Spontaneous Order

This chapter discusses the theoretical substance and history of thought surrounding the theory of spontaneous orders. Whereas significant debate remains regarding the term’s particular origins and appropriate applications, this chapter provides a conceptual framework for categorizing orderly systems according to their agent types and the degree of complexity created by the presence of alternative interests. A substantial and meaningful difference is explained and argued for between the related concepts of emergent order and spontaneous order. While all spontaneous orders possess emergent qualities, the term spontaneous should be reserved to specifically complex human social orders as was originally intended by classical economists and the earliest developers of terminology. This framework is supported by textual references from the intellectual tradition of spontaneous order theorists.

From Subsistence to Advanced Material Production

This chapter provides a summary of the lessons that the Austrian theory of capital holds for the field of development economics. It provides an introduction to the concepts of the structure of production and time preference and a brief overview of how the rate of time preference limits both the available pool of savings and the extent of capital formation. The implications that this uniquely Austrian insight holds for the theory of economic growth are spelled out, in particular the fact that what constrains the growth of developing countries is not the availability of technology but the availability of savings to undertake investment. The chapter also provides a brief exposition of the concept of capital heterogeneity and its implications for the impossibility of economic calculation under a system of central planning. A critique of some popular models that advocate planning as a means of economic development is also provided.

Complexity and Austrian Economics

There is a deep link between complexity economics and Austrian economics. Ideas of complexity were foundational in the work of Austrian economics from its generally recognized beginnings in the work of Carl Menger to the modern day, with Friedrich Hayek being probably the most important carrier of this theme in the school. Although interest in complexity economics among Austrians has waxed and waned over time, today such ideas are quite influential in the work of many Austrian economists. This chapter discusses the varieties of economic complexity and the connection with the Austrian school of economics from Menger to Hayek, as well as more recent developments of Austrian views on complexity.

Austrian Economics and the Evolutionary Paradigm

This chapter discusses the challenges raised by the inclusion of evolutionary elements in the theories of Carl Menger, Joseph Schumpeter, and Friedrich Hayek. Each adopted an idiosyncratic position in terms of method of inquiry, focus, and general message. The breadth of the topics and phenomena they cover testifies to the great variety of interpretations and potential uses of evolutionary concepts in economics. Menger, who made no reference to Darwin’s theory, advanced an “organic” view of the emergence of social institutions. Schumpeter elaborated an original theory of industrial development based on the recurrent emergence and dissemination of innovations. Hayek adopted the biological notion of group selection and made it the central element in his theory of cultural evolution and the rise of the free market. The chapter concludes with a preliminary evaluation of the possible role that evolutionary theorizing might play in the future development of Austrian economics.

The Market Process Theory Perspective on Capitalism

This chapter starts with a brief comparative overview of the distinctive theoretical core of market process theory, preparing the way for a systematic presentation of what the capitalist market system looks like when framed through theoretical lenses shaped by a process view. Noting that such an approach has analytical, explanatory, and normative implications, the chapter focuses on the normative aspects. Its objective is twofold: first, to show how descriptive and analytical process theory requires and transmutes into a specific form of normative process theory and, second, to identify the convergence points with the existing relevant literatures, themes, and theoretical perspectives that are (or should be) part of the conceptual and logical elaboration of this normative political economy framework.

Constitutional Political Economy and Austrian Economics

This chapter draws on key concepts from the Austrian school of economics to consider both the practical implications for and the ethical evaluation of the ideal constitutional schemes proposed by John Rawls and James Buchanan. With regard to practicalities, the chapter challenges the types of political regimes favored by Rawls and Buchanan on the grounds that they pay insufficient attention to the “knowledge problem.” With respect to moral evaluation, the chapter argues that the contractarian method provides insufficient grounds to judge the legitimacy of political institutions in a world characterized by actors with bounded rationality and diverse standards of evaluation.

Austrian Methodology

This chapter offers a synthetic account of the key methodological ideas espoused by prominent Austrian economists. It focuses on the contributions of Carl Menger, Ludwig von Mises, Friedrich Hayek, Ludwig Lachmann, and Donald Lavoie, arguing that epistemological concerns fail to encapsulate their overlapping but distinctive and complementary methodological arguments. Their methodological positions are better explained as flowing from a shared and distinctive social ontology that underlies Austrian economic theory. Austrian social ontology is distinct because of its commitment to three key concepts: radical subjectivism, sheer ignorance, and spontaneous order. The chapter then presents a stylized schema of social processes that embodies these key concepts and shows that the schema both accommodates distinctively Austrian theories and allows for a synthesis of the key methodological contributions of all the Austrian economists discussed earlier.

The Rule of Experts

The division of labor creates a division of knowledge, which creates expertise and the problem of experts. The rule of experts exists when experts have an epistemic monopoly and choose for others. Generally, experts may have power that threatens individual autonomy. Competition tends to dissipate the power of experts, although the details of market structure matter. Even well-meaning experts may fail because they have bounded rationality. Epistemic monopoly increases the risks of error and expert failure; competition reduces them. Information choice theory is an economic theory of experts. It may help in the design of epistemic systems, which are agent-based processes viewed from perspective of their knowledge properties. Epistemic engineering studies the design principles of epistemic systems. Economists should consider the epistemic properties of alternative institutions to minimize the problem of experts and avoid the rule of experts. Applications discussed include religion, law and justice, and medical research.

Austrians versus Market Socialists

In this chapter, the position of market socialists is critically analyzed from the Austrian point of view. First, the definition of socialism is introduced, based on the concept of institutional coercion acting on Kirznerian entrepreneurship. Second is a review of the different aspects of the theorem of the impossibility of socialism, as it was originally developed by Mises and Hayek. Then market socialism is defined and studied, along with the main contributions of its sponsors. A special analytical treatment is provided on the classical model of market socialism from Oskar Lange and its main perpetuators during the twentieth century. Finally, the chapter analyzes the implicit contradiction of market socialism which also affects its most modern varieties and authors. The conclusion is that the position of market socialists is naive and paradoxical.

What Have We Learned from the Collapse of Communism?

Following the collapse of communism in central and eastern Europe (1989) and the Soviet Union (1991), the field of comparative political economy has undergone multiple stocktakings and revisions. In the former communist countries, Marxist economics was abandoned in favor of neoclassical economics, which dominated the profession in the West. But was neoclassical theory equipped to suggest adequate institutional arrangements in support of the transformations to capitalism in the former centrally planned economies of central and eastern Europe (C and EE) and the former Soviet Union (FSU)? What have economists working in the field of comparative political economy learned from the collapse of communism and the experience of transition so far? This chapter surveys the thoughts of leading transition scholars and assesses the new lessons learned in comparative transitional political economy.