by Roger Koppl
Mario changed everything by writing The Economics of Time and Ignorance with Jerry O’Driscoll. That was the book that changed everything. I know; I was there. I had the incredible good luck to show up at NYU as an “Austrian” graduate student in 1980.
I knew almost nothing about the tradition. I had studied standard economics at Cleveland State and found it wanting. I liked micro and I was hooked on economics. But I could also see that standard theory was somehow missing the human element. Roger Pryor, a visiting philosopher at Cleveland State, told me to check out the Austrians. What I checked out was Israel Kirzner’s Economic Point of View. I was hooked. This was economics with people. That’s about all I knew of Austrian economics when I washed up on the shore of NYU’s graduate program in Austrian economics in September 1980. What luck! There, I met and interacted with an incredible collection of scholars who were, in one way or another, affiliated with the NYU Austrian program. Fellow graduate students included Don Lavoie, Benjamin Gilad, Richard Ebeling, Don Boudreaux, George Selgin, and Sandy Ikeda. In various visiting positions were Roger Garrison, Stephan Bohm, Don Belante, Richard Langlois, and Bruce Caldwell. The faculty included Israel Kirzner, Fritz Machlup, Ludwig Lachmann, Jerry O’Driscoll, and Mario. Wow.
In those days, you could identify three mostly distinct groups: Rothbardians, Lachmannians, and Kirznerians. In the fall of 1980, it could seem like none had a way forward for Austrian economics.
I knew nothing of Rothbard beyond his general reputation as radical libertarian. Several people told me to read his 1956 essay “Toward a Reconstruction of Utility and Welfare Economics.” They thought it was mighty Thor’s hammer smashing “neoclassical economics.” Only the corrupt or stupid could read that essay and still support the bad old theory. So I read it. I have the same unenthusiastic reaction today as I did then, though without the passionate vitriol of excitable youth. Rothbard fell into a rather crude error, for example, when he rails, “Human action and the facts on which it is based must be in observable and discrete steps and not infinitely small ones.” Jevons had explained very carefully in his Principles that he was measuring in periodic flows, which meant that continuous adjustments could be made even when individual purchases had to be in discrete units. Wine, let us imagine, can be purchased only in bottles of 750 ml. That looks discrete. But if the relative price of red wine goes up, I may nevertheless reduce my periodic rate of consumption from, say, 1.5 liters per month to 0.83 liters per month. Rothbard’s error represented a strong tendency to “smash” all who did not agree with the “plum-line Misesianism” he touted. Rothbard demanded orthodoxy, which implied a halt to thinking. Rothbard’s brand of Misesianism was somehow granted an exemption from Mises’ admonition that <<as long as the human mind does not stop thinking, striving, and inquiring, there is no such thing as “finality” and “definitiveness.”>>
Lachmann was the anti-Rothbard. With Lachmann, economics was an open-ended inquiry and there’s no telling where it might lead. Whereas Rothbard made students feel they must obey, Lachmann made students feel like equals. And Lachmann had two very powerful things to offer the intellectually ambitious student: a problem and a cudgel. The problem was expectations. Lachmann drew our attention to the need for a theory of expectations in which each person’s actions are animated by the spontaneous activity of a free human mind. I’ve called that the “Lachmann problem.” It’s a great problem to think about. And Lachmann made you think you could think about it. He made you think that maybe you could find out the answer and teach it to him. The Lachmann cudgel was made of the same stuff: expectations. Once you learned how to say “what about subjective expectations?” you could beat up any accomplished scholar and walk away feeling powerful and clever. Of course, it required no cleverness at all to squawk “expectations” at every topic, every thinker, every seminar. But for a while it was very empowering. And it kept me thinking about an important unsolved problem in economic theory. But Lachmann himself seemed to have only questions and no answers. It was not clear how to make theoretical progress as a Lachmannian.
I think Kirzner was by far the most accomplished scholar of the three. His point about alertness is a big deal that ramifies into every corner of economic theory and transforms the whole structure. But there was a technical problem that he seemed unable to solve. In his system, the alert entrepreneur discovers an error in their prior appraisals of market values. This view can be saved, I suppose, but not without giving the word “error” a somewhat unnatural meaning. Equating discovery with the discovery of error would have done little or no harm had it not led Kirzner to sometimes view all entrepreneurial opportunities as simultaneously present. That’s the pebbles-on-a-beach problem: Kirzner, sometimes at least, viewed opportunities as so many pebbles on the beach – just there. The pebbles problem predisposes one to see the market process as static and devoid of novelty. Kirzner was not consistent on this point. His 1982 essay “Uncertainty, Discovery, and Human Action: A Study of the Entrepreneurial Profile in the Misesian System,” is remarkably clear about the dynamism and creativity of the entrepreneurial market process. But he would sometimes slip into the static view. As far as I can tell, he never resolved this tension in his system. Kirzner tended to underplay novelty and change. He seemed personally, viscerally uncomfortable with the mad ramifying creativity Lachmann embraced. But how to make progress with such a crabbed system? How to push it forward?
And then Mario Rizzo sat down with Jerry O’Driscoll to write Economics of Time and Ignorance. I was lucky enough to be there as the book slowly took shape. Already their 1980 essay “What is Austrian Economics?” was suggestive and refreshing. With that essay, it was not yet clear where they were headed. They did not and could not yet know where they were headed. But with each chapter draft something exciting came increasingly into focus. More than once Mario or Jerry would invite me into his office to go over some point they were working out. I cannot believe my untutored input was of the least use to them, but perhaps it helped to have an appreciative sounding board. I recall Kirzner’s saying the book was “a disaster for Austrian economics.” He couldn’t have been more mistaken. It changed everything. It opened everything up. It made Austrian economics a progressive research program once again. The book is thick with insights and suggestions. Their treatment of time was especially enlightening for me.
Time and Ignorance has an extraordinary and wonderful treatment of “Bergsonian time.” I think it is widely recognized that Bergson was an important influence on Mises. It is perhaps less widely recognized that he was an influence on Hayek as well. Hayek’s student manuscript on the theoretical psychology, which later became The Sensory Order, notes that he had reached results much like those of “H. Bergson,” but “by a very different approach.” Rizzo and O’Driscoll’s treatment of Bergsonian time made it clear to me what was missing from more “neoclassical” treatments of time. Bergson’s “durée” implies that humans are always experiencing novelty in at least some degree and thus are always learning. But such learning is precisely what separates Mises’ homo agens from the Robbinsian maximizer. Thus, Bergsonian time is a foundational concept for Kirznerian entrepreneurship and for entrepreneurial studies.
The final chapter of their book is probably the most important. Certainly, it captures the book’s important role in the Austrian revival. The last chapter is entitled “Some Unresolved Problems.” Wonderful! With this chapter and this book Austrian economics became once again an open inquiry and not a body of fixed dogma. Austrian economics became once again a place where you could think. Thank you, Mario, for your central role in this signal achievement. I hope my own modest efforts have adequately honored your remarkable example.