Israel Kirzner concludes his history of the Austrian school in this second video.
Some comments:
(1) Kirzner notes (from 6.50 onwards) that the defeat of the Austrian school in the 1930s went well beyond the perception of its defeat in the debate with Keynes: it also included defeat in Hayek’s debate with Sraffa, Frank Knight (over the nature of capital) and in the Socialist Calculation debate.
(2) Kirzner argues that Mises and Hayek learnt in the Socialist Calculation debate that the standard neoclassical price theory had serious flaws. Kirzner provides an alternative account of price theory from Mises and Hayek.
(3) Towards the end of the talk Kirzner speaks of the revival of Austrian economics from the 1970s.
Israel Kirzner, a moderate subjectivist Austrian, gives a history of the Austrian school in this first video. Although I take a Post Keynesian view of economics, I nevertheless find this very interesting.
There is, quite simply, a lot here to comment on, but I will limit myself to these remarks:
(1) Kirzner sees Menger’s immediate successors as developing a “static” form of subjectivism. As Lachmann would later say, the “subjectivist” revolution was not complete until subjectivism was applied to expectations. Kirzner sees “dynamic” subjectivism as the more advanced from that replaced the early Austrian school (1871-1930s).
(2) Kirzner notes that by the 1940s virtually everyone thought that the Austrian tradition was dead. Indeed, Kirzner says it was an embarrassment to admit he was studying under Mises in the 1940s (from 10.20).
(3) Eugen von Böhm-Bawerk and Friedrich von Wieser were not students of Carl Menger (1840–1921), but colleagues. Kirzner notes the conflict between the early Austrian school and the German Historical School, over economic method (the “Methodenstreit” or “debate over methods”). The term “Austrian school” was first coined by members of the German Historical School as a derogatory term for their enemies in Vienna.
(4) A serious shortcoming of this talk is its failure to examine the progressive liberal and even Fabian socialist sympathies amongst some of the early Austrian economics, such as Eugen von Philippovich, Friedrich von Wieser, the early Hayek, and Richard von Strigl. For that, see here:
(5) Kirzner speaks on the role of Lachmann (from 29.37), and how he witnessed the rise and fall of Hayek in the UK. Kirzner is mistaken in saying that when Lachmann came to London in 1933 “everybody was a Hayekian.” What Lachmann said was this:
“When I arrived at the London School of Economics in the spring of 1933, all important economists there were Hayekians. At the end of the decade Hayek was a rather lonely figure, even though he remained editor of Economica throughout the war.” (Lachmann 1994: 160).
That is to say, it was only at the LSE that “all important economists there were Hayekians.” That is quite a big difference.
(6) The merits of subjectivism have their limits, however. For example, just because economic “value” might be defined as the subjective pleasure, utility or satisfaction we derive from commodities, this does not mean prices are therefore all subjective. It is necessary to distinguish “price theory” from “value theory.” The price of a commodity and its value are two different things. It is clear that the normal price of many newly produced commodities is related to the cost of production. For what business could offer a long run, standard price for its commodities below its costs of production? There is no contradiction in also saying that whatever economic “value” (that is, utility or satisfaction) that a commodity has to any individual human being is subjective.
(7) From 52.00, Kirzner makes a very important point: he cites the view of Fritz Machlup (1902–1983) that everything that was important in the Austrian school of the 1920s had been successfully absorbed into the neoclassical mainstream. Kirzner agrees with this. Thus Machlup did not even find it necessary to identify himself as an “Austrian,” because he saw the Austrian tradition as having been successfully absorbed. When Machlup was asked to list the most important tenets of the Austrian school, he produced this list:
(1) methodological individualism; (2) methodological subjectivism; (3) marginalism; (4) opportunity cost; (5) time structure of production; (6) dominance of utility.
Kirzner argues that all of these are part of the neoclassical mainstream now.
The only two features that Kirzner thinks are unique in modern, post-1950 Austrian economics not taken into account by the mainstream are (1) that markets are processes of learning and discovery, and (2) that choice is taken in the context of radical uncertainty.
(8) For reference, here is a list of the early Austrian economics:
Carl Menger 1840–1921
First Generation of the Austrian School
Eugen von Böhm-Bawerk 1851–1914
Friedrich von Wieser 1851–1926
Eugen von Philippovich 1858–1917
Second Generation of the Austrian School
Ludwig von Mises 1881–1973
Joseph Schumpeter 1883–1950 (who became a neoclassical)
Karl Schlesinger 1889–1938
Hans Mayer 1879–1955, professor at Vienna
Richard von Strigl 1891–1942
Leo Illy (Leo Shönfeld) 1888–1952
Third Generation of the Austrian School
Friedrich August von Hayek 1889–1992
Oskar Morgenstern 1902–1976
Gottfried von Haberler 1900–1995
Fritz Machlup 1902–1983
Ewald Schams 1899–1955
Paul N. Rosenstein-Rodan 1902–1985
Ludwig M. Lachmann 1906–1990
Friedrich A. Lutz 1901–1975
Vera C. Smith (Lutz)
Felix Kaufmann 1895–1949
Alfred Schütz 1899–1959, social scientist
Foreign Associates of the Austrian School
Philip H. Wicksteed 1844–1927
Knut Wicksell 1851–1926
Irving Fisher 1867–1947
William T. Smart 1853–1915
Frank A. Fetter 1863–1949
Michel Auguste Adolphe Landry 1874–1956
Herbert J. Davenport 1861–1931
Frank H. Knight 1885–1972
Lionel C. Robbins 1898–1984
John R. Hicks 1904–1989
George L. S. Shackle 1903–1992
BIBLIOGRAPHY
Lachmann, L. M. 1994. Expectations and the Meaning of Institutions: Essays in Economics (ed. Don Lavoie). Routledge, London.
