ABSTRACT
One criterion for assessing the significance of a school of thought in economics is to ask, “What problems can it solve with the tools that it has developed?” This question has long haunted the proponents of the modern Austrian school. During the 1970s and 1980s, Israel Kirzner, Ludwig Lachmann, and their students offered their readers (1) lengthy discussions about the subjectivist underpinnings of market behavior, and (2) exhaustive discussions of what it means to claim that markets “coordinate” the economic behavior of private individuals and the behavior of the associations to which they belong (Kirzner 1973, 1976, 1985a, 1986, 1992; Lachmann 1973, 1976, 1977). In the eyes of the rest of the economics profession it appeared that modern Austrians were unable and perhaps entirely unwilling to provide any specific analytic tools that might help predict and control the outcome of the market process.1 This may explain why modern Austrians have earned a reputation as “methodologists” and have received little recognition for their practice of normal science. Modern Austrians do indeed attach greater importance to a cultivated and sophisticated understanding and appreciation of the market process than they do to “mere” prediction and control (see Dolan 1976; Vaughn 1994). This, however, is a matter of personal preference and not one of logical necessity. Indeed, there is an applied side to the teachings of the modern Austrian school that sometimes is unnoticed. I shall emphasize this aspect of the Austrian contribution here.
