Neoclassical Economics and the Market Economy

The various schools of economic theory that flourished around the turn of the century, and which are generally included under the broad umbrella of neoclassical economics, came to understand the market economy in a way which is still die core perspective within modern (non-Austrian) microeconomics. This perspective came to see the phenomena of the market as the determinate expression of (a) individual decisions made in rational, utility-maximizing or profit-maximizing fashion, and (b) a pattern of interaction among these rational, individual decisions, such that all of them can be simultaneously and successfully executed without disappointment and without regret. Hie roots of this perspective can be seen, in principle, in Menger's GrundsĂ tze, as well as in Walras's Elements. As Austrian economics developed in the decade immediately following World War I, die followers of Menger's tradition indeed tended to believe that their economics was, at least in substance (as distinct from the technique of its exposition), not significandy different from that of the Walrasian tradition.

It was to be die Austrian-influenced work of Lionel Rabbins that, in his 1932 book, would introduce this continental perspective to the British (and thus eventually to the Anglo-American) mainstream. It thus became easy for the Austrians of the

1920s gradually to fall into the habit of seeing their theory of market prices as being primarily the theory of equilibrium price. It was the Austrian Ewald Schams whom Lionel Robbins cited as die apparent originator of the term "comparative statics."1 As neoclassical economics progressed, it indeed became gradually identified as almost exclusively concerned with equilibrium analysis (and especially with the equilibrium economics of the perfecdy competitive model—of which more will be discussed later in this chapter.) A concentration on equilibrium tends to divert analytical attention away from die process of equilibration. In Frank Machovec's opinion, the course of neoclassical economics during the first four decades of this century indeed saw its transformation from a theory of process to one of (per-fectly competitive) equilibrium.2 Mises never accepted, nor did he play a role in, any such transformation.

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