Two Courses on Austrian Economics

This semester I'm very pleased to be teaching two Austrian courses, one undergrad one grad. The grad class is Austrian II, the second class in the grad sequence on Austrian economics. Pete B. teaches the first class in this sequence, Austrian I. Austrian I broadly covers Austrian theory. Austrian II is a course in 'applied Austrian economics.' The course's purpose is to focus on a central theoretical insight from Austrian I, considering it in greater depth and examining its treatment by both self-described Austrian and non-Austrian economists.

I consider Mises' rendition of the Ricardian Law of Association to be *the* theoretical core of Austrian economics. Pete B. does as well and therefore appropriately makes this the underlying theme of his Austrian I class.

Traditionally, economists have considered the implications of the RLA in the context of externally-supplied institutions of property and contract. However, in my view, key to the Austrian approach is the idea that such institutions may themselves be endogenously created per social interactions engendered under the RLA.

This insight begins with Austrian-founder Carl Menger's spontaneous order theory of money, which as Mises emphasized, Menger "recognized the import of" "for the elucidation of fundamental principles of praxeology and its methods of research." (In my view, this identifies the centrality of this kind of work for Austrian economics; but that's for another post). This theme was picked up by later Austrians and today is most famously connected with the work of Friedrich Hayek.

To explore applications of the RLA with particular relevance for Austrian economics, Austrian II therefore focuses on endogenously emergent institutions of social cooperation--how they function (or don't), when, why, and where they emerge (or don't), how they enhance prosperity (or don't), how they evolve (or don't), the conditions under which they support exchange (or don't), and so on.

Since my research agenda is investigating these questions, it goes without saying that I'm very excited for class to begin.

Additionally, since "anarchism" has historically played, and continues to play, an important role for some self-described Austrian economists and the thinkers who have influenced them, the course will also examine normative arguments that have been made for, against, and related to statelessness (such as in Nozick and Rothbard), and the history of anarchist thought going back to early leftist thinkers.

My undergradute course aims to ground students in what I consider to be the central theoretical elements of Austrian economics, most importantly, as noted above, the Ricardian Law of Association and its connection to the institutions that facilitate and inhibit social cooperation under the division of labor. Since, in my opinion, there is no better book that explores this than Mises' Human Action, this is the course's text.

I'm looking forward to a very stimulating semester.

Comments

[Danny Shahar]

Oh man, that course sounds amazing...

Any air time for the debate between the Hayekian "law as constantly evolving application of partly inarticulated norms" and Rothbardian "law as something a bunch of libertarian thinkers could sit down and formulate" paradigms? (And if so, any chance I could get your notes?)

[Pete]

Hi Danny, there were defintely be air time on that debate. I don't have notes, unfortunately; but I'm sure someone in the class will be happy to share whatever notes they take with you. I hope all is well. Pete

[matthew mueller]

An excellent post. I appreciate that Pete Leeson took the time to explain why he chose to organize his Austrian courses in this way. And I am sure many of his students will learn a great deal from these courses, as Professor Leeson is himself one of the most productive and important researches in this field. Hell, two years ago this would have been my dream course!

For anyone interested, Pete Boettke and I discuss these courses over at this blog:

http://post-austrianeconomics.blogspot.com/2009/01/pete-leesons-course-in-austrian.html

[Danny Shahar]

Sounds epic; I'll have to get on that later in the semester. All's well on my end, as I'm doing energy industry research at an asset management firm while waiting to hear back from grad schools (me doing finance = the last horseman, but the pay is good and it's pretty interesting). It appears you're doing alright for yourself as well.

Just out of curiosity, where do you come down in that debate? (Or do you?)

[Rafael Guthmann]

"Hell, two years ago this would have been my dream course!"

And today your dream course would be? I think that you doesn't want to take courses anymore, now you want to teach them?

[matthew mueller]

Rafael,

:) :) :)

That is the plan...

[Mario Rizzo]

A very good course. But I wouldn't call it "Austrian II." This is GMU special talk. It is the Economics of Anarchy to the rest of us.

[liberty]

Mario,

Well, the course objectives read:
"Austrian II is a course in applied Austrian economics. It considers specific applications of the “Austrian theories” developed in Austrian I. Since there are many such theories—too many to
cover applications of in a semester—I’ve chosen one, which is central to the Austrian approach:
spontaneous order. Toward that end, this class investigates the economics of anarchy. Its goal is to provide you with a framework for exploring this area of research and to examine problems and
solutions that scholars have identified when considering how societies function in the absence of the state."

So, it is applied Austrian with a focus on applied spontaneous order, which being applied, lends itself to being a study of anarchy.

But I also think it could go beyond that. It depends on how it is taught. The readings are certainly centered on anarchy, but anarchy is also a natural frame or baseline from which to view non-anarchic systems. Anarchy is also a perfect vantage for viewing the theory of the market - spontaneous order, but also the theory of the firm, price theory, the driving force of the market and so on.

So, even with this set of readings, a more general Austrian II could also emerge. Personally, I would do something like that, but with socialism/planning as the frame, with market socialism and comparative economic systems as theoretical queries and interventionist policy as the applied portion, or something like that. The mirror image of using anarchy in the way I just suggested. But that is purely preference and background, and anarchy is precisely as good a frame, I think.

Having taken a class with Pete, I imagine that whether he focuses on theory much or not, something like that will emerge (spontaneously).

my 2c

[Mario Rizzo]

I was being tongue-in-cheek. I once gave a 50% Austrian Business Cycle Theory course under the rubric of "Intermediate Macroeconomics"! However, I do see the relevance of the topic since it is an application of spontaneous order theory. But I do think a non-Austrian could teach this as well. I think at certain points the difference between Austrian and, say, Adam-Smithian economics becomes small.

[liberty]

Ha. Okay, interesting though. I think Smith's invisible hand is a precurser to Hayek's spontaneous order. So, I agree that Adam-Smithian economics could do as well in many of the areas mentioned and also in investigating market theory qua anarchy generally, but I wonder what non-Austrian economist of today WOULD teach this course...

[matthew mueller]

(I'm with Mario.)

[Dave Prychitko]

Mario:

What is the 50% Austrian Business Cycle Theory?

#)

[Zachary Kurtz]

Sounds great... I wish I was in your class.

[Bob Murphy]

==="What is the 50% Austrian Business Cycle Theory?"===

I think Tyler Cowen wrote a book on it.

[Pete]

Danny, glad to hear you're doing well! As to your question: A full answer is too long for here. But the short version is that I think all "blueprints for anarchy," as John Hasnas puts it, are wrongheaded and fundamentally misunderstand the point. (And I think Rothbard's vision in the Ethics of Liberty, for instance, is such a wrongheaded--but fascinating and certainly deserving of our attention--blueprint style attempt).

In reply to Mario's comment about the similarity between "Smithian economics" and "Austrian economics" "at certain points" (which I understood to mean at the points my course considers): I fully agree. There is tremendous overlap between "Smithian economics" and Austrian economics. . . as there should be: both, after all, are *economics.*

To put it another way: some Austrians think the 'important stuff' is where "Smithian" and Austrian economics diverge. These folk tend to emphasize the 'heterodoxy' of Austrianism.

Other Austrians think the 'important stuff' is where "Smithian" and Austrian economics converge. These folk tend to be committed first and foremost to rational choice, and emphasize the neoclassical foundations of Austrianism.

I'm very much inclined to the latter way of thinking and my courses certainly reflect this perspective.

[knapp]

In your description of the course, Mises projects his praxeology onto Menger. That's a shame. Occams Razor suggests Menger's methodology worked fine without all the Kantian baggage added by Mises.

And if "spontaneous order" is a central theme of Austrianism, the school is doomed. It's such a content-less concept that Austrians love to throw around but bores the heck out of everyone else. Better to describe the essential point of Menger's 'origin of money' as money as "a creature of the market" and not, as the German Historicists claimed, "a creature of the law". Now that's interesting. But spontaneous order, snoozeville.

[liberty]

I'm interested, Pete, by your phrasiology, of "the neoclassical foundations of Austrianism."

Do you mean the "classical" foundations - e.g. MR and Smithian, or do you really mean "neoclassical"?

The idea, btw, that spontaneous order is a snooze, is bizarre, and would come as a surprise to, I imagine, most economists, from the heterodox schools of Post-Keynesian, Austrian and Complexity Theorists, to Classical and neoclassical who may disagree but would hardly find it a snooze.

[David Andersson]

knapp,

If spontaneous order theories are content-less and "bore the heck out of everyone", no one would ever have gotten upset or even paid attention to Darwinian natural selection.

[Danny Shahar]

Thanks for the answer! Since I broadly agree, the conciseness works fine. One thing on which I'm curious for your perspective, though (if you have the time and inclination; I don't expect anything):

I've thus far been unable to understand how the study of anarchy in the absence of a "blueprint approach" can go beyond political philosophy and anthropology. That is, it seems like in thinking about an open-ended and pluralistic decentralized order, we would inevitably end up focusing either on why such a system was desirable from an normative point of view, or focusing on how particular societies in particular times and places dealt with the problems they faced without the use of a centralized mechanism for collective decision-making and action. The former approach seems like it would be wrought with underdetermination, and therefore be unfitting of the title of economics, and the latter seems like it would bear the same kinds of problems as plague mainstream attempts at formalized modeling. I figure that if anyone could explain to me what I'm missing, it's you, but I can acknowledge that expecting an answer would be a lot to ask.

Anyway, good luck with the class!

[knapp]

Liberty,

You may be right, maybe it just bores me.

But I've read a lot of Post Keynesian monetary theory and I'm pretty sure "spontaneous order" is not their hobbyhorse. They do spend an incredible amount of time talking about Menger's origin of money and contrasting it with Lerner's "Money as a Creature of the State".

Markets vs the State. That's interesting. Spontaneous order. Not.

[Peter Boettke]

I do think that everyone should look at the array of courses at GMU that teach from Austrian works to put the courses in context.

Also, look at my syllabi from this year, but also from the past. I do a fairly thorough job surveying the main contributions --- methodological, analytical, and applied.

I think ever discipline must have a central mystery to excite our imagination. In economics, I think that mystery is the cooperation in anonymity. See Paul Seabright's The Company of Strangers for a modern statement of this central puzzle. Then the question is (a) how do we understand, and (b) in our understanding what mechanisms (read filter processes) work to make it happen.

Pete

[Pete]

knapp, I'm not interested in semantics. So sure, let's say a central theme of Austrianism is "institutions-as-creatures-of-markets" (vs. "institutions-as-creations-of-laws"--by which you must have meant state-made laws, since of course laws themselves can also be creatures of markets). If saying spontaneous order this way elevates Austrian economics from 'snoozeville' to exciting for you, great.

Guinevere, I meant neoclassical foundations. The heterodox types forget (or ignore), but Austrian economics is a branch of neoclassical economics--a tree the roots of which are the marginal revolution.

Danny, great question. I have an answer but I'll save it for a full post at a later date (perhaps once the class is underway).

[Danny Shahar]

Thanks; I'll watch for it!

[Gene Callahan]

"In your description of the course, Mises projects his praxeology onto Menger. That's a shame. Occams Razor suggests Menger's methodology worked fine without all the Kantian baggage added by Mises."

Occam's razor suggests knapp has never read Kant and has no idea what, if anything, from HA is "Kantian."

[Peter Boettke]

Pete Leeson is raising an interesting and fundamentally Misesian/Hayekian/Kirznerian point (as opposed to a Rothbardian/Lachmannian point) and that is that Austrian economics IS a branch of neoclassical economics. It is just that branch that emphasized the heterodox problem situation that actors face in the world, but through marginal analysis of the logic of choice, and the theory of entrepreneurial discovery and institutional/contextual analysis results in (more or less) 'orthodox' solutions concerning self-correction and equilibrium tendencies.

The bottom line with respect to Pete (or anyone's) economic courses is that they have to explain the mechanisms (or filter processes if you prefer that language) that are operating to produce social order, or break down. To the economist (of whatever stripe) that means focusing on relative price adjustments and the lure of profit and the penality of loss. Economics, as Hayek wrote, is about adjustment to changing circumstances. It is ultimately about incentives and information (knowledge). It is the Austrian school of ECONOMICS, not the Austrian school of philosophical musing, or the Austrian school of "everything I think is wrong with everyone else", or the Austrian school of "I cannot do math but I want to do economics so let me call it Austrian", or the Austrian school of "nonsense". The Austrian version of "everyone thinks I am insano home journal of economics" way too dominates our 'movement'. Instead, we need to cultivate a culture among our young scholars that doesn't see the Austrian school as standing apart from the profession, but as part of it -- a unique part, but still a part of it. They need to be viewed as productive inputs into the research activity of others within the profession. The question of the endogenous formation of the framework is a question that has been raised to the forefront of professional opinion by the radical changes in East and Central Europe, and the problems associated with failed and weak states. It is also the case that historical interest in the foundations of western civilization has captured the imagination of some of the best and the brightest in the field. We have important things to say about this, shouldn't we be part of that conversation?

I'd say this is a dark time for economics, but it is also a very exciting time for economists interested in Ausrian ideas because so much of the professional conversation is on topics we can address productively.

[Danny Shahar]

Gene, my guess would be that he had in mind Mises' focus on a priori theorization? I think Mises has a somewhat different way of using the term than Kant, but since Mises was a big proponent of the idea that economics is an a priori science, and since Kant is pretty much the modern source of that language, that's my guess for what he meant.

That being said, I don't see the reason for concern over Mises' imposing his conceptual framework on Menger's ideas. The Misesian language helps us to think about what we're doing in engaging in economic thinking; remember, Kirzner's dissertation hadn't yet been published. I disagree with Mises about the a priori nature of the economics discipline -- I think the distinction it implies between economics and anthropology and history is unnecessarily limiting -- but in disputing Mises' views, it's still extremely helpful to have his terminology to explain my own opinion.

Also, it's my view that spontaneous order is THE insight of economics. To suggest that it's "a snooze" seems unreasonable to the point of indefensibility.

[knapp]

Gene,

My posts on this blog have focused on the marketing of Austrian economics, how to make it more appealing to the mainstream.

I believe praxeology has failed as a pedagogical tool. Mises apriorism may or may not be "kantian" and I've read with great pleasure the recent attempts to bring Mises closer to Menger (Boettke/Lesson, Long). But even if we accept these reinterpretations, it just means more precious time spent by the new student on praxeology. Is Austrian economics just a debate about "What Mises meant" as a bookend to the already thriving industry of "What Keynes meant". Too many smart Austrians (on this blog) spend too much time on method.

Mises praxeology may be a more sophisticated and exacting way of applying Menger's methods, but if the goal is persuasion, I don't think its working. By Occams Razor, I simply meant to suggest that Menger's method was perfectly suitable to the task of doing economics and it is easier to understand, less controversial, and more appealing to a mainstream audience.

Can you explain in a few sentences why praxeology is so essential to the future of Austrian economics?

[Steve Horwitz]

Because "praxeology" in Mises' view was what economists had always been doing?

Yes, it's a scary, weird word, but Mises didn't invent it to be prescriptive as much as descriptive: how can we understand what good economics has always been about? Answer: it has always been the study of human action and its consequences, intended and especially unintended. Whatever philosophical defense one wants to make of it, "praxeology" remains just another word for "the study of human action" with economics/catallactics as its "hitherto best developed branch."

Bottom line: praxeology is essential to the future of Austrian economics because it IS, in some sense, Austrian economics.

Don't misread me here: I'm not necessarily defending the particular philosophical framework in which Mises situates praxeology. What I AM saying is that there is NO Austrian economics without a theory of human action and its unintended consequences, and stripped of its philosophical defense, that's all Mises is talking about.

BTW, it's also EXACTLY what Pete Leeson's course is about. He's just focusing on one set of applied questions that illustrate praxeology: the endogenous emergence of rules. It makes total sense to me that Pete would teach undergraduate Austrian out of Human Action then approach the *second course* in the graduate sequence as an application of the core insights of the book.

[Danny Shahar]

Am I correctly understanding you to be saying that Austrians should abandon a "more sophisticated and exacting" way of applying their theories in order to pander to people who don't feel like spending the time to learn economics properly?

[Steve Horwitz]

One other thought. Lachmann got it right about Human Action: "This is the work of Max Weber being done here" or however he put it. Mises wasn't inventing a way of doing economics, he was refining and deepening what good economics, especially in Menger's hands, had always been, and linking that to the broader approach to the social sciences that had come out of Weber.

[Mario Rizzo]

The 50% ABCT? Haha. What I meant was that in my youth I spent 50% of the semester in a Intermediate Macro course on Austrian Macro! If those students recall anything today they are as shocked at developments as many of us are!

[knapp]

Danny - I don't think it's pandering to choose the simpler of two methods, as long as the simpler one does the job (of economics and persuasion).

Steve - Thanks for your answer. Maybe that's the problem, praxeology is essential to Austrian economics but an obstacle (so far) to bringing Austrian economics into the mainstream.

[Steve Horwitz]

Knapp,

My own view is that the word is more of an obstacle than the ideas. I understand why Mises coined that word (mostly because his preferred "sociology" got grabbed by the scientistic, radical left), but I think we need to focus more on *doing* "praxeological" economics than talking about it. Many of the best economists since Smith (if not before) were "praxeologists" in action though not in name. Our task is to pick up that baton and run with it.

Which, btw, is another reason to like Leeson's course: he's actually DOING praxeological research and teaching grad students how to do it, rather than sitting around debating the philosophical status of the action axiom or whether Mises' notion of rationality holds any philosophical water after reading Kant or Spinoza or whomever.

[Danny Shahar]

But what does it mean to "do the job"?

Mises' framework sets up the discipline of economics as being dedicated to formulating a set of interrelated conceptual tools which we can then use to understand real world phenomena (though I think if we adopt Mises' way of looking at it, these applications technically fall outside of the realm of economics and into "history").

The "a priori"-ness of the Misesian project is built in from the beginning. Removing that "Kantian" element would simply detonate the entire framework. It would be like trying to remove the whole "preferences" thing from a rational choice theory.

[knapp]

Danny - Steve convinced me, more doing, less talking about praxeology.

[Hume]

Pete and Peter,

Have either of you considered recording your lectures and making them available on I-Tunes U? Or perhaps placing your lecture notes on the web in the same fashion as Bryan Caplan? I know I would love to be inside the classroom for these lectures. Thanks.

[liberty]

Hume: you can listen to them lecture at FEE if you have not - http://fee.org/library/podcasts/austrian-economics/

hmm... which is Pete and which Peter?

[Roger Koppl]

Plete and BPete:

Right on to the idea the AE is neoclassical. Through Machlup and others, AE had lots to do with the shaping of post-war orthodoxy. Bourbaki math, the dominance of the Samuelsonian synthesis, and the greater popularity of Stigler's micro text over Machlup's micro text all pushed that post-war orthodoxy so far in late formalist directions that AE ended up heterodox somewhere around 1970. I think the story has still not been told adequately. The best job so far might be Christian Knudsen's "Alfred Schutz, Austrian Economics and the Knowledge Problem." 2004, Rationality and Society, Vol. 16.(1) 473-516.
http://rss.sagepub.com/cgi/content/abstract/16/1/45
The profession has moved so far from Bourbaki formalism that we are now in a position to rejoin the mainstream.

[Lawrence]

Hume

I am an undergrad student at GMU and taking Peter's undergrad course this semster. I will ask him if he minds me recording it and if not I will gladly post them online if there is an interest.

[Rafe Champion]

Perhaps the problem with praxeology is not the method but the attempt to justify the method by dogmatic apriorism. "Fallible apriorism" as suggested by Barry Smith might fly better in the wider profession.
http://ontology.buffalo.edu/smith/articles/menger.html
It would also tap the synergy that exists with some of the ideas of Karl Popper and also Talcott Parsons before he lapsed into general sytems theory. For some hints on the almost convergence of Mises, Parsons and Popper.
http://www.the-rathouse.com/EvenMoreAustrianProgram/Convergence.html
This draft is not really fit for public consumption but due to serious illness in the family it will be some time beore it is thoroughly revised.
The Abstract
During the 1930s three lines of thought converged on a common model of explanation in economics and the human sciences. Working in Europe, Ludwig von Mises of the Austrian school developed "praxeology" to explore the sciences of human action. In the United States, Talcott Parsons, under the influence of Marshall, Pareto, Durkheim and Weber, offered the "action frame of reference" and in Australasia (as a sideline to his day job) Karl Popper elaborated "situational analysis". Common features of the three models are methodological individualism, rejection of instrumentalism in favour of the search for real explanatory theories, and the use of a rationality principle to link the ends and means of action. General acceptance of the common features of these models would have significantly altered the criteria for theory development and appraisal in economics and the other social sciences. In the event, the three lines of thought did not merge to create a critical mass that might have made a difference in the scientific community at large. Their potential synergy has yet to be explored and there is scope for a synthesis of their most robust features with some modifications to each, especially to correct the views of Mises and Parsons on the methods that are effective in the natural sciences. A strange feature of the situation is that the three principals and their followers have, up to date, almost completely refrained from public comment or discussion of the work of the other two parties.

[RickC]

Just want to say I agree with Danny Shahar, "spontaneous order" is what drew me to the Austrians in the first place. No snore by any stretch of the imagination. I personally think it needs more exploration. A real, down in the bones realization of the meaning of "By human action, not human design" is the antidote to the smug attitudes of the Krugmans and DeLongs that pass themselves off as "mainstream" economists."

[Brian Pitt]

I love Pete Leeson.

[Hume]

Lawrence,

That would be great. I appreciate your efforts.

[Lawrence]

Hume,

Shoot me an email at lsnead at gmu.edu. That way if Peter dosent mind I can give you a link to where ever I host the files.

[liberty]

If Pete actually lets you tape his lectures, they should go toward a collection of Austrian podcasts; either somewhere like Mises.org or on one of the Austrian economists' websites.

It would be a great resource for students.