About Hayek's "Economics and Knowledge"

This paper by Hayek is of the utmost importance for understanding the key difference between pure Misesian economic theory and the positivism of Popper/Friedman. Indeed, they do not contradict each other. One way of seeing it, and this is precisely what is illuminated by Hayek, is: Misesian economic theory would say that there are supply and demand curves, and why they are of such and such shape and so on. But Misesian theory could never assure that an equilibrium is going to be achieved. That is not pure logic of choice (theory, in Mises terminology) but history (or empiricism or behavior, according to neoclassic parlance).
Given that some individuals have in their minds at a specific instant a certain maximum price to pay and/or a minimum price to be paid, the actual process of groping is achieved by specific individuals in specific situations in time and space: they are empirical!
What Hayek says is akin to: "hey guys, economics is not only what Mises calls theory (pure logic of choice) but is also history (and then empiricism, positivism, etc.).

Agent theory versus micro theories

One of the main contributions of Austrian economics in general and of Mises in particular is the underlying general agent theory which is behind the mere specializations of consumer theory and producer theory. This one logic is far less clear in the economics of Marshall which of course is which is viewed today as standard micro theory.

In praise of Rothbard the economist

It's usual to consider Murray Rothbard as the most eccentric, radical, intolerant, pure kind of Austrian economist, the remotest land to Neoclassicism.

I guess that this view about Rothbard comes from his anarcho-capitalistic political views, sharp tongue, and being author of a rare criticism on Adam Smith in which the otherwise deemed as the father of modern economics and a champion of the free market is left as an "inveterate plagiarist" inconsistent in his defense of laissez-faire. But note that this three "defects" of Rothbard deal with his activities as a political philosopher, agitator, and historian, but none essentially with his capability as an economist.

However, there's just no much of a picture of Rothbard the pure economist. I think that this is because people just don't use to read Rothbard's work on economics, in particular Man, Economy, and State. Why reading a 1441 pages long treatise which is merely a secondhand paraphrase to the original and in any case shorter Human Action?

Well, in order to understand the irreplaceable role of Rothbard in the tradition of the Austrian School in particular and the economic science in general we have to pay attention to Rothbard background in the first place.

Rothbard, at difference of the previous generations of the Austrian school economists, is a born American, natively speaking English, and being originally trained in the tradition of Neoclassical economics. He understands and feels Anglo-American culture and Anglo-American (aka Neoclassical) economics in a way in which no native Austrian could dream of, and which certainly neither Hayek nor Mises master at that level. Rothbard is a natural.

It is only after earning a BA and a MA on economics at Columbia University that he stumbled onto the Austrian school while reading a book by so orthodox authors as George Stigler and Milton Friedman.

He then begins to learn Austrian economics in a passionate, intense and deep way, eventually being guided by the Mises itself. Due to the early stage in which he begins to study under Mises in America (less than six years after Mises migrated) and the intensity of his learning, it can be hardly an exaggeration to call Rothbard the first Austrian economist of the American era of the school. (A few American economists, say Benjamin Anderson, had previously studied in the Austrian school tradition but they had done so in Austria and in a time in which Austrian economics wasn't seen as different of mainstream economics, i.e. before Keynes. They couldn't be bridges since there were no gaps.)

So, what is really Rothbard? If you take seriously Rothbard as an economist and pay no attention to his caustic rhetoric (if there were ten ways of saying something Rothbard was to choose the most upsetting), you're going to discover an originally Neoclassical trained economist then turned into conversant with Austrian economics and you can see all the way his strong Neoclassical influence, from the authors he quote, through the use of graphs, through the examples he uses, through the concepts he uses, through the very analysis he undertakes. Hide the author's name from his Man, Economy, and State and ask someone to guess if the analysis is either Austrian or Neoclassical, and, behold, you bet not anyone is going to be sure or give the same answer than anybody else.

Rothbard is no less than a bridge to teach Austrian economics to Neoclassical trained economists (notwithstanding being an utmost tool to learn economics from scratch). He goes far beyond the translation of Nationalökonomie into Human Action so that Anglo-American students learn Austrian economics. Because Man, Economy, and State is not a translation from German into English. It is a translation from Austrian into Neoclassical. Even more, he at once puts Neoclassical economics into Austrian dress and "Neoclassicalizes" Austrian economics.

Rothbard is a sort of Saint Paul, an apostle to the Gentiles. Because of that plus its neat exposition and Easter-bunny pieces of original contribution, I have no doubt in recommending,at least to the beginner, Man, Economy, and State over Human Action.

In this stage of the Austrian school's evolution, characterized by its being mostly American and flourishing in English language (with a terrific impulse of internet, the great Privatseminar where everybody from Costa Rican proletarians to Harvard mollycoddles can learn and teach), the potential contribution of Rothabard cannot be underestimated.

Samuelson on Hayek

I want to thank Alejandro Jenkins for call my attention on this brief but interesting article by Paul Samuelson on Hayek. It resulted very interesting to me to see how a studied economist not agreeing with Hayek sees his work.

Mises the Great

The more I read Mises, the deeper I find his work.

Keynes versus Mises: a guess

The General Theory is by and large more famous than Human Action.

Currently, Human Action is by and large being more read than The General Theory.

Austrian School: not market extremists, not even market defenders, just market explainers

"[The law of comparative advantage] is indispensable for understanding the origin of civilization and the course of history. Contrary to popular conceptions, it does not say that free trade is good and protection is bad. It merely demonstrates that protection is not a means to increase the supply of goods produced. Thus it says nothing about protection's suitability or unsuitability to attain other ends, for instance to improve a nation's chance of defending its independence in war."

Ludwig von Mises. Theory and History. Page 30.

"If one deals with economic policies from the point of view of this distinction between long- and short-run interests, there is no ground for charging the economist with bias. He does not condemn featherbedding of the railroadmen because it benefits the railroadmen at the expense of other groups whom he likes better. He shows that the railroadmen cannot prevent featherbedding from becoming a general practice and that then, that is, in the long run, it hurts them no less than other people."

Idem. Page 33.

The Austrian School as mainstream economics

For many people, Austrian and Neoclassical schools are like oil and water. However, it's very interesting that Mises often distinguishes instead between Classical and Modern schools, the boundary being the Marginalist Revolution by Jevons, Menger, and Walras.

"The history of modern economics begins with the resolution of the paradox of value by Menger, Jevons, and Walras." (1)


Also, in spite of Mises's criticism of the Classical School, it is meaningful to quote him at length on his opinion about the Classic School:

"Once one has correctly grasped the position of the concept of cost within the framework of modern science, one will have no difficulty in seeing that economics exhibits a continuity of development no less definite than that presented by the history of other sciences. The popular assertion that there are various schools of economics whose theories have nothing in common and that every economist begins by destroying the work of his predecessors in order to construct his own theory on its ruins is no more true than the other legends that the proponents of historicism, socialism, and interventionism have spread about economics. In fact, a straight line leads from the system of the classical economists to the subjectivist
economics of the present. The latter is erected not on the ruins, but on the foundations, of the classical system. Modern economics has taken from its predecessor the best that it was able to offer. Without the work that the classical economists accomplished, it would not have been possible to advance to the discoveries of the modern school. Indeed, it was the uncertainties of the objectivistic school itself that necessarily led to the solutions offered by subjectivism. No work that had been devoted to the problem was done in vain. Everything that appears to those who have come afterward as a blind alley or at least as a wrong turning on the way toward a solution was necessary in order to exhaust all possibilities and to explore and think through to its logical conclusion every consideration to which the problems might lead." (2)


Plus, take the "mainstream" definition of economics by Lord Robbins: "Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses." (3) Immediately following the definition, Robbins gives a list of 5 books in order to show that his definition was actually already being used by other economists. The two first books quoted are Menger's Grundsätze and Mises's Gemeinwirtschaft (Socialism). Compare that definition with Mises's definition of praxeology as "the general theory of human action" (4), this is of "purposeful behavior" (5). Then work out a little Mises's definition as to arrive at the fact that only scarce means can be the object of purposeful behavior; this is, of economizing, and you realize that some definitions amount at economics as the study of the same phenomenon, although Mises's definition seems to me easier to begin with in studying that phenomenon.

Of course, you have differences in the appreciation of such tools as mathematics, but this seems to me a solvable problem within the theory, given the method imposed by the study subject.

At the end, it's my appreciation that there's no insurmountable differences between the Austrian School and mainstream economics. The difference is rather on emphasis: Austrian scholars are particularly rigorous on methodology and being consequent on the use of definitions.


(1)MISES, Ludwig von. Epistemological Problems of Economics. Page 227.
(2) Idem. Page 175.
(3)ROBBINS, Lionel. An Essay on the Nature and Significance of Economic Science. Second edition. Page 16.
(3)MISES. Human Action. The scholar's edition. Page 3.
(4) Idem. Page 11.