Professor Peter Boettke
Department of Economics
George Mason University

Office: 324 Enterprise Hall
Austrian Theory of the Market Process II
Econ 881/Spring 2005
Mondays 4:30pm to 7:00pm
Rm. 318 Enterprise Hall


This class is designed for the graduate student who has decided to specialize in the area of market process economics and political economy. The readings are divided into three groupings: background for the class; classic works; and contemporary engagement. As a background for this class I have requested that students have read over the winter break Bruce Caldwell’s Hayek’s Challenge and Philip Mirowski’s Machine Dreams. The first and second lectures of the course will be devoted to these books and the history of 20th century economics that they present to the reader. We are reading history of thought to provide the context for modern theoretical and empirical developments and the opportunities for making contributions to modern economics and political economy. The focus of this class is not on arriving at a correct understanding of doctrine, and thus we will not be primarily engaged in doctrinal exegesis of classic texts in the Austrian School of Economics. It is assumed that students have read the Austrian works and understand the basic positions. We are, instead, focusing on a productive reading of these and other works that permits us to gain a better understanding of the economic forces at work in a modern society.

The classic works we are reading include Mises’s Human Action, Hayek’s Individualism and Economic Order, Rothbard’s Man, Economy and State, Shackle’s Epistemics and Economics, and Kirzner’s Competition and Entrepreneurship. To contrast the market process contribution we are also reading from the definitive work in mid-century economics from Paul Samuelson – both his Foundations of Economic Analysis and Economics. Samuelson from the 1940s to 1970s controlled both the educational agenda in undergraduate and graduate economics. Thus, the gap between Samuelsonian economics and market process economics is our starting point. We will then explore the evolution of economic thought from that time forward. It is my contention that the history of modern economics is best understood as the move away from Samuelson and toward Mises --- though this is largely unrecognized within our profession. I want us to critically engage my hypothesis and draw out the implications for carving out a research and educational niche in the contemporary profession for those of you entering into the research community.

The books of contemporary engagement that I have selected are from authors who challenged the Samuelsonian edifice in one way or another, and have in effect moved the professional discourse in a direction more inclined to the Mises/Hayek research program as set out in the 1940s. These include Buchanan and Wagner’s Democracy in Deficit, Schelling’s Micromotives and Macrobehavior, Hoover’s New Classical Macroeconomics, Lucas’s Lectures on Economic Growth, Milgrom and Robert’s Economics, Organization and Management, Smith’s Constructivist and Ecological Rationality in Economics, and North’s Understanding the Process of Economic Change. In addition, I will have articles from journals (including the Review of Austrian Economics which you should all browse through to get a sense of the literature … … and selections from books published in ‘The Foundations of the Market Society’ that is the premier book series in Austrian economics edited by Mario Rizzo and Lawrence White).

The reading for this class is quite demanding as you are expected to master not only classic texts, but the secondary interpretative literature that surrounds them, and relate that to modern developments in economics. Don’t fall behind on the readings as this is your chance to really invest in learning a literature that will stay with you the rest of your career. I am, for example, still writing papers that were first put to me by my professors in graduate school and I hope that you will say the same thing about this class 20 years from now.




January 24

The End of the 19th Century as the End of Political Economy and the Birth of Economics

Caldwell, 17-130; 143-260

Leonard 1998

Endres 1997

Boettke 2005a

January 31

From Logical Rigor to Hyper-Formalism in Economics

Mirowski 1-25; 153-436

Boulding 1948

Boettke 1997

Boettke, Coyne and Leeson 2003

February 7

The “Austrian” Theory of the Market Economy and the Classical Liberal Order

Mises, 143-176; 232-326;

Hayek 1-56; 77-106;

Rothbard 201-272; 463-501; 560-660;

Kirzner 1-134; 212-242.

Kirzner 1997

Boettke 1998

Boettke 2002

Boettke and Leeson 2003a


February 14

The End of Laissez Faire: Micro Inefficiency and Macro Instability

Samuelson, Economics, 3-11; 150-184; 393-443; 584-605.

Samueslon, Foundations, 3-20; 203-253.

Cowen, ed., 1988, 1-66.

Machovec 1995

Ikeda 1997, 31-54.

Nelson 2001, 52-112.

February 21

Letting the Second Singer Sing: The Death of Romance in Politics

Buchanan and Wagner, 3-9; 38-149.

Shepsle and Weingast 1984

Murphy, Shleifer and Vishny 1993

Shleifer and Vishny 1994

Shleifer 1998

RAE , 15 (2-3) 2002

Boettke and Leeson 2003b

February 28

Macroeconomic Problems, but only microeconomic solutions


Mises, 479-586; Rothbard, 273-559; 661-764.

Selgin 1994

Cowen 1997, 1-12; 76-114.

Garrison 2001

Horwitz 2000a, 65-202.

March 7

Subjectivism and the Meaning of Economic Processes


Mises, 11-142; Hayek, 57-76; Lachmann 1976; Buchanan 1969

O’Driscoll and Rizzo 1985, 1-91.

Cowen 2003.

March 21

The Firm and the Market: Incentives, Information, Capabilities

Milgrom and Roberts, 19-124; 166-199; 288-324.

Hayek, 119-208; Kirzner 135-211.

Langlois 2003

Sautet 2000

Lewin 1999, 134-174.

March 28

Economic Growth and Development


Olson 1996

Boettke 2001, 234-265.

Boettke and Coyne 2003

Harper 2003

Coyne and Leeson 2004

April 11

Visible, Invisible, Grabbing, Hidden and Palsied Hand:
Theories of Social Interaction



Nozick 1974, 18-22.

Frye and Shleifer 1997

Boettke and Coyne 2005

April 18

New Institutional Economics



Rizzo 1980

Williamson 2000

Boettke, Coyne, Leeson and Sautet 2005


April 25

Institutional and Behavioral Economics


Heiner 1983

Kuran 1987

Frank 1987

Vanberg and Congleton 1992

Choi 1995, 11-62.

Loasby 1999, 32-48.

Horwitz 2000b

May 2

Post Classical Political Economy and the Future of Economic Research and Public Policy

Mises, 716-736; 862-885;

Rothbard, 765-890.

Peacock and Rowley 1972

Benson 1989

Weingast 1995

Ikeda 1997, 196-239.

Rubin 2002

Boettke and Storr 2002

Seabright 2004

Boettke 2005b

May 9

FINAL EXAMS and PAPERS DUE at 4:30pm in Rm. 324 Enterprise Hall



*Note on the readings: The books listed first are the required books for the course. The readings listed in the slightly smaller font are suggested readings, and those in the finest font are for further reading to be pursued and the references therein. My lectures will not be on interpreting the reading, but instead will draw inspiration from the readings and will be more focused on the lecture topic assuming that you have read all the required, suggested and follow up readings. The class style will be a combination of lecture and research seminar, and the research seminar segment of the class will only work if you have something to bring to the table on the subject so again I urge you to not fall behind on the reading and your thinking about the subject.

Grades for this course will be based on your participation in class, your grade on the final, and an original research paper that strives to be of professional quality. A paper that is publishable with minor revisions will earn an A, a paper that is potentially publishable will earn a B, and a paper that is not publishable (though perhaps an acceptable term paper) will receive a C. Please consult with me early and often about your paper. The final exam will be useful for preparing to take the field exam in Austrian economics.


Benson, B. 1989. “The Spontaneous Evolution of Commercial Law,” Southern Economic Journal, 55 (3): 644-661.

Boettke, P. 1997. “Where Did Economics Go Wrong: Modern Economics as a Flight from Reality,” Critical Review 11 (1): 11-65.

Boettke, P. 1998. “Is There an Intellectual Market Niche for Austrian Economics?,” Review of Austrian Economics, 11 (1-2): 1-4.

Boettke, P. 2001. Calculation and Coordination: Essays on Socialism and Transitional Political Economy. New York: Routledge.

Boettke, P. 2002. “Information and Knowledge: Austrian Economics In Search of Its Uniqueness,” Review of Austrian Economics, 15 (4): 263-274.

Boettke, P. 2005a. “The Austrian School of Economics,” in David Henderson, ed., The Concise Encyclopedia of Economics. Indianapolis, IN: Liberty Fund.

Boettke, P. 2005b. “Anarchism as a Progressive Research Program in Political Economy,” in Edward Stringham, ed., Anarchy, State, and Public Choice. Cheltenham, UK: Edward Elgar Publishing.

Boettke, P. and Christopher Coyne. 2003. “Entrepreneurship and Development,” Advances in Austrian Economics, 6: 67-88.

Boettke, P. and Christopher Coyne. 2005. “Methodological Individualism, Spontaneous Order and the Research Program of the Workshop in Political Philosophy and Policy Analysis,” Journal of Economic Behavior and Organization, in press.

Boettke, P., Christopher Coyne and Peter Leeson. 2003. “Man as a Machine: The Plight of 20th Century Economics,” Annals of the Society of History of Economic Thought, 43 (June): 1-10.

Boettke, P. Christopher Coyne, Peter Leeson and Frederic Sautet. 2005. “The New Comparative Political Economy,” Review of Austrian Economics, 18 (3).

Boettke, P. and Peter Leeson. 2003a. “The Austrian School of Economics: 1950-2000,” in Warren Samuels, Jeff Biddle and John Davis, eds., A Companion to The History of Economic Thought. Oxford, UK: Blackwell Publishing, 445-453.

Boettke, P. and Peter Leeson. 2003b. “An ‘Austrian’ Perspective on Public Choice,” in Charles Rowley and Friedrich Schneider, eds., The Encyclopedia of Public Choice, 2 volumes, II, pp. 27-32.

Boettke, P. and Virgil Storr. 2002. “Post Classical Political Economy: Polity, Society and Economy in Weber, Mises and Hayek,” American Journal of Economic & Sociology, 61 (1) 161-191.

Boulding, Kenneth. 1948. “Samuelson’s Foundations: The Role of Mathematics in Economics,” Journal of Political Economy, 56 (3): 187-199.

Buchanan, J. 1969. Cost and Choice. Indianapolis, IN: Liberty Fund, 1999.

Choi, Young Back. 1995. Paradigms and Conventions. Ann Arbor, MI: University of Michigan Press.

Cowen, Tyler. 1997. Risk and Business Cycles. New York: Routledge.

Cowen, Tyler. 2003. “Entrepreneurship, Austrian Economics, and the Quarrel Between Philosophy and Poetry,” Review of Austrian Economics, 16 (1): 5-23.

Cowen, Tyler., ed., 1988. The Theory of Market Failure. Fairfax, VA: George Mason University Press.

Coyne, C. and Peter Leeson. 2004. “The Plight of Underdeveloped Countries,” Cato Journal, 24 (3): 235-249.

Endres, A. 1997. Neoclassical Microeconomic Theory. New York: Routledge.

Frank, R. 1987. “If Homo Economicus Could Choose His Own Utility Function, Would he Choose One with a Conscience?,” American Economic Review, 77 (4): 593-604.

Frye, T. and Andrei Shleifer. 1997. “The Invisible Hand and the Grabbing Hand,” American Economic Review 87 (2): 354-358.

Garrison, R. 2000. Time and Money. New York: Routledge.

Harper, D. 2003. Foundations of Entrepreneurship and Economic Development. New York: Routledge.

Heiner, R. 1983. “The Origin of Predictable Behavior,” American Economic Review, 73 (4): 560-595.

Horwitz, S. 2000a. Microfoundations and Macroeconomics. New York: Routledge.

Horwitz, S. 2000b. “From The Sensory Order to the Liberal Order,” Review of Austrian Economics, 13 (1): 23-40.

Ikeda, S. 1997. Dynamics of the Mixed Economy. New York: Routledge.

Kirzner, I. 1997. “Entrepreneurial Discovery and the Competitive Market Process,” Journal of Economic Literature, 35 (1): 60-85.

Kuran, T. 1987. “Preference Falsificationism, Policy Continuity, and Collective Conservativism,” Economic Journal, 97 (September): 642-665.

Lachmann, L. 1976. “From Mises to Shackle,” Journal of Economic Literature, 14 (1): 54-62.

Langlois, Richard. 2003. “The Vanishing Hand,” Industrial and Corporate Change, 12 (2): 351-385.

Leonard, Robert. 1998. “Ethics and the Excluded Middle: Karl Menger and Social Scienc in Interwar Vienna,” Isis 89 (1): 1-26.

Lewin, P. 1999. Capital in Disequilibrium. New York: Routledge.

Loasby, Brian. 1999. Knowledge, Institutions and Evolution in Economics. New York: Routledge.

Machovec, Frank. 1995. Perfect Competition and the Transformation of Economics. New York: Routledge.

Murphy, K., Andrei Shleifer and Robert Vishny. 1993. “Why is Rent-Seeking So Costly to Growth?,” American Economic Review, 83 (2): 409-414.

Nelson, Robert. 2001. Economics as Religion. State College, PA: Penn State University Press.

Nozick, R. 1974. Anarchy, State and Utopia. New York: Basic Books.

O’Driscoll, G. and Mario Rizzo. 1985. The Economics of Time and Ignorance. Oxford, UK: Blackwell Publishers.

Olson, M. 1996. “Big Bills Left on the Sidewalk,” Journal of Economic Perspectives, 10 (2): 3-24.

Peacock, A. and Charles Rowley. 1972. “Pareto Optimality and the Political Economy of Liberalism,” Journal of Political Economy, 80 (3): 476-490.

Rizzo, M. 1980. “Law Amid Flux,” Journal of Legal Studies, 9 (2): 291-318.

Rubin, P. 2002. Darwinian Politics: The Evolutionary Origin of Freedom. New Brunswick, NJ: Rutgers University Press.

Sautet, F. 2000. An Entrepreneurial Theory of the Firm. New York: Routledge.

Seabright, P. 2004. The Company of Strangers. Princeton, NJ: Princeton University Press.

Selgin, G. 1994. “On Ensuring the Acceptability of a New Fiat Currency,” Journal of Money, Credit and Banking, 26 (4): 808-826.

Shepsle, K. and Barry Weingast. 1984. “Political Solutions to Market Problems,” American Political Science Review, 78 (2): 417-434.

Shleifer, A. 1998. “State versus Private Ownership,” Journal of Economic Perspectives, 12 (4): 133-150.

Shleifer, A. and Robert Vishny. 1994. “Politicians and Firms,” Quarterly Journal of Economics, 109 (4): 995-1025.

Vanberg, V. and Roger Congleton. 1992. “Rationality, Morality, and Exit,” American Journal of Political Science, 86 (2): 418-431.

Weingast, B. 1995. “The Economic Role of Political Institutions,” Journal of Law, Economics and Organization, 11 (1) 1-31.

Williamson, O. 2000. “The New Institutional Economics,” Journal of Economic Literature, 38 (3): 595-613.