The Economics of Ignorance and Coordination

The Economics of Ignorance and Coordination

Subjectivism and the Austrian School of Economics

New Thinking in Political Economy series

Thierry Aimar

This book clarifies the specific nature of the Austrian theory and restores the unity and open-mindedness of the Austrian school in general. The intention is not to offer a collection of different or parallel ideas, but rather to retrace, from a pedagogical and constructive perspective, the various stages of the construction of a well-founded theoretical edifice: from Ludwig von Mises to Murray Rothbard, from Friedrich Hayek to Israel M. Kirzner and from Lachmann to Lavoie. The book is a reconstitution of the way Austrian ideas and concepts organize themselves in a common structure.

Introduction

Thierry Aimar

Subjects: economics and finance, austrian economics

Extract

___________________________________________________ Having examined the foundations of catallactic theory, we now come to consider a certain number of applications. The neo-Austrians reflected on many aspects of economic and political systems. Distinguishing between information and knowledge opened two debates on the principles of the cognitive organisation of the economy. The first of these debates concerns Marxist Socialism, the question being the following: in a collectivist regime, can the necessary economic calculation for organising production exist? In other words, is it possible to socially produce information, separately from the market price system? Many socialist authors have tried to answer ‘yes’ to this question. The neo-Austrian theorists, basing themselves on the teachings of subjectivism, have concluded on the impossibility or at any rate the inefficacy of alternative methods of economic calculation to the market (Chapter 7). The second debate is on the business cycle in market economy. At the centre of this is the question of information conveyed by money prices. According to authors such as Mises and Hayek, fluctuations in market economy cannot be interpreted through actors’ mutual perfect knowledge; this type of hypothesis should be abandoned to be able to understand the way agents’ ignorance can result in general breakdown of coordination. This is where money finds its most important role, the Austrians placing the problem of monetary interventionism at the heart of any explanation of the cycle through its influence on the coherence of relative prices and productive activities (Chapter 8). Finally comes the construction of neo-Austrian welfare economics. This last stage,...