All Commentary
Thursday, January 1, 1987

Book Review: The Economics of Time and Ignorance by Gerald P. ODriscoll and Mario J. Rizzo

New York University Press, 562 W. 113th Street, New York, NY 10025 • 1985 – 261 pages, $34.95 cloth

A ustrian Economics, born a little more than a century ago, has always been “dynamic” and process-oriented in its approach. It has focused on man as actor and doer; it has emphasized the imperfection of human knowledge and the pervasive uncertainty surrounding human choice; it has analyzed the market as a rivalrous competition through which the plans of market participants are brought into harmony; and it has drawn attention to the problem of how market and social institutions emerge and evolve over time out of the actions of many people without anyone planning their development.

A new generation of Austrian economists is taking the field and a series of important books and articles is flowing from their pens. One of these is The Economics of Time and Ignorance by Gerald P. O’Driscoll and Mario J. Rizzo. The first five chapters, devoted to subjectivism, knowledge, time, and uncertainty, are a frontal attack on the predominant view among econo mists that human choice and action should be analyzed as if they were nothing more than ap plications of mathematics and Newtonian mechanics to a particular problem, i.e., man as decision-maker in the social world.

The authors argue that man is something more than a particle of matter moving through space along a geometric time axis. Man is a creative being who imagines and makes his future in unexpected and unpredictable ways. As a result, man’s future is inherently unknowable because its direction and path only emerge out of the actions of individuals as they are confronted with new and unanticipated opportunities and obstacles.

Such things as uncertainty and possibility cannot be reduced to statistical probability alone; to be able to do so would imply that the knowledge that will emerge only through time can be known before it is experienced. Replacing the standard mathematical view of market equilibrium used by most economists with a concept of dynamic market coordination through time, O’Driscoll and Rizzo develop an analysis of how agents come to anticipate each other’s behavior in terms of patterns or types of human activity that become institutionalized in the market order.

The remaining four chapters apply these insights to the problems of competition; monopoly and government policy; capital and production in the market order; money and the business cycle. The central theme is Hayek’s idea that the market order should be viewed as a dynamic and never-ending discovery process for the dissemination and acquisition of knowledge and information needed for harmonizing the multitude of human plans being worked out under the social division of labor. In this context, the authors criticize the standard theories of competition and monopoly and demonstrate the harmful and perverse effects of government regulation, intervention, and control.

The chapter on capital theory (written by Roger Garrison) lucidly outlines the nature and complexity of the production process in a developed market economy and how both ‘the uses of capital and the rate of interest emerge out of the choices and preferences of the market participants. The crucial and delicate nature of the production process then serves as the back ground for O’Driscoll and Rizzo to explain the role of money in facilitating the smooth working of the intricate web of market relationships and to explain how monetary manipulation can distort market price signals and bring about a business cycle.

The Economics of Time and Ignorance both continues within and goes beyond the past con tributions of the Austrian School. Its original and thought-provoking quality demonstrates just how alive and vibrant the Austrian tradition remains in economics. The book is a challenge and a standard for mainstream and Austrian economists alike.

  • Richard M. Ebeling is BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel in Charleston, South Carolina. He was president of the Foundation for Economic Education (FEE) from 2003 to 2008.