hoped that my subsequent comments made quite clear that I was not looking for a quick and dirty set of criteria, and certainly not interested in reading Schumpeter in or out of the Austrian fold. I was sharing a perception and looking for a discussion.

    I had seen the Boettke piece before, but my understanding was refreshed by reading it last night. Thanks again.

    Charles, thanks for the information. I either had misinterpreted things I’d read in the past, or perhaps what I was reading was too dumbed down. I’m not going to be a master of terminology, but as a substantive matter I was fairly sure that Austrians generally looked askance at quantifying utility, as well as at highly mathematiized equilibrium models, and that these were really significant differences from the neoclassical mainstream.

  20. Pietro M. Says:

    Interesting post, as usual.

    I would like to understand something more about:

    “The modern Chicago School of rational expectations and real business cycles is a topic unto itself. But, yes, there is still a connection as John Cochrane and others understand”

  21. Will Says:

    Who is the Fisher referred to?


  22. Allan — I hope I was helpful. Some Austrians (esp. some associated with the Mises Institute) have made a big deal over differing conceptions of utility, but much of this seems based on a misunderstanding of neoclassical (NC) utility & expected utility (EU). NC doesn’t “quantify” utility according to Mises’ definition of “quantify” — NC utility is ordinal.

    EU is cardinal but not interpersonally comparable. It also rests on a number of assumptions that aren’t met in reality, yet for some situations is close enough to reality that it is a useful analytic tool — exactly like demand curves, say. So I don’t understand the sharp objections some have to it.

    Highly mathematized equilibrium models — as Kirzner has often said, the real Austrian objection is to equilibrium, not the mathematics — exclusive focus on equilibrium is quite problematic from an Austrian perspective. Others agree as well, as Roger points out — but some Chicagoans — e.g. Stigler, Becker, Lucas — have at one time or another argued that to be scientific, economics must include individual optimization *and* social equilibrium. Economics w/o equilibrium is neither coherent nor scientific in this view. (If they’ve retreated from this position, I’d be interested in hearing.) This is why I think eqm vs. diseqm is one fundmental ifference btwn Chicago & Vienna.

    In MY opinion, which I suspect no other Austrians share, Austrians have been entirely wrong on mathematics per se. Math is simply formal language. Formal language is better for making precise statements and for deducing implications. The problems with mathematized economics aren’t problems of math itself, but rather the underlying assumptions and definitions and particular math tools used.


  23. Ditto to Roger’s apt comments. As I suggested earlier, it a book for us to work out these issues.

    @Will, Irving Fisher

    @Pietro,

    The modern Chicago School is skeptical about the efficacy of discretionary policy. On that issue, they are in agreement with Mises, Hayek, et al.

  24. Will Says:

    Huh! Thanks for the quick answer. I thought it must be someone else, since I’ve never associated Fisher with those others, particularly the Austrians. Perhaps I ought to learn more about him (I’m mainly familiar with his quantity-theory and his debt-deflation essay).


  25. Will,

    Fisher’s capital theory was in the Austrian tradition. Certainly in his era, there was a great divide between Vienna and Chicago on capital theory. Knight was the protagonist on the Chicago side.

  26. Allan Walstad Says:

    Charles, I much appreciate your comments and particularly your willingness to engage in the sort of discussion I had hoped for on this topic. Perhaps I need to delve more into the fine points of utility theory, or at least the terminology. Perhaps the Mises Institute people (for whom I do have considerable regard) are misrepresenting the mainstream neoclassical view of utility, or perhaps I have misunderstood the MI folks. But I find it hard to imagine how one does mathematical optimality analysis without thinking in terms of quantified functions. And I am quite skeptical regarding the use of mathematical modeling beyond the level of illustrative Tinker Toys. The problem is quite simple, namely, that the “precision” of mathematics is illusory if one cannot expect to know the parameters that go into the equations with any precision.

    While not an economist, I have combined my professional science background with my avocational interest in economics and in philosophy of science to publish several papers regarding an econ approach to philsci. Along the way I have encountered papers by Charles Peirce and Philip Kitcher, among others, purporting to apply economic modeling, in the form of optimality analysis, to the allocation of scientific resources. In my opinion, these exercises are sterile, precisely because they appeal to parameters that one cannot hope to know ex ante. The results are either absurd or obvious from verbal reasoning.

    These criticisms are found in a book review I published in the Quarterly Journal of Austrian Economics, which is located at http://mises.org/journals/qjae/pdf/qjae7_3_4.pdf

    You might also be interested in my take on verbal versus mathematical models in “Science As a Market Process, which was published in the Independent Review:
    http://www.independent.org/pdf/tir/tir_07_1_walstad.pdf

    If you would care to discuss these issues further, my email address is awalstad@pitt.edu

  27. Will Says:

    Jerry-

    Very interesting! I know a bit about the Chicago-Vienna disagreement on capital (I think it started with Clark and Bohm-Bawerk before WWI?), but I hadn’t read anything about Fisher’s contribution. I wonder if you know off-hand of a good article on the subject?


  28. Hayek cites Fisher many times in The Pure Theory of Capital. I’m sure if you googgle Fisher, lots will ocme up.


  29. This blog entry made me think that, maybe because Austrians are so concerned with their methodological roots, Austrian economics might be easier to define than Chicago economics, despite the fact that it is closer to mainstream economics. Or maybe I’m just biased because I’m reading a lot of Austrian economists..?

  30. Roger Koppl Says:

    When you could almost fit every Austrian economist into one elevator, methodology mattered more. It was more important to identify the methodological roots of substantively different analyses. We had to talk about methodology because there weren’t enough of us to crank all the applied analyses needing to be done while still remaining a more or less coherent school of thought. Today, methodology, though still important, is not as important in the *output* of Austrian economists. Instead, we’re seeing lots of applied analysis in a broadly Mises-Hayek tradition. The margin has shifted.

  31. Roger Koppl Says:

    “crank *out* all the applied . . . “


  32. I don’t mean this to be rude and hope it isn’t taken so, but after rereading this discussion I agree with Allan W. — having raised the question of what is the difference between Chicago & Austrian thought, most of the discussion is dodging the issue. The work of explaining Austrian school has been left to Boettke (whose list is apt & similar to the Machlup-Kirzner one), and no answers given on Chicago.

    This is a question of substantial practical significance to me, b/c my students regularly ask this and similar questions, and it occasionally arises in my public speaking as well. So far, the discussion here has been unhelpful (quite surprisingly to me) and exasperating.

    To suggest that differentiating between Chicago & Vienna economists is “unhelpful” strikes me as extremely strange — the ways the two groups conceive how to go about theorizing, and the theories they subsequently develop, are so different that they scream for explanation. This isn’t simply about methodological roots in the sense of ruling in or out anyone’s particular view on method — e.g. Mises, or Friedman, or Popper, say. One could, for example, agree with Hayek’s views on expectations and equilibrium in “Economics and Knowledge (1937),” deny the reasonableness of a social equilibrium assumption, and still be a follower of any of the above on method IMO.

    In Lawrence Boland’s 1997 book on methodology, p. 126 (available for free on his website!) he outlines “the” Chicago view “…Stigler and Gary Becker offered a manifesto for those who believe in neoclassical economics. Their argument, simply stated, was that they as Chicago school economists will offer models of the economy (i.e. of world X) which do not engage in analysis of the psychological (subjective) makeup of individual decision makers but instead offer analyses of the objective (positive) cost situations facing the individual decision makers and thereby explain any observable, positive behavioral evidence in question (i.e. phenomenon Z) – all observed changes in behavior will be explained as consequences of observable and objective cost situations.” Boland goes on to critique the inadequacy of a view which sees social equilibrium as following naturally from individual maximization — which is essentially the Stigler-Becker-Chicago approach. Lucas takes Hayek 1937 seriously, but concludes that divergent expectations is such a nightmare that expectations must be rational, i.e. dovetailing w.each other and subjective beliefs match objective reality. These don’t seem trivial differences with Vienna.

    It’s not “who is right and who is wrong,” but these seem like pretty important matters. (My view is that there will never be such as thing as *the* right approach — that’s why it’s important to learn more than one perspective.)

    Also, to focus on the general agreement on policy between the two schools is misleading, b/c policy conclusions are conclusions of very different analytic approaches — it’s these approaches that are in question. This also runs the risk of conflating both with “free market economics” in which “free market works best” is a starting assumption rather than a conclusion of analysis.

    Again, I don’t mean this to be rude — I certainly have great respect for O’Driscoll and Koppl. And I apologize for the length of this comment…perhaps I’ve just been stranded in the swamps of MI too long. But this discussion seems to have sidestepped all the important points.

    Free books on Boland’s site: http://www.sfu.ca/~boland/


  33. Charles Steele,

    No offense taken.

    Despite having posted a very long comment, however, you barely scratched the surface. And you really just outlined the Becker/Stigler view on methodology. What is the Austrian alternative?

    (Kirzner responded to Becker.)

    Again,a good part of The Economics of Time and Ignorance was devoted to working out the issues. Pete’s 10 points are a good start, but pretty lengthy for a comment.

    Nor has anyone refuted my original post: there has been mutual influence between members of the two schools over time. Apparently some folks don’t like it, but it’s reality.

  34. Roger Koppl Says:

    What Jerry said. You know, the traffic is crazier in Rome than Copenhagen, but I would not attribute that real difference to the “hot blooded” Italian character or Danish “rigidity.” Things are just lots more textured than that. Something similar is probably true about Chicago vs. Vienna.

    You can say that Vienna is more Weberian, which implies a greater role for Verstehen. I do *not* think that fact damns mathematical methods. It probably does imply, however, that some of our theory should be “verbal” as I argue in the December 2010 JEBO. So there’s one area where you could probably tease out some differences.

    Jerry has mention capital theory. His comments reflect some of the complexties there. And yet you could probably say that Austrians are more sensitive to issues with the time structure of production, which tends to make Chicago macro and Austrian macro look a bit different. ALTHOUGH, Lucas was influenced by Hayek, and Boettke may be right to say the Austrians erred by pretty much repudiating Lucasian macro. So, again, ya gotta hedge more or less any short comment you might make in this area. Still, “capital theory” is the heading of one of the chapters in the book of comparison.

    The Austrian catch phrase is “subjectivism,” and there are some differences between Austrian subjectivisms (plural!) and Chicago subjectivisms after Knight. Knight himself was highly Weberian, however, which fact greatly qualifies my comments on both Verstehen and subjectivism.

    Finally, I think there are some differences in epistemics between Chicago and Vienna, but I would be hard put indeed to characterize those differences briefly.

    So, you know, Chicago != Vienna, but it’s a lot of work to characterize the differences judiciously.

  35. Allan Walstad Says:

    “Nor has anyone refuted my original post: there has been mutual influence between members of the two schools over time. Apparently some folks don’t like it, but it’s reality.”

    Jerry, neither I nor Charles denied that there has been mutual influence, beneficial influence. Neither of us expressed dislike of the fact. I certainly am not interested in drawing a fine line by which to rule individual economists in or out of the Austrian fold, nor do I claim that only Austrians can have valuable insights or make valuable contributions. You and Roger appear to be directing your remarks at people who are not commenting on this thread.

    Roger, I cannot imagine how the importance of methodology is supposed to vary inversely with the number of Austrian economists. If Austrian methodological critiques of the neoclassical mainstream are incisive and relevant, then they are incisive and relevant, period — at least as long as there remains a substantial and influential neoclassical mainstream to which those critiques apply. My own experience and command of the literature is limited of course, but where I’ve been in a position to make a well-informed judgment, I’ve been appalled by gratuitous displays of mathematical virtuosity that come at the expense of clarity and even common sense. In my experience, Austrians eschew that game and it is a substantial point in their favor.

  36. Roger Koppl Says:

    Opportunity cost, Allan. When there were scarce few of us, it made some sense to explain “Austrian methodological critiques of the neoclassical mainstream.” You pretty much had to do that just to exist as a school. Now that we have critical mass, we had better do actual economics lest the school be (rightly!) perceived as a club of cranky methodologists. The *relative* importance has gone down. Plus, as you seem to anticipate, the bad old “neoclassical mainstream” is pretty much history. Since 1980, the mainstream has moved dramatically in an Austrian direction. If “they” are still a bit too fond of mathematical technique, well that’s a point “we” can make now and again. And I just did in the, ahem, Dec. 2010 JEBO article I noted earlier.

    Indeed, Allan, no acknowledgement that I did indeed engage the question you wanted to talk about in my last comment? Give a guy some credit, will ya?


  37. Yes, Allan, Roger and I keep engaging you and then your repeat your complaints as if we had not responded. We each have raised areas in which there are differences.

  38. Allan Walstad Says:

    Roger, I thanked you for the reminder about Boettke’s piece, which I re-read with benefit. I looked up your JEBO paper in the Pitt online library and will print out a copy. And thank you for your other observations.

    Jerry, I found my copy of the Economics of Time and Ignorance. Sorry to say my margin notes only go up to page 43, no doubt reflecting the imposition of other demands on my time some 20 years ago. But among the passages I had marked, there were these: “The most fundamental or general implication of time and ignorance…is that economics must abandon its traditional static mold.” And, “A second and and extremely important effect…is a shift away from modeling all behavior as the result of mathematical maximization.”

    Amen.


  39. First, thanks to O’Driscoll & Koppl for their responses. These clarify matters somewhat.

    Jerry — you asked what the Austrian position is that contrasts with Stigler-Becker; well, that’s the list given by Boettke. I didn’t state this clearly, I know, but I simply meant to show how vastly different the two camps are on these very basic issues.

    I think it is very useful to characterize and contrast schools of thought, even though it requires broad-brush strokes, and some subtleties will be missed. But in many cases, even where schools have substantive agreements and have learned from each other, e.g. Chicago vs. Vienna, the differences do not seem subtle, but often quite stark, and maybe even important.

    Finally, again to O’Driscoll — after reading all this, I still am unsure how you responded to those two economists. Surely you didn’t say that contrasting them as two schools is unhelpful, simply because they learned from each other. How did you characterize the differences?


  40. My post here is a somewhat rewritten version of my response to the two economists. Let me distill the logic.

    If there were categorical differences between Vienna and Chicago, how is it that I learned so much Austrian economics at UCLA? Two of the faculty serving on my Ph.D committee had their doctorates from Chicago.

    The differences I explained first in Economics as a Coordination Problem and later, with Mario Rizzo, in The Economics of Time and Ignorance. Come to he SEA meetings for a reprise of the latter.

    Pete’s list is a nice summary and a good start. Capital theory has been mentioned as one area of disagreemnt and I dealt with it in both books (mostly Garrison did in Time and Ignorance).

    There are certainly differences in the treatment of equilibrium. But both Chicago and Vienna changed over the years, and this issue was not central when I wrote my dissertation.

  41. Bob Murphy Says:

    Hi Dr. O’Driscoll, if you are still reading these comments, can you elaborate on how Mises thought Fisher was an improvement (in capital theory) over Bohm-Bawerk? I can totally see Hayek saying that, but I don’t recall Mises ever saying anything complimentary about Fisher.

  42. Allan Walstad Says:

    By the way, it turns out that I have two copies of the Econ of Time and Ignorance. The 1996 issue has margin notes and turned-over corners from start to finish. I’ll have to look through it again.

    Meanwhile, to check on my sanity, I consulted other books from my personal collection on Austrian econ.

    Human Action, p. 97: “A judgment of value…is expressive of an order of preference and sequence, but not expressive of measure and weight. Only the ordinal numbers can be applied to it, but not the cardinal numbers.”

    An Introduction to Austrian Economics, by Thomas C. Taylor, p. 25, regarding valuation as a ranking of preferences: “But this ranking is strictly an ordinal, and not a cardinal, use of numbers.”

    Elements of Economics, by John B. Egger, p. 15: “It’s neither necessary nor possible to identify cardinal numbers with the alternatives….It is not necessary to assign specific numbers to the ‘amount’ of value that you assign to each action. (Since it’s not possible, it’s a good thing that it isn’t necessary!)”

    The above passages are at least some of the places where I encountered the ‘ordinal vs cardinal’ language and got the impression that the rejection of cardinality in valuation was a distinct characteristic of the Austrian school. If that’s not the case, then I stand corrected, although it still makes a lot of sense to me.


  43. To O’Driscoll. Thanks for the answer.

    To Allan: I think the Austrian insistance on ordinality of utility is absolutely correct. It’s just not unique to Austrians. The standard utility function is ordinal.

    And while expected utility is technically cardinal, this doesn’t seem very important, because it remains subjective. I’ll explain this when we discuss by email. Anyone wishing to join in, feel fee to contact me.


  44. To Bob Murphy’s question: “It was on the foundation laid by him [Bohm-Bawerk] that later economists — foremost among them Knut Wicksell, Frank Albert Fetter and Irving Fisher — were successful in perfecting the time-preference theory.”

    Mises, Human Action, 3rd ed, p. 489


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