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  • The Online Library of LibertyA Project Of Liberty Fund, Inc.

    Edwin G. Dolan, The Foundations ofModern Austrian Economics [1976]

    The Online Library Of LibertyThis E-Book (PDF format) is published by Liberty Fund, Inc., aprivate, non-profit, educational foundation established in 1960 toencourage study of the ideal of a society of free and responsibleindividuals. 2010 was the 50th anniversary year of the founding ofLiberty Fund.

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    Online Library of Liberty: The Foundations of Modern Austrian Economics

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  • Edition Used:

    The Foundations of Modern Austrian Economics, ed. with anIntroduction by Edwin G. Dolan (Kansas City: Sheed and Ward,1976).

    Editor: Edwin G. DolanAuthor: Murray N. RothbardAuthor: Israel M. KirznerAuthor: Ludwig M. LachmannAuthor: Gerald P. ODriscoll

    About This Title:

    A volume in the collection Studies in Economic Theory firstpublished by the Institute for Humane Studies. This is a collectionof papers given at a conference on Austrian economics in June1974. They cover the uniqueness of the Austrian tradition, paperson praxeology and method, the history of Austrian school, capitaltheory, theory of money, inflation, and the market process. Thepapers are by Edwin G. Dolan, Murray Rothbard, Israel Kirzner,Ludwig Lachmann, Gerald ODriscoll, and Sudha Shenoy.

    Online Library of Liberty: The Foundations of Modern Austrian Economics

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  • About Liberty Fund:

    Liberty Fund, Inc. is a private, educational foundation establishedto encourage the study of the ideal of a society of free andresponsible individuals.

    Copyright Information:

    This work is copyrighted by the Institute for Humane Studies,George Mason University, Fairfax, Virginia, and is put online withtheir permission.

    Fair Use Statement:

    This material is put online to further the educational goals ofLiberty Fund, Inc. Unless otherwise stated in the CopyrightInformation section above, this material may be used freely foreducational and academic purposes. It may not be used in any wayfor profit.

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  • Table Of Contents

    Edwin G. Dolan, PrefacePart 1: IntroductionEdwin G. Dolan, Austrian Economics As Extraordinary SciencePart 2: Theory and MethodMurray N. Rothbard, Praxeology: the Methodology of Austrian

    EconomicsIsrael M. Kirzner, On the Method of Austrian EconomicsMurray N. Rothbard, New Light On the Prehistory of the

    Austrian SchoolIsrael M. Kirzner, Philosophical and Ethical Implications of

    Austrian EconomicsMurray N. Rothbard, Praxeology, Value Judgments, and Public

    PolicyPart 3: ApplicationsIsrael M. Kirzner, Equilibrium Versus Market ProcessLudwig M. Lachmann, On the Central Concept of Austrian

    Economics: Market ProcessIsrael M. Kirzner, the Theory of CapitalLudwig M. Lachmann, On Austrian Capital TheoryLudwig M. Lachmann, Toward a Critique of MacroeconomicsMurray N. Rothbard, the Austrian Theory of MoneyGerry P. Odriscoll, Jr., and Sudhra R. Shenoy, Inflation,

    Recession, and StagflationPart 4: ConclusionLudwig M. Lachmann, Austrian Economics In the Age of the

    Neo-ricardian CounterrevolutionContributors

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  • [Back to Table of Contents]

    PREFACEIn June 1974 the Institute for Humane Studies sponsored the firstof a series of conferences on Austrian economics. This conferencewas held at Royalton College in South Royalton, Vermont, andattracted some fifty participants from all regions of the UnitedStates and three continents abroad. The conferees came to hearIsrael M. Kirzner, Ludwig M. Lachmann, and Murray N. Rothbardsurvey the fundamentals of modern Austrian economics andthereby challenge the Keynesian-neoclassical orthodoxy, which hasdominated economic science since World War II.

    Each lecturer addressed himself to two general questions: What isthe distinctive Austrian contribution to economic theory? And whatare the important problems and new directions for Austrianeconomics today? By answering these questions, the paperscollected in this volume become more than just a set of conferenceproceedingsthey take on the character of a manifesto andprovisional textbook as well.

    The enthusiastic response to the South Royalton conferencesuggests that the century-old Austrian tradition is now entering anew era of increasing influence. Both the Austrian school and itsorthodox competitor trace their origins to the restructuring ofeconomic science that took place in the 1870s. The marginalistrevolution of that period, which marked the breakdown of theclassical economics established by Adam Smith, David Ricardo, andJohn Stuart Mill, was followed by the appearance of a number ofnew schools of economics in England and on the Continent. Thegreatest of the English economists of this period was AlfredMarshall. The so-called neoclassical school of Marshall and hisfollowers soon became the new orthodoxy. In the process itabsorbed the contributions of two other major schools that hadarisen independentlyone associated with William Stanley Jevonsin England and the other with Lon Walras in Switzerland.

    Meanwhile in Vienna the marginalist revolution was proceeding onanother front. In 1871 Carl Menger published his Grundstze derVolkswirtschaftslehre and, soon joined by Friederich von Wieserand Eugen von Bhm-Bawerk, established the Austrian school. TheAustrian school, although failing to achieve dominance in theinternational profession, retained its own identity and did notbecome wholly absorbed into neoclassicism. Throughout theremainder of the nineteenth century and into the twentieth, itcontinued to attract a small but vigorous stream of adherents,

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  • among whom the most distinguished were Ludwig von Mises andFriedrich A. Hayek.

    During the Great Depression neoclassical economics was deeplyshaken. The depth and duration of the economic crisis exceededthe expectations of orthodox theorists. Government policymakerswere unable to find adequate guidance in the textbooks of the day,and members of the economics profession cast about for a newtheoretical insight. The two major candidates for the leadershiprole were Hayek, the Austrian theoretician, and John MaynardKeynes, the most prominent of Marshall's pupils. By the end of thedecade of the thirties, the Keynesian system had attracted thegreatest number of adherents, and the Austrian school, after a briefperiod of prominence, was left to pursue an independent course inrelative obscurity.

    In the early postwar period neoclassicism proved its resilience andadaptability by gradually coalescing with the Keynesian school. Thework of Keynes, which at the time seemed so radical, was modifieduntil today economists like Paul Samuelson and Milton Friedman,once thought leaders of irreconcilable camps, share a commontheoretical basis for their research.

    The Kennedy-Johnson years were the heyday of the Keynesian-neoclassical synthesis in the United States. Keynesian and leadingneoclassical economists were installed to head advisory posts inWashington, D.C., and were confident of their ability to fine tunethe economy and render it free of depression forevermore. Now, inthe inflationary recession of the seventies, new doubts are raised,and new questions are being asked. The papers in this volume areaddressed to these doubts and questions, and economists of allacademic persuasions will profit from their reading.

    A number of institutions and individuals have contributed to thesuccess of the conference and the publication of the proceedings.First, thanks must go to the Institute for Humane Studies forproviding the necessary funding for both the conference and thepreparation of this volume. George Pearson and Kenneth Templetonof the Institute for Humane Studies were the prime movers of theconference from start to finish, and I am grateful to them fornaming me conference director and editor of t