The Capitalist Alternative: Introduction To Neo-austrian Economics

The Capitalist Alternative By the same author: Subjectivist Economics The Capitalist Alternative: An Introduction to Neo-Austrian Economics Alexander H. Shand SENIOR LECTURER IN ECONOMICS MANCHESTER POLYTECHNIC FOREWORD BY G.L.S. SHACKLE DISTRIBUTED BY HARVESTER PRESS First published in Great Britain in 1984 by WHEATSHEAFBOOKSLTD A MEMBER OF lHE HARVESTER PRESS PUBLISHING GROUP Publisher: John Spiers Director of Publications: Edward Elgar ©Alexander H. Shand, 1984 British Library Cataloguing in Publication Data Shand, Alexander H. The Capitalist alternative. 1. Austrian school of economists I. Title 330.15'7 HB98 ISBN 0-7108-0231-5 ISBN 0-7108-0262-5 Pbk Typeset in 10 point Times by Photobooks (Bristol) Ltd. Printed and bound in Great Britain by Butler & Tanner Ltd, Frome, Somerset All rights reserved THE HARVESTER PRESS PUBLISHING GROUP The Harvester Press Publishing Group comprises Harvester Press Limited (chiefly publishing literature, fiction, philosophy, psychology, and science and trade books), Harvester Press Microform Publications Limited (publishing in microform unpublished archives, scarce printed sources, and indexes to these collections) and Wheatsheaf Books Limited (a wholly independent company chiefly publishing in economics, international politics, sociology and related social sciences), whose books are distributed by The Harvester Press Limited and its agencies throughout the world. To my wife, my loving Tim • • • Capitalism created the proletariat, but not by making anyone any the worse off; rather by enabling many to survive who would not otherwise have done so. F.A. Hayek, Encounter, May 1983 Contents Foreword by G.L.S. Shackle Preface 1 Methodology 1. Introduction 2. The methodology of neoclassical economics 3. Praxeology and apriorism 4. Subjectivism and social science 5. Methodological individualism 6. Scientism 7. Knowledge, uncertainty and unintended consequences xi xiii I 1 2 2 3 4 6 7 2 Mathematics, Statistics and Econometrics 1. Definitions 2. Historical background 3. Neoclassical dissent 4. Austrian views 15 15 16 18 22 3 Equilibrium 1. Introduction 2. Historical perspective 3. Definition and proof 4. Criticisms from within the neoclassical school 5. The Austrian view 32 32 33 34 35 37 4 Value 1. The long debate: a brief history 2. Subjective value: a general statement 3. Demand 4. Costs and supply 5. The labour theory of value 43 43 44 46 53 57 viii Contents 5 The Market 1. Terminology: alternative names 2. The nature of markets 3. The Austrian view of the market 4. Economy and catallaxy 63 63 65 66 71 6 Profit and the Entrepreneur 1. Introduction 2. Modem theories of enterprise and profit 3. Is there an Austrian theory of profit and entrepreneurship? 4. Are entrepreneurs capitalists? 5. Other criticisms of neoclassical theory 6. The 'supply' of entrepreneurs 77 77 79 82 86 90 92 7 Market Failure I 1. Introduction 2. Collective consumption goods 3. Neighbourhood or over-spill effects 4. Consumer preferences 5. Prisoner's dilemma situations 6. Welfare economics 98 98 98 103 106 107 108 8 Market Failure II 1. Self-interest 2. Consumer manipulation 3. The alleged immorality of the profit motive 114 114 116 119 9 Monopoly 1. The 'mainstream' picture of monopoly 2. The Austrian critique of orthodox monopoly theory 3. The Austrian definition of monopoly 4. Origins of monopoly 5. Oligopoly 6. Monopolistic competition 7. Are monopolies harmful? 8. Monopoly and the state 9. Trade unions 125 125 10 Macroeconomics 1. Introduction 2. Keynesian analysis: a general view 3. The Austrian critique of macroeconomics