Economics 333


For a Word version of this syllabus, click here.

Professor Steven Horwitz Spring 1999

T-Th 12:40 2:10 Hepburn 112
229-5731 (office)
379-9737 (home before 9pm)

Office Hours: W 2-4, Th 2:30-4, and by appointment

Email: Web:

This course is a broad introduction to the body of thought known as the Austrian school of economics. The Austrians flourished early in the 20th century, and were known for their critiques of equilibrium theory and econometrics as well as their opposition to Keynesianism and economic planning. These out-of-step views were responsible for their eventual downfall in the 1940s. Recently, there has been a revival of interest in the ideas of the Austrians. The Austrian conception of competition as a process of learning and discovery, its view of humans as actively entrepreneurial, and its emphasis on the problems created by poor monetary institutions have all received increasing attention by mainstream economists. We will try to understand what the Austrian approach is all about and how it compares to the economics you have learned in other courses here at SLU.

We'll approach the material historically for the most part. The course divides into two sections, with the first being the period from the founding of the school by Carl Menger in 1871 up until its near-death experience around World War II. The second section is what has become known as the "post-revival period." With the publication of Israel Kirzner's Competition and Entrepreneurship in 1973, and the awarding of the Nobel Prize to Hayek in 1974 (along with some other events, both historical and intellectual that we will discuss), the Austrian school began a revival that has continued to grow and flourish in the 25 or so years since then. We will explore in some detail the work of the post-revival Austrians and try to make some careful connections between the modern work and the early thinking that laid the groundwork for it.

Be forewarned: this course has a very heavy reading load and you will be expected to have the reading done ahead of time and to contribute in positive ways to class discussion. I intend to keep the lecturing to a minimum and to involve all of us in learning together as much as possible. In addition, the major mode of evaluation in here will be writing. You will be doing some regular informal writing as well as several major formal writing assignments. If you have trouble doing a large amount of complex reading and/or writing papers of a significant length that deal with such material, this is not the class for you. You will be expected to know the readings inside and out and you will be expected to write about them clearly and competently. This is an upper-level seminar and my expectations will be consistent with that fact.


Your grade in this course will be a combination of written work, oral presentations, and class participation/attendance. There will be two topic papers, 7 to 10 pages each, worth 15% of your final grade each. These will be based on topics I hand out in class. You will likely have some choice about which precise topic you will be writing on. One paper will cover the material up to and including week 4, while the other will cover weeks 5 through 7. You will also be required to rethink one of these papers. You may choose the one you wish to rethink, but keep in mind that I expect significant work on a second draft. If you wish to rewrite the first paper, you must decide to do so before the second paper is returned to you. As part of your process of rethinking you MUST schedule a writing conference with me, outside of class.

In addition, you will have to write a book review (25% of your grade) of some recent book addressing topics relevant to Austrian economics. This review will be 10 to 15 pages long, and will involve a process of writing a first draft and a final draft. I will provide you with a list of possible books you can read and write about fairly early on in the semester. As part of the process of writing the book review, you will be required to give a 10 minute oral presentation (10% of grade) to the class. That presentation should both convey the essential arguments of the book and your critical reflections about it. You will also be required to read and comment (5% of grade) on the first draft of someone else's book review, and someone else in the class will do the same for you. After the reviewer speaks, the commenter will have 5 minutes to discuss the paper.

You will also be required to keep an interactive electronic journal. This requires that you understand how to use email with software such as Netscape or Explorer or Eudora, as well as having access to Word 97 and knowing how to attach a Word file to an email. What will be required of you is to create a Word file that includes your reactions/responses to the readings or class discussion and send me that file once a week. I will comment on your responses and pose some questions and issues of my own. I expect serious thought and commentary in this journal, not just "I liked it/I hated it." Over the course of the semester, this file will grow and will, by the end, be an intellectual journal of your experience in this course, as well as a way for us to interact one-on-one. At the end of the semester, I will assign you a grade (15%) for the whole journal. Lastly, class participation and attendance will be closely monitored and will count for the remaining 15% of your grade.

Grading breakdown:

Paper #1 15%

Paper #2 15%

Book review 25%

Interactive electronic journal 15%

Class participation and attendance 15%

Oral presentation 10%

Oral comments on paper reviewed 5%


(B= Boettke, H=Hayek, K=Kirzner, V=Vaughn, others in reading packet)


1/26 1/28

Austrians in the history of economics V (1-2); B (1); Menger (1871: 2)

We begin with an overview of what the Austrian school of economics is and where they fit in the history of economic thought. The Boettke and Vaughn readings provide both overviews of the school and introductions to its early history. The chapter from Menger's Principles of Economics will give you a flavor for where it all began and will set the stage for the evolution of the school in the 125 years since then.

2/2 2/4

Methodology and philosophy
B (2-4, 6-8, 10, 11, 66)
H (1,3); B (28-30)

One of the distinct characteristics of the Austrian school is its methodological and philosophical approach to economics. It was born, as we saw, in a debate over the status of economics as a discipline and those issues continue to define the school up until the present day. The readings in this section explore a variety of complex issues in what determines the best ways to do economics. We will compare the Austrian approach with the way standard economics is done to see why the Austrians perceive themselves as so different and what implications those differences might have.

2/9 2/11

Utility and cost theory
B (12, 13, 16); Menger (1871: 3)
Money, capital and calculation
B (31); V (3)

During the early 20th century, the Austrian approach was the dominant one in the discipline of economics. Austrian work on utility, cost, and capital was at the forefront of economic thinking. The same was true of Mises's work on the theory of money and inflation as well as his work on economic calculation under socialism. In many ways, this work represents the high point of the Austrian influence over economics as a whole.

2/16 2/18

Austrian cycle theory in the 20s
B (32, 58, 62, 63); Mises (1912: 19)
Microeconomics between the wars
Kirzner (1994); B (18, 22)

During the 1920s and espeically the 1930s, the nature of economics began to change. Under the influence of various new philosophical ideas, plus the real world events surrounding the Great Depression, a new mathematically and statistically-oriented economics began to take shape. These ideas, especially when combined with an increasing distrust of the free market (based on the perception that markets were responsible for the depression), began to overshadow the Austrian approach. In this section, we'll explore what was going on in between the wars and how it affected the evolution of the Austrian school.

2/23 2/25

Socialist calculation debate
H (7, 8, 9); B (33, 69)
Lavoie (1985: 6); Horwitz (1998)

3/2 3/4

Hayek vs. Keynes
B (68); H (11); TBA
Hayek on knowledge
H (2, 4, 5)

3/9 3/11

Hayek on knowledge
B (14, 21, 25)
From exile to revival
V (4-5); Mises (1966: 14)

This three week stretch represents the core sequence of events that define the ground out of which the modern Austrian school has grown. During the 1930s and 40s, the Austrians were involved in two of the most famous and most important debates in the history of economics: the debate over the possibility of economic calculation under socialism and the debate between Hayek and Keynes over macroeconomics. In the eyes of the profession, the Austrians lost both of those debates. As a result, the Austrian school more or less died, with only a handful of Austrians left scattered about the world.

However, as a result of being frustrated by his inability to make others see his points during both debates, Hayek was led to think a great deal about what economics was all about and why the growing formalist trend in economics saw the world so differently from the way he did. The papers on knowledge that were written during this period represent some of the most important work of Hayek's career and in the history of Austrian economics, not to mention economics more broadly. The modern Austrian school derives directly out of this work and we will take a very close look at the arguments he was raising there and begin to compare them to how mainstream economics looks at the same issues. We will finish this section with a history of the "exile" years, between World War II and the early 70s, when the revival of Austrian economics begins.


3/23 3/25

Kirzner and entrepreneurship
K (1-3)
The Austrian market process
K (4-6)

3/30 4/1

Austrians and modern micro
B (15, 19, 20, 23, 24, 26, 35, 38, 42)
Equilibrium vs. order
Boettke, et al. (1986); V (6-7)

Much of the post-revival work in Austrian economics has been in microeconomics. The starting point for modern Austrian micro is Israel Kirzner's work on competition and entrepreneurship. His 1973 book that we will read is as responsible as any one book for the Austrian revival and the questions he raises there still continue to define the Austrian research agenda 25 years later. After a detailed look at Kirzner's book, we will spend a day looking at how the Austrian approach can be applied to a variety of issues and subdisciplines in modern microeconomics. Finally, we will tackle the one topic that has been the central debate in Austrian economics over the last decade or so: the question of whether it is necessary and possible to do economics without making use of the concept of equilibrium. This discussion will put us on the very cutting edge of modern Austrian microeconomics.

4/6 4/8

Austrian macroeconomics
Rothbard (1963: 1); Garrison (1978); B (75)
Garrison (1984, 1989); Horwitz (1999: 4)

Austrians do macroeconomics too, although work there is not as systematic nor as well-developed as is Austrian micro. Most of the work until the 1980s involved restatements of the Austrian theory of the business cycle. However, in the last 15 years or so, there has been some very good work comparing the Austrian approach to other schools of thought in macro. Austrian macroeconomists are also beginning to create a more systematic approach to the subject by bringing in some insights from pre-Keynesian macro and some related approaches in modern macroeconomics. For Austrians, macro must begin with micro. That is, all of macroeconomics is rooted in the microfoundations of the work we looked at above. The essential Austrian insight about the communicative role of prices forms the basis for Austrian macro. As Roger Garrison says, "there are macroconomic questions, but only microeconomic answers."

4/13 4/15

Political economy
Hayek (1973; 1977)
B (46, 49-57, 59-61)

One of the other things Austrian economists are noted for is a very strong devotion to the free market and to libertarian politics more broadly. With the collapse of socialism across the world, libertarian ideas and Hayek's work in particular, has garnered a great deal of attention in intellectual and public policy circles. We'll spend this week exploring Hayek's political philosophy and the ways in which Austrians have applied their economic ideas along with it to make the case for free markets and individual liberty. Of particular interest will be the linkages between libertarian political ideas and the distinct contributions of Austrian economics.

4/20 4/22

Austrians and modern economics
B (74, 77, 80-84)
The future of Austrian economics
V (8); B (87

We end with some discussion of the current state and future of the Austrian school. First we will do some explicit comparison between the Austrians and other major schools of thought in economics. Some of these will be familiar from other economics courses, but some may be new, so see this as a chance to learn about them. Then we will look at what Vaughn and Boettke think the future of Austrian economics looks like, or should look like. Based on our work this semester, we will try to draw some conclusions of our own.

4/27 4/29 Presentations

5/4 5/6 Presentations



Boettke, Peter J., ed. 1994. The Elgar Companion to Austrian Economics, Aldershot, UK: Edward Elgar.

Hayek, F. A.. 1948. Individualism and Economic Order, Chicago: The University of Chicago Press.

Kirzner, Israel M.. 1973. Competition and Entrepreneurship, Chicago: The University of Chicago Press.

Vaughn, Karen. 1994. Austrian Economics in America, New York: Cambridge University Press.


Boettke, Peter, Steven Horwitz and David L. Prychitko. 1986. "Beyond Equilibrium Economics: Reflections on the Uniqueness of the Austrian Tradition," reprinted in Peter Boettke and David L. Prychitko, eds., 1994, The Market Process: Essays in Contemporary Austrian Economics, Aldershot, UK: Edward Elgar.

Garrison, Roger. 1978. "Austrian Macroeconomics: A Diagrammatical Exposition," in Louis M. Spadaro, ed., New Directions in Austrian Economics, Kansas City: Sheed Andrews and McMeel.

_____________. 1984. "Time and Money: The Universals of Macroeconomic Theorizing," Journal of Macroeconomics 6, 2, Spring: 197-213.

_____________. 1989. "The Austrian Theory of the Business Cycle in the Light of Modern Macroeconomics," Review of Austrian Economics 3:3-29.

Hayek, F. A.. 1973. Law, Legislation, and Liberty, v. 1, Chicago: University of Chicago Press, chapter 2.

Hayek, F. A.. 1977. Law, Legislation, and Liberty, v. 2, Chicago: University of Chicago Press, chapter 10.

Horwitz, Steven. 1998. "Monetary Calculation and Mises's Critique of Planning," History of Political Economy 30, 3, Fall: 427-50.

______________. 1999. Microfoundations and Macroeconomics: An Austrian Perspective, New York: Routledge, forthcoming, chapter 4.

Kirzner, Israel M.. 1994. "Introduction," in Classics in Austrian Economics Vol. II, Israel M. Kirzner, ed., London: Pickering and Chatto.

Lavoie, Donald. 1985. Rivalry and Central Planning: The Socialist Calculation Debate Reconsidered, Cambridge: Cambridge University Press, chapter 6.

Menger, Carl.. 1981 [1871]. Principles of Economics, New York: New York University Press, chapters 2-3.

Mises, Ludwig von. 1966 [1949]. Human Action: A Treatise on Economics, Chicago: Henry Regnery, chapter 14.

________________. 1980 [1912]. The Theory of Money and Credit, Indianapolis, Ind.: Liberty Press, chapter 19.

Rothbard, Murray N.. 1963. America's Great Depression, New York: Richardson and Snyder, chapter 1.

This syllabus is to be viewed as a contract. I will adhere to the grading breakdown indicated here. Due dates will be established on assignment handouts. Late work will be penalized by 3 points per day unless arrangements are agreed to by me at least 48 hours in advance. Not being in class is not an excuse for missing assignments or due dates and finishing your reading or writing is not an excuse for missing class.