The Austrian School has been refining its methodological positions since its foundation in 1871 until today, in other words, over a very long time period, almost always driven by the numerous doctrinal polemics in which it has taken part. In fact, it may be considered that the Methodenstreit, or polemic concerning the methods, has been evolving since the very beginning of the Austrian School until today and has affected and continues to affect very significantly the development of economic science. We will study below the most important stages of the Methodenstreit of the Austrian School which have taken place to date.
First round: Carl Menger versus the German Historical School (27)
There is no doubt that the Austrian School of Economics was born in 1871 with the publication of Menger’s Principles of Economics. The most original and important distinctive idea of Menger’s contribution consisted of trying to construct economics using the human being, considered as the creative actor and protagonist in all social processes, as a starting point (subjectivism). The fruits of this conception were Menger’s two most important ideas. In the first place, and for the first time in economic science, Menger theorized on the basis of a process of action formed by a series of intermediate stages (“economic goods of higher order”) that the actor undertakes, carries out and tries to culminate until the end or final consumer good is attained (“economic goods of first order”). Specifically, Menger concludes “when we have the complementary goods of some particular higher order at our command, we must transform them first into goods of the next lower order, and then by stages into goods of successively still lower orders until they have been fashioned into goods of first order, which alone can be utilized directly for the satisfaction of our needs”. (28)
Menger’s second essential contribution is his economic theory on the emergence of social institutions. Menger discovered that institutions result from a social process formed by multiple human actions and led by a series of human beings (entrepreneurs) who, in their particular historical circumstances of time and place, are able to discover before other people that they attain their ends more easily if they adopt certain guided behaviours. In this way, a decentralized trial and error process is put into action, in which the forms of behaviour that best coordinate the social disorders tend to prevail, so that, through an unconscious social process of learning and imitation, the leadership initiated by the human beings who are most creative and successful in their actions extends and is followed by the rest of the members of society. Thus, guided behaviours or institutions which make life in society possible emerge in the economic field (money), legal field (rules and moral behaviour) and linguistic field.(29)
The fact that not only did the professors of the German Historical School not understand his contribution but also considered it a dangerous challenge to historicism must have caused Menger great frustration. Effectively, instead of realizing that Menger’s contribution was the theoretical support that the evolutionist conception of social processes needed, they considered that the abstract and theoretical nature of the analysis was incompatible with the narrow historicism they advocated. This was the beginning of the first and perhaps most famous polemic in which the Austrians have been involved, the Methodenstreit (polemic I), which occupied Menger’s intellectual energy for several decades.(30)
One of the most important by-products of the Methodenstreit was Menger’s incipient articulation of the methodology appropriate to economic science. This is made up of a series of theories that constitute the “form” (in the Aristotelian sense) which expresses the essences of economic phenomena and is discovered by a process of internal reflection (introspection) in the course of a logical process based on deductive reasoning. History accompanies theory and is made up of the empirical facts that form “matter” (in the Aristotelian sense). No theories may be extracted directly from history but, on the contrary, a prior theory is necessary in order to interpret it appropriately. In this way, Menger established the foundations of what was to be the traditional methodology of the Austrian School.(31)
A number of recent studies have shown how, in fact, what Menger did was to take up, through Say, a much older tradition of thought that had been cut short precisely as a consequence of the negative influence of Adam Smith and the English Classical School. I refer to the continental Catholic tradition which, on a secular basis, had constructed all the essential elements that constitute the paradigm of the present Austrian School. Thus, with regard to the spontaneous emergence of institutions, we can, as Bruno Leoni has shown, go back to the juridical tradition of the Romans,(32) the Spanish scholastics(33) like Juan de Lugo and Juan de Salas,(34) and the French theorists Balesbat in 1692, the marquis D’Argenson in 1751 and above all Turgot who, long before Adam Smith, had already articulated the disperse nature of the knowledge incorporated into social institutions understood as spontaneous orders. Thus, in 1759, Turgot concluded that “there is no need to prove that each individual is the only competent judge of the most advantageous use of his lands and of his labour. He alone has the particular knowledge without which the most enlightened man could only argue blindly. He learns by repeated trials, by his successes, by his losses, and he acquires a feeling for it which is much more ingenious than the theoretical knowledge of the indifferent observer because it is stimulated by want”. Likewise, Turgot refers to the “complete impossibility of directing, by invariant rules and continuous inspection a multitude of transactions which by their immensity alone could not be fully known, and which, moreover, are continually dependent on a multitude of ever changing circumstances which cannot be managed or even foreseen”.(35) The subjective theory of value is also developed by the Spanish scholastics in the 16th century, particularly by Diego de Covarrubias y Leyva.(36) Luis Saravia de la Calle was the first of them to expressly demonstrate that prices determine costs, not vice versa. The Spanish scholastics also apply this subjectivist concept to the theory of money (Azpilcueta Navarro and Luis de Molina), likewise including the concept of entrepreneur which had earlier been developed by San Bernardino of Siena and Sant’ Antonino of Florence and would later become the centre of the research of Cantillon, Turgot and Say.
This whole tradition was cut short by the negative effects of the Protestant reform which, to a certain extent, explains the regression that was implied by Adam Smith and that has recently been summarized by Leland B. Yeager in his “Review” of Rothbard’s posthumous book on the history of economic thought with the following words: “Smith dropped earlier contributions about subjective value, entrepreneurship and emphasis on real-world markets and pricing and replaced it all with a labour theory of value and a dominant focus on the unchanging long run ‘natural price’ equilibrium, a world where entrepreneurship was assumed out of existence. He mixed up Calvinism with economics, as in supporting usury prohibition and distinguishing between productive and unproductive occupations. He lapsed from the laissez-faire of several eighteenth-century French and Italian economists, introducing many waffles and qualifications. His work was unsystematic and plagued by contradictions”.(37)
Second round: Böhm-Bawerk versus John Bates Clark (and also versus Marshall and Marx)
The leading player in the second round in the Austrian School’s Methodenstreit was Böhm-Bawerk. This second round materialized in a polemic which was, for our purposes, extremely significant (the polemic with John Bates Clark -polemic II-) and the debates of lesser importance with Marshall (polemic III) and Marx (polemic IV).
John Bates Clark was radically opposed to the dynamic concept of action introduced by Menger and, above all, to the mengerian concept of action formed by a series of successive stages. As a consequence, Clark considered that capital was a homogeneous fund that reproduced itself alone, so that production (i.e. human action) was instantaneous and did not involve time. Clark’s thesis is indispensable in order to justify his conclusion that the interest rate is determined by the marginal productivity of capital. This requires not only that the latter be considered as a fund that reproduces itself alone instantaneously, but also a perfectly adjusted static environment (in equilibrium), together with the determination of the values of capital goods by their historical cost of production. Clark himself explicitly acknowledges that his thesis only makes sense in a perfectly adjusted static environment in equilibrium when he says that “in a dynamic condition of society … time is required before any goods are ready for consumption, and during this interval owners must wait for their expected products. After the series of goods in various stages of advancement has once been established, the normal action of capital is revealed”.(38) Böhm-Bawerk criticized Clark’s thesis,(39) describing it as mystical and mythological and showing that it meant, apart from a radical attack on Menger’s dynamic conception, the definitive enthronement of the static paradigm of equilibrium in the world of economics. In Böhm-Bawerk’s opinion, which was subsequently confirmed by the facts, this would have very serious consequences for the future development of economics. Subsequently, the neoclassical authors, following Clark, again realized that, in order to maintain their whole theoretical edifice, it was indispensable to eliminate the dynamic concept of action constituted by a series of temporal stages introduced by Menger. This happened, for example, to the founder of the School of Chicago, Frank H. Knight, who, in the thirties, reproduced with Hayek and Machlup the polemic that had taken place between Clark and Böhm-Bawerk at the end of the 19th century.(40) Clark’s influence was very negative for the subsequent evolution of economic thought because he upheld a position against the American institutionalists which appeared to acknowledge that the Austrians were right in their polemic with the German Historical School. However, in reality, his defence of the paradigm of equilibrium and frontal attack on Menger’s dynamic conception of action meant that the mainstream of our science forked off in a direction which was radically opposed to the path that the Austrians had initiated.
Apart from the polemic with Clark (which we will call polemic II to distinguish it from polemic I between Menger and the historicists), Böhm-Bawerk was involved in two other polemics, one with Marx and another with Marshall, that also reflected different aspects of the Austrian School. With Marx, due to the fact the latter did not take the subjectiveness of time preference into account, which eliminated the potentiality of the Marxist analysis of surplus-value or exploitation.(41) With Marshall, because he tried to rehabilitate Ricardo, at least with regard to the supply side, defending the idea that the latter was determined above all by considerations related to the historical cost of production and being incapable of incorporating the Austrian concept of the subjective cost of opportunity, with all its implications.(42)
Third Round: Mises, Hayek and Mayer versus Socialism, Keynes and the Neoclassicals
The third round of the Austrians’ methodological controversies commenced with the third generation of Austrian School economists led by Mises. In this phase, the most important polemic was the one initiated by Mises on the theoretical impossibility of socialism (polemic V). Effectively, for Mises, the theorem of the theoretical impossibility of socialism was an immediate consequence of the subjectivist and dynamic conception developed by the Austrians. In fact, if the source of all wants, valuations and knowledge is to be found in the creative entrepreneurial capacity of the human being, any system which, like socialism, is based on the use of violent coercion against free human action, will prevent the creation and transmission of the information necessary to coordinate society. Moreover, Mises is perfectly aware that, if the neoclassical economists are not capable of understanding the theorem of the impossibility of socialism, this is due to the fact that they have not been capable of accepting the Austrians’ subjectivist and dynamic conception. Effectively, for Mises “the illusion that a rational order of economic management is possible in a society based on public ownership of the means of production owed its origin to the value theory of the classical economists and its tenacity to the failure of many modern economists to think through consistently to its ultimate conclusions the fundamental theory of the subjectivist theory. … In truth it was the errors of these schools that made the socialist ideas thrive”.(43) Thus, as an example, we can again mention the founder of the School of Chicago, Frank H. Knight, who even said that “socialism is a political problem to be discussed in terms of social and political psychology, and economic theory has relatively little to say about it”.(44) And, in fact, even today, the neoclassical economists still do not understand the profound theoretical reasons for the impossibility of socialism and, at most, have tried to explain the fall of socialism a posteriori, either by resorting to the “error” committed in the interpretation of the statistical data which came from the real socialist systems and was accepted by the “profession” with insufficient critical spirit, or by the argument that the role played by “incentives” in economic life had been assessed unsatisfactorily.(45) Fortunately, the former socialist economists have seen the facts better than their western neoclassical colleagues and have realized that Oskar Lange and the other neoclassical socialists “never succeeded in confronting the Austrian challenge”.(46) It is, however, hopeful to mention how, recently, a neoclassical author of the level of Joseph E. Stiglitz has finally recognized that “the standard neoclassical models were partly to blame for the disastrous situation in which so many Eastern European countries found themselves. A strong case could be made for the proposition that ideas about economics have led half the world’s population to untold suffering”.(47)
The polemic with the macroeconomists, particularly against Keynes and the theorists of Cambridge (polemic VI), which was basically led by Hayek on the Austrian side, also arose naturally from placing the conceptions belonging to the analysis made exclusively in terms of macroeconomic aggregates in opposition to the dynamic conception of the market developed by the Austrians. Logically, we cannot deal with the specific development of this whole polemic here,(48) but the chart on the following page shows a summary of the different distinguishing aspects which exist between the Austrian School and the Neoclassical School (constituted, for our purposes, by the monetarists, the Keynesians and all their different successors) with regard to macroeconomics.(49)
These theoretical discussions, which took place above all in the period between the two World Wars, finally convinced the Austrians that their supposed victory in the first round of the Methodenstreit with the German Historical School had been a Pyrrhic, or even strictly nominal, victory, as occurred to the Currency School theorists with Peel’s Law in 1844. So, as Kirzner has said, one of the most important by-products of the controversy on the impossibility of socialism was that it forced the Austrians to refine their methodological position even further, realize its profound implications and, above all, to become fully aware of the methodological abyss that separated them from the neoclassicals.(50) Thus, little by little, the Austrian economists commenced a second version of the Methodenstreit, this time against the emerging neoclassical paradigm, and began a redefinition of their methodological positions, set forth basically in the works of Mises, Mayer and Hayek which came out in the thirties, forties and fifties (polemic VII). Thus, Mises specified and established the methodology opposed to the use of mathematics in economics and to positivism in the different methodological works that are summarised in the first part of his Human Action. Hans Mayer, in an extensive work that has still not been answered, made a devastating criticism of the functional and mathematical analysis of the neoclassical theory of prices. Mayer’s article has only recently been published in English, thanks to Israel M. Kirzner, with the title “The Cognitive Value of Functional Theories of Price: Critical and Positive Investigations concerning the Price Problem”.(51) Finally, Hayek summarizes and articulates his methodological criticisms of both the empiricism originating from Saint Simon and the narrow utilitarianism of the neoclassical cost-benefit analysis in his book The Counter-Revolution of Science, published in 1952.(52) Unfortunately, the following year, Milton Friedman’s work Essays in Positive Economics(53) was published and achieved great popularity, providing the use of positivist methodology in our science with a great impetus. Although Hayek’s above mentioned work anticipated, answered and criticized the most important points of Friedman’s almost simultaneous book to a great extent, Hayek later said that “one of the things I often have publicly said is that one of the things I most regret is not having returned to a criticism of Keynes’ treatise (The General Theory), but it is as much true of not having criticized Milton Friedman’s Essays in Positive Economics, which in a way is quite as dangerous a book”.(54)
Fourth round: Neo-Austrians versus the mainstream and methodological nihilisms
The last round of the methodological discussion has been taking place over the last twenty-five years. In this round, the Austrian economists have become convinced that their position is correct, having confirmed how the neoclassical models (of general equilibrium) have been used to justify the theoretical possibility of socialism. Moreover, many positivist neoclassical theorists have believed that, in the final analysis, only empirical considerations could move the balance definitively in favour of either the capitalist economic system or the socialist one,(55) utterly disregarding all the a priori theoretical teachings of the Austrian School that demonstrate the impossibility of socialism and unnecessarily condemning a large part of humankind to enormous suffering for many of the decades of this century. For the Austrians, not only were a large part of the members of the Neoclassical School especially responsible for this suffering because they ignored the content of the Austrian analysis on the impossibility of socialism, but the positivism that continues to influence our science and which preaches that only experience, regardless of any theory, is able to demonstrate the chances of survival of any social system, was also to blame.
The notable re-emergence of the Austrian School over the last twenty-five years is, therefore, explained, together with the effort made by its members to rework the most important contributions of our discipline in accordance with the subjectivist methodology and dynamic approach initiated by Menger, purifying it of the errors that the positivist paradigm of equilibrium tends to surreptitiously introduce into the corpus of our science. Furthermore, the extension of the refined methodological nihilism that originated since the teachings of Karl Popper has given rise to a new polemic (polemic VIII) which, this time, has taken place even within the sphere of the Austrian School itself. The triumph of methodological pluralism appeared, at the beginning, to favour the Austrians, since their method, which had been almost cast into oblivion by a large part of the scientific community, again began to be “respected” (like any other). However, many Austrians have finally realized that the “anything goes” in methodological terms which has come so much into fashion today radically contradicts the criteria of methodological rigour and the research agenda for the scientific truth that the Austrians have traditionally defended. This explains the recent reaction of many Austrian economists against the nihilism and methodological pluralism originating from the hermeneutical post-modernist position of authors who, like Deirdre McCloskey and Don Lavoie, believe that the scientific truth depends to a great extent on the cultural context in which the argument between its leading players takes place. Israel Kirzner (56) and Hans-Hermann Hoppe (57) have even mentioned the fact that the extension of hermeneutics in economic methodology means, in a certain way, a resurrection of the old errors of the German Historical School, as it makes the criteria for scientific truth depend on contingent external situations.
Jesús Huerta de Soto
Professor of Political Economy
King Juan Carlos University of Madrid, Spain
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27. Although it does not fully coincide with our description of the different controversies between the Austrians and the neoclassicals, Lawrence A. White’s summary, The Methodology of the Austrian School Economists, The Ludwig von Mises Institute, Auburn University, Auburn 1984, should be consulted.
28. See especially headings 2, 3 and 4 of Chapter I of Carl Menger, Principles of Economics, New York University Press, New York 1981, pp. 51-71. The quotation given in the text is in p. 67 (emphasis added).
29. The most brilliant and concise explanation of Menger’s theory can be found in his article which was published in English with the title “On the Origin of Money”, Economic Journal, June 1892, pp. 239-255. This article has recently been reedited by Israel M. Kirzner in his Classics in Austrian Economics: A Sampling in the History of a Tradition, op. cit., Vol. I, pp. 91-106, especially pp. 98-99.
30. The term “historicism” has at least three different meanings. The first of them, identified with the Historical School of Law (Savigny, Burke) and opposed to Cartesian rationalism, is the meaning defended by the Austrian School in its theoretical analysis of institutions. The second meaning corresponds to the Historical School of Economics of the German professors of the 19th century and the 20th century American institutionalists. They deny the possibility of the existence of universally valid abstract economic theory, as defended by Menger and the Austrian economists. The third kind of historicism is found in the basis of methodological positivism or scientism, which tries to use empirical observation (history) to verify or falsify theories which, according to Hayek, is merely another manifestation of the Cartesian rationalism so much criticized by the Austrians. See Raimondo Cubeddu, The Philosophy of the Austrian School, Routledge, London and New York 1993, pp. 29-30.
31. Regarding Say as a forerunner of the Austrian method, see especially Murray N. Rothbard, Classical Economics: An Austrian Perspective on the History of Economic Thought, Edward Elgar, England 1995, Vol. II, pp. 12-18.
33. Among others, the following have recently studied the contribution of the Spanish scholastics to economic theory: Murray N. Rothbard, “New Light on the Prehistory of the Austrian School”, in The Foundations of Modern Austrian Economics, Sheed & Ward, Kansas City 1976, pp. 52-74; and Economic Thought before Adam Smith: An Austrian Perspective on the History of Economic Thought, Edward Elgar, England 1995, Vol. I, Chap. 4, pp. 97-133; Lucas Beltrán, “Sobre los orígenes hispanos de la economía de mercado”, Cuadernos del Pensamiento Liberal, Unión Editorial, Madrid 1996, pp. 234-254; Marjorie Grice-Hutchinson, The School of Salamanca: Readings in Spanish Monetary Theory 1544-1605, Clarendon Press, Oxford 1952; and Economic Thought in Spain: Selected Essays of Marjorie Grice-Hutchinson, Laurence S. Moss and Christopher K. Ryan (eds.), Edward Elgar, Aldershot, England 1993; Alejandro Chafuen, Christians for Freedom: Late-Scholastic Economics, Ignatius Press, San Francisco 1986; and Jesús Huerta de Soto, “New Light on the Prehistory of Banking and the School of Salamanca”, The Review of Austrian Economics, Vol. 9, No. 2 (1996), pp. 59-81. The intellectual influence of the Spanish theorists of the School of Salamanca on the Austrian School is not, however, a pure coincidence or a mere whim of history. It originates from and exists because of the intimate historical, political and cultural relations which, as from the reigns of Carlos V and his brother Fernando I, arose between Spain and Austria and which were to continue for several centuries. In addition, Italy also played an important role in these relations, acting as an authentic cultural, economic and financial bridge over which the relations between the two furthest points of the Empire (Spain and Vienna) flowed. In this respect, Jean Berenguer’s book Histoire de L’empire des Habsbourg 1273-1918, Librairie Arthème, Fayard, Paris 1990, should be consulted.
34. The former, wondering what the equilibrium price was, reached the conclusion that it depends on such a large number of specific circumstances that only God is able to know (“Pretium iustum mathematicum licet soli Deu notum”, Disputationes de Iustitia et Iure, Sumptibus Petri Prost, Lyon 1643, Vol. II, D.26, S.4, N.40, p. 312); and Juan de Salas, referring to the possibilities of knowing specific information on the market, says that it is so complex “quas exacte comprehendere et ponderare Dei est non hominum” (Commentarii in Secundam Secundae D. Thomas de Contractibus, Sumptibus Horatij Lardon, Lyon 1617, IV, No. 6, p. 9).
37. Leland B. Yeager, “Book Review” of Economic Thought before Adam Smith (Vol. I) and Classical Economics (Vol. II), An Austrian Perspective on the History of Economic Thought (Edward Elgar, Aldershot, England 1995), published in The Review of Austrian Economics, Vol. 9, No. 1 (1996), p. 183. I do not understand how anyone who has read Rothbard’s two volumes in depth can continue to uphold the thesis that Adam Smith was a forerunner of the Austrian School. Furthermore, if Rothbard is right, there would be important arguments to defend the thesis that, at its roots, the Austrian School was a Spanish school and that the German predecessors of Menger, rather than influenced by Smith, were influenced by the Catholic subjectivist tradition they received from Jean-Baptiste Say through Hufeland and others.
39. Eugen von Böhm-Bawerk, “Professor Clark’s Views on the Genesis of Capital”, Quarterly Journal of Economics, IX, 1895, pp. 113-131, reproduced on pp. 131-143 of Classics in Austrian Economics, Israel M. Kirzner (ed.), op. cit. Furthermore , Böhm-Bawerk points out, with great foreknowledge, that, if Clark’s static view were to prevail, the doctrines on underconsumption, which were refuted by economists previously, would again emerge, as actually happened with the Keynesianism that emerged from the neoclassical Marshall: “When one goes with Professor Clark into such an account of the matter, the assertion that capital is not consumed is seen to be another inexact, shining figure of speech, which must not be taken at all literally. Any one taking it literally falls into a total error, into which, for sooth, science has already fallen once. I refer to the familiar and at one time widely disseminated doctrine that saving is a social evil and the class of spendthrifts a useful factor in social economy, because what is saved is not spent and so producers cannot find a market”. Ibidem, p. 137.
40. Frank H. Knight, for example, considers Menger’s theory on economic goods of first order and higher order (concept of human action made up of stages) to be one of his less important economic contributions. See the “Prologue” he wrote for the first English Edition of Principles of Economics, J. Dingwall y B. Hoselitz (eds.), Free Press of Glencoe, 1950. With regard to the most important articles within the polemic with the School of Chicago, they are Fritz Machlup’s article, “Professor Knight and the ‘Period of Production'”, Journal of Political Economy, October 1935, Vol. 43, No. 5, included in Classics in Austrian Economics, Israel M. Kirzner (ed.) op. cit., Vol. II, pp. 275-315; and F.A. Hayek’s “The Mythology of Capital”, The Quarterly Journal of Economics, February 1936, pp. 199-228.
41. Eugen von Böhm-Bawerk, Capital and Interest, Libertarian Press, South Holland, Illinois 1959, vol. I, pp. 241-321, and Shorter Classics of Eugen von Böhm-Bawerk, Libertarian Press, South Holland, Illinois 1962, pp. 201-302.
42. See Eugen von Böhm-Bawerk “On the Value of Producer’s Goods and the Relationship between Value and Cost”, Capital and Interest, Libertarian Press, South Holland, Illinois 1959, Vol. III, Chap. VIII, pp. 97-115; and “The Ultimate Standard of Value”, Shorter Classics of Eugen von Böhm-Bawerk, op. cit., pp. 303-370. The subjective concept of cost of opportunity was originally developed by Friedrich von Wieser in 1876. (See his article “On the Relationship of Costs to Value”, Chap. 8 of Vol. I of Classics in Austrian Economics, op. cit., pp. 207-234.) Mises has shown, however, that Wieser was the member of the Austrian School who was closest to the neoclassical paradigm of the School of Lausanne: “Wieser was not a creative thinker and in general was more harmful than useful. He never really understood the gist of the idea of subjectivism in the Austrian School of Thought, which limitation caused him to make many unfortunate mistakes. His imputation theory is untenable. His ideas on value calculation justify the conclusion that he could not be called a member of the Austrian School, but rather a member of the Lausanne School (Léon Walras et al and the idea of economic equilibrium)”. See Ludwig von Mises, Notes and Recollections, Libertarian Press, South Holland, Illinois, 1978, p. 36.
45. These were the only explanations that, for example, were mentioned by Gary Becker in his “Presidential Address” at the Regional Meeting of the Mont Pèlerin Society which took place in Prague, Czechoslovakia, from November 3-6, 1991 under the general title “In Search of a Transition to a Free Society”.
46. Wlodzimierz Brus and Kazimierz Laski, From Marx to the Market: Socialism in Search of an Economic System, Clarendon Press, Oxford 1985, p. 60. And Robert L. Heilbroner himself has concluded that: “Mises was right: socialism has been the great tragedy of this century”. See his articles “Analysis and Vision in the History of Modern Economic Thought”, Journal of Economic Literature, September 1990, p. 1097-1110; “The Triumph of Capitalism”, The New Yorker, January 23, 1989, pp. 90-91, and “Reflections after Communism”, The New Yorker, September 10, 1990, pp. 91-100 (specially p. 98).
49. This is a slightly corrected and expanded version of the chart included in F.A. Hayek, The Pure Theory of Capital, Routledge, London 1976, pp. 47-49; see also Mark Skousen, The Structure of Production, New York University Press, New York 1990, p. 370.
50. However, this process took some time, which explains the dictum of Fritz Machlup, according to which “the real triumph of the Austrian School is that its contributions became so much part of the economic mainstream that no one realized any more that they were Austrian”. Surprisingly, Mises himself said something similar in 1932. Israel Kirzner, “Introduction” to Vol. I of Classics in Austrian Economics, op. cit., p. xvi onward.
51. Chap. 16 of Vol. II of Classics in Austrian Economics, op. cit., pp. 55-168. This article is the English translation of the article published by Hans Mayer in 1932 with the title “Der Erkenntniswert der Funktionellen Preistheorien”, in the book Die Wirtschaftheorie der Gegenwart, Vienna 1932, Vol. II, pp. 147-239b. An expanded version of this article was published in Italian some years later: Hans Mayer, “Il concetto di equilibrio nella teoria economica: richerche sulla trattazione matematica del problema dei prezzi”, Economia Pura, Gustavo del Vecchio (ed.), Nuova collana di economisti stranieri e italiani, Vol. 4º, Unione Tipografico-Editrice Torinese, Turin 1937, pp. 645-799.
54. F.A. Hayek, Hayek on Hayek, Routledge, London and New York 1994, p. 145. Elsewhere, Hayek clarified even further his methodological differences with Friedman and the neoclassicals as follows: “Friedman is an arch-positivist who believes nothing must enter scientific argument except what is empirically proven. My argument is that we know so much detail about economics, our task is to put our knowledge in order. We hardly need any new information. Our great difficulty is digesting what we already know. We don’t get much wiser by statistical information except by gaining information about the specific situation at the moment. But theoretically I don’t think statistical studies get us anywhere … Milton’s monetarism and Keynesianism have more in common with each other than I have with either … The Chicago School thinks essentially in ‘macroeconomic’ terms. They try to analyze in terms of aggregates and averages, total quantity of money, total price level, total employment, all these statistical magnitudes … Take Friedman’s ‘quantity theory’, I wrote forty years ago that I have strong objections against the quantity theory because it is a very crude approach that leaves out a great many things: I regret that a man of the sophistication of Milton Friedman does not use it as a first approach but believes it is the whole thing. So it is really on methodological issues, ultimately, that we differ”. See Robert Pool and Virginia Postrel’s interview with Hayek published in Free Minds and Free Markets, Pacific Research Institute for Public Policy, California 1993, pp. 129-130.
55. Thus, George Stigler considered that the two parties to the debate on socialism failed when appreciating the “empirical” consequences of their respective positions, since only “empirical evidence” can resolve the differences that exist between the advocates of capitalism and those of socialism. See his book The Citizen and the State, The University of Chicago Press, Chicago 1975, pp. 1-13 and the critical comment on Stigler’s position put forward by Norman P. Barry, “The Economics and Theory of Socialism”, Il Politico, University of Pavia, 1984, year XLIX, No. 4, pp. 573-592.
57. Hans-Hermann Hoppe, Economic Science and the Austrian Method, op. cit., p. 54. And also Murray N. Rothbard, “The Hermeneutical Invasion of Philosophy and Economics”, The Review of Austrian Economics, No. 3, year 1989, pp. 45-59, and “Intimidation by Rhetoric”, The Review of Austrian Economics, Vol. IX, No. 1, 1996, pp. 173-178.