Austrian Theorizing, Recalling the Foundations

Abstract

It is a pleasure to reply to Caplan’s (1999) critique of Austrian economics. Unlike other such recent reactions this one shows evidence of great familiarity with the Austrian (praxeological) literature, and a deep interest in its analytical foundations. Thus, Caplan correctly identifies the works of Ludwig von Mises and Murray N. Rothbard as the core of what sets Austrian economics apart from the neoclassical mainstream. And he insightfully relegates the writings of F.A. Hayek and Israel M. Kirzner to an intermediate position between the praxeological and neoclassical approaches. We shall defend this core of Austrian economics against Caplan’s criticisms, and show that, just as in the case of these others, his arrows fall wide of their mark. It is nevertheless instructive to highlight his errors. The benefits are a better understanding of the Austrian School, and greater insight into neoclassical shortcomings. This article follows the outline of Caplan (1999) and is divided into the same four sections as his: first an introduction, second, consumer theory, third, welfare economics, and fourth, a conclusion.