Has Anyone Ever Tried to Formalize Austrian Economics?

by Gene Callahan

I’ve been asked that question several times (often via e-mail from some reader of an online article of mine.) Well, Monday, at our colloquium, we discussed a paper presented by the Italian economist Giandomenica Becchio on the economic (and ethical) work of Karl Menger, the son of the founding Austrian economist Carl Menger. She had several remarks in her paper that caught my fancy. She noted that Karl, in his advocacy of mathematical economics, saw himself as forwarding his father’s program of seeking “exact economic laws.” She quoted Oskar Morgenstern saying that “the axiomatic method must be applied to economics with no regard to the realism of hypotheses” — which struck me as a modified version of Mises’s “a priorism.’ And she asserted that those efforts were foundational to the newly emerging mathematical economics. These remarks coalesced with my memories of Israel Kirzner’s lectures on the history of the Austrian School, where he would note that, for instance, the reason that Fritz Machlup, by the 1950s, no longer called himself “an Austrian economist” was because he felt that the Austrians had won, and by then almost all economists were Austrians.

What resulted from that coalescence is, as of the time of my posting, still only an intuition. Nevertheless, I here put forward a Popperian “bold conjecture,” without any pretense that I have (as of yet) done the research necessary to defend it adequately: the generation of Austrians following Mises, influenced as they were by the logical positivist thought current in Vienna at that time, did not see themselves as breaking with their tradition, but only as giving that tradition its “proper,” mathematical foundation. If that conjecture is correct, then the answer to the question, “Has anyone tried to formalize Austrian Economics?” is, “Yes — and the result is called ‘Neoclassical Economics.'”

5 thoughts on “Has Anyone Ever Tried to Formalize Austrian Economics?

  1. Gene:

    If by “formalization” we mean not merely a mathematical formulation, then the Austrians were busy formalizing the logic of individual decision-making throughout the 1920s, setting the stage for “Robbinsian” formulation of the logic of choice in 1932 that became a central foundation for what today we call Neo-Classical economics.

    This is seen most clearly in the writings of Hans Mayer, Leo Schonfeld Richard Strigl, and Paul Rosenstein-Rodan during this period of the 1920s. Indeed, Hans Mayer’s 1921 formal statement of the meaning of the economizing act “is” the Robbins of 1932.

    Mises, too, of course presents his formulation of the logic of economics in his critique of socialist central planning.

    But what the Austrians like Mises did not seem to see clearly at the time, was an implicit different frame of reference from which the meaning of decision-making was being formuated among themselves.

    Hans Mayer, Schonfeld, Rosenstein-Rodan have an implicit “static” view of man. That is, he has his given tastes and preferences, he finds that his means are insufficient to serve all his ends, and he must decide on the optimal allocation among the competing ends on the basis of the marginal principle.

    (Even “time,” which is taken seriously by these Austrians as an economic problem in the 1920s, is treated in general as an economizing allocational problem, such as in Hans Mayers “solution” to the “law of the periodic recurrance of wants.”)

    Mises’s frame of reference had been molded far more clearly by Max Weber’s concepton of “meaningful action,” — an intentionality, a doing — in the context of which the actor consciously imagines, plans, designs, courses of actions, and “orients” his conduct in purposeful ways toward “others.”

    Here there are no “givens” in the same way. Ends, means, plans of action, decisions concerning choices to make, are creations of the actor’s mind. Hence, the theory is inherently more “dynamic” at its foundation, and “subjectivist,” as the results of an active thinking mind.

    But from my reading, the Austrians at the time just did not see completely these subtlities of foundational premises the way that we can, perhaps, trace their origin and evolution from a perspective later in time that enables us to see and understand what followed from these different ways of thinking about the actor/chooser.

    Thus, a portion of Neo-Classical economics is, indeed, the bastard off-spring of Austrian Economics. (Why “bastard”? Because in hindsight it is a theoretical “child” that most Austrians wish had not been given birth to — at least not as part of a “procreation” process for which they are responsible — and which they often feel uncomfortable having a “relationship” with in terms of understanding the world.)

    Richard Ebeling

  2. I agree with Richard Ebeling analysis and with Gene Callahan as well. The difference between mathematical formalization of economic theory and a verbally rigorous formulation of the logic of choice was not evident for a while. However, if logic and mathematics are assumed to have the same foundation, as Bertrand Russell thought, we have a further basis for the confusion about whether mathematical economics is just a more rigoorous statement of the logic of human choice.

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