Subjectivism and the Austrian School of Economics
New Thinking in Political Economy series
___________________________________________________ Does economic theory satisfactorily treat the problem of coordination? It may seem odd to see this question here, as it has been asked so much in the history of economic thought, first emerging out of late 18th century political and moral philosophy. It comes to us through, among others: the classical tradition; Marx; the beginnings of marginalism and Keynes. Many authors would answer ‘yes’, if asked in the context of the ‘efficient markets’ or ‘rational expectations’ theories. According to the efficient markets analyses, actors form expectations using information from current prices; for the rational expectations theorists, individuals form their predictions out of their knowledge of the theoretical model and relevant past and present economic variables. The cognitive hypotheses supporting these two theories seem, however, to be too unfounded to justify the general conclusion, which is: in the absence of technological shocks, 1 the markets’ equilibrium is automatically guaranteed by price flexibility. This observation on the limits of the best known theories suggests that any reflection on the problem of coordination should be based on the fact of economic actors’ ignorance. The theme of the institutions could be seen as one solution to the problem. Viewing the discipline from these twin points of view, we consider an all too often neglected current, the Austrian economic tradition. Few economics students know of this tradition, founded by Carl Menger (1840-1921) although it has never quite disappeared off the historians’ radar. It has always hovered on the edges of the discipline. However, this ‘Austrian...