New Directions in Austrian Economics by Louis M. Spadaro

Author:Louis M. Spadaro [Louis M. Spadaro]
Language: eng
Format: epub, pdf
ISBN: 978-1-61016-301-9
Publisher: Sheed Andrews and McMeel, Inc.
Published: 1978-11-06T16:00:00+00:00

THE NEW RICARDIANS19

There is yet another tradition in the history of economics, distinct from both the Austrian and Smithian traditions, and from those that are overtly hostile to these traditions. It is a tradition epitomized by David Ricardo’s general approach to economic questions. In the Ricardian tradition, attention is focused on the long run, in which full adjustment to all disturbances has occurred. Periods of transition are abstracted from.20 It would be anachronistic to credit Ricardo with a theory of perfect information, but he wrote as though the laborers, capitalists, and rentiers of his system had full access to future events. The difference between the Smithian and Ricardian traditions is a subtle, though important one; and it separates theorists even today.

In Smith’s world, changes are constantly occurring, and adaptations to these changes are never complete. These changes may be of comparatively simple variety, such as variations in the corn harvest from year to year (with attendant effects on real wage rates).21 More importantly, Smith was concerned with the continuous process of market adaptation to invention and further extensions of the division of labor. Changes in institutions and the legal structure are of prime concern.22 It is not, of course, that Smith had nothing to say about the long run. His value theory is a long-run theory, though I find it one of the least developed parts of his system.23 Nonetheless, the emphasis in The Wealth of Nations is on change. Moreover, Smith’s actors suffer various illusions and misunderstandings about future events, and, indeed, about their own self-interest. None of this would make sense in a Ricardian world.

Whether it is a question of monetary economics or of fiscal policy, Ricardo generally treats all disturbances as though they were fully and completely anticipated.24 In the Ricardian world, then, the problem of coordination disappears. It is not that Ricardo denied the principle of spontaneous order. Rather he did not treat the emergence of coordinated behavior on the market as a problem. He in effect assumed that economic behavior will be coordinated. Most importantly, and unlike Smith, Ricardo generally ignored the question of what institutional arrangements are necessary for the emergence of that order upon which the soundness of his arguments depends.

The institutional setting and the allocation mechanism matter in economics precisely because behavior in a changing world is not automatically coordinated. Laws and institutions have a significant impact on human behavior precisely because some facilitate and some inhibit the flow of information that is necessary for adaptation in a changing world. This realization is certainly contained in The Wealth of Nations—Smith’s emphasis on the importance of these matters suffuses that work. Not so with Ricardo’s Principles.

Professor Lachmann has recently reminded us that the problem of economic coordination is intimately involved with the twin problems of acquisition and diffusion of knowledge among transactors. In dealing with the characteristic assumption that the state of knowledge is among the data of the system, he queries:

Do we assume that all market actors know all the tastes and

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