Menger’s causal-realist analysis in modern economics

Abstract

Carl Menger pioneered a unique theoretical research method which served as the foundation of the early Austrian school of economics. Menger’s causal-realist analysis was revived and formalized just before and after World War 2 by Ludwig von Mises as the “praxeological method.” Murray Rothbard, a student of von Mises’, utilized the method in formulating a comprehensive system of economic theory in his treatise, Man Economy, and State published in the early 1960s. Rothbard’s treatise became the foundational work for the “Austrian revival” in the 1970s. In this paper, we address several issues related to the role of Menger’s method in modern economics. First, ample evidence is adduced that von Mises and Rothbard each expressed a surprising ambivalence with respect to his own work in relation to the early Austrian school. Second, von Mises viewed Rothbard’s treatise as beginning a new epoch in economic theory. Third, contrary to the conventional view, a careful analysis of his treatise shows that Rothbard drew heavily on the contemporary neoclassical literature in developing his theoretical system and that his intent was never to set up a heterodox movement to challenge mainstream economics. Rather, his main aim was to consistently apply the praxeological method to rescue economics from what he considered the alien methodology of positivism, which was imported into economics after World War 2. Lastly, I will tentatively suggest that the term “Austrian economics” as the designation for the intellectual movement that coalesced in the early 1970s may now have outlived its usefulness. This term, which initially served an important strategic purpose in promoting the revival of the broad Mengerian tradition, may have come to obscure the meaning and importance of the praxeological research paradigm that Menger originated.