[Originally published as 'Economic Science and Neoclassicism' in the Review of Austrian Economics: Winter 1999]
One of the few schools of economic thought that has consistently adhered to the postulate of economic realism is the Austrian School.1 It is therefore welcome that Bryan Caplan (1999) critically evaluated the tenets of the Austrians in a recent article.2 He concentrated on the writings of Ludwig von Mises and Murray N. Rothbard. The works of these two authors represent in his eyes a truly alternative paradigm within the economics profession, whereas the work of other Austrian scholars—in particular, Hayek, Kirzner, and their followers—has to be seen as complementary to, rather than altogether different from, today’s neoclassical mainstream.
Caplan arrives at the startling conclusion that the Austrian approach, despite the efforts of its authors, is less realistic than the neoclassical approach that flourished in the age of benign neglect for realism. A discussion of these views is highly useful given the growing interest in economic realism. In this article, we will show that Caplan fails to identify the important differences between Austrian and neoclassical economics. Caplan’s errors seem all to be rooted in his failure to grasp that Austrian economics is a theory of action (praxeology) rather than some kind of applied psychology. We will therefore briefly characterize the praxeological approach toward the explanation of human behavior and then discuss Caplan’s main tenets in some detail.
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