research
On Menger, Austrian Economics, and the Use of General Equilibrium.
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Abstract
Nowadays mainstream economic textbooks maintain that economic laws can be established solely on the foundations of the exact sciences, such as mathematics or physics. The implication is that the historical date collected with the aid of statistics and other technical means can be used to scientifically unveil, explain, and predict mankind’s behavior. Although economics today embodies individual tastes in the form of elegant charts that are depicted in text books as ‘indifference curves’, it has not gone further in characterizing the all important motivations, influences, or feelings of the acting individuals. If the sole purpose of economic research is to analyze the properties of general equilibrium in the conditions of perfect knowledge and perfect competition, this may well suffice. It seems as if all approaches to economic phenomena which do not follow this doctrine are quickly branded unscientific and repudiated. Rather than constructing a system of timeless general equilibrium prices, as is the goal of the mathematically oriented schools of thought, in our world of scarcity, lack or dispersion of knowledge, and ever changing degrees of expectations, the Austrians attempt to explain the forces and causes that stand behind the price formation. The two main pillars of the Austrian school of economics are methodological individualism (a term used by J.A. Schumpeter) and methodological subjectivism. This approach to economic phenomena builds scientific analysis upon the insight that every individual chooses and acts purposively and in accordance with his perception of the expected actions of others. In observing the actions of others we are aided by our ability to “understand” the meaning of such actions because we are human beings and thus have insights into the behavior of our fellow men.