ABSTRACT
This chapter discusses a broad approach to economic theory that offers an alternative to general equilibrium, and that accounts for the roles of knowledge, rules, and the evolution of social and economic institutions. The theoretical framework that underlies the approach to economics to be explored is that of the Austrian school. The uniqueness of the Austrian approach is its focus on, and extensive development of, the subjective nature of economic phenomena. The most recent major developments in neoclassical economic theory stress the objective nature of two of the most important economic phenomena—knowledge and expectations. The concept of economic order encompasses more than just the coordination of economic activities. The rule of law cultivates order by allowing for creativity, complexity, and coordination. Striking a continual balance between flexibility and coherence characterizes both successful individual rules of action and social institutions. The advantage of rules and their crystallization into social institutions is that they lead to an extension of social order.
