Thursday 22 May 2008

Is Austrian Economics Heterodox Economics?

This is the question asked by Peter Boettke at the Austrian Economists blog. Boettke states
I just received this question from a reader who is doing a research project on classifying contemporary schools of economics. The problem is that the question is not as easy to answer as one may think.
And gives the answer
Austrian economics starts from within a heterodox problems situation (heterogenous agents, uncertainty, ignorance, etc.), and they interact within complicated environments (differing tastes, heterogeneous products, market power, etc.), and thus the Austrian answer to how markets work differs considerably from the standard presentation in textbooks, and the non-standard presentation in heterodox writers. Instead, the focus is on how the institutions of property, contract and consent engender market processes of adjustment and adaptation that produce social cooperation under the division of labor.

In other words, the Austrian school is heterodox sociologically, mainline intellectually (tracing back to Adam Smith and David Hume), and mainstream historically (a branch of neoclassicism). But in the contemporary world, the mainstream label makes the least sense, the mainline label is little understood let alone appreciated, and the heterodox label serves a useful sociological function. Though the Austrian school doesn't really fit anywhere easily.
I would argue that the strength of the Austrian School is its view of markets and the way they work to make the most efficient use of the dispersed information held by different people throughout the economy. The weakness I think is their discussion of other institutions, like the firm. But does this add up to heterodox economics? Up until the 1930s the answer would have been no. The mainstream and the Austrians would have been much closer up until this time. Since then have the Austrians grown so far from the mainstream as to become heterodox? It seems doubtful, in many ways they still have more in common with, at least, some areas of the mainstream than with the heterodox. As Boettke himself notes
But many of the main themes in Austrian writers are consistent with arguments presented by classical and neoclassical writers from Adam Smith to J B Say to Milton Friedman.

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