Peter Boettke on 1985 as a defining year for Austrian economics

This year the Review of Austrian Economics did a retrospective on  Don Lavoie and the “hermeneutic” or “interpretive” turn that he initiated in the mid 1980s. Peter Boettke and David Prychitko explained why this was important and why 1985 could have been a turning point in modern economics. The bottom line is that it was not a turning point because the profession at large stuck with positivism and formalism.

I am thinking about a piece with the working title “Third time lucky?” to suggest that the first  opportunity for a turning point was just after WW2 if only Talcott Parsons, Ludwig von Mises and their followers could have formed a united front to push the views that they shared (or the views that Parsons held in 1937 anyway).

The “second time” was when Lavoie and his colleagues  were on the case, if only they had taken not been diverted by Gadamer and Bernstein but promoted the  common approach of the early Parsons plus von Mises and Popper, beefed  up with input from the Critical Rationalists in the Popper school like Agassi, Albert, Boland, Birner and Jarvie, plus Popper’s later work on objective knowledge and metaphysical research programs.

The third time will be when some influential players in the game realise how CR can synergise with Austrian economics (or classical economics with a robust Austrian component), the way it looked in the early 1930s before Keynes and then the the rise of positivism and formalism.

The Boettke and Prychitko paper.

Abstract. Mises and Hayek in the 1920s and 1940s thought of their work as within the orthodoxy of economic science. But after WWII it became increasingly obvious
that the contributions of Mises and Hayek were out of step with the way the economics profession was evolving. But starting in 1974, due to the organizational
efforts of Murray Rothbard and Israel Kirzner, and bolstered by the awarding of the Nobel Prize in Economic Science to FA Hayek, a resurgence of interest in Austrian
economics by young scholars was initiated. Starting in 1984, but significantly in 1985, the work of the new generation of Austrian economics started to have an impact in the mainstream outlets in terms of journals and university presses. We argue that this is a defining year in the modern history of the Austrian school and that it reflected both the quality of work being done by the new generation as well as a methodological crisis within the mainstream of economic scholarship. Don Lavoie’s work in comparative economics, as well as his work in methodology, reflected this shift within the economic conversation.

Pete Boettke noted a “mind-blowing” surge of activity associated with Austrian economics in 1985. This was a lagged effect of the revival triggered by the South Royalton conference in 1974 and related things like Hayek taking a share of the Nobel Prize.  He cited Lawrence White’s book on free banking, O’Driscoll and Rizzo on the economics of time and ignorance, and Lavoie, with two books on central planning and his working paper on the “interpretive turn”.

“Optimism abounded for those of us contemplating a career in Austrian economics at the time. But there was a reality check, and that was the stranglehold over economics that formalism and positivism held.”

In the debate on economic calculation under socialism that von Mises and Hayek pursued through the ’20s into the ’30s the appeared that the Austrian case did not get traction in the community of economists due to “an unholy alliance of scientism and statism”.

They wrote that Lavoie wanted to get to the heart of the problem of methods in the human sciences because methodology determines the questions that people ask and the kind of answers that are considered to be good. They noted a rising tide of dissent from formalism and positivism during the early ’80s. McCloskey wrote a path-breaking article and book on the rhetoric of economics “a modern statement of the challenge to the scientistic pretensions of economics”. This followed the 1960s/70s debate in the philosophy of science when the old orthodoxy came under threat from Popper, Kuhn, Lakatos and Feberabend, plus Caldwell’s Beyond Positivism and Daniel Hausman’s  collection of papers on the philosophy of economics. One other factor in the mix was the way that socialism was “visibly crumbling from within” during this period, just before the Fall of the Wall. All of these developments sparked the hope that the “stalled revolution of thought from 1948 (Hayek’s Individualism and Economic Order) and 1949 (Mises’ Human Action) could perhaps finally be realized in 1985″. They chould have also mentioned Hayek’s The Counter-Revolution in Science (1952) for another critique of scientism.

The rationale behind Lavoie’s interpretive turn

Lavoie wanted to bring together three lines of thought (1) the growth of knowledge literature in the philosophy of science, (2) continental phenomenology and hermeneutics, and (3) Austrian praxeology. His home base was the Austrian framework of methodological individualism, subjectivism, methodological dualism and market process analysis.

But why hermeneutics! The authors explain that Lavoie had three reasons. First, we are committed to interpretation (hermeneutics) by virtue of working in a particular tradition – we understand where we are by understanding where we  have come from. Second, the Austrian tradtion, coming through Dilthey and Weber, is committed to a different approach from the natural sciences. Thirdly, Lavoie believed that hermeneutics (some times called POMO) was gaining ground in all the sciences.

Lavoie was very impressed by Richard Bernstein who saw the possibility of reconciling the three lines of thought noted above, and saw a way to develop the Austrian program on a more modern philosophical footing, taking into account advances in the philosophy of science that challenged positivism and logical empiricism in the mainstream of analytical philosophy.

Lavoie and his colleagues and students at the Center for the Study of Market Process talked about this project almost non-stop for 4 years – at lunch, often at dinner, in his office, in seminars, and in his classes. Even, we might add, at parties late into the night, or in visits to his home.

Lavoie was obsessed with the idea of an economics located between formalism and institutionalism (in the language of Richard Bernstein in Beyond Objectivism and Relativism). He believed that the latest developments in the philosophy of science were moving in that direction and could be taken no board, with hermeneutics, to support Austrian economics.

The academic landscape after 1985

Lavoie and his circle, especially Peter Boettke and David Prychitko, felt that in 1985 Lavoie and the modern Austrians had won the day. Socialism (real existing socialism) was crumbling, the elite thinkers in the philosophy of science  were turning away from formalism and positivism, Keynesianism was being overtaken by the new classical revolution, McCloskey in the profession had “unmasked the positivist face of economics”, Hayek, Buchanan and Coase scored  Nobel prizes.

But this turned out to be a false dawn. The situation was captured in an episode at a 1992 seminar when two authors making a case for the role of “apprciation theory” alongside “formal theory” were challenged by a “an open-minded and brilliant theorist”. They were making the case that the role and function of a firm could be better captured through understanding such things as tacit knowledge, routines and corporate culture, than through a formal mathematical model. The theorist flatly disagreed; formalism by definition is more intellectually satisfying because it ensures rigorous argument.

Lavoie was operating with the following three assumptions. (1) the philosophy of science has discredited scientism, (2) the failure of Keynesianism calls for a re-appraisal of Austrian economics, (3) continental philosophy supports Misesian praxeology, which lead to the conclusion that the Austrian methods represent a viable alternative and should be seriously considered (or reconsidered) by all economists. That did not happen because by and large economists utterly rejected (1) and (3) and were not all convinced about (2).

“In the years since 1985, economists have become less, not more, attentive to developments in philosophy…They model and measure”. The drivers are professional advancement by finding and keeping a job in a top-tier program.

Conclusion

Despite the hopes of Lavoie and his colleagues, very little has changed. They did not generate the kind of fundamental discussion about methods that they wanted , and very few economists were receptive to the methodological message, not even among Austrian economists. The range of methodological interests is too narrow. McCloskey spoke in terms of expanding the intellectual range of discussion from MN to the whole alphabet, A to Z! “This A-Z discourse in economics is what Don Lavoie agitated for throughout his career. We are still fighting for that reality to this day”.