SUBJECTIVISM IN THE DEVELOPMENT OF MONETARY THEORY: IMPLICATIONS OF AUSTRIAN THEMES

Two conceptually distinct approaches for the study of monetary phenomena, formalism and subjectivism, provide a basis to examine and assess theoretical developments in monetary economics. Formalism, which substitutes symbols for the meaning and content of human action, is aligned with Walrasian general equilibrium analysis and modern formulations of the quantity theory of money.;The development of Austrian monetary theory by Mises and Hayek reveals important linkages with Menger's vision. Building upon Wicksell's cumulative process, they formulated a non-quantity theory, non-Walrasian analysis of monetary adjustment processes.;An analysis of formalism finds that its treatment of economic phenomena is mechanistic and, as a result, not adequate for issues involving the passage of time and changing knowledge. Subjectivism, by explicitly developing the implications of individuals' mental activity, bears an important affinity to the study of complexly organized spontaneous phenomena, a theme elaborated by Hayek and essential in accounting for the contributions of the Austrian School.;An examination of recent philosophy of science suggests linkages between formalism and logical positivism. The conceptual underpinnings of subjectivism and Hayek's theory of complex phenomena indicate significant ties with Kuhnian and post-Popperian views on the methodology of scientific enterprise. This suggests that a subjectivist approach is consistent with a theory of rationality appropriate for the analysis of complex phenomena.;Subjectivism, focusing on the mental activity of individuals, represents an alternative approach to monetary theory and is traced through the works of the Austrian economists, Menger, Mises, and Hayek. Menger's conception of market phenomena. His resurrection of the Scottish Moralists' notion of social phenomena as undesigned outcomes of purposeful activity is argued to entail a fundamentally important conceptualization of the domain of economics.;Mainstream monetary theory's reliance on a formalist approach helps to explain the neglect of the Austrians after World War II. The thesis argues that a fully articulated monetary theory must be more explicitly subjectivist and suggests that the Austrians, particularly Menger and Hayek, merit careful reassessment by economists. Avenues for further research sensitive to Austrian themes are outlined.