Review: Austrian Economics – An Introduction by Steven Horwitz

June 27 saw the passing of economist Steven Horwitz at the age of 57. His loss will be felt by all who value not just human freedom and dignity, but also good economics, communicated well.

Horwitz was heavily influenced by the ‘Austrian School’ of economics. What this is and what it means are questions Horwitz tackled in his last book, Austrian Economics: An Introduction, published last year.

The school was founded by Carl Menger, an economist in Vienna, Austria, in the late 19th century. The origins of its name lie in a dispute over methodology and the story of its rise to prominence lies in the ‘marginalist’ revolution in economics in the 1870s. Both involve fundamental questions of economics, but they might be heavy going for the moment. Suffice it to say that from these origins a rich and profound body of inquiry and insight has emerged.

Horwitz explains that:

For Menger, economics was the study of how humans possessing limited knowledge and facing an uncertain future attempted to improve their well-being by figuring out what they wanted and how best to get it.

In an article titled ‘On the Origin of Money,’ Menger explained how money, which is a very useful institution, evolved: it wasn’t created. This led him to ask, in his book Investigations into the Methods of the Social Sciences, what is sometimes called the “Mengerian question”:

How can it be that institutions which serve the common welfare and are extremely significant for its development come into being without a common will directed toward establishing them?

In his excellent book Hayek’s Modern Family: Classical Liberalism and the Evolution of Social Institutions, Horwitz applied this analysis to the evolution of the family. As Horwitz notes:

This explanatory strategy, later termed “spontaneous order theory,” is also at the heart of modern Austrian economics. Understanding how social phenomena are the unintended outcomes of human choice filtered through various social institutions is the analytical technique Austrians use to do economics and social science. Spontaneous order explanations rest on the concepts of subjectivism and limited knowledge noted earlier. It is precisely because our knowledge is partial and local that we rely on social institutions, rather than the intelligent design and control of experts, to coordinate our behavior. This claim has broad implications for issues in political economy as well as for the nature of economics as a discipline.

In a review of Hayek’s Modern Family, I noted that:

Professor Horwitz’s book is a worthy addition to that tradition, pushing the Austrian School’s analytical tools into new areas. Let us hope these promising new avenues are explored.

Austrian Economics: An Introduction is as good a guide to this framework as there is. While there is sadness that it will not be Professor Horwitz himself who will be pursuing that work, we can take comfort in knowing that those who come after him will have a bright light on their path.

John Phelan is an economist at the Center of the American Experiment and fellow of the Cobden Centre.