Steven Horwitz

From The Sensory Order to the Liberal Order: Hayek's Non-rationalist Liberalism

Hayeks arguments for a constitutionally constrainted government are consistent with, and to some extent rest upon, his work in theoretical psychology. By exploring his view of the mind in The Sensory Order, we can see the psychological and epistemological underpinnings of Hayeks belief in the minds limits and the indispensibility of spontaneously emergent social institutions. The Austrian view of microeconomic coordination is a logical outgrowth of Hayeks theory of mind. Constraints on government are necessary not because self-interest leads rational government actors into temptation, but because even altruistically-motivated actors are epistemically unable to intervene effectively in spontaneously emergent institutions.

Monetary Calculation and Mises's Critique of Planning

Over the last decade or so, there has been a renewed interest in the problems of economic calculation under socialism and a rethinking of the classic socialist calculation debate of the interwar era. A great deal of this work has been stimulated by Don Lavoies (1985) reinterpretation of the debate that suggested a fundamental misunderstanding of the Austrian argument. In addition, the general growth of interest in Austrian economics since the mid-1970s, as well as the increasingly obvious failures of the so-called planned economies of Eastern Europe and the former Soviet Union, surely has played a role in the increased attention paid to these topics. Although the general consensus of the literature since Lavoies book has been that the Austrians were largely correct,l not all of the writers have understood the full depth of the Mises-Hayek argument and its

The Costs of Inflation Revisited

Neoclassical treatments of inflation understate the costs associated with inflation, even at very low levels. A comparative institutions perspective that recognizes the epistemological properties of prices and the institutional process by which inflation takes place, reveals the costs of inflation to be both larger and more widespread than standard treatments suggest. This paper makes use of insights from Austrian economics, public choice theory, and the new institutional economics to argue that inflation imposes costs by undermining the coordinative properties of the price system. Not only are there the direct costs of increased economic error, but actors also divert resources away from direct want-satisfaction into attempts to either prevent or cope with the increased degree of uncertainty inflation imposes. These resource costs are best understood from a comparative institutions perspective, as traditional measures of economic well-being, such as GDP, cannot distinguish between exchanges that directly satisfy wants, and exchanges that are attempts to correct or prevent utility-diminishing activities. The analogy between these coping costs and rent-seeking behavior is explored. In addition, inflation imposes costs by undermining the coordinative properties of markets and inducing actors to, on the margin, prefer to seek wealth or allocate resources through the political process.

Do We Need a Distinct Monetary Constitution

Elements of the Chicago and Virginia traditions of political economy have rejected both competitive money production and moneys politicization via post-constitutional bargaining, opting instead for constitutionalization. This paper argues that competitive money production is not subject to the pro-cyclicality that concerns constitutional political economy. It also meets the standard of predictability that motivates constitutional perspectives, although at the level of individual prices rather than the price level. An effective monetary constitution is implicit in any constitution that protects rights to property, contract, and exchange and sets limits on the democratic process.

Capital Theory, Inflation and Deflation: The Austrians and Monetary Disequilibrium Theory Compared

At one level or another, economic processes make it possible for diverse individuals to coordinate their activities. Although microeconomists have long recognized this insight, and purport to explain it with their tools, macroeconomists often seem to lose sight of the centrality of coordination when they focus on the movements of, and relationships among, aggregate variables. One problem with emphasizing aggregates is that, in reality, economic coordination ultimately takes place at the microeconomic level, which poses the issue of microfoundations. However, recognizing that micro issues are the fundamental ones does not deny a role for distinctly macroeconomic analysis. Macroeconomic analysis should show how movements in markets for goods that are pervasive (i.e., affect some very large number of microeconomic markets simultaneously), help or harm the coordination processes taking place in those individual markets and thus influence the determination of aggregate measures such as total income and employment.

The role of ideal types in Austrian business cycle theory

The Austrian theory of the business cycle (henceforth ABC) frequently has been a target for critics of Austrian economics. In particular, a number of economists who are generally appreciative of other Austrian themes have singled out ABC as being, in one such critics words, an “embarrassing excrescence” marring the otherwise generally sound body of modern Austrian thought.1 Despite such criticisms, many Austrian economists persist in forwarding ABC as the best available, or perhaps even the only valid, explanation for the cycles of boom and bust regularly occurring in most modern, national economies.

The Great Recession and its Aftermath from a Monetary Equilibrium Theory Perspective

The Global Financial Crisis is a unique investigation into the causes of the most savage economic downturn experienced since the Great Depression. Employing wide and divergent perspectives – which are themselves critically examined – this study analyses the measures that have been taken to restore our economies to acceptable rates of unemployment and growth.

Analogous models of complexity: the Austrian theory of capital and Hayek's theory of cognition as adaptive classifying systems

By the 1950s, F. A. Hayeks contributions to a variety of disciplines seemed to be more clearly center around the concept of spontaneous order, or in more contemporary and more general language, “adaptive classifying systems.” In this chapter, I compare two such systems present in Hayeks thought: his contributions to the Austrian theory of capital and his work on the theory of cognition. This comparison reveals a number of very strong analogies between the two theories, which is not surprising as Hayek himself acknowledged that his work on capital influenced his thinking when he returned to theoretical psychology after completing The Pure Theory of Capital. Specifically, I argue that both capital and the mind are adaptive classifying systems characterized by: multiple classification/specificity, the centrality of structure, and a relational concept of order. The chapter concludes with some brief thoughts on the implications of the argument for the theory of the firm and for the place of methodological dualism in Hayeks thinking more generally.

The Microeconomic Foundations of Macroeconomic Disorder: An Austrian Perspective on the Great Recession of 2008

This innovative book focuses on the current global financial crisis and the inadequacies of the economic theories being used to guide policy. In so doing, it tackles the economic theories that have been used firstly to understand its causes and thereafter to contain the damage it has brought.

Feminist economics: an Austrian perspective

This paper attempts to assess the recent literature on feminist economics from the perspective of modern Austrian economics. Feminists and Austrians share many epistemological and methodological criticisms of neoclassical theory, although Austrians have never linked those criticisms to gender. Both groups argue that the attempt to mimic the methods of the natural sciences has been a particular source of trouble for neoclassicism. The paper suggests that these common points of criticism can serve as a starting point for dialogue between the two groups. Despite their similar criticisms, the groups do have divergent views on what economic theory should look like, as well as the policy conclusions that likely flow from those theories. The paper explores two examples of theoretical differences (the concept of utility and the relationship between competition and cooperation) and suggests ways that feminists and Austrians might begin to sort out their differences.