Ideas On Liberty

JUNE 2004

Austrian Economics and the

Political Economy of Freedom
by Richard M. Ebeling

T
he revival of the modern Austrian the emerging Keynesian macroeconomics.1
school of economics may be said to At the same time, there developed what
have begun 30 years ago, during the came to be called the neoclassical approach
week of June 15–22, 1974, when the in microeconomics. The study of the logic of
Institute for Humane Studies sponsored a individual decision-making, the allocation of
conference on Austrian economics for about scarce resources among competing uses, and
40 participants in the small town of South the distribution of income among the factors
Royalton, Vermont. of production—land, labor, and capital—
In 1974 the Austrian school had been in became increasingly an exercise in mathe-
hiatus for almost a quarter of a century. For matical optimization under conditions of
more than 60 years before the 1940s, the various quantitative constraints. The focus
Austrian economists had been considered of attention was on the specification and
some of the most original contributors to determination of the narrow and often
economic theory and policy. They were highly artificial conditions under which a
among the leading developers of the theories market economy would be in general equi-
of marginal utility, opportunity cost, value librium.
and price, capital and interest, markets and This, too, was in stark contrast to the
competition, money and the business cycle, approach of almost all Austrian economists,
and comparative economic systems—capi- who attempted to explain the logic and
talism versus socialism versus the interven- processes of market competition in a world
tionist welfare state. of constant change. The Austrians, unlike
But the rise and triumph, in the late 1930s their neoclassical rivals, emphasized imper-
and 1940s, of the Keynesian explanation of fect knowledge, the pervasive role of time in
and prescription for the Great Depression all market decision-making, and the nature
eclipsed all competing approaches to the of market coordination through continual
problems of economic depression and high adaptation to changing circumstances.2
unemployment. This included the Austrian Eight months before that conference in
theory of the business cycle, which in the South Royalton, in October 1973, the most
early 1930s had been a leading alternative to important contributor to Austrian econom-
ics in the twentieth century, Ludwig von
Mises, had died at the age of 92.3 The sec-
Richard Ebeling ([email protected]) is president of
ond most prominent member of the Austrian
FEE. This article is based on Dr. Ebeling’s Ludwig
von Mises Memorial Lecture, delivered March 19, school at that time, Friedrich A. Hayek, had
2004, at the Austrian Scholars Conference in been invited to attend the conference, but
Auburn, Alabama. had declined due to health problems that
8
made it impossible for him to travel to makes them actions. Our thinking about
America from Europe. No one at the confer- men and their conduct, and our conduct
ence anticipated that only four months later, toward men and toward our surround-
in October 1974, Hayek would be awarded ings in general presuppose the category of
the Nobel Prize in economics.4 action.8
The speakers at the conference were three
other leading figures in Austrian economics: The Austrian view of man refutes the pos-
Ludwig M. Lachmann, who had studied itivist, historicist, and neoclassical concep-
with Hayek at the London School of Eco- tions of man as a mere physical, quantitative
nomics in the 1930s; Israel M. Kirzner, who object, or as a passive subject controlled by
had studied with and written his dissertation the dark forces of history, or as a “depen-
under Mises at New York University in the dent variable” in a system of mathematical
late 1950s;5 and Murray N. Rothbard, who equations. Positivism tried to reduce man
had attended Mises’s NYU seminar for and his mind to mere magnitudes to be stud-
many years beginning in the late 1940s and ied and manipulated like the inanimate mat-
had received his doctoral degree in econom- ter experimented on in the natural sciences.
ics from Columbia University. Historicism claimed that man is determined
One evening during the conference, Mil- and molded by external laws of history that
ton Friedman came from his summer home shape his thoughts, actions, and destiny,
in Vermont to join us for dinner and make a with little latitude for the individual to
few remarks after the meal. Friedman com- design and guide his own future.9 Neoclassi-
mented that he was delighted to be with us cal economics treats man like a mathemati-
and recalled he had long known both Mises cal function possessing given tastes and pref-
and Hayek, having been a founding member erences, which are themselves induced by his
of the Mont Pelerin Society and present at its surroundings and on the basis of which he
first meeting in Switzerland in April 1947.6 responds in predictable ways when con-
But what stood out in his remarks for many fronted with various constraining and objec-
of us there was his statement that there are tive tradeoffs in the form of market prices.10
no different schools of thought in econom- For Austrians, on the other hand, man is a
ics; there is only good economics and bad purposeful being. He thinks, plans, and acts.
economics. Clearly, therefore, in Friedman’s Man may be made up of matter, but he pos-
mind, we were on a fool’s errand attending a sesses consciousness. He has the capacity to
conference on something called “Austrian” imagine, create, and initiate. His mind is not
economics. simply reducible to lifeless matter. He has
spirit and will. Man reflects on the circum-
Acting Man as the Core of stances in which he finds himself. He judges
aspects of his physical and social surround-
Austrian Economics ings less than satisfactory. He imagines
Yet most of us attending that conference states of affairs that would be more to his
did not consider ourselves on a fool’s errand. liking. He creates in his mind plans of action
We just considered Austrian economics to be that would bring those preferred states of
“good economics.”7 At its most fundamen- affairs into existence. He discovers that the
tal level, Austrians see the individual as “act- things he can use as means to achieve some
ing man.” This was already clearly stated by of his ends are insufficient to achieve all of
Ludwig von Mises in 1933: his ends. He has to weigh the alternatives
and decide which he prefers more, since
In our view the concept of man is, above some of them, in the face of scarcity, will
all else, also the concept of the being who have be forgone today or forever. He there-
acts. Our consciousness is that of an ego fore has to decide the tradeoffs he is willing
which is capable of acting and does act. to make, and as a result he determines the
The fact that our deeds are intentional costs of his own choices in the form of goals
9
The Freeman: Ideas on Liberty • June 2004

he is willing to give up in order to pursue remains of any commonsensical notion of

others that he considers more important. choice? Even if we assume only knowledge of
Those ends and means that neoclassical objective probabilities and not absolute cer-
economics take as “given” are, in fact, cre- tainties about the future, every man would
ated and compared in the actor’s mind. They still know what is the precise set of options
change and are modified as man experiences from which he has to choose and the exact
successes and failures. They are not static. weight he should assign to each possible out-
Nor is man a hopeless victim or captive of come; then, given his tastes and preferences
history. He makes his own history by reflect- for risk, he would again know from the start
ing on what has happened in the past and the only courses of action he could and
mentally projecting himself into the future. should logically follow.
He decides what past course of action is Many neoclassical economists may despair
worth trying to continue or what might be a of a world in which imperfect knowledge
better course as he looks ahead. and uncertainty prevail, a world in which
their mathematically deterministic models
Imperfect Knowledge and lose their force. But for Austrians, this real-
ity of the human condition is a reason for
Market Opportunities optimism about man and his world. The fact
This is why Mises insisted that in every that man does not know for certain what the
man there is the element of entrepreneur- future holds, including what his own future
ship. In all his actions, man searches for and actions may be, means that the world in
creates profitable opportunities to improve which he lives is one of wondrous possibil-
his lot and tries to avoid losses, that is, cir- ity. Individuals have incentives to experi-
cumstances worse than they need to be. By ment with creative new ideas precisely
necessity, man is therefore a speculator in because they don’t know for sure or with
everything he does.11 any probabilistic degree of certainty how
Creating profitable opportunities and those ideas may actually turn out. It is this
avoiding losses are concepts that have no element of uncertainty about the future that
meaning in the traditional neoclassical con- permits imagination and action to influence
ception of “perfect competition,” in which the shape of things to come—including all
every market participant is assumed to pos- the advancements in the social, economic,
sess perfect or sufficient knowledge of all and cultural condition of mankind.13
possibilities that might be relevant to his For the neoclassical economists, the mar-
decisions. What is the meaning of “opportu- ket is reduced to a series of simultaneous
nities discovered” or “losses avoided” when equations of supply-and-demand functions,
the actors already know from the beginning the properties of which specify whether a
what are the best and indeed the only general-equilibrium “solution” exists for the
options that should be followed, given per- market as a whole, and whether that solu-
fect and sufficient knowledge of all relevant tion is “unique” and “stable.” Prices are the
circumstances?12 quantitative ratios of exchange at which
From the Austrian perspective, to choose is goods may be bought and sold, and which
to select from alternatives, and to select from “objectify” the tradeoffs for which alterna-
alternatives must mean that, at least from the tives in the market may be obtained. Like-
individual’s perspective, the future is not pre- wise, the theory of comparative advantage,
ordained. If that future is not preordained, in the neoclassical framework, merely deter-
but can be influenced by the choices he mines the relative opportunity costs of
makes, then perfect knowledge is logically potential trading partners so they may
inconsistent with the very concept of acting assume their highest-valued roles in the divi-
and choosing man. Otherwise, man would sion of labor. In addition, property rights,
know already all the decisions he will make money, and social and political institutions
and the necessary outcomes. But what then are usually treated as “givens” in neoclassi-
10
 Austrian Economics and the Political Economy of Freedom

cal analysis. They are merely the context in price bids and offers, and competitively
which the supply and demand functions move prices up or down. In Eugen von
interact.14 Böhm-Bawerk’s famous horse market, any
resulting equilibrium between suppliers and
demanders arises out of their efforts to
Minds, Markets, and attract trading partners by offering better
the Entrepreneur terms than their rivals.17
For Austrians, the essence of the market is Thus the Austrian focus is on the logic
missed when reduced to a skeletal represen- and sequential process of price formation,
tation in the form of mathematical func- rather than only on any final equilibrium
tions. The market is where the minds and the price that may result from this active market
meanings of men meet. It is the place where rivalry. It is why one prominent member of
the plans of multitudes of individuals over- the Austrian school referred to the Austrian
lap, enabling people mutually to improve theory of price as the causal-genetic
their situations through discovered and cre- approach: the purpose of the theory is to
ated gains from trade. It is where the wants explain the “causal origin” of prices in the
of men find greater degrees of satisfaction valuations and actions of market actors, and
than in isolated self-sufficiency, and where the process by which prices adjust to reach a
achieving things never conceived of before is final equilibrium.18
practicable. In the Austrian conception of The theory is also the basis for the later
the market, prices are not simply quantita- Austrian emphasis on the role and signifi-
tive ratios of exchange; they are also the cance of the entrepreneur. In the division of
encapsulation of the market participants’ labor, entrepreneurs are not only the
valuations and appraisements, which result “undertakers of enterprise” who imagine
from the participants’ buying and selling.15 the patterns of future consumer demand,
As Carl Menger, the founder of the Austrian conceive of ways of organizing production
School, expressed it in 1871: processes to better satisfy that demand, over-
see the stages of production to the comple-
[Prices] are by no means the most funda- tion of finished goods, and bring the goods
mental feature of the economic phenome- to market. They also set and change con-
non of exchange. This central feature lies sumer prices when they discover that they
rather in the better provision two persons over- or underestimated how intensely con-
can make for the satisfaction of their sumers want the goods.19
needs by trade. . . . Prices are only inci- It is the “promoting and speculating entre-
dental manifestations of these activities, preneurs” who are “the driving force of the
symptoms of an economic equilibrium market,” Mises wrote. Their “social func-
between the economies of individuals tion” is to coordinate the use of resources,
[and consequently are of secondary inter- capital, and labor with the demands of con-
est for the economic subjects]. . . . The sumers through the rewards of profits and
force that drives [prices] to the surface is the penalties of losses.20 Again, as Mises
the ultimate and general cause of all eco- concisely put it, “It is the entrepreneurial
nomic activity, the endeavor of men to decision that creates either profit or loss. It is
satisfy their needs as completely as possi- mental acts, the mind of the entrepreneur,
ble, to better their economic positions.16 from which profits ultimately originate.
Profit is a product of the mind, of success in
In neoclassical theory, prices are usually anticipating the future state of the market. It
taken as “given,” with any changes coming, is a spiritual and intellectual phenome-
somehow, from the “outside,” with market non.”21 The intentionality of entrepreneur-
participants responding accordingly. In the ship, the creative mental processes that are
Austrian approach, prices emerge out of the the essence of the enterpriser’s activities, are
interactions of market actors. They initiate drained of all understanding if the market is
11
The Freeman: Ideas on Liberty • June 2004

reduced to a simplified and barren mathe- their expectation of the prices the con-
matical function. sumers will be ready to pay for the prod-
ucts. . . . The competition between the
entrepreneurs reflects these prices of con-
Economic Calculation and the sumers’ goods in the formation of the
Market Process prices of the factors of production. . . . To
The social institutions of private property the entrepreneur of capitalist society a
and monetary exchange are not simply con- factor of production through its price
ceptual backdrops to the determination of sends out a warning: Don’t touch me, I
equilibrium prices and outputs, as has am earmarked for the satisfaction of
tended to be the view in neoclassical eco- another, more urgent need.23
nomics. In the standard textbooks, from
which most economists learn the core con- Only private property enables all mar-
cepts of their discipline, private property is ketable commodities and means of produc-
described as an “incentive mechanism” for tion to be available for sale and purchase in
work and the conserving of scarce resources; the area of exchange. Only a medium of
and money is explained as a “unit of exchange provides the means by which het-
account” that serves as a common denomi- erogeneous things may be reduced to a valu-
nator for comparing the value of goods ational common denominator. Only the
bought and sold in the market. Both descrip- competitive market enables every participant
tions are true and important. But they fail to in society to contribute to the formation of
capture the institutions’ profundity for the prices through his bids and offers.24 Only
functioning and coordinating of the complex economic calculation enables the integration
and ever-changing market order. of billions of people’s actions into a network
Private property and money are, instead, of mutually beneficial market relationships
the core—the indispensable features—of and coordinated plans.
the market economy and the civilization Yet every man is free to make his own
that develops with it. The evolution of pri- decisions, guided by his own hopes, dreams,
vate property rights and a medium of goals, and plans. The money prices that
exchange has made possible the economic make economic calculation possible are used
calculation without which rational market by each individual for his own purposes. He
decision-making would be impossible. And, weighs their significance for the ends he has
again, it is Mises who articulated this most in mind. He uses them to evaluate his past
clearly: actions and to plan his future actions.25 He
is at liberty to integrate himself into the divi-
Monetary calculation is the guiding star sion of labor on the basis of his own evalua-
of action under the social system of divi- tions of the costs and benefits of alternative
sion of labor. It is the compass of the man courses of action—while bearing the conse-
embarking upon production. He calcu- quences, good or ill, for the choices he
lates in order to distinguish the remuner- makes.
ative lines of production from the unprof- It is through economic calculation in the
itable ones. . . . Monetary calculation is free market that individual freedom is made
the main vehicle of planning and acting in compatible with social order. It is through
the social setting of a society of free enter- economic calculation that billions of individ-
prise directed and controlled by the mar- ual plans are combined into patterns of
ket and prices.22 rational social coordination. No wonder
Mises concluded that “Our civilization is
We can view the whole market of mater- inseparably linked with our methods of eco-
ial factors of production and of labor as a nomic calculation. It would perish if we
public auction. The bidders are the entre- were to abandon this most precious intellec-
preneurs. Their highest bids are limited by tual tool of acting.”26
12
 Austrian Economics and the Political Economy of Freedom

The “Law of Association” as the for finished goods and the factors of produc-
tion. The way is opened to understanding
Foundation of Society the “inevitable laws of the market and
Austrians see more in the theory of the exchange,” which is the “one of the greatest
division of labor and comparative advantage achievements of the human mind.”29
than simply the determination of specializa- Out of the classical economists’ theory of
tion at various prices, given the capital and the division of labor there now comes the
labor available. Once again it was Mises classical-liberal “philosophy of peace and
who insightfully clarified the implications of social cooperation,” which is the basis “for
the eighteenth- and nineteenth-century clas- the astonishing development of the eco-
sical economists’ views on the benefits of the nomic civilization of [our] age.”30 The
division of labor. The theory of the division greater material productivity of a peaceful
of labor, Mises explained, is really the basis division of labor, Mises explained, provides
of what he called the law of human associa- the means for the development of what we
tion and therefore the foundation of a theory call civilization. The means are now pro-
of society. Based on Adam Smith’s and vided for leisure and the peace of mind
David Ricardo’s expositions of the benefits required for art, literature, and scientific and
from specialization, it was possible to show philosophic reflection.
how society emerged and took form over the Men increasingly become differentiated
centuries as the result of individuals’ discov- from one another, but not only in the spe-
ering the mutual benefits from trade.27 The cialized tasks and skills through which they
additional gains through specialization find their place in the division of labor. They
resulted in an expanding network of human also differentiate themselves by developing
relationships. The theory of the division of their individual personalities, thanks to the
labor, therefore, is able to serve as the ana- greater abundance of resources and free time
lytical tool for explaining the emergence of with which they can cultivate the pursuits
society as the result of human action but not that most interest them. Individualism,
of human design. As Mises explained this meaning man as distinct from the tribal mass
process: and unique in his character and qualities as
a singular human being, is a product of the
The law of association makes us compre- extension and intensification of the division
hend the tendencies which resulted in the of labor.31
progressive intensification of human At the same time, the division of labor and
cooperation. We conceive what incentive its law of association are the foundation for
induced people to not consider themselves a philosophy of world peace. Through spe-
simply as rivals in a struggle for the cialization and exchange, men become allies
appropriation of limited supplies of against the niggardliness of nature. No
means of subsistence made available by longer are individuals and nations oppo-
nature. We realize what has impelled nents, where the improvement of one
them and permanently impels them to requires a loss to another. Instead, all bene-
consort with one another for the sake of fit from everyone’s talents, industry, and
cooperation. . . . Thus we are in a position creativity.
to comprehend the course of human Competition, both within and between
evolution.28 nations, is no longer a life-and-death
struggle. The competitive market process
The theory of the division of labor and becomes the peaceful procedure through
comparative advantage becomes the basis which each member of society finds his most
for a “science of society.” A foundation is productive and profitable niche for improv-
laid for the theory of market relationships, ing his own circumstances by furthering the
the interconnections between supply and ends of others. Again, Mises captured the
demand, and the network of market prices essence of this great social process:
13
The Freeman: Ideas on Liberty • June 2004

All collaborate and cooperate, each in the want to restrict him to the dictates of a cen-
particular role he has chosen for himself tral planner or political intervener? Once
in the framework of the division of labor. one understands the significance of prices for
Competing in cooperation and cooperat- social coordination within the market
ing in competition all people are instru- process, who can presume to have the
mental in bringing about the result, viz., knowledge and ability to command human-
the price structure of the market, the allo- ity’s consumption and production?33
cation of the factors of production to It is no wonder, therefore, that so many of
the various lines of want-satisfaction, and freedom’s friends have been influenced by
the determination of the share of each the Austrian economists. In the last 100
individual.32 years, they have been the true political econ-
omists of liberty. The Austrian school of
The world, therefore, becomes one com- economics has enriched our understanding
munity of free men who, though separated of the market economy and advanced the
by time, distance, and interest, are peacefully cause of freedom in our time. 
guided to assist one another by the informa-
tion and incentives supplied by market 1. For an exposition and contrast of the Austrian and
Keynesian explanations of and policy prescriptions for the
prices. People’s buying and selling determine Great Depression of the 1930s, see Richard M. Ebeling, “The
the patterns of production that best serve the Austrian Economists and the Keynesian Revolution: The Great
Depression and the Economics of the Short-Run” in Richard M.
wants and needs of all humanity. The mar- Ebeling, ed., Human Action: A 50-Year Tribute (Hillsdale,
ket economy thus is the means to the peace- Mich.: Hillsdale College Press, 2000), pp. 15–110.
2. For an overview of many of the theoretical and policy
ful unity of mankind. themes in the writings of the Austrian Economists, see Richard
M. Ebeling, “The Significance of Austrian Economics in 20th
Century Economic Thought,” Austrian Economics and the
The Political Economy of Freedom Political Economy of Freedom (Northhampton, Mass.: Edward
Elgar, 2003), pp. 34–60; also, Ludwig M. Lachmann, “The Sig-
nificance of the Austrian School of Economics in the History of
None of these Austrian insights about Ideas” [1966] reprinted in Richard M. Ebeling, ed., Austrian
man and the market is compatible with the Economics: A Reader (Hillsdale, Mich.: Hillsdale College Press,
1991), pp. 17–39.
positivist, historicist, and neoclassical eco- 3. For expositions of Mises’s many contributions to eco-
nomic views of the world. Reduced to phys- nomic theory and policy, see Richard M. Ebeling, “A Rational
Economist in an Irrational Age: Ludwig von Mises,” Austrian
ical object or mathematical function, man is Economics and the Political Economy of Freedom, pp. 61–100;
stripped of his most essential human quali- Richard M. Ebeling, “Planning for Freedom: Ludwig von Mises as
Political Economist and Policy Analyst,” in Richard M. Ebeling,
ties. What are intention and imagination, ed., Competition or Compulsion? The Market Economy versus
choice and creativity, if the human mind is the New Social Engineering (Hillsdale, Mich.: Hillsdale College
Press, 2001), pp. 1–85; and Richard M. Ebeling, “The Econo-
banished from social and economic analysis? mist as the Historian of Decline: Ludwig von Mises and Austria
What meaning, therefore, does freedom have Between the Two World Wars,” in Richard M. Ebeling, ed.,
Globalization: Will Freedom or World Government Dominate
when man is merely a measured magnitude the International Marketplace? (Hillsdale, Mich.: Hillsdale Col-
or a dependent variable in a system of simul- lege Press, 2002), pp. 1–68. Also, Murray N. Rothbard, Ludwig
von Mises: Scholar, Creator, Hero (Auburn, Ala.: Ludwig von
taneous equations? Mises Institute, 1988); and Israel M. Kirzner, Ludwig von Mises
It should not be surprising that so many (Wilmington, Del.: ISI Books, 2001).
4. For a summary of Hayek’s life and contributions to eco-
members of the Austrian school of econom- nomics, see Richard M. Ebeling, “Friedrich A. Hayek: A Cente-
ics have also been classical liberals—defend- nary Appreciation,” The Freeman (May 1999), pp. 28–32; also,
Bruce Caldwell, Hayek’s Challenge: An Intellectual Biography
ers of individual liberty, private property, of F. A. Hayek (Chicago: University of Chicago Press, 2004).
and the market economy. Once you see the 5. For a summary of Kirzner’s contributions to Austrian eco-
nomics, see Richard M. Ebeling, “Israel M. Kirzner and the
individual as thinking, creating, and acting Austrian Theory of Competition and Entrepreneurship,” Free-
man, with so much potential within him, dom Daily, August 2001, pp. 8–14.
6. See R. M. Hartwell, A History of the Mont Pelerin Soci-
who can tolerate the idea of making him the ety (Indianapolis: Liberty Fund, 1995).
slave to another’s will—of denying him his 7. For a summary of the conference’s events, see Richard M.
Ebeling, “Austrian Economics on the Rise,” Libertarian Forum,
humanness? Once you comprehend the October 1974, pp. 3–6; the lectures delivered by Lachmann,
majesty of the market order, in which each Kirzner, and Rothbard at South Royalton were later published
in Edwin G. Dolan, ed., The Foundations of Modern Austrian
man is free to follow his own plans while Economics (Kansas City, Kan.: Sheed & Ward, 1976).
advancing the welfare of others, who can 8. Ludwig von Mises, Epistemological Problems of Eco-

14
 Austrian Economics and the Political Economy of Freedom

nomics (New York: New York University Press, 1981 [1933]), wirtschaftslehre, 2d ed. (Vienna: Holder-Pichler-Tempsky,
p. 14. 1923), pp. 182–83.
9. One of Mises’s most insightful but unfortunately highly 17. Eugen von Böhm-Bawerk, Capital and Interest, vol. 2:
neglected works was devoted to undermining the assumptions The Positive Theory of Capital (South Holland, Ill.: Libertarian
and absurdities in both positivism and historicism; see Ludwig Press, 1959), pp. 216–35.
von Mises, Theory and History: An Interpretation of Social and 18. Mayer, p 57.
Economic Evolution (Auburn, Ala.: Ludwig von Mises Insti- 19. See the much-neglected analysis on this point by Philip
tute, 1985 [1957]); also F. A. Hayek, The Counter-Revolution Wicksteed, The Common Sense of Political Economy, vol. 1
of Science (Indianapolis: Liberty Fund, 1980 [1955]); and Mur- (London: Routledge & Kegan Paul, 1933 [1910]), pp. 212–37.
ray N. Rothbard, Individualism and the Philosophy of the 20. Mises, Human Action, pp. 328–29.
Social Sciences (San Francisco: Cato Institute, 1979). 21. Ludwig von Mises, “Profit and Loss,” [1951] in Plan-
10. For a contrast of the Austrian and neoclassical concep- ning for Freedom (South Holland, Ill.: Libertarian Press, 1980),
tions of man in relation to action and choice, see Richard M. p. 120.
Ebeling, Austrian Economics and the Political Economy of 22. Mises, Human Action, pp. 229–30.
Freedom, pp. 3–7. 23. Ludwig von Mises, Bureaucracy (New Rochelle, N.Y.:
11. Ludwig von Mises, Human Action: A Treatise on Eco- Arlington House, 1969 [1944]), pp. 28–29.
nomics (Irvington-on-Hudson, N.Y.: Foundation for Economic 24. Ludwig von Mises, Liberalism in the Classical Tradition
Education, 1996), p. 254: “Entrepreneur means acting man in (Irvington-on-Hudson, N.Y.: Foundation for Economic Educa-
regard to the changes occurring in the data of the market.” And tion, 1985 [1927]), pp. 71–72. On p. 75 Mises wrote: “This is
Mises, The Ultimate Foundations of Economic Science (Irving- the decisive objection that economics raises against the possibil-
ton-on-Hudson, N.Y.: Foundation for Economic Education, ity of a socialist society. It must forgo the intellectual division of
2002 [1962]), p. 51: “Every action is a speculation, i.e., guided labor that consists in the cooperation of all entrepreneurs,
by a definite opinion concerning the uncertain conditions of the landowners, and workers as producers and consumers in the
future.” formation of market prices. But without it, rationality, i.e., the
12. For the classic Austrian criticisms of the neoclassical possibility of economic calculation, is unthinkable.”
mathematical general equilibrium approach, and the theory of 25. Mises, Human Action, p. 229: “Monetary calculation is
perfect competition, see Hans Mayer, “The Cognitive Value of entirely inapplicable and useless for any consideration which
Functional Theories of Price” [1932] in Israel M. Kirzner, ed., does not look at things from the point of view of individuals.
Classics of Austrian Economics: A Sampling in the History of a . . . The premeditation of planned action becomes commercial
Tradition (London: William Pickering, 1994), pp. 55–168; F. A. pre-calculation of expected costs and expected proceeds. The
Hayek, “The Meaning of Competition” [1946] Individualism retrospective establishment of the outcome of past action
and Economic Order (Chicago: University of Chicago Press, becomes accounting of profit and loss.”
1948), pp. 92–106; Mises, Human Action, pp. 350–57, and 26. Mises, Human Action, p. 230.
Mises, “Comments on the Mathematical Treatment of Eco- 27. Adam Smith, The Wealth of Nations Book I, Chapters
nomic Problems,” [1953] Journal of Libertarian Studies, vol. I, 1–3 (New York: The Modern Library, 1937 [1776]), pp. 3–21;
no. 2 (1977), pp. 97–100. Piero Sraffa, ed., The Works and Correspondence of David
13. Mises, Human Action, p. 105: “The uncertainty of the Ricardo, vol. I: On the Principles of Political Economy and
future is already implied in the very notion of action. That man Taxation (Cambridge: Cambridge University Press, 1951
acts and that the future is uncertain are by no means two inde- [1821]), pp. 128–49; Jean-Baptiste Say, A Treatise on Political
pendent matters. They are only two different modes of estab- Economy, or the Production, Distribution, and Consumption
lishing one thing.” of Wealth (New York: Augustus M. Kelley, 1971 [1821]), pp.
14. It should be pointed out that there has developed what 90–99; John R. McCulloch, The Principles of Political Econ-
is now referred to as the “new institutional economics,” which omy, with Some Inquiries Respecting Their Applications (New
attempts to explain the emergence, evolution, and significance York: Augustus M. Kelley, 1965 [1864]), pp. 37–46, 85–116.
of the underlying institutional order in which market processes 28. Mises, Human Action, pp. 160–61.
operate. Some of these economists have consciously incorpo- 29. Ludwig von Mises, Interventionism: An Economic
rated elements of the Austrian perspective in their theories; see, Analysis (Irvington-on-Hudson, N.Y.: Foundation for Eco-
especially, Wolfgang Kasper and Manfred E. Steit, Institutional nomic Education, 1998 [1941]), p. 24.
Economics: Social Order and Public Policy (Northampton, 30. Ludwig von Mises, Socialism: An Economic and Socio-
Mass.: Edward Elgar, 1998), and Eirik G. Furubotn and Rudolf logical Analysis (Indianapolis: Liberty Classics, 1981 [1922]),
Richter, Institutions and Economic Theory: The Contribution pp. 55–56, 268–69.
of the New Institutional Economics (Ann Arbor, Mich.: Uni- 31. Mises, Socialism, pp. 256–72; Human Action, pp.
versity of Michigan Press, 1998). 157–74.
15. Mises, Human Action, pp. 327–33. 32. Mises, Human Action, p. 338.
16. Carl Menger, Principles of Economics [1871] (New 33. See F. A. Hayek, “The Use of Knowledge in Society,”
York: New York University Press, 1981), pp. 191–192. The [1945] Individualism and Economic Order, pp. 77–91;
bracketed clause was restored by the present author from reprinted in Richard M. Ebeling, ed., Austrian Economics:
Menger’s original German volume, Grundsätze der Volks- A Reader, pp. 247–63.

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