In June of 1974 in the little town of South Royalton, Vermont, the modern resurgence of Austrian economics began. George Pearson, who had graduated from Grove City College and was then working with the Institute for Humane Studies, initiated the idea to bring together the three leading active scholars in Austrian economics–Israel Kirzner, Ludwig Lachmann, and Murray Rothbard—to present a series of lectures to young faculty and graduate students who had expressed an interest in Austrian economics to the Institute.
The list of attendees was truly impressive. Besides the lecturers, such senior luminaries within Austrian economics as W. H. Hutt and Henry Hazlitt were in attendance. Even Milton Friedman dropped by for one evening–though Friedman never bought the idea of a unique Austrian economics independent from other schools of neoclassical economics. The younger generation of participants included D. T. Armentano, Walter Block, Richard Ebeling, Roger Garrison, Jack High, Don Lavoie, Laurence Moss, Gerald O’Driscoll, Mario Rizzo, Joseph Salerno, Sudha Shenoy, and Karen Vaughn. Each of these individuals has subsequently made a name within the invisible college of Austrian economists.
Other well known scholars and intellectuals—not exclusively associated with Austrian economics but whose work conveys a deep affinity to Austrian economics—were also in attendance: John Blundell (now President of the Institute of Economic Affairs in London), David Henderson (Professor of Economics at the Naval Post-Graduate School, and the editor of The Fortune Encyclopedia of Economics), Randall Holcombe (Professor of Economics at Florida State University, and the author of numerous studies in public choice economics), and Svetozar Pejovich (Professor of Economics at Texas A&M University and a pioneer in the economic analysis of property rights).
The South Royalton lectures were published in 1976 as a volume entitled Foundations of Modern Austrian Economics, edited by Ed Dolan. This volume became the major introduction to Austrian economics for my generation, that is, for those of us who reached graduate school in the 1980s. The success of the South Royalton conference demonstrates how small events can have a major impact.
At the time of the conference in the summer of 1974, Austrian economics was in desperate shape. The towering intellect of the modern Austrian school, Ludwig von Mises, had passed away in the fall of 1973. His most senior intellectual heir, F. A. Hayek, appeared to have lost interest in economic theory long ago. The legacy of Austrian economics rested in the hands of Israel Kirzner, Ludwig Lachmann, Murray Rothbard, Hans Sennholz, Percy Greaves, a few other professors scattered about small colleges, the staff at FEE, some like-minded individuals at foundations and institutes like Liberty Fund and IHS, and a rag-tag group of undergraduate and graduate students.
Twenty-one years later, Austrian economics is still not on the required reading list at Harvard, but it has experienced great growth in terms of thought and influence. Formal instruction in Austrian economics is no longer limited to Grove City College. Many colleges across the land now offer explicitly or implicitly Austrian courses at both the undergraduate and graduate levels. Some two dozen faculty at more than a dozen colleges and universities come immediately to mind, and no doubt many more would figure on a complete list. Moreover, the Ludwig von Mises Institute, with its summer “Mises University” program, FEE and the New York University Austrian Economics Program with their joint Advanced Seminar in Austrian Economics, and IHS, with its Liberty and Society seminar program, continue to introduce and cultivate student interest in Austrian scholarship.
The growth of interest in Austrian ideas has spread well beyond the United States. Two years ago a conference was held in the Netherlands dealing with the history of Austrian economics, and in January of 1995 another conference was held in the Netherlands dealing with contemporary Austrian economics. In Germany, Austrian ideas have been influential in the development of an “evolutionary economics” promoted by Professor Urlich Witt of the University of Freiburg. The head of the prestigious Max Planck Institut for the Study of Economic Systems in Jena, Professor Manfred Streit, has explicit ties to the resurgent Austrian school. In Spain, Italy, France, New Zealand, Austria, and England, major intellectual figures are pushing out the Austrian paradigm. In Brazil and Argentina there is a South American Austrian movement, and Guatemala is home to a Central American contingent of Austrian school economists (even a university where the main library is the Ludwig von Mises Library!). Throughout Eastern Europe and Russia, Austrian economists have emerged from the rubble of Communism. Vitali Naishul in Moscow, for example, is one of the most thoughtful scholars and political economists on the Russian scene. Australia as well boasts a vibrant classical liberal movement that has been influenced greatly by the works of Mises and Hayek.
Whereas twenty years ago there was no journal or publisher eager to promote Austrian work, today we have the journal Review of Austrian Economics and the research annual Advances in Austrian Economics. There are Austrian book series with Kluwer Academic Publishers (The Ludwig von Mises Institute), Routledge (the NYU Austrian Economics Program), and New York University Press (also the NYU Austrian Economics Program). Austrian works are not limited to these publishers or journals but can be found throughout university press and academic press catalogues (Cambridge, Chicago, Blackwell, Westview, Edward Elgar), and across the economic journals.
The Resurgence of Austrian Economics
In a wonderfully written new book, Austrian Economics in America, Karen Vaughn tells the story of how all of this took place. Her task is not so much to tell the institutional and personal story of the resurgence of Austrian ideas, but rather to convey to other economists the ideas and problems (both theoretical and empirical) that came to define the resurgence in Austrian economics in the 1970s and 1980s. Her story is focused exclusively on the U.S. experience and not the international growth that has become evident within the past few years. She tells an exciting intellectual story of a movement which had by 1974 been “reduced” to a few professors and a band of graduate students, who set about to make a name for themselves and the ideas they were committed to exploring. This is a story of the courage of convictions. Many of the younger scholars took their lumps over the years at the hands of the established academic traditions of economic scholarship which were intolerant of Austrian deviations.
Vaughn accurately conveys the spirit of open inquisitiveness that has characterized the modern resurgence of Austrian ideas. Ludwig Lachmann’s great contribution to modern Austrian economics was to “shake the tree” so to speak. His willingness to push for the consistent development of subjectivist ideas–wherever they might lead–forced the younger generation of Austrian economists to think hard for themselves about the meaning of market processes and the relationship of Austrian economics to neoclassical economics. An unintended consequence of this pushing by Lachmann was the continued refinement of the argument by Lachmann’s colleague and main opponent on several issues of basic economic theory, Israel Kirzner. Vaughn favors Lachmann’s position in the debates over the implications of subjectivist thought for equilibrium propositions, and over the relationship of Austrian economics with neoclassical economics. As she states: “Despite the daunting nature of the task, I ultimately side with the Lachmannians, who argue that if Austrian economics is to have a future, it must lead to a complete recasting of the organizing principle of economic theory. Otherwise, it seems inevitable that the ideas of the new Austrians will either fade from view or be absorbed into the neoclassical orthodoxy in ways that Austrians will claim still miss the point” (p. 9).
It is important to stress that Vaughn, despite her conclusion concerning the long-term viability of traditional Austrian economics, does not build a straw man out of the more traditional Austrian position. She tries to deal fairly with Kirzner’s subtle understanding of market processes and the continual maturation of that understanding over the twenty-year period she is studying (pp. 101-103; 139-150).
Lachmann, Kirzner, Rothbard
In her book the Lachmann/Kirzner debate takes center stage in the revival of interest in Austrian economics. The late Murray Rothbard plays a vital role in stimulating the resurgence of interest in Austrian economics, but he quickly disappears from the intellectual scene Vaughn is interested in analyzing (see pp. 93-100). This is because in Vaughn’s account, Rothbard declined to address Lachmann’s argument concerning the nature of equilibrium propositions within economics. Thus Rothbard—arguably the most important intellectual figure in the eyes of the participants at the South Royalton Conference–is strangely peripheral to the foundational internal debate amongst Austrian economists on the implications of consistently pursuing the subjectivist paradigm. While in the late 1960s and early 1970s the central characteristic of young Austrians was their interest in the Rothbardian system (including his radical libertarianism), by the early 1980s modern Austrian economics was engulfed in a theoretical controversy in which Rothbard did not really participate.
While Vaughn admits to her Lachmannian sympathies, it is clear that her position is as much influenced by her South Royalton student colleagues—Don Lavoie, Gerald O’Driscoll, and Mario Rizzo–as by the troika of Professors Kirzner, Lachmann, and Rothbard.
Vaughn has long endorsed Lavoie’s work in comparative systems (she had in fact anticipated Lavoie’s argument somewhat in her 1980 paper in Economic Inquiry). It was through her suggestion that Lavoie eventually came to publish his dissertation on the calculation debate as the seminal book Rivalry and Central Planning with Cambridge University Press (see her own discussion of the issues surrounding the economic calculation argument on pp. 38-61). But Vaughn also reports in this book how much she has intellectually benefited from her association with Lavoie on other issues (see pp. 127-133). Lavoie’s examination of the philosophical “foundations” of modern Austrian economics in the mid-1980s, inspired by Lachmann, led him to a position sharply critical of neoclassical economics (in fact, Lavoie has since abandoned the confines of an economics department for the promise of a more intellectually viable interdisciplinary social-theory program). Vaughn became increasingly aware of her own Austrianism and persuaded of the irreconcilibility of that position with neoclassical economic theory.
O’Driscoll and Rizzo, through their co-authored book, The Economics of Time and Ignorance, provide the other pillar for Vaughn’s understanding of where modern Austrian economics must go to develop further (pp. 133-138; 162-178). O’Driscoll and Rizzo set out to explain what Austrian economics was to a wider professional audience. Their book turned out to be a major reconstruction of Austrian economics, again inspired by Lachmann. Like others within the radical subjectivist camp of Austrian economics, Vaughn is particularly impressed with their arguments concerning the potent implications for economic understanding of the passage of real time, in contrast to the sterile treatment of time within more mainstream models of economic life.
Vaughn readily admits that the theoretical project she associates with modern Austrian economics—the project of developing an economics that will deal seriously with the passage of time and the implications of our ignorance—is still emerging. The promise of a more realistic and relevant economics largely remains to be fulfilled. But the accomplishments made so far, in fields of comparative systems, money and banking, law and economics, industrial organization, philosophical economics and pure theory, bode well for the continued fertility of a reconstructed Austrian economics.
Some readers may have problems with this or that aspect of the story Vaughn tells, but they would miss the point. If Austrian Economics in America had been an intellectual history of modern Austrian economics, then it could have explored more the archives of institutes like FEE, the Volker Fund, IHS, and Liberty Fund, or employed more extensively interviews with surviving members of Mises’ seminar at NYU, or examined the private papers of Austrian economic scholars, to see how Austrian economics was kept afloat during its dark age of the 1950s and 1960s. That kind of history of Austrian economics is yet to be written.
Vaughn, a former president of the History of Economics Society, certainly doesn’t need a lesson in how to do a history of economic thought (see her study on Locke or her various papers on Menger). Her decision not to detail the institutional history (though she does give each of these institutes mention and in doing so points the interested student in the right direction) was due to the nature of her project. Vaughn wanted to tell the history of modern Austrian economics through its internal intellectual debate rather than through its institutional infrastructure and personalities. She uses the history of the 1950s and 1960s only to set the stage for the subsequent debate (see pp. 62-91).
Vaughn’s analysis of the potential tension within Mises’ theoretical system is extremely important in this regard. Mises’ Human Action presented the reader with a system of thought which was at the same time: (1) a radical subjectivist research program in economics that demanded a reconstruction of the entire corpus of economic science (from methodology to capital theory), yet was also (2) an example of orthodox economics pointing out the errors in the “New Economics” of Keynes and the fallacies of Institutionalism and mathematical market socialism. What was the connection between Mises’ consistent development of Carl Menger’s subjectivism and his classical liberal political economy? How did Mises differ from other classical liberal economists, such as the classical economics of Adam Smith or the contemporary neoclassical economics of Frank Knight? Does the economic policy wisdom of classical economics hold after the theory has been reconstructed in light of the subjectivist and marginalist revolution? Highlighting these potential tensions within Mises’ Human Action is a major contribution of Vaughn’s book and should stimulate further research into the relationship between the theoretical economics and public policy of Mises.
While Vaughn’s intellectual task is to summarize the terms of a debate in economic theory, she does go beyond the narrow confines of that project to enliven her narrative. Being the excellent storyteller she is, Vaughn gives the reader an excellent glimpse into the main personalities and institutions in the history of Austrian economics. We get tasty tidbits concerning Mises’ Vienna and NYU seminar, and firsthand accounts of discussions in the Rothbards’ living room, in the hallways of various conferences, and at the lunch table at George Mason University. Stuffy scholarly conventions may not approve, but this is interesting reading. The spice does not deter from her scholarly project. Vaughn focuses on her main task (and accomplishes it to my mind), and yet invites further research into the history of the subject by expertly whetting our appetite. There is great stuff in this book, material to learn from, disagree with, and take as a motivation for further exploration.
Some may be concerned that Vaughn sides with the radical subjectivist element within the Austrian movement. Here, I must honestly state I am not the best critical judge of this issue because my intellectual sympathies lie with radical subjectivism. Unlike many of my colleagues within the radical subjectivist wing of modern Austrian economics, however, I see within Kirzner’s refinements to his market process theory (refinements made in response to the work of Lachmann and of G.L.S. Shackle, and James Buchanan) strong possibilities of reconciliation between radical subjectivist ideas and more traditional Austrian arguments about the systematic nature of market processes. In particular, the Misesian view of the functional significance of economic calculation within capitalist processes of production, as elaborated within Kirzner’s theory of entrepreneurial discovery, offers a conception of market coordination radically different from neoclassical theory, yet provides us with a coherent notion of economic order and an alternative standard of economic welfare from which to judge states of the world. Following Lachmann we must reconstruct economics along consistently subjectivist lines, but as Lachmann himself said, we must be thankful we have Mises’ work to aid us in this task.
Whatever side one takes on these issues, one must recognize the importance of Vaughn’s book. One of the leading academic publishers in the scholarly world has published a book-length treatment of the debates that animate modern Austrian economics. This is a major intellectual event, and should be celebrated by all those who have an interest in Austrian economics. Twenty years after a conference in a little town in Vermont, organized on a shoestring budget and attended by a small group of beleaguered professors and interested graduate students, Austrian economics is not only alive and well, but thriving.
Milton Friedman stated at that South Royalton conference that there was no such thing as Austrian economics–only good economics and bad economics. Well, Friedman was right to an extent. But it turns out that Austrian economics–seriously grappling with the implications of time and ignorance for economic science, rather than focusing instead on ever-more refined exercises in constrained optimization–provides the foundation for a humanistic, logically sound, and policy-relevant economics. In the end, that is Vaughn’s conclusion and that is something all the branches of modern Austrian economics can celebrate.