ABSTRACT
As briefly surveyed earlier, neoclassical approaches to the issue of microfoundations of macroeconomics usually begin by constructing some sort of utility maximization/equilibrium model (incorporating rational expectations) and then proceed to show how various macroeconomic phenomena can be derived from that microeconomic model. Because of the wide acceptance of general equilibrium theory, most mainstream discussions of microfoundations spend relatively little time exploring exactly what should constitute those foundations; it is assumed that an equilibrium model is the way to do it. By contrast, one of the defining features of late twentiethcentury Austrian economics is its rejection of Walrasian equilibrium theory as the proper theoretical framework for understanding the market process. Rather than Walras, modern Austrian economics begins with another of the marginalist revolutionaries, Carl Menger. An Austrian approach to the microfoundations of macroeconomics will be essentially Mengerian in its emphasis on knowledge, process, and subjectivism.1 This chapter’s task is to lay out these Austrian microfoundations and highlight some of the aspects of the Austrian approach that will be central to providing the microeconomic answers to the macroeconomic questions discussed in the later chapters.
