The Austrian Theory of the Market Economy and the Classical Liberal Order Peter J. Boettke Econ 881/Spring February

The Propositions of Austrian Economics Only individuals choose Exchange and the Institutions within which exchange takes place Facts of the social sciences are beliefs people have and the actions they take based on those beliefs Subjectivism of utility and costs Price system economizes on information Private Property in the means of production is a necessary condition for rational economic calculation The competitive market is a process of entrepreneurial discovery Money is non-neutral Capital structure in an industrial society consists of heterogeneous goods that have multiple specific uses Social institutions are often the result of human action, but not of human design

What is NOT on that list? Biography  Austrian economics is not about certain economists and their heroic struggles against an alien intellectual culture Natural Rights  Austrian economics is not about the rights of man and the derivation of propositions about the social world from first principles about our natural rights to self-ownership, etc. Libertarianism  Austrian economics is not synonymous with free market economics.

Mises and the Market Order Private Property and Monetary Calculation Regression Theorem and the State Theory of Money Capital Structure and The Problems of Malcoordination Instability of Interventionism Clash of Group Interests Ricardo’s Law of Association and The Liberal Order

Hayek’s Extension of Mises Expectations and Coordination  Focus on intertemporal coordination Knowledge and Learning  Conditions as by-product, not assumptions Price System as economizing  Relative scarcity and guiding action Competition as a Process of Discovery  The unknown and unexploited Institutional backdrop conducive to the discovery and use of knowledge  Epistemics and the liberal order

Rothbard’s Technical Economics of Liberty Restatement of classic Austrian and neoclassical themes  Microfoundation  Market forces tending toward clearing Value-freedom and Policy Espousal  Means/ends  Ethical commitments Consistent and Persistent Application  Liberalism and libertarianism

Kirzner’s Arbitrage The theoretical lacuna in price theory  Path toward equilibrium The positive importance of entrepreneurship  Arbitrage (market clearing) and Innovation (economic progress) and all of that The welfare implications  Zero transaction cost world and how markets work The Entrepreneurial moment consists of serendipity, search and seize.

Summing Up the Argument Property  Generates Incentives Prices  Economizes on Information Profit and Loss  Spurs Innovation Politics  Should eliminates Insecurity not cause it Without the three first P’s you will not have the three first I’s and without a political framework that eliminates discretion you will not have a secure environment