The place of mises’s Human Action in the development of modern economic thought
T he core of any system of economic theory is the explanation of how prices are determined. As Mises (1 998, p. 235) himself put it, "Economics is mainly concerned with the analysis of the determination of money prices of goods and services exchanged on the market." Thus, the core of Human Action is parts three and four (pp. 201-684), entitled, respectively, "Economic Calculation" and "Catallactics or Economics of the Market Society." In these two parts, comprising 484 pages, there is presented for the first time a complete and systematic theory of how actual market prices are determined. Of course, Mises did not create this theory out of whole cloth. In fact, the theory of price elaborated in Human Action represents the crowning achievement of the Austrian School of economics. It is the culmination of the approach to price theory originated by Carl Menger in 1871 and developed further by a handful of brilliant economists of the generation intervening between Menger and Mises. These latter included especially Eugen von B6hm-Bawerk, J.B. Clark, Phillip H. Wicksteed, Frank A. Fetter, and Herbert J. Davenport. Unfortunately, for reasons to be explained below, the entire Mengerian approach went into decline after World War I and had lapsed into nearly complete dormancy by the mid-1930s. Mises's outstanding contribution in Human Action was to singlehandedly revive this approach and elaborate it into a coherent and systematic theory of price determination. This article is divided into sections, section I describes the development of the Mengerian approach to price theory up until World War I, by which time it had reached the zenith of its international influence. Section 2 describes its amazingly rapid decline and suggests four reasons for it, including two fundamental theoretical