Menger and contemporary Austrian economics: knowledge, institutions and liberalism

Abstract

Carl Menger’s Principles of Economics was published in 1871, and was a central text in the marginalist revolution in economic theory. From the beginning, however, it was recognised that Menger’s “Austrian” brand of neoclassical economics stood out from the contributions of Jevons and Walras in the marginal revolution due to his emphasis on subjectivism, price formation through bargaining and exchange, the passage of time in production and exchange activity, and the evolution of institutions in addition to the focus on choice against constraints. In this paper, I attempt to trace out Menger’s continuing influence on the contemporary Austrian School of economics in terms of methodology, analytical economics, and social philosophy.

Keywords:

• Carl Menger
• Austrian economics
• methodology

JEL Classifications:

• B00
• B41
• D01
• D46

Acknowledgements

An earlier version was presented at the conference Carl Menger: One Century Later. Originalities and Modernities, Nice, November 24–26, 2021, where I gave the keynote lecture. I want to express my thanks and gratitude to Professor Sandye Gloria and the rest of the organising committee for this opportunity, and to the participants and to referees and the editor for comments and suggestions for improvement. I would also like to acknowledge the useful feedback I received from my colleagues Rosolino Candela, Chris Coyne, Erwin Dekker and Alain Marciano. The usual caveat applies.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 The concept of “evolutionary potential” that I am working with comes from Kenneth Boulding’s “After Samuelson, Who Needs Smith?” (1971) as well as his notion of the “extended present.” Smith, Boulding argues, still speaks to contemporaries because his insights into the workings of an economic system still have evolutionary potential scientifically and thus he must be part of our scientific conversation and thus a work from 1776 is part of the extended present. My claim is that what is true of Smith is also true of Menger. Not all that is good in the ancients is embodied in the moderns.

2 There is a broader contemporary literature that I am not drawing on in this paper, most importantly from my perspective the work of Geoff Hodgson. My reason for this omission is due to the nature of my originally assigned task – a keynote lecture on Menger and contemporary Austrian economics on the occasion of the 100th anniversary of Menger’s death. Where I to talk about Menger and contemporary economics more generally, Hodgson’s work would be most prominent.

3 This analogy comes from a discussion of Daniel Hausman’s discussing JS Mill and the inexact science of economics. From a Mengerian subjectivist perspective, as Erwin Dekker has reminded me, one cannot push this analogy too far as it may cloud our understanding of emergence of economic phenomena rather than highlight it. On the other hand, I find the analogy helps us understand the interrelationship between exact theory (pure logic of choice) and empirical-realistic theory (situational logic of contingent contexts) that constituted Menger’s contributions to scientific economics.

4 Stefan Kolev and Erwin Dekker have a forthcoming paper in the Review of Austrian Economics entitled “Carl Menger’s Smithian Contributions to German Political Economy” where they argue that at the time of Menger’s writing Principles the German scientific tradition of political economy was neglecting pure theory so that explains his emphasis, whereas when Hayek was writing in the 1930s and 1940s economists were preoccupied with pure theory, and that this scientific-historical context accounts for the difference between the two in their framing of the methodological and analytical issues of their day.

5 On Hayek and epistemic institutionalism see Boettke (2018) F. A. Hayek: Economics, Political Economy and Social Philosophy.

6 On this point, see Richard Wagner’s Mind, Society and Human Action (2010); also see my review essay on Wagner’s book, Boettke (2011). Wagner’s 2010 book along with O’Driscoll and Rizzo’s The Economics of Time and Ignorance (1985) represent two of the most ambitious efforts at theoretical construction in contemporary Austrian economics.

7 Menger came to understand, as Mises and Hayek did as well, that the German Historical School dismissal of Adam Smith and classical economics was intimately connected to their understanding of social politik program of government social reform. This is one reason why both Menger’s essay on Adam Smith and Hayek’s later “The Trend of Economic Thinking” are so critical to understanding the connection between economic science and the liberal project as understood by the main practitioners of the Austrian School of Economics. As we will see, however, the Austrian school never objected to the concerns that gave rise to the demands for social reform, but to the means advocated to achieve those shared ends. As Menger (1890, 474) put it: “The reversal in the public opinion of Smith and classical political economy that has occurred in Germany has not remained restricted to academia. German economic policy has also renounced the teachings of Smith and his disciples, “the economic party doctrines of individualism and liberalism.””

8 Institutions, of course, have been a main subject of inquiry in modern political economy since the 1990s and the work of economists such as Andrei Shleifer (e.g., law and finance) and Daron Acemoglu (e.g., extractive and inclusive institutions). Much of this modern focus was motivated by the transition from communism and the continuing puzzle of economic development. There is much of value in this work, but as Barry Weingast (2016) has argued, one could also criticize much of this work for mentioning institutions but not analyzing them. Deirdre McCloskey has also been a vociferous critic of much of the neo-institutional mainstream in numerous writings over the past decade or more.

9 See Boettke and Candela (2020). Also see Boettke and Candela (2021) for an overview of the literature on endogenous rule formation within the contemporary literature.