Department of Economics, Indiana Wesleyan University, Marion IN, 46953, USA
An earlier version of this paper was presented at Southern Economic Association
Meeting, San Antonio, TX., November 2003. Thanks to Richard Ebeling, James Rolph
Edwards, Willem van DeMerwe, Bradford Sample, Allan Schmid for useful suggestions.
The usual caveat applies.
Austrians, and a few non-Austrians, readily agree that the market is not a place but a
But what kind of a process is it? Could it be that there are several processes
taking place simultaneously in the market? That granted, could it be that these processes
make the very idea of equilibrium analysis totally irrelevant? Could it be that in such
disequilibria many people
end up dissatisfied with the market outcomes?
We can start with some definitions. Building on a phenomenological philosophy,
define the exchange process as the essence of the market, and diverse, unique human
needs as the essence of all exchange. No human is self-sufficient, we all depend on each
other, and that makes the whole process highly complex.
This complexity has been
treated in two different ways: mathematically and logically. The mathematical approach
has emphasized model building, the logical approach the understanding of the market
One of the founding fathers of neoclassical economics,
and definitely the father of
Austrian economics, Carl Menger, considered the market as a process and was not
concerned much with how to build a mathematically consistent model, but more with the
explanation of human needs and the resulting desire to satisfy them.
phenomena are, for Menger (1883, 1995:139), nothing but “the unintended result of
innumerable efforts of economic subjects pursuing individual interests.” His theory of
value, starting with “the subjective valuations of individuals concerning the usefulness of
Ludwig von Mises (1966:257-258): “The market is not a place, a thing, or a collective entity. The
market is a process…” Israel Kirzner (1979:3): “A characteristic feature of the Austrian approach to
economic theory is its emphasis on the market as a
Among the many definitions of phenomenology, I here only mean to use it as an analysis or description of
cf. Littlechild (1986)
There is an ever increazsing number of economists who, justifiably in my opinion, deny that Menger was
For a phenomenological explanation of Menger’s methodology, see Sandye Gloria-Palermo: “Progress in
Austrian economics from Menger to Lachmann,” in Stephan Boehm
Is There Progress in Economics.