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The Austrian Difference / Artikel, engl.

verfasst von - ELLI -, 27.12.2002, 21:18

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http://www.mises.org/fullstory.asp?control=1122
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The Austrian Difference

 
by D.W. Mackenzie

[Posted December 27, 2002]

<img alt="Carl Menger (1840-1921)" src="http://www.mises.org/jefffiles/menger.jpg" align="right" border="0" width="152" height="208">There
are legitimate reasons to question the need for the Austrian paradigm as an
alternative to mainstream economics. Mainstream economists understand and
appreciate marginal value theory, comparative advantage, and other basic
propositions that Austrian economists promote. Mainstream economists also
appreciate the fact that competition in markets benefits consumers enormously.
At a basic level, Austrians have little more to say that Mainstream economists
are not already saying. There are, however, subtleties that escape many of
those who study mainstream economics. 

As a college student, my economics instructors taught me
that markets work only under ideal circumstances. With free entry and exit,
perfect information, large numbers of buyers and sellers, and homogeneous
products, markets will deliver efficient results. Sadly, these ideal
conditions never apply to the real world, so markets fail as a means of
allocating resources. Government intervention can correct these imperfections
with optimal taxes, subsidies and regulations. 

I quickly identified two problems with this approach to
economics. First, market imperfections need not be very large. As I would now
say, competitive pressures in markets tend to minimize these problems. Second,
government has its own imperfections-which one can easily argue create
greater problems than market imperfections.

I was not the first one to reach these conclusions. Mises
and Hayek both recognized that advocates of intervention failed to appreciate
both the failings of government and the ability of markets to evolve
reasonably good solutions to their own problems. Other economists did as well.
Economists like Gordon Tullock, Harold Demsetz, Ronald Coase, and Armen
Alchian recognized the need to avoid false comparisons between imperfect
markets and idealized versions of government. However, many other economists
do not see this simple point. Why?

There is a certain logic to"market failure"
reasoning that some find appealing. Market failure arguments do in fact draw
many into fallacious reasoning. One could argue that those who succeed in
discerning such chicanery do so because they are smarter than the ones who do
not. In all honesty, I must admit that my own ability to avoid falling for
such arguments did not derive from my intellect. It is also the case that
market failure misconceptions lead many bright people to wrongly advocate
government intervention. In my case, it was extreme skepticism and
intellectual alertness that made the difference.

Those who study mainstream economics need"enough"
intelligence to figure out why market failure arguments are wrong. But, in
order to use one's intelligence, one must have some motivation. As Mises noted,
feelings of uneasiness prompt men to act. My own uneasiness with what I was
taught as an undergraduate caused me to critique that which I was being taught.
As Kirzner emphasizes, people act when they notice profit opportunities. In
this case, I noticed some imperfections in market imperfection arguments, and
sought better explanations.

The central problem with mainstream economics is that it
focuses attention on states of equilibrium, and largely ignores processes of
adjustment towards equilibrium. Since end states play such a prominent role in
mainstream economics, students can often overlook the importance of economic
processes, even if they are smart enough to know better.

At one time, Chicago and Harvard economists debated the
merits of advertising. To Harvard economists and their allies, advertising was
either wasteful or anticompetitive. Large businesses used advertising to push
products on people, to change preferences, and to establish monopoly power.
Economists at Chicago and UCLA argued against this and other such market
failure arguments by pointing out that practices like advertising help to
inform consumers about alternatives. Some mainstream economists look at
mathematical models of market equilibrium and also see some of the processes
behind them, others do not.

The reasons for this are clear, and are not a matter of
intelligence. Some people are more accepting as students, and less apt to
notice faults in arguments. Such persons are far more prone to accept faulty
market failure arguments. Alert skeptics will avoid bad reasoning, but such
persons are not common enough.

Ironically, one must practice Austrian entrepreneurship in
the study of mainstream economics in order to do it well, but need not do so
when studying Austrian theory. Austrian economists bring important market
processes to the forefront of their analysis.

Austrian economics emphasizes the importance of the
dissemination of information throughout society, so students of Austrian
theory need not be particularly alert to notice the importance of practices
like advertising. Mises emphasized the importance of profit and loss
accounting, in the context of private property rights, as an indispensable
means of calculating the value of capital goods. Mainstream economists focus
more on optimality conditions for capital goods pricing, so they tend to
appreciate the process of establishing such prices much less.

Austrian analysis focuses so heavily upon essential market
processes, that one needs only raw intelligence to understand it, and can do
without the skepticism and alertness that one needs to successfully navigate
mainstream theory.

While it is possible for people to arrive at correct
conclusions about the market system by studying mainstream equilibrium
economics, this is not a reliable approach. The mathematical models of
mainstream economics divert our attention from the processes and institutions
that enable free and prosperous societies to exist and persist.

Some mainstream economists manage to bring these important
factors in to their analysis, but far too many do not. When seemingly credible
mainstream economists trot out their models of market failure, we all run the
risk of enjoying less future prosperity and of losing more of our freedom.
Since Austrian economists never lose sight of market processes, we never fail
to appreciate them. Thus, Austrian analysis provides a superior basis for
correctly informing the general population about why capitalist societies are
the best societies.

------

D.W. MacKenzie is a Ph.D. candidate and a Walter Williams
fellow at George Mason University. Send him EMAIL and
see his Mises.org Articles
Archive. See also The
Austrian Study Guide.


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The Austrian Difference / Artikel, engl. - - ELLI -, 27.12.2002, 21:18