George Selgin, economist of the Austrian School, is a present-day defender of Austrian Economics against the ideas of the “radical subjectivists.” The radical subjectivists—inspired by Ludwig Lachmann and G.L.S. Shackle—are skeptical about the very efficacy and relevance of economic analysis; they doubt that action on the free market is equilibrating and question even individuals’ ability to accurately predict the future and coordinate information. Selgin responds to their criticisms in “Praxeology and Understanding,” where he offers a defense of the foundations of Austrian Economics and thoroughly invalidates the radical subjectivists’ skepticism.

            At the beginning of his essay, Selgin spends much time reviewing Carl Menger’s debate with the German Historical School to suggest parallels between it and the current debate between Misesian/Rothbardian Austrian economists and the radical subjectivists. The German Historical School’s skepticism—its denial of universal laws of economics and its denial of reason’s ability to give us universal, relevant knowledge about reality—is akin to the skepticism exhibited by radical subjectivists, who border on denying the validity of economics itself. On the other hand, Selgin’s position is rooted in the ideas of Menger—who championed the ability of reason to arrive at universal economic laws; Selgin points out similarities in the positions of Menger and Mises and the essentially alike nature of Menger’s Aristotelian essentialism and Mises’s apriorism—methods which arrive at nearly identical economic conclusions.  Selgin is defending a view of economics that he considers to follow firmly in the tradition of Menger and Mises. The radical subjectivists, meanwhile, are making some of the old arguments the German historicists used against Menger about how one can never explain economic reality theoretically. Selgin implies that if the radical subjectivists insist on their skepticism, they should at least not call themselves Austrians.

            Selgin views the market process as equilibrating, but his view of equilibrium differs from both the skeptical view of Ludwig Lachmann and the more traditional praxeological view of Israel Kirzner. Selgin alleges that both of these views are not consistently “subjectivist” enough—in the strictly delimited economic sense of the word “subjectivist.” For a solitary individual, all action is equilibrating, because it leads to the alleviation of felt uneasiness. The fact that individuals keep acting is a demonstration that equilibrium is never fully achieved, but it also demonstrates that equilibrium is constantly pursued via human action. When two individuals conduct voluntary exchanges with one another, equilibrium is the “final state of rest,” achieved when the exchanges cease. In the case of a marketplace with many individuals and indirect exchange, equilibrium is defined in terms of the subjective categories of entrepreneurial profit and loss. Unlike Kirzner, Selgin does not believe that profit and loss are “out there”—outside the mind of the economic actor. Rather, profits are tied to the actor’s values and expectations—and we can observe profit opportunities only by observing the very actions that eliminate them. Action must necessarily eliminate such profit opportunities—or else it would not have been undertaken. Thus, we know a priori that human action on the free market is equilibrating. Where there is action, the actor perceives a profit opportunity. Where there is no action, he perceives no such opportunity.

            For Selgin, general equilibrium is “a moving target.” People’s imagination of economic possibilities determines its location—and their actions then move them toward equilibrium, in an attempt to achieve the values they imagined. Yet—unless people are to become perfectly dull or perfectly content—general equilibrium can never be fully reached.

            Selgin makes a distinction between equilibration and coordination, however. Selgin does not think that the market process is necessarily coordinating. This, for Selgin, is an empirical question that praxeology alone cannot answer. Coordination is not a praxeological concept, since it does not follow from the nature of action itself. We can conceive of non-coordinating actions, and in order to understand which actions are coordinating, we need to resort to a common-sense method of specific understanding—a method employed by the historian. In order to figure out which actions are coordinating and which are not, economists must depart from being strict praxeologists and attribute specific ends and aspirations to individuals. They need to look at the actions of certain individuals as means and judge how effectively those means attain a given set of ends.

            A society in which coordination exists will be one in which actions are largely successful; they will attain the end they strived for. A progressing economy is an empirical indicator that markets can coordinate action. It requires that entrepreneurs can imagine profit opportunities and are neither perfectly dull nor perfectly content. Coordination also requires the existence of sufficient foresight to be able to effectively anticipate the future in the absence of one’s action and the alternate future in the presence of one’s action. That is, successfully acting requires some idea of the consequences one’s action will bring about. In a “kaleidic” future—which the radical subjectivists posit—economic progress and coordination are impossible, because it is impossible to predict any results of one’s actions, and actors’ “purpose” is a mere illusion. Thus, the existence of economic progress is a clear refutation of the “kaleidic future” idea.

            For Selgin, market prices are necessary for coordination, but not necessarily sufficient. Only when there is both a price mechanism and a general correctness about anticipations of the future (knowledge of “social causation”) can there be market coordination. Yet Selgin makes a solid case for how free-market activity is necessarily equilibrating and empirically coordinating—as shown by the evidence of economic progress in our time.

G. Stolyarov II is a science fiction novelist, independent filosofical essayist, poet, amateur mathematician, composer, contributor to Enter Stage Right, Le Quebecois Libre, and the Ludwig von Mises Institute, Senior Writer for The Liberal Institute, and Editor-in-Chief of The Rational Argumentator, a magazine championing the principles of reason, rights, and progress. His newest science fiction novel is Eden against the Colossus. His latest non-fiction treatise is A Rational Cosmology. Mr. Stolyarov can be contacted at gennadystolyarovii@yahoo.com.

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