Posts filed under ‘Austrian Economics’
AoM Slides
| Peter Klein |
Thanks to Peter L. for his report on the “Austrian Economics and Entrepreneurship Studies” PDW at the Academy of Management conference. Here, for your viewing pleasure, are the slides: my opening remarks on the origins and development of the Austrian school, Henrik’s discussion of Israel Kirzner and his influence on entrepreneurship scholarship, and Todd’s presentation on Ludwig Lachmann’s unique approach. Enjoy!
Peter Lewin Interview
| Peter Klein |
Adrián Ravier has put together a nice collection of Spanish-language interviews with economists of the Austrian school (volume 1, volume 2). The leading modern figures are all included: Mises, Hayek, Machlup, Lachmann, Rothbard, Kirzner, fellow travelers such as Buchanan and Shackle, and contemporary Austrians such as Garrison, Block, Hoppe, Higgs, Ebeling, Salerno, Boettke, and more.
Guest blogger Peter Lewin’s interview is coming out in a third volume, to be published later this year, and Adrián has given me permission to post the English version here. You’ll find Peter’s intellectual odyssey very interesting!
(I am also featured in the collection, via translation of an old interview from 1995. Those were the days!)
Entrepreneurial Studies and Applied Economics at the AOM 2011
| Peter Lewin|
Back from the AOM 2011 meetings in San Antonio, it is worth adding a few words on the Professional Development Workshop (PDW) on Austrian Economics organized by the Henrik Berglund, Todd Chiles, and our own Peter Klein. Also there were Roggl Koppl and Maria Minniti.
I, for one, found the session extremely enjoyable and worthwhile. I am not good at estimating numbers, but I believe there were in excess of fifty people there of diverse backgrounds — all shapes and sizes. The one thing they had in common was an interest in Austrian economics as applied to entrepreneurship. Some appeared to know more about it than others, but they all seemed to be genuinely curious. Very encouraging for those of us laboring for many years on behalf of the Austrian School.
Henrik began with a nice introduction, which he later followed up with a discussion of Kirzner on entrepreneurship. Peter Klein was first up with a masterful overview of Austrian Economics for newcomers, and Todd finished up with an interesting account of Lachmann’s work drawing on his recent work. We then split into spontaneously organized small groups to discuss various topics leading to suggested research topics. The group I was in arrived at the topic “The Anatomy of Disequilibrium Order.”
As I suggest to Peter K, this might be a manifestation of a development many of us have anticipated — in a nutshell, the bifurcation of the discipline of economics. While the mainstream has moved on to ever more narrowly technical and precisely irrelevant scholarly activities, those wishing to do real economics (economics that matters for the real world) are drawn to other closely related fields. I see this developing into a kind of “applied economics.”
AOM 2011
| Peter Klein |
The Academy of Management conference in San Antonio is in full swing, with lots of interesting activities for O&Mers. Friday I co-facilitated the theory workshop for the Entrepreneurship Division Doctoral Consortium (slides here), and Peter Lewin and I participated yesterday in a great Professional Development Workshop on the role of Austrian economics in entrepreneurship research. Today O&M friend Joe Mahoney will receive the Irwin Outstanding Educator Award. And there are paper sessions, roundtables, keynotes, and other events dealing with organizational design, entrepreneurship, strategy, innovation, regulation, and other topics near and dear to our collective hearts. A good time is being had by all!
Rogoff on Leverage
| Peter Klein |
An important point from Ken Rogoff:
Many commentators have argued that fiscal stimulus has largely failed not because it was misguided, but because it was not large enough to fight a “Great Recession.” But, in a “Great Contraction,” problem number one is too much debt. If governments that retain strong credit ratings are to spend scarce resources effectively, the most effective approach is to catalyze debt workouts and reductions.
For example, governments could facilitate the write-down of mortgages in exchange for a share of any future home-price appreciation. An analogous approach can be done for countries. For example, rich countries’ voters in Europe could perhaps be persuaded to engage in a much larger bailout for Greece (one that is actually big enough to work), in exchange for higher payments in ten to fifteen years if Greek growth outperforms.
I don’t agree with all of the discussion, for example Rogoff’s call for price inflation to mitigate the burden on debtors, but this is a big advance over the vulgar Keynesianism that passes for analysis at the New York Times. (See also Peter L.’s post on Rumelt.) The main point is that a recession like the present one is structural, and has nothing do with shibboleths like “insufficient aggregate demand.” I wish Rogoff (here or in his important book with Carmen Reinhart) talked about credit expansion as the source of structural, sectoral imbalances that generate macroeconomic crises.
The Menger Sponge
| Lasse Lien |
Earlier the investigative arm of O&M (with only limited hacking of phones and bribing of police officers) discovered the sensational news that Peter is named after a bottle with no inside and no outside, the endlessly fascinating Klein bottle. Apparently this sort of thing is quite common in Austrian circles. We can now reveal that Menger is named after a sponge, the Menger sponge, which is described in greater detail here.
(Actually the Menger Sponge is named after Karl the mathematician, son of Carl.)
A Capital Approach
| Peter Lewin |
My thanks to Peter Klein (we have to be careful now to indicate which Peter is being addressed :-) ) and to O&M for this wonderful opportunity to participate in this forum. Though I have commented infrequently I have followed its musings with interest and profit. I am delighted to be here.
Perhaps, for my opening post, I might just mention a few areas of my past and current research that might be of interest.
- As part of the Routledge series on the Foundations of the Market Economy I wrote a book entitled Capital in Disequilibrium which was published in 1999. It is still available, but it is very expensive ($200) — certainly not worth that price! Routledge recently released their copyright to me exclusively and I have just got through revising the book for a second edition to be published very soon by the Mises Institute. I had hoped to have some copies available at the upcoming AOM meetings in San Antonio, but this seems very unlikely now. Still, it will be easily available on their website and an open source version will also be there. The price of the book will be $15 I believe. Based on inquiries I have received, this will be welcome news for a few interested scholars.
- I have made very few changes to the book — mainly stylistic improvements and corrections — but I have added a few references to relevant work that appeared after the first edition. For those who don’t know the work, it is basically an evaluative survey of capital theory Austrian-style. Capital theory has often been feared or avoided by economics students, never mind other interested scholars. I hoped and still hope that this book will provide them a comprehensive, sophisticated, yet accessible course in the subject. Of course, the amazing thing is the timing. The relevance of capital theory has, all of a sudden, burst upon the field of management and organization studies. Having discovered and digested Schumpeter and Kirzner, management scholars have now, in turn, discovered Lachmann. How delightful it is for me to see Lachmann’s insights being applied in this kaleidic, digital world. I know this would have pleased him beyond words. (A real paradox of sorts, because I cannot imagine he would ever have mastered the technology for his own personal use :-) ).
- Regarding the book, of course the material is at least twelve years old. Yet, those wishing to understand the recent work using concepts like radical subjectivism, capital heterogeneity, capital complementarity and subsititutability, etc. would probably find it useful — and need not pay attention to the every page. Chapters 2 and 3 seem to me particularly important for an understanding of the concept of equilibrium and disequilibrium about which so much confusion is evident in the literature. Chapter 9, and less so Chapter 10, address specifically the question of capital combinations in business organizations. The final part of the book is about human capital and creates a bridge between the work of Lachmann and Gary Becker. (more…)
AoM PDW on Austrian Economics
| Peter Klein |
Four years ago I helped organize an Academy of Management pre-conference workshop on Austrian economics featuring Nicolai, me, Joe Mahoney, Yasemin Kor, Dick Langlois, and Elaine Mosakowski. It was well attended and very well received and we are doing something similar this year. Henrik Berglund, Todd Chiles, Steffen Korsgaard, and I have put together a Professional Development Workshop (PDW) on “Austrian Economics and Entrepreneurship Research.” Full details below. The conference home page is here. Hope to see many O&Mers at the workshop!
Austrian Economics and Entrepreneurship Research
Please join us Saturday, August 13, from 12:30 to 2:30pm in the San Antonio Convention Center, Room 212A, for a PDW on the Austrian school of economics and its implications for entrepreneurship studies (Program Session #281).
The Austrian school is increasingly well-known in the entrepreneurship field and is typically associated with Joseph Schumpeter’s idea of “creative destruction” and Israel Kirzner’s concept of “entrepreneurial alertness.” But Austrian economics features a number of additional themes, constructs, and emphases — resource heterogeneity, subjectivity of beliefs and expectations, processes of organizational emergence under complexity, and more — that are particularly relevant to research in entrepreneurship, organization, and strategy. Austrian economics is also receiving increasing attention in the broader economics and policy communities, as witnessed by the revival of interest in Austrian business cycle theory as an explanation for the financial crisis and subsequent economic downturn.
This PDW features a panel discussion and interactive table discussions designed to explore Austrian themes in greater detail and examine their applications to research in entrepreneurship and related areas of management studies. The organizers also hope to encourage and help develop the growing community of management scholars interested in the Austrian school.
The program begins with an introduction and overview by session organizers Henrik Berglund (Chalmers University of Technology), Todd Chiles (University of Missouri), Peter Klein (University of Missouri), and Steffen Korsgaard (Aarhus University), followed by breakout sessions organized around particular themes such as alertness and opportunity discovery, heterogeneity of the entrepreneurial imagination, resource heterogeneity and Austrian capital theory, entrepreneurship and equilibration, entrepreneurship and punctuated disequilibrium. Other distinctively Austrian (e.g., opportunities and action, the role of individuals, the individual-opportunity nexus, the market process, methodological individualism) and related (e.g., effectuation and bricolage) ideas will also figure prominently in the discussions.
The groups will then reassemble to share findings and results with the larger group. Ample time will be allowed for informal discussion and networking.
Please contact Henrik Berglund (henrik.berglund@chalmers.se) with any questions.
New Issue of Business History Review
| Peter Klein |
The March 2011 issue of Business History Review, just now online, contains several excellent papers, including “The Origin and Development of Markets: A Business History Perspective” by Mark Casson and John Lee, “Economics, History, and Causation” by Randall Morck and Bernard Yeung, “Globalization, Development, and History in the Work of Edith Penrose” by Christos Pitelis, and “Economic Theory and the Rise of Big Business in America, 1870–1910″ by Jack High.
Morck and Yeung take the (perhaps surprising, almost Misesian) position that “[i]nstrumental variables can lose value with repeated use because of an econometric tragedy of the commons: each successful use of an instrument creates an additional latent variable problem for all other uses of that instrument,” and that “[e]conomists should therefore”consider historians’ approach to inferring causality from detailed context, the plausibility of alternative narratives, external consistency, and recognition that free will makes human decisions intrinsically exogenous.”
High notes that “by 1910, the entrepreneur was an important figure in American economics. He appeared regularly in textbooks written by American economists and his influence in the economy, especially in large firms, was generally recognized.” Entrepreneurship at that time was not about startups, but coordination more generally: J. R. Commons called the entrepreneur “the speculating, progressive, organizing, inventive, economizing agent of industry.”
2011 Spengler Prize
| Peter Klein |
Congratulations to Robert Leonard for winning the 2011 Joseph J. Spengler Prize for the best book in the history of economics for Von Neumann, Morgenstern and the Creation of Game Theory: From Chess to Social Science 1900-1960 (Cambridge University Press, 2010). I’ve only skimmed the book but it looks exceptionally well done. Required reading for O&Mers interested in intellectual history, methodology, Austrian economics, strategy, and/or game theory. . . . (That’s pretty much all of you.)
Competitive Advantage, Network Advantage, and Vienna
| Peter Klein |
At last week’s ACAC Joel Baum gave a very interesting presentation (ppt) on the institutional and intellectual histories of two important strands in management thought, the literature on competitive advantage and the literature on network advantage. These two strands developed largely in isolation but, as it turns out, can both trace important parts of their development to the University of Vienna and the Austrian school of economics. Check out the genealogies below, captured from Joel’s slides. First, two diagrams on the origins of the competitive advantage approach (click to enlarge):
Now, two on the origins of network advantage theory: (more…)
The Evolution of Entrepreneurial Skill
| Peter Klein |
Market competition is often characterized as an evolutionary selection process. “[O]ne of the main functions of profits is to shift the control of capital to those who know how to employ it in the best possible way for the satisfaction of the public. The more profits a man earns, the greater his wealth consequently becomes, the more influential does he become in the conduct of business affairs” (Mises, “Profit and Loss,” 1951). Within a given population, then, the market process selects for those individuals with the greatest levels of entrepreneurial skill. But can the emergence of entrepreneurial skill as a human trait itself be explained in terms of natural selection? Here’s one attempt:
Evolution and the Growth Process:
Natural Selection of Entrepreneurial Traits
Oded Galor, Stelios Michalopoulos
NBER Working Paper No. 17075, May 2011This research suggests that a Darwinian evolution of entrepreneurial spirit played a significant role in the process of economic development and the dynamics of inequality within and across societies. The study argues that entrepreneurial spirit evolved non-monotonically in the course of human history. In early stages of development, risk-tolerant, growth promoting traits generated an evolutionary advantage and their increased representation accelerated the pace of technological progress and the process of economic development. In mature stages of development, however, risk-averse traits gained an evolutionary advantage, diminishing the growth potential of advanced economies and contributing to convergence in economic growth across countries.
This is a (mathematical) theory paper with “entrepreneurship” modeled as tolerance for risk, so some readers will find the execution less interesting than the idea. But it is good to see these kinds of big-picture issues addressed in the mainstream literature.
Frank Knight and the Austrians
| Peter Klein |
At this year’s Austrian Scholars Conference I gave a presentation playfully titled “Frank H. Knight: The Forgotten Austrian.” The title was tongue-in-cheek, of course, as Knight was no Austrian. Though friendly with Hayek personally, Knight was a harsh critic of Austrian capital theory, particularly as formulated by Böhm-Bawerk and Hayek. (Knight conceived capital as a permanent fund of value, with interest determined by the technical marginal productivity of capital, rejecting notions of production structures and time preference.) Knight was also a key developer of perfect competition theory — anathema to Austrians — though mainly to illustrate the importance of uncertainty, not to serve as a welfare bechmark.
Still, there are many interesting similarities between Knightian and Austrian economics. Regular readers of O&M already know that Mises’s approach to entrepreneurship, uncertainty, and the firm is basically the same as Knight’s. Knight rejected positivism, calling it “the emotional pronouncement of value judgments condemning emotion and value judgments” (Knight, 1940). He often sounded like a Misesian praxeologist: “If anyone denies that men have interests or that ‘we’ have a considerable amount of knowledge about them, economics and its entire works will simply be to such a person what the world of color is to the blind man” (Knight, 1956). Indeed, critics dismiss Knight’s epistemological writings as “extended Austrian-style disquisitions on the foundations of human knowledge and conduct and the like” (LeRoy and Singell, 1987) — the ultimate insult! (more…)
Mitch on Hoselitz
| Peter Klein |
The following is a guest post from David Mitch, Professor of Economics at the University of Maryland, Baltimore County and an expert on Bert Hoselitz.
The reasonably recent postings on this blog on Bert Hoselitz prompt me to post a correction to my biographical piece on him for the Elgar Companion to the Chicago School of Economics (2010) edited by Ross Emmett and also to make some further comments regarding Hoselitz’ “Austrian” origins. Both the correction and futher observations stem from Yvan Kelly’s very interesting article “Mises, Morgenstern, Hoselitz, and Nash: The Austrian Connection to Early Game Theory” published in the Quarterly Journal of Austrian Economics 12, no. 3 (2009).
The correction to my piece is as follows. On p. 274 of my piece, I state that “Prominent leaders of the Austrian School of Economics such as Ludwig Mises and F. A. Hayek had departed Vienna by the time Hoselitz began his university studies.” Yvan Kelly indicates on p. 38 of his article that Hoselitz attended two of Mises’ seminars in 1933 and 1934 based on correspondence that Hoselitz sent to Mises in 1941. I have not yet seen copies of this correspondence. However, I was clearly in error in stating that Mises had departed Vienna by the time Hoselitz began his university studies. Klaus Herdzina’s (1999) biographical essay on Hoselitz cited in my piece indicates that Hoselitz studied at the University of Vienna between 1932 and 1937. I do not know from what sources Herdzina obtained this information; but I based the statement in my own piece that Hoselitz studied at the University of Vienna between 1932 and 1937 on Herdzina’s essay. Hulsmann’s 2007 biography of Mises (p. 678) indicates that Mises stopped his private seminar and left Vienna in 1934. Thus, it would appear that Hoselitz’ studies at the University of Vienna did overlap with the period that Mises was in Vienna and leading his private seminar. And this would thus be consistent with the possibility that Hoselitz attended some of Mises’ seminars. So again, the statement in my piece for the Elgar Companion that Mises had departed Vienna by the time Hoselitz started his studies at the University of Vienna would definitely seem to be in error assuming the Herdzina is correct in his dating of when Hoselitz studied at the University of Vienna. (more…)
Contributions from Mature Scholars
| Peter Klein |
Following up my earlier post on Austrian longevity: Rafe Champion notes that Max Weber died suddenly of pneumonia, in 1920, at age 56. What important further contributions might he have made if he had lived longer?
This prompts the thought, what would have been lost if some long-lived Austrians [and fellow travelers] had died at 56? For Mises, that was 1937, before his masterwork was completed (later translated as Human Action) and before he was a living presence in the US.
For Hayek, that was 1954. No Constitution of Liberty and later works, no Nobel Prize.
For Popper, 1958, before The Logic of Scientific Discovery appeared in English and a dozen other books apart from The Open Society and The Poverty of Historicism.
Coase turned 56 in 1966, with several important contributions still to come: the 1970 paper on durable-goods monopoly, the 1974 paper on the lighthouse, and his recent papers on Fisher Body, not to mention the Nobel Prize and his crowning achievement, the 2002 CORI Lecture. What other examples come to mind?
More Hoselitz
| Peter Klein |
Since we first inquired about Bert Hoselitz, new information has come to light. First, we hosted a copy of Hoselitz’s hard-to-find 1951 essay “The Early History of Entrepreneurial Theory,” still the best source on the origins of economic thinking on the entrepreneur. Randy has also located Hoselitz’s rare 1963 paper “The Entrepreneurial Element of Economic Development,” which we hope to share soon.
Also, Yvan Kelly published an interesting paper in 2009, “Mises, Morgenstern, Hoselitz, and Nash: The Austrian Connection to Early Game Theory” (Quarterly Journal of Austrian Economics 12, no. 3), which provides more information. Hoselitz attended Mises’s Vienna seminar in 1933 and 1934 and, after Hoselitz emigrated to the US, Mises helped him get a position at Chicago. In 1947 Hoselitz taught a class on international economics at Carnegie Tech, where one of his students was John Nash — the only economics course Nash ever took. Notes Kelly, “there exists the distinct possibility that Nash’s thought process in formulating the [Nash] equilibrium was influenced by Austrian thought.” Kelly goes on to quote Nash’s Nobel lecture: “By coincidence the person who taught the course was someonethat came from Austria. . . . Austrian economics is like a different school than typical American or British. So by coincidence I was influenced by an Austrian economist which may have been a very good influence.” (This article by a famous blogger also deals with the Austrian connection to game theory.)
CORS Lecture and Mises Brazil
| Peter Klein |
O&Mers in Brazil, come see me at two events this week. Thursday, 7 April, I will deliver the inaugural CORS Lecture at the University of São Paulo on “Entrepreneurship, Strategy, and Public Policy.” CORS, the Center for Organization Studies, is a new institute organized by O&M friends Sylvia Saes and Decio Zylbersztajn and involving many scholars familiar to O&M readers. The lecture is co-sponsored by the Mises Institute Brazil, my main host for the trip, and I will speak at the Institute’s Second Conference on Austrian Economics 9-10 April in Porto Alegre, along with Hans-Hermann Hoppe, Robert Murphy, Guido Hülsmann, Gabriel Zanotti, Ubiratan Iorio, Antony Mueller, Fabio Barbieri, and Dalton Gardimam. I’ll give one talk on entrepreneurship and another on networks. I would love to see you at one of these events!
Information versus Knowledge
| Peter Klein |
[T]here’s enough information coming at us from all sides to leave us feeling overwhelmed, just as people in earlier ages felt smothered by what Leibniz called “that horrible mass of books that keeps on growing.” In response, 17th-century writers compiled indexes, bibliographies, compendiums and encyclopedias to winnow out the chaff. Contemplating the problem of turning information into useful knowledge, Gleick sees a similar role for blogs and aggregators, syntheses like Wikipedia, and the “vast, collaborative filter” of our connectivity. Now, as at any moment of technological disruption, he writes, “the old ways of organizing knowledge no longer work.”
But knowledge isn’t simply information that has been vetted and made comprehensible. “Medical information,” for example, evokes the flood of hits that appear when you do a Google search for “back pain” or “vitamin D.” “Medical knowledge,” on the other hand, evokes the fabric of institutions and communities that are responsible for creating, curating and diffusing what is known. In fact, you could argue that the most important role of search engines is to locate the online outcroppings of “the old ways of organizing knowledge” that we still depend on, like the N.I.H., the S.E.C., the O.E.D., the BBC, the N.Y.P.L. and ESPN.
That’s Geoffrey Nunberg reviewing James Gleick’s new book, The Information (Random House, 2011). Gleick burst onto the scene with 1987′s Chaos: The Making of New Science, which introduced the butterfly effect, Mandelbrot sets, fractal geometry, and the like into popular culture. (Don’t blame Gleick for the silly Ian Malcolm character in Jurassic Park, or the even sillier Ashton Kutcher movie.) I haven’t gotten my hands on a copy of The Information (gotta love the definite article, as in “the calculus”) but, as best as I can tell from the Google books version, Gleick doesn’t get into the Hayekian-Polanyian distinctions between parameterizable “information” and tacit knowledge that particularly interest O&M readers. (Another good quote from the review: “[T]here’s no road back from bits to meaning. For one thing, the units don’t correspond: the text of ‘War and Peace’ takes up less disk space than a Madonna music video.”) Still, the book should be worth a read.
Miscellaneous Links
| Peter Klein |
- Max Weber versus Rodney Stark. Read the very interesting comment thread at this ThinkMarkets post.
- US firms can expect lower worker productivity starting this week. Duh.
- The Austrian School of Economics: A History of Its Ideas, Ambassadors, and Institutions by Eugen Maria Schulak and Herbert Unterköfler. Newly translated from the 2009 German-language original. (Translator Arlene Oost-Zinner was a production editor on my 2010 book and did a wonderful job — no cracks, please, about the need to have my stilted prose translated into passable English.)
- Do you know what really important US patent was granted on March 14?
Creative Destruction in Popular Culture
| Peter Klein |
Thanks to Thomas B. for forwarding links to US Sen. Rand Paul’s Monday-night appearance on the Daily Show (part 1, part 2, part 3). At the start of part 3, while discussing government bailouts, Paul uses the words “creative destruction,” and Jon Stewart bursts out laughing, apparently hearing the term for the first time. I guess Schumpeter is not as culturally relevant as I thought!
The show had some interesting moments, but I found the discussions (in the parts I watched) pretty shallow. Stewart was grilling Paul on his “free-market” views, focusing on health, safety, and environmental regulation. Both Paul and Stewart took the milquetoast position that sure, some of this type of regulation is needed, but it shouldn’t be “too much.” They didn’t get into a serious discussion of theory or evidence, however, or explore specific trade-offs. There are huge political economy and public-choice literatures on the FDA, EPA, OSHA, etc., showing that these organizations are easily captured, tend to retard innovation, fail to weigh marginal benefits and costs, and so on. The Journal of Law and Economics under Coase’s leadership made its bones on these kinds of studies in the 1970s. The FDA has been a particular target. The Stewart view also ignores comparative institutional analysis — e.g., the role of private ordering (third-party certification, reputation, etc. ) in the protection of health and safety.
At least Paul didn’t say he intended to become the best Senator, horseman, and lover in all Washington!
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