Archive for September, 2006

Happy Mises Day

| Peter Klein |

We neglected to wish our readers yesterday a Happy Mises Day. Ludwig von Mises was born 125 years ago on 29 September 1881. Guido Hülsmann, whose full-length biography of Mises will appear in 2007, shares some tributes that were published on (or just before) Mises’s death in 1973. Among the accolades: “Recognized as a brilliant contributor to economic thought not only by his disciples but also by many who disagreed radically with his political and social philosophy” (International Herald-Tribune). “The world’s liberal economists [have lost] their most prolific pen” (Daily Telegraph). “He held that a free society and a free market are inseparable. He gloried in the potential of reason and man. In sum, he stood for principle in the finest tradition of Western Civilization” (Wall Street Journal). “The de Tocqueville of modern economics” (CBS television). Murray Rothbard wrote in Human Events:

Readers of Mises’ majestic, formidable and uncompromising works must have often been surprised to meet him in person. Perhaps they had formed the image of Ludwig Mises as cold, severe, austere, the logical scholar repelled by lesser mortals, bitter at the follies around him and at the long trail of wrongs and insults that he had suffered. They couldn’t have been more wrong; for what they met was a mind of genius blended harmoniously with a personality of great sweetness and benevolence. Not once has any of us heard a harsh or bitter word escape from Mises’ lips. Unfailingly gentle and courteous, Ludwig Mises was always there to encourage even the slightest signs of productivity or intelligence in his friends and students.

(For some reason, I never forget Hayek’s birthday.)

30 September 2006 at 10:14 am 1 comment

Varieties of Capitalist Development and Corporate Governance

| Peter Klein |

That is the theme for the 2007 Asia-Pacific Economic and Business History Conference at the University of Sydney. As noted in the call for papers: “While the historical study of market economies has been commonplace, there are many aspects worthy of further analysis including the role of savings, human capital, technology, government, and changing markets. Corporate governance has received wide attention in the wake of recent enterprise collapses, yet historians have only begun to research differences in corporate governance over time and among countries.”

The keynote speaker is Doug Irwin, author of several outstanding books on international trade theory and policy.

30 September 2006 at 8:57 am Leave a comment

Chaos Theory and Personal Responsibility

| Peter Klein |

What would Dalrymple say about this?

30 September 2006 at 8:49 am Leave a comment

Bounded Rationality and Paternalism Redux

| Peter Klein |

John Cassidy’s New Yorker article on neuroeconomics, and his (and Colin Camerer’s) use of behavioral anomalies to justify paternalistic social policy, has provoked many strong responses. The latest is “Neuro Wine in Old Bottles” by Will Wilkinson, which concludes:

New findings in brain science will certainly help us to improve the technologies of Reason. But our freedom is perhaps the most important of those technologies. So before we get carried away with exciting brain-based arguments for paternalism and regulation, we should remember that it’s not rational, in any sense of the word, to burn the ladder you’re climbing.

NB: Robert Fogel says that economists, too, suffer from cognitive bias — they are too pessimistic. Understandable, given that the economist’s usual role is to correct for foolish optimism, or what Sowell calls the “unconstrained vision.” (Thanks to Bryan Caplan and Russ Roberts for the links.) 

29 September 2006 at 3:26 pm Leave a comment

Framing and Incentives

| Nicolai Foss |

Here is one more cultural conservatism post, but one that relates to the economics themes that we often treat here at O&M.

I have just completed reading Theodore Dalrymple’s splendid Life at the Bottom: the Worldview that Makes the Underclass. This is confirming, challenging, and inspiring reading for somebody who subscribes, at least to some degree, to the economic worldview, i.e. notions that people respond (rather predictably) to incentives and in many ways react fairly rationally, that separating actions and consequences is often highly unfortunate, etc. (more…)

29 September 2006 at 11:39 am Leave a comment

Call for Papers — DRUID 2007

| Nicolai Foss |

It is hard to believe, but DRUID — the Danish Research Unit of Industrial Dynamics — is now entering its 11th year. As one of the original founder-members of the DRUID, it is just great to observe the continuous improvements that have characterized the DRUID conference series from the rather humble (i.e., amateurish in the true sense of the word) beginnings in 1995. In fact, after last year’s very successful conference, I heard the Director of DRUID, Peter Maskell, worry — rather tongue-in-cheek — that perhaps DRUID is becoming “too Americanized.”

DRUID has never projected a distinct research program, but it has been able to become one of the leading platforms for research in innovation, industrial dynamics, etc. in the World.  Its main activity is simply running two yearly conferences, one in January organized for PhD students and younger faculty, and one in June, much larger in scale and usually with good presenters indeed (e.g., Sid Winter, Steven Klepper, Anita McGahan, Alfonso Gambardella, Richard Nelson etc. etc.). In addition, DRUID maintains a very nicely organized website with lots of downloadable papers.

The full Call for Papers for the 2007 conference (not yet available on the DRUID website) is here:


29 September 2006 at 11:26 am Leave a comment

The “Essay Tradition” in Economics

| Peter Klein |

On the triumph of formalism in economics (addressed here and here) — not to mention academic insults — I give you this passage in Fred Kaplan’s The Wizards of Armageddon, a history of the RAND Corporation. The subject is RAND mathematician Albert Wohlstetter, the chief theoretician behind the development of US nuclear strategy in the 1950s and 1960s. Writes Kaplan:

[T]he social science division was removed from the rest of RAND — literally, 2500 miles away, in Washington, D.C. Most [of the social scientists] were figuratively removed, too: quantitative analysis had triumphed at RAND, through the spread of systems analysis and game theory and — until the Wohlstetter studies, which put the economids division on top of the strategic business — through the domination over the rest of RAND by the mathematics division. [Wohlstetter, though a mathematician, was associated with the economics division.] These sorts of studies were scientific, so it was thought; there were numbers, calculations, rigorously checked, sometimes on a computer. maybe the numbers were questionable, but they were tangible, unlike the theorizing, the Kremlinology, the academic historical research and interpretation produced by social science. Wohlstetter snootily denigrated all such works as being in “the essay tradition.”

29 September 2006 at 9:51 am Leave a comment

New Journal: Regulation and Governance

| Peter Klein |

Regulation & Governance aims to serve as the leading platform for the study of regulation and governance by political scientists, lawyers, sociologists, historians, criminologists, psychologists, anthropologists, economists, and others. Research on regulation and governance, once fragmented across various disciplines and subject areas, has emerged at the cutting edge of paradigmatic change in the social sciences. Through the peer-reviewed journal Regulation & Governance, we seek to advance discussions between various disciplines about regulation and governance, promote the development of new theoretical and empirical understanding, and serve the growing needs of practitioners for a useful academic reference.

Here is the journal’s homepage. John Braithwaite, Cary Coglianese, and David Levi-Faur are the editors. The interesting editorial board includes anthropologist Margaret Levi, law professors Susan Rose-Ackerman and Cass Sunstein, and economist Kip Viscusi. 

Viscusi, by the way, is a player in Vanderbilt University’s new PhD program in law and economics. (The budget for that program is one of the few big-ticket items for which Vanderbilt Chancellor Gordon Gee is not in trouble.)

28 September 2006 at 4:44 pm 2 comments

Tolerance and Subjectivism

| David Gordon |

Many people argue that because all value judgments are subjective, we shouldn’t impose our preferences on other people. Someone, e.g., who thinks that abortion is morally wrong should not try to prevent those who disagree with this view from having abortions. This argument strikes me as incoherent. The incoherence emerges clearly if we restate the argument in this way: Because all value judgments are subjective, here is a value judgment that isn’t subjective, namely, the value judgment that we shouldn’t impose our preferences on other people.

A defender of the argument might respond that he isn’t claiming that it is objectively true that we shouldn’t impose our preferences on others: he is rather stating, as a value judgment of his own, the view that we shouldn’t impose our preferences on others. A consequence of this way of taking the conclusion of the argument is that we shouldn’t impose this preference on others either. We shouldn’t forcibly interefere with those who are attempting to impose their value judgments on others, because to do this is to impose our value judgment, namely that one shouldn’t do such things, on them. But this is only a consequence of this subjectivist response that is probably unwelcome, not a refutation of it. (more…)

28 September 2006 at 11:46 am 3 comments

Lachmann Paper

| Nicolai Foss |

Giampaolo Garzarelli (University of Witwatersrand) and I have just had our paper on Ludwig Lachmann, “Institutions as Knowledge Capital: Ludwig M. Lachmann’s Interpretive Institutionalism,” accepted by the Cambridge Journal of Economics.  Mail me at if you want a copy. Here is the abstract:

This paper revisits the socioeconomic theory of the Austrian School economist Ludwig M. Lachmann. By showing that the common claim that Lachmann’s idiosyncratic (read: eclectic and multidisciplinary) approach to economics entails nihilism is unfounded, it reaches the following conclusions. (1) Lachmann held a sophisticated institutional position to economics that anticipated developments in contemporary new institutional economics. (2) Lachmann’s sociological and economic reading of institutions offers insights for the problem of coordination. (3) Lachmann indirectly extends contemporary new institutional theory without simultaneously denying the policy approach of comparative institutional analysis.

28 September 2006 at 5:48 am Leave a comment

Friedman-Stigler Correspondence

| Peter Klein |

Historians of economic thought, social-science methodologists, and Chicago School junkies may enjoy J. Daniel Hammond and Claire H. Hammond’s edited volume Making Chicago Price Theory: Friedman-Stigler Correspondence, 1945-1957 (Routledge, 2006). (Friedman, of course, is respected, though not universally admired, here at O&M.) Reviewer Craig Freedman says the Friedman-Stigler correspondence

reflects the way in which the two attempted to transform economics. In particular, we can discern their attempts to reshape economic methodology, as well as their changing views on such issues as equality and income distribution. As we read these letters, the outline of what would form the bedrock of the Chicago School, a distinctive take on price theory, becomes progressively clearer.

Freedman also notes that while Friedman’s influence on monetary theory and policy and economic methodology is well known, Stigler’s defense of Marshallian partial-equilibrium analysis over Walrasian general-equilibrium theory is not as widely appreciated. (more…)

27 September 2006 at 1:37 pm Leave a comment

Scruton on Chomsky

| Nicolai Foss |

From yesterday’s, Roger Scruton taking on Noam Chomsky:

Prof. Chomsky is an intelligent man. Not everything he says by way of criticizing his country is wrong. However, he is not valued for his truths but for his rage, which stokes the rage of his admirers. He feeds the self-righteousness of America’s enemies, who feed the self-righteousness of Prof. Chomsky. And in the ensuing blaze everything is sacrificed, including the constructive criticism that America so much needs, and that America–unlike its enemies, Prof. Chomsky included–is prepared to listen to.


27 September 2006 at 12:38 pm Leave a comment

MBA Students and Math

| Peter Klein |

My friend and former colleague Dwight Lee, along with Richard McKenzie, has produced a new textbook, Microeconomics for MBAs: The Economic Way of Thinking for Managers (Cambridge University Press, 2006). Lee and McKenzie have written more books than I’ve read (or colored) and, like all their books, Microeconomics for Managers is a delight — lively and engaging while also systematic, learned, and useful. I’ve been using Brickley, Smith, and Zimmerman’s Managerial Economics and Organizational Architecture for several years and have been quite satisfied, but am considering switching to McKenzie and Lee.

I noticed this plug in the dust-jacket blurb: “This is the first textbook in microeconomics written exclusively for MBA students. McKenzie/Lee minimizes attention to mathematics and maximizes attention to intuitive economic thinking.” I’ve taught undergraduates, MBAs, and PhD students, and haven’t noticed MBA students being more troubled by math than anyone else. Clearly many managerial economics texts, at any level, overemphasize technique over intuition and application. But many MBAs — especially those with an engineering background, which seems to be an increasing number — may actually prefer more math to less. Just a thought.

27 September 2006 at 11:17 am Leave a comment

Is the Corporation a Creature of the State?

| Peter Klein |

Piet-Hein van Eeghen argues in the Journal of Libertarian Studies (1, 2) that the corporation’s “entity status” — from which attributes such as limited liability and perpetuity are derived — is an artificial product of state intervention, a feature of the commercial landscape that wouldn’t exist in a truly free market. I think Eeghen is wrong, partly for failing to distinguish between limited contractual liability (which is achievable through contract) and limited tort liability (which isn’t). Limited contractual liability was a standard feature of joint-stock companies long before limited liability became the default rule in English common and statutory law, as Henry Hansmann (among others) has pointed out.

Anyway, for an interesting and lively debate on the corporation’s status in the free market, see this exchange (and the links therein) between Sean Gabb and Stephan Kinsella.

26 September 2006 at 5:51 pm 3 comments

Economic Culture Wars

| Peter Klein |

Mark Thoma points us to an old Paul Krugman column on the “economic culture wars.” There Krugman laments the hostility towards economic analysis expressed by many “literary” or “humanist” intellectuals. Invoking C.P. Snow’s “two cultures” distinction, Krugman tries to explain why a magazine editor added (over Krugman’s strenuous objections) the subtitle “deconstructing the income distribution controversy” to one of Krugman’s articles:

[T]here is a continuing struggle between two ideas of what it means to be an intellectual. One culture is humanist and literary; the other mathematical and scientific. The editor of my article, I now believe, was perhaps unconsciously using the language of critical theory as a way of declaring his allegiance in that struggle; he was saying: “I may write about quantitative stuff like GDP and real wages, but my sensibility is literary.”

I think Krugman’s diagnosis is largely on target, with one important caveat. What Krugman describes as the essentially “mathematical” character of economic analysis I would instead call “logical” or “analytical.” The opposite of literary/humanist, in the cultural divide, is logical/analytical (of which mathematical is a subset). Contrary to Krugman, economics did not become a rigorous, technical subject only after World War II, when verbal economics was systematically replaced by mathematical economics; it had always been so.

26 September 2006 at 3:16 pm 2 comments


| Nicolai Foss |

The Mission Statement of O&M stipulates that we occassionally discuss cultural conservatism. We do so too rarely, so the following is an attempt to meet that stipulation.

I am admirer of the British conservative philosopher Roger Scruton  (Scruton’s homepage is here; check out his hilarious cv). Although I have not bought fully into Scrutonian conservatism (I have problems with his excessive statism — plus I just don’t get his love for Wagner!), I find him to be an extremely profound and challenging writer. One of the very few contemporary conservative thinkers worth taking seriously (e.g., see this and this). And if you really want cultural conservatism, this is it!. (more…)

26 September 2006 at 1:35 pm 1 comment

New Papers: Chandler, Leijonhufvud, Phelps, Summers

| Peter Klein |

The current issue of Capitalism and Society (volume 1, number 2) features an all-star cast. Alfred D. Chandler, Jr., leads off with his newest article, “How High Technology Industries Transformed Work and Life Worldwide from the 1880s to the 1990s” (abstract below). Chandler recently celebrated his 88th birthday, so new Chandler paper — while perhaps not quite as significant as a new Coase paper — is a major event.  

In the same issue is a piece by Foss hero Axel Leijonhufvud, “Understanding the Great Changes: A Comment,” which is a comment on Edmund Phelps’s “Understanding the Great Changes in the World: Gaining Ground and Losing Ground since World War II.” The journal also contains a comment on Chandler by Richard Sylla, a paper by Richard Zeckhauser on “Investing in the Unknown and Unknowable,” and a comment on Zeckhauser by Lawrence Summers. (more…)

26 September 2006 at 10:37 am Leave a comment

Mises’s “Intolerance”

| Peter Klein |

Rafe Champion points out that Ludwig von Mises and Karl Popper, despite a shared commitment to classical liberalism and joint membership in the Mont Pelerin society, then the premier scholarly association of free-market intellectuals, didn’t get along. Mises and Popper were miles apart, epistemologically, and neither was enamored of the other’s work. Still, their relationship is interesting and worthy of further study. (Hayek of course was deeply influenced by both men.)

Unfortunately, in the comments to Rafe’s post the subject of Mises’s alleged “intolerance” rares its ugly head. A commentator refers to the story, repeated ad nauseam by Milton Friedman, that Mises once stormed out of a session of the Mont Pelerin society, shouting “You’re all a bunch of socialists!” The inference is that anyone making such a statement in a room full of distinguished non-socialists (Friedman, Stigler, Robbins, Knight) must be an extremist, a crank, or both. (more…)

26 September 2006 at 8:53 am 3 comments

Down With the Saints

| Peter Klein |

Like Skip Oliva, but unlike most of my fellow Americans, I will be rooting against the New Orleans Saints in tonight’s mega-episode of Monday Night Football. Down with corporate welfare! Down with rent-seekers! Down with the Saints!

25 September 2006 at 12:23 pm Leave a comment

University of Arizona Program on Law and Entrepreneurship

| Peter Klein |

The University of Arizona’s McGuire Center for Entrepreneurship and James E. Rogers School of Law have teamed up to create a joint program in law and entrepreneurship. The first project is a mock law firm, composed of students from the intellectual property, entrepreneurial law, corporate law, and tax law areas of the law school, that will advise business-student teams in the McGuire Center’s entrepreneurship program. Says law professor Darian Ibrahim: “There isn’t all that much interdisciplinary work in this area, but interest is building among scholars. I feel like we’re on the precipice of something that’s really about to take off.”

25 September 2006 at 11:29 am Leave a comment

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Our Recent Books

Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
Nicolai J. Foss, Strategy, Economic Organization, and the Knowledge Economy: The Coordination of Firms and Resources (Oxford University Press, 2005).
Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
Nicolai J. Foss and Volker Mahnke, eds., Competence, Governance, and Entrepreneurship: Advances in Economic Strategy Research (Oxford, 2000).
Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy: Explorations in the Resource-based Perspective (Routledge, 2000).


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