The genetic-causal tradition and modern economic theory

This paper is an analysis of a specific tradition of causal thinking in economics: the genetic-causal tradition. (This concept has nothing to do with the science of genetics but with origins or 'genesis'.) The tradition was most self-consciously followed in the work of the Austrian School, but spilled over into other approaches. Causes are viewed as forces that originate change ('originating causes') rather than simply sustain a current state of affairs. Hence, in this view, causation, change, processes and time are interrelated. Thus genetic-causal explanations place emphasis, inter alia on temporal processes resulting in change and emanating from changes in agents' desires and beliefs The authors present a brief history of this approach, demonstrating its roots in the works of Menger, Böhm-Bawerk, Keynes, Mayer and Hayek, as well as in the competition theory of the classical school. The authors also outline the major characteristics of genetic causes among which are that they are real mental events with a forward-looking perspective, are generally neither necessary nor sufficient for their consequences, may produce unintended consequences, and are embodied in non-deterministic processes. Furthermore, distinctions are drawn between genetic causation, on the one hand, and functional dependence, predictive capacity and logical implication on the other. The genetic-causal approach is then illustrated in a number of different areas: Mises's theory of the value of money, Keynes's theory of interest, the modern theory of search, choice-of-technology literature, and arbitrage or discovery driven processes.