The Concept of Equilibrium in Different Economic Traditions

The Concept of Equilibrium in Different Economic Traditions

An Historical Investigation

Bert Tieben

This book deals with one of the most puzzling concepts in economic science, that of economic equilibrium. In modern economics, equilibrium is considered a key assumption, but its role is contested by economists both from within the mainstream and from rival schools of thought.

Chapter 10: The Subjectivist Challenge of the Austrian School

Bert Tieben

Subjects: economics and finance, austrian economics, history of economic thought, methodology of economics, post-keynesian economics

Extract

INTRODUCTION The Austrian school of economics is generally considered one of the three founding currents of the marginalistic revolution of the 1870s. However, with Streissler (1972) we may doubt whether the Austrian school was particularly ‘marginalist’ at all, despite the fact that it was Wieser who coined the term ‘Grenznutzen’, marginal utility. The last chapter showed that marginalism was a calculating technique borrowed from mathematics and applicable in various sciences. Austrian theory concentrated on the ‘Nutzen’, not on the ‘Grenze’. Its real essence was the subjectivist approach to economics, the doctrine that states that the subjective perception of wants and the capacity of commodities to satisfy those wants is a determining factor of economic value (O’Driscoll and Rizzo 1996). Austrian economists believe that the introduction of subjectivism was a more radical part of the marginalistic revolution than the application of marginal calculation. As far as they are concerned, the proper name of the revolution that occurred in the 1870s should be the subjectivist revolution. The subjectivist approach has had profound influences on the debates within the Austrian school about the meaning of economic equilibrium. First and foremost, it led the Austrians to reject the notion of equilibrium as a static proposition which states that all economic activity will cease when every individual feels himself fully content with his current and prospective options for production and consumption. In their vision, a state of this kind requires a degree of knowledge and foresight that is inconceivable to anyone who believes that people...

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