Rationality and Business Cycle Theory in the Austrian Tradition: A Note on Methodology
Theofanis Papageorgiou () and
Panayotis Michaelides ()
Atlantic Economic Journal, 2021, vol. 49, issue 4, No 5, 377-391
Abstract Since most economic theories that discuss individual choices treat individuals as acting for reason, and thus in some way rationally, questions about the role that rationality plays in economics are of great importance. Rationality is often expressed by “Homo Economicus” through utility theory versus its identification through social terms by “Homo Sociologicus”. In this framework, business cycle theory is often rooted in assumptions regarding individual or collective rationality. Thus, the study of business cycles in combination with the concept of rationality may shed light on methodological issues. This paper focuses on the Austrian tradition because of its distinct characteristics: (a) the view that economics is part of the broader concept of political economy; (b) its antithesis to mathematical formalism, (c) its antithesis between ideal types and reality, (d) the struggle between groups for the distribution of wealth; and (v) methodological reductionism. Hence, investigating the methodological origins of these ideas in economics and re-evaluating the influences that shaped them is quite useful for promoting dialogue in the methodology of economics.
Keywords: Rationality; Business cycles; Austrian school; Methodology; B13; B25; B41; B53 (search for similar items in EconPapers)
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