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This review discusses the unique features of Austrian economics and some of the recent contributions of this school of thought. We organize these contributions in different research “buckets” in the hope that this will be a useful guide to readers while demonstrating the ongoing relevance of the contemporary Austrian school of economics for advancing scientific discourse. The research buckets discussed include robust political economy, macroeconomics, monetary economics, entrepreneurship and the market process, development economics, behavioral economics, governance, social economy, collective action challenges related to natural disaster recovery and infectious disease, and war and defense. Expected final online publication date for the Annual Review of Economics, Volume 15 is August 2023. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

Using economic reasoning, Julian Simon offered crucial insights into a range of pressing issues including the environment, immigration, and economic development. The main lesson from Simon’s scholarship is that the ultimate resource does not reside in the ground (natural resources), or even in the accumulated wisdom and knowledge in books and scientific journals (human capital), but in the imagination of people. Through their purposeful actions, people turn their thoughts and aspiration into a new reality that enables immense improvements in the human condition. In making this argument, Simon articulated the core ideas of Ludwig von Mises, F.A. Hayek, and Israel Kirzner regarding the discovery and use of knowledge in society, and the role of entrepreneurship as the prime mover of progress. This paper makes this intellectual connection clear.

Macroeconomic theories picture the economy as a phenomenon tractable by their analysis and thus manageable by macroeconomic policies guided by this analysis. This approach has withstood recurrent policy failures, competing theories and several changes of policy paradigms, from Keynesianism to monetarism, because the development of economics as a discipline has been entangled with the demand from policymakers to receive clear macroeconomic policy prescriptions from the expert community. The idea that policymakers can steer the economy in a desired direction relies upon the development of theories with prescriptive and predictive claims, which, in turn, rely on a great deal of analytic reductionism. As a result, reductionist theories continue to offer misrepresentations of the macro phenomenon, particularly by overlooking how policy interventions generate diverse and intractable micro-adaptations that develop into undesired, unforeseen and unintended system-level consequences. This trend continues to cause trouble: reductionist macroeconomic theories foster overconfident interventionist policies that contribute to macroeconomic instability.

L’objet de cet article est d’etudier la maniere dont la recherche s’est organisee au sein des deux centres qui ont joue un role fondamental a la creation, l’emergence et le developpement de l’ecole d’economie politique de Virginie (VPE) : Le Thomas Jefferson Center for Studies in Political Economy and Social Philosophy (Universite de Virginie) et le Center for the Study of Public Choice (Institut Polytechnique de Virginie et Universite George Mason). Nous analysons le role joue par les ateliers, seminaires et conferences. Nous nous basons sur des elements d’archives qui n’avaient pas ete utilises dans les precedents histoires racontees sur VPE. Nous insistons aussi sur le role joue par James Buchanan, dont les idees sont indissociables de VPE. Une histoire de VPE peut, en effet, difficilement etre racontee sans faire une grande place a Buchanan.

This paper evaluates the contribution of Risk, Uncertainty, and Profit to the development of economic theory in the 20th century. Our argument in this paper is twofold. First, we contend that this book embodied what had been the common knowledge of early neoclassical economics prior to World War II (WWII). Second, we also argue that embryonic to Knight's account of economics were two divergent approaches to economic thought that emerged after WWII. The first approach, what has come to be known as microeconomics, is characterized by utility maximization under fixed price, income, and institutional parameters that approximate equilibrium. This first approach is distinct from a second approach, referred to as price theory, in which prices are not sufficient statistics, as in microeconomics, but operate as guides to consumption and production decisions under alternative institutional arrangements. This second approach not only represented the continuation of the mainline1 of economic thought from its classical and early neoclassical roots. It also embodies the basis for Knight's understanding of uncertainty, profit and entrepreneurship, as well as its implications for economic organization and social progress.

Perhaps the most important element of James Buchanan’s contribution to constitutional economics is his differentiation between pre- and post-constitutional levels of decision-making. At first glance, a tension may appear between those two levels of analysis. In one, the rules by which we live are up for debate, allowing us to exercise our creative and imaginative capabilities in constitutional construction. In the other, the rules are viewed as fixed, and we are left simply to treat them as constraints. This paper explores three key elements of Buchanan’s thought that allow him to navigate successfully between the two levels. The first is the importance of “the relatively absolute absolute”, a concept learned from his mentor, Frank Knight. The second is Buchanan’s approach to “truth judgments” in politics, and their status in our political discussions. Third, we draw on Buchanan’s insights in his 1959 paper “Positive Economics, Welfare Economics, and Political Economy” to show how political economists should participate in this decision-making process—not as expert philosopher-kings, but as co-equals with their fellow citizens. Finally, we illustrate Buchanan’s system of thought in action by presenting two case studies: Virginia education policy in the wake of Brown v. Board of Education, and the 1928 Supreme Court ruling in Miller v. Schoene.

Using archival material from the Thomas Jefferson Center for the Study of Political Economy and first-person recollections from relevant figures, we reconstruct James M. Buchanan’s mission (in partnership with G. Warren Nutter) to “save the books” in the related but distinct disciplines of economics and political economy. From his graduate days at the University of Chicago in the late 1940s, Buchanan was worried about dominant trends in mainstream economics which would carry the field away from its core. In particular, Buchanan was worried that political economy was becoming unmoored from the types of philosophic and institutional analysis which were previously central to the field. In its flight from reality, Buchanan feared economics was in danger of abandoning social-philosophic issues for exclusively technical questions. More than this, Buchanan feared that economists were asserting their authority as benevolent social planners. In response to these fears, Buchanan sought to (re)create an economics which would balance the science of economics and the art of political economy—an economics which began with an explicit commitment to democracy and would integrate philosophy, institutional thinking, and technical, price-theoretic economics, into a coherent working paradigm for research and graduate education.

James M. Buchanan argued that not only the study of public choice, but also property-rights economics as well as law and economics, can be traced directly to the work of scholars associated with the Thomas Jefferson Center for Studies in Political Economy and Social Philosophy at the University of Virginia (UVA). We draw attention to that point by raising the following question: what was the common knowledge at UVA that made it uniquely suited for the development of each of those related, yet distinct subdisciplines of political economy? Fundamentally, the answer is the unique combination of Chicago price theory and London School of Economics cost theory developed at UVA, where opportunity costs were regarded not as constraints to which individuals passively respond. Rather, they are the reciprocal of the act of choice itself. That subtle distinction has significant implications not only for public policy, but, what is more important, the proper scale and of governmental responses to market failures. The unique combination of the Chicago and London schools was central to the development of a neglected branch of price theory at the University of Virginia.

Hayek often said that his 1937 paper – “Economics and Knowl- edge” -- was a subtle rebuke of Mises’s apriorism. Not, as many might want to believe, in some root and branch fashion, but in the realm of applied theory of which the study of the market economy is to be included. The realm of pure theory – or what Hayek calls the “Pure Logic of Choice” or in other places he calls “The Eco- nomic Calculus” – the essential building block of economic analy- sis reflects the Misesian (or actually Mengerian) position, and more or less the epistemological status of the pure theory aspect of praxeology is upheld by Hayek. As he put it in a much later essay, there is a “Primacy of the Abstract.” And, one must always remem- ber that Mises’s claim is not that he was unique in this endeavor either. As he put it: “In asserting the a priori character of praxeology we are not drafting a plan for a future new science different from the tradi- tional sciences of human action. We do not maintain that the theo- retical science of human action should be aprioristic, but that this it is, and always has been so.” (1949, 40) I believe the most scientifically productive reading of Hayek’s 1937 paper is as a clarification of the Misesian project with respect to the study of the market economy – or what both Mises and Hayek called “catallactics”. And, in catallactics the pure logic of choice is a necessary component, but not a sufficient one for a full explana- tion. We must, in our quest for a full explanation explore how alter- native institutional arrangements impact the learning of individuals within that system. In this way we move from the pure logic of choice to the situational logic of organizations to the study of the exchange order, and with that productive specialization, peaceful social cooperation, and the entrepreneurial function as an agent of change. This is how I would read the passages in Hayek (1937, 34ff) where he argues that the pure logic of choice is not directly applicable to the explanation of social relations. Equilib- rium for individual choosers, in other words, is quite different from equilibrium achieved by dispersed and diverse individuals. The first is a necessary part of the explanation, but to achieve the sort of dovetailing of plans that defines the equilibrium state in the social relations of the market we must be able to explore how “under certain conditions, the knowledge and intentions of the different members of society are supposed to come more and more into agreement, or, to put the same thing in less general and less exact but more concrete terms, that the expectations of the people and particularly of the entrepreneurs will become more and more correct.” (1937, 45) It is in this manner that economics, Hayek argues, ceases to become purely an exercise in pure logic, and becomes in a sense an empirical science.3 It is in the study of how alternative institutional environments influence the behavior of individuals and how that in turn impacts the ability of these individuals to realize the gains from social cooperation under the division of labor. And the behav- ior we must focus our analytical attention on, is how they acquire and utilize the knowledge dispersed throughout the system, in other words how they learn how best to orient their actions with others so as to achieve a coordination of plans that defines the equilibrium of the system.

What explains the simultaneous critiques of economic theory and liberalism during the 1930s? Early neoclassical economists had a common understanding of the proper institutional context undergirding a liberal market order. From the marginal revolution emerged a growing emphasis on analyzing markets as equilibrium states rather than processes. Because the institutions that frame a liberal market order were taken as given, to the point of relative neglect, this resulted in the notion that markets operated in an institutional vacuum. The resulting association of liberalism with laissez-faire, therefore, prompted a restatement of the role institutions play in the operation of a liberal market order.

We argue that the policy response to the COVID‐19 pandemic by all levels of government around the world is not consistent with recommendations from standard welfare economics. Thus, it is important to ask why such policies have been adopted. That opens the door to examining the political economy of the COVID‐19 pandemic. This requires examining the incentives and information that confront policymakers and voters and the institutional environments that shape their incentives and information. This lead article frames questions addressed in the remainder of the symposium.

Analytical anarchism is a subset of political economy that takes neither rules as given nor assumes that monopoly enforcement of such rules exists. This approach is the positive study of endogenous rule formation by individuals within a particular society. Such rules emerge out of the self-interest of such individuals, though not necessarily from any deliberate design. We outline and explain two theoretical approaches that have been used to illustrate various historical cases of anarchism across time and place. We distinguish between an exclusionary approach to analytical anarchism and an inclusionary approach to analytical anarchism. Though these two approaches are not mutually exclusive, they are distinct from each other, in that they illustrate alternative mechanisms under which the conditions of anarchy can be relatively peaceful and productive.

We argue in this chapter that the transformation in the vision of economics from one in terms of processes to one in terms of equilibrium would in turn yielded public policy implications regarding the role of government and distributive justice. Although classical political economists had made a case regarding the institutional justice of the market process, this argument became overshadowed in the late 19th century and early 20th century by early neoclassical economists, who defended the market in terms of the equilibrium pricing of factor payments. Justice according to the early neoclassical economists was defined in terms of market outcomes that approximate the marginal valuation of the productive contribution of each factor of production. The persistence of this equilibrium paradigm today, among both proponents and critics of the market, has led to the notion that income equality is a substitute, not a complement to economic prosperity.