Knowledge and Beliefs in Economics: The Case of the Austrian Tradition

Abstract

The Austrians contributed to the analysis of the impact of individual knowledge and beliefs on economic activity more than any other School in the history of economic thought. This statement should not surprise the reader. The founding fathers of this school are strongly associated with a subjectivist conception of economics, in which cognitive capacities and the level of information of individual agents play an essential role in the explanation of their decision-making processes. They also spent a signifi cant amount of time researching topics that are of the utmost importance to anyone interested in the role played by knowledge and beliefs in economics: Menger dedicated a lot of attention to the problem of the emergence of institutions and behavioural rules and placed great emphasis on the role played by the process of diffusion of beliefs within this context; Böhm-Bawerk dealt with the frontiers of pure economic theory and was interested in the impact of power and social relations on economic activity (Böhm-Bawerk 1914). As for Wieser, he built a real economic sociology approach and underlined the infl uence of organizational and social interactions in this context. In this chapter, we shall concentrate on the second generation of Austrian economists, in particular on the contributions of von Mises, Hayek and Schumpeter who, despite developing very different approaches, shared many features of the intellectual vein of the founding fathers of the School. At fi rst sight, the subjectivist stance of most Austrian authors suggests that they attached importance to the role of individual beliefs in economic activity. It also suggests that these economists were reluctant to deal with social norms or collective beliefs. We will, however, show that their approaches are more complex than might appear at fi rst sight. On the one hand, von Mises, Hayek and Schumpeter had divergent views of individual decision-making processes. On the other hand, and insofar

Hayek on expectations: the interplay between two complex systems

“…Similar to common perception abilities, knowledge of society overcomes the limit of strict subjectivism by creating a space for a relatively autonomous objective reference. Alternatively, knowledge of society can be seen as a positive externality from all the particular individual knowledge stemming from social interactions (Arena and Festré, 2006). Fleetwood (1997, 170) qualifies this interpretation, noting that by drawing upon this kind of collective knowledge, "agents avail themselves of the collective wisdom of an evolving society, and are thereby enabled to initiate socioeconomic activity, although they can never know or articulate this collective wisdom".…”