Including a Symposium on Austrian Economics in the Postwar Era by Fiorito Luca;Scheall Scott;Suprinyak Carlos Eduardo;

Author:Fiorito, Luca;Scheall, Scott;Suprinyak, Carlos Eduardo;
Language: eng
Format: epub
Publisher: Emerald Publishing Limited
Published: 2016-07-22T00:00:00+00:00

THE INTERWAR YEARS: FROM MISES TO HAYEK

The next phase in the history of Austrian economics would mark both the rise and fall of the school. The Austrian approach was considered cutting-edge throughout the 1920s and into the early 1930s, but was already passé by the end of WWII. This sets up the Kirznerian conundrum and the future shift in the JEL codes discussed in the introduction. Many mainstream economists would argue that by this time all of the important Austrian insights had been incorporated into the body of Neoclassical thought.13 However, as Kirzner (2014) has argued, this was in fact when the Austrians’ most distinctive contributions were made. These contributions were in the fields of money and the trade cycle, economic calculation and the market process, and economic methodology. The main force driving all of these advancements was Ludwig von Mises.14

Böhm-Bawerk unexpectedly died in 1914, and Menger had stopped writing economics long before his death in 1921. This would open the door for the next generation to take over the scientific leadership of Austrian economics. Three names dominate this period in Austrian economics: Joseph Schumpeter, Hans Mayer, and Ludwig von Mises.15 Mises had established himself as one of the leading voices of his generation of economists in the German-language scientific community with the publication of The Theory of Money and Credit (1953 [1912]). Although Mises’ work was more closely allied with the Menger-Böhm-Bawerk approach, Böhm-Bawerk placed greater hope in Joseph Schumpeter for the advancement of economic theory at this time.16 Böhm-Bawerk never developed a theory of money and appears to have not thought highly of Mises’ work (see Garrison, 1999, pp. 119–120; Salerno, 1999b, pp. 41–42).

In his book, Mises advanced the Mengerian and Böhm-Bawerkian approach in many ways. These include the ordinal nature of marginal utility and its application to money, his regression theorem according to which money must originate as a commodity, and his monetary transmission mechanism, which showed that monetary injections were non-neutral. Mises’ analysis stands in stark contrast to the contemporary works of Irving Fisher, who argued for an aggregative approach that relied on holistic concepts such as velocity and the price level, and who believed that money was neutral in the long run. Most importantly, Mises combined Böhm-Bawerk’s capital theory with Knut Wicksell’s natural rate of interest and developed his theory of the trade cycle, later known as Austrian Business Cycle Theory (ABCT). In this theory, Mises argued that the manipulation of money and credit by the central bank distorts interest rates and the structure of production, a process that inevitably leads to a bust.17

A critical part of Mises’s work in The Theory of Money and Credit was a nascent theory of the role of monetary calculation in the coordination of economic affairs. Mises argued that the very phenomena of money presupposes an economic order based on productive specialization and private-property rights in producer as well as consumer goods. Money prices serve as guides to the human mind and as such are the essential tool in the economic calculation of alternative investment activities.

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