Posts filed under ‘Classical Liberalism’
Review of Allen’s Institutional Revolution
| Peter Klein |
I wrote earlier about Doug Allen’s The Institutional Revolution (Cambridge University Press, 2011). Here’s a new EH.Net review by Mark Koyama.
Institutions in Allen’s view minimize transaction costs, where transaction costs include the costs associated with opportunistic behavior. Transaction costs precluded “first-best” institutions from developing in the pre-industrial world. Instead, apparently inefficient institutions such as tax farming, the sale of offices, and the aristocratic dominance of politics persisted for centuries. Allen argues that these apparently inefficient institutions were, in fact, efficient given the existing configuration of transaction costs. This insight, which builds on the ideas of Yoram Barzel, provides a powerful hypothesis for studying institutional change. Allen places particular emphasis on the importance of measurement. In the high variance pre-modern world, measurement was costly or impossible and consequently bureaucrats, soldiers, sailors, and policemen could not be paid on the basis of observable inputs. Alternative institutions had to emerge to deter opportunism and reward effort. These institutions were often elaborate, and sometimes strange; they involved making the bureaucrats, soldiers, or tax collectors residual claimants of some sort. The story of how these institutions disappeared and were replaced by modern institutions is The Institutional Revolution.
The institutional revolution Allen proposes is linked to the industrial revolution because technological change drove institutional change by reducing measurement costs. Standardization reduced variance. This reduction in variance lessened the possibilities for opportunistic behavior and enabled institutions based around the idea of rewarding individuals for their marginal contribution to emerge.
Charles Dickens, Capitalist
| Peter Klein |
Did you know 2012 is the centenary of Charles Dickens’s birth? Dickens is often lumped with Carlyle, Shaw, Ruskin, etc. as a Romantic, Victorian, literary anti-capitalist. (Carlyle indeed disliked capitalism, but not for the usual reasons.) But Dickens, as I originally learned from Paul Cantor, was a wildly successful capitalist and entrepreneur, a driving force behind the great nineteenth-century innovation of the serialized, commercial novel. Consider the following from one Dickens scholar:
Stephen Marcus has called Dickens “the first capitalist of literature” in the sense that he worked within apparently adverse conditions to take advantage of new technologies and markets, creating, in effect, an entirely new role for fiction. In Charles Dickens and His Publishers, Robert Patten quotes Oscar Dystel (president and chief executive of Bantam Paperbacks) on the three “key factors” in his development of a successful paperback line: availability of new material, introduction of the rubber plate rotary press, and development of magazine wholesalers as a distribution arm. As Patten points out, parallel factors operated in the Victorian era: a plethora of writers, new technologies, and expanded distribution. And as methods of papermaking, printing, and platemaking increased in efficiency, so did means of transportation. By 1836, a crucial network of wholesale book outlets in the Strand, peddlers, provincial shops, and the royal mailmade possible by the development of paved roads, fast coaches, and eventually the national railway systemhad been consolidated. The final task facing early publishers was, then, to develop the newly accessible market for their commodity. By lowering prices, emphasizing illustrations and sensational elements, and increasing variety of both form and content, publishers created readers within the largest demographic groups: the rising middle and working classes, where readers had essentially not existed before. . . . (more…)
Rafe Champion at Missouri
| Peter Klein |
It’s been fun hosting Australian writer (and frequent O&M commenter) Rafe Champion at Missouri the last couple of days. Rafe spoke to the economists about the philosophy of science (handout here), and to the graduate philosophy seminar of my colleague André Ariew on current research topics in the philosophy of biology. We’ve had many talks about Hayek, Mises, Popper, Parsons, and our mutual friend Bill Bartley, among others. Rafe blogs at Catallaxy Files and the Critical Rationalist blog, and his website The Rathouse contains a treasure-trove of writings by, and commentary on, the most important twentieth-century philosophers of science.
SDAE Conference
| Peter Lewin |
This coming weekend in Washington DC, the Society for the Development of Austrian Economics will hold its annual meeting and membership dinner. This year it is honoring Leonard Liggio for his contributions to the teaching and dissemination of Austrian Economics (through his dedication to the cause of classical liberalism) over many decades. A scholarship fund in Leornard’s honor will be established from the donations — the Leonard Liggio Fellowship Fund to enable graduate students to attend the full SEA/SDAE meetings each year at reduced cost. The Earhart Foundation and Liberty Fund are major sponsors. Table sponsors include the Cato Institute, the Institute for Humane Studies, the Review of Austrian Economics, the Mercatus Institute, the Atlas Economic Research Foundation and the Koch Foundation. See here for information on the panels organized by the SDAE. I will report on the event upon my return. (I promise for next year to ensure at least one panel dedicated to management themes.)
Moral Culpability of Independent Contractors
| Peter Klein |
Anita McGahan gave two fantastic talks last week on the economics and strategy of health care, including some work on intellectual property and pharmaceutical research and a larger project on public health around the world. At lunch Anita talked about her work with Joel Baum on private military companies. As we discussed, much of the literature on privatization and contracting out takes the focal organization’s objectives as given, then studies the least costly methods of meeting those objectives. But objectives are endogenous to production costs. Predator drones lower the cost of extrajudicial killings, so we get more extrajudicial killings, ceteris paribus. If prison privatization lowers the cost of incarceration, we should expect more incarceration. And so on. For this reason, the desirability of contracting out depends on whether we want more of thing that is being contracting out, a point made eloquently by Bruce Benson.
A related question is the extent to which contractors should be legally liable, not to mention morally culpable, for the outcomes they help facilitate. Most of us reject the Nuremberg defense, but how far are we willing to go? Is Xe partly responsible for US military strategy and tactics in Iraq and Afghanistan? Do private prison operators share some of the blame for the US’s astonishingly high incarceration rate?
See below for the classic discussion of this issue.
Business and American Literature
| Peter Klein |
Thanks to Shawn Ritenour for the pointer to Algis Valiunas’s National Affairs piece, “Business and the Literati.”
The business of America may be business, but the business of American literature in the past century has been largely to insist that the nation is, in pursuing business, wasting itself on unworthy objects. In the eyes of most novelists and playwrights who deal with the subject, business is not an honorable vocation, but rather an obsessive scramble for lucre and status. Tycoons are plunderers. Salesmen are poor slobs truckling to their bosses, though most of them aspire to be cormorants and highwaymen, too. The mass desire to strike it rich has launched a forced march to nowhere. In short, American literature hates American business for what it has done to the souls of the rich, the poor, and the middling alike.
Right-thinking people now take it for granted that, in criticizing business, American literature has saved (or at least elevated) the nation’s soul. But after a century of slander, that assumption needs revisiting.
Dissing Apple, Loving Steve
| Peter Klein |
Like so many others, I was deeply saddened to learn today about the passing of Steve Jobs. Jobs was a great entrepreneur, a visionary, a social benefactor. Business leaders like Steve Jobs do more good for humanity than most of the do-gooders put together.
In memory of Steve, Apple fans are sharing their memories of Apple products, listing how many Macs they’ve owned, reminiscing about their first Apple II the way they talk about their first kiss. I’m not one of those. Indeed, I don’t much care for Apple products. I used an Apple II as a teenager, and currently own an iPad, the only Apple product I’ve ever bought. Steve Jobs made a particular kind of device — beautiful, specialized, simple to operate, but expensive, impossible to customize, frustrating to use if you want to use it in a different way than Steve intended. That’s fine — à chacun son goût. Isn’t that the beauty of capitalism? Markets aren’t winner-take all. Neither Steve Jobs nor Bill Gates nor Linus Torvalds nor anyone else decided what products we all should use and made us use them. We didn’t vote for our favorite computer or music player or phone, then all get the one that 51% of the voters preferred. No, we can all have the goods and services we like.
I don’t like Apple products, but I love the fact that other people like them, and that people like Steve Jobs provided them. R.I.P.
Addendum: Steve Horwitz makes the same point.
And Your Chicks for Free
| Peter Klein |
Fred McChesney, call your office.
Hoping to fend off any antitrust action, Google has hired at least 13 lobbying and communications firms since May, when the Federal Trade Commission ramped up its probe of the Internet giant. Firms led by figures from both parties — including former House Democratic leader Richard Gephardt and the son of Indiana Republican Sen. Richard Lugar — are going to bat for the company.
Gentlemen, don’t forget to close that revolving door on your way out. . . .
BTW for an interesting, if somewhat confused, take on the antitrust industry, see a young Robert Reich.
Against (Karl) Polanyi
| Peter Klein |
I mentioned Karl Polanyi (not to be confused with Michael) in yesterday’s post on anonymity. Gavin Kennedy points us today to Mark Pennington, who writes that Polanyi’s claims “are either historically inaccurate or based on a crude misrepresentation of classical liberalism.” Specifically,
classical liberalism has never claimed that narrowly selfish behaviour is all that is required to sustain the social fabric. Of course markets are always “embedded” in a broader nexus of institutions, but the question we need to ask is precisely what sort of institutional and social norms are required to facilitate social cooperation on the widest possible scale. Polanyi and his followers prefer to rely on hackneyed accounts of the Wealth of Nations rather than recognise that Smith’s support for markets and “self interest” constituted part of a broader ethical system set out in the Theory of Moral Sentiments. Specifically, Smith was concerned to elucidate the balance between the social norms appropriate to contexts of commercial exchange and those appropriate in more intimate environments. From Smith’s point of view feelings of sympathy which include love, friendship and reciprocity are reserved for people of whom we have detailed personal knowledge. The morals expected in commercial relations which are often between relative strangers, however, tend to be more impersonal, focussed on principles such as the observance of contracts and are oriented more towards the “self interest” of the parties involved rather than the direct benefit of “others.” The great mistake is to suppose that the type of ethos that pervades family life or that in tight knit communities can operate on a much wider scale. The development of inclusive markets requires a more impersonal ethos which enables people to engage with diverse actors who may not share the same moral outlook. If people deal only with those who share the same moral outlook or trade only with “locals” rather than engage in transactions with “foreigners” then the sphere of potentially cooperative relationships will be reduced. The alternative to self-interest is not solidarity, but suspicion if not outright conflict.
Blessed Anonymity
| Peter Klein |
Critics of the market, from Marx and Karl Polanyi to Alasdair MacIntyre, John Gray, Robert Putnam, and some contemporary sociologists, decry the anonymity of commercial relations. Strong, local, community ties, they complain, are being displaced by long-distance, ad hoc, impersonal, weak ties. ”Increasingly,” writes anthropologist Stephen Gudeman, “we commoditize things, leisure, body parts, reproductive capacities, DNA, and social relationships. As people flock to cities, sell their hardwood trees, change clothing styles, and watch television, community . . . shrinks.” (Thanks to Virgil Storr for this and many other good references.)
One response is to invoke Mises’s idea that social cooperation under the division of labor is actually the foundation of community. “The fundamental facts that brought about cooperation, society, and civilization . . . are the facts that work performed under the division of labor is more productive than isolated work and that man’s reason is capable of recognizing this truth” (Human Action, p. 144). Writers like Thomas Sowell and Walter Williams argue, for example, that the growth of the market stymies racism and other forms of prejudice.
Last week’s Economist had an interesting piece on supermarkets that brought these arguments to light:
The nostalgics don’t even have their history right. A big research project at the universities of Surrey and Exeter is currently studying shopping in post-war England. For one thing, high streets were not as quaint as politicians think. As far back as 1939, chain stores and co-operative (ie, mutual) retail societies already controlled about half of the grocery market. It was middle class matrons, the sort who dressed up to go shopping, who missed the deference shown by traditional grocers. Supermarkets were often welcomed by younger and working-class women. A retired secretary interviewed by the project recalled, as a young bride, asking the butcher for a tiny amount of mince. “Oh, having a dinner party, madam?” he sneered. A woman who bought anything expensive or unusual risked disapproving gossip, spread by shop assistants. The project
found press advertisements promoting the anonymity of supermarkets, as well as their convenience.
Some of you will remember a scene from Woody Allen’s Bananas, which also illustrates this point nicely.
More on Free Speech
| Nicolai Foss |
We have blogged a number of times in the past on (the economics of) free speech. John Stuart Mill is, of course, the towering figure when it comes to philosophical defenses of free speech. Here is a recent working paper, “Speech, Truth, and Freedom: An Examination of John Stuart Mill’s and Justice Oliver Wendell Holmes’s Free Speech Defenses,” that compares Mill with Holmes’ views, undertakes a dehomogenization exercise, and argues that their different free speech positions are rooted in different underlying views of liberty. For free speech afficionados, perhaps, but still recommended.
The Treasury Bill as Myth and Symbol
| Peter Klein |
My father was a historian and helped organize local events to commemorate the bicentennials of the Declaration of Independence in 1976 and Constitution in 1987. I particularly remember the Freedom Train, a traveling exhibit housing memorabilia such as original copies of the Declaration, Constitution, Louisiana Purchase, and (I learn from Wikipedia, though I don’t remember these) Judy Garland’s dress from the Wizard of Oz and Joe Frazier’s boxing trunks.
Several years later, my Dad gave a conference paper (unfortunately unpublished) on “The Constitution as Myth and Symbol.” He noted that for many Americans, the founding documents, along with the Liberty Bell, Independence Hall, images of George Washington and Betsy Ross, etc., play the same kind of role as a Britain’s crown jewels, the Bastille, or Lenin’s tomb. The Constitution is important, in other words, not only for its text — some would argue the text is largely ignored today anyway — but for its symbolic value. It represents a particular myth of the American founding, usually associated with reason and noble ideals (Bernard Bailyn, Ayn Rand, Schoolhouse Rock) but occasionally with power or material self-interest (Charles Beard, Bertell Ollman).
In following the debates over raising the US debt ceiling I”m struck by the frequent claim that defaulting on public debt is unthinkable because of the “signal” that would send. If you can’t rely on the T-Bill, what can you rely on? Debt instruments backed by the “full faith and credit of the United States” are supposed to be risk-free, almost magically so, somehow transcending the vagaries of ordinary debt markets. The Treasury Bill, in other words, has become a myth and symbol, just like the Constitution.
I find this line of reasoning unpersuasive. A T-bill is a bond, just like any other bond. Corporations, municipalities, and other issuers default on bonds all the time, and the results are hardly catastrophic. Financial markets have been restructuring debt for many centuries, and they’ve gotten pretty good at it. From the discussion regarding T-bills you’d think no one had ever heard of default risk premia before. (Interestingly, this seems to be a case of American exceptionalism; people aren’t particularly happy about Greek, Irish, and Portuguese defaults but no one thinks the world will end because of them.) So, isn’t it time to de-mythologize all this? Treasuries are bonds just like any other bonds. There’s nothing magic, mythical, or sacred about them. A default on US government debt is no more or less radical than a default on any other kind of debt.
Who Benefits from Coups?
| Peter Klein |
Not surprisingly — private interests:
Coups, Corporations, and Classified Information
Arindrajit Dube, Ethan Kaplan, Suresh Naidu
NBER Working Paper No. 16952, April 2011We estimate the impact of coups and top-secret coup authorizations on asset prices of partially nationalized multinational companies that stood to benefit from US-backed coups. Stock returns of highly exposed firms reacted to coup authorizations classified as top-secret. The average cumulative abnormal return to a coup authorization was 9% over 4 days for a fully nationalized company, rising to more than 13% over sixteen days. Pre-coup authorizations accounted for a larger share of stock price increases than the actual coup events themselves.There is no effect in the case of the widely publicized, poorly executed Cuban operations, consistent with abnormal returns to coup authorizations reflecting credible private information. We also introduce two new intuitive and easy to implement nonparametric tests that do not rely on asymptotic justifications.
In what can only be a pure coincidence, the following item appeared just below the NBER paper in my RSS reader: “Halliburton Profit More Than Doubles.”
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!
Freedom to Trade and the Competitive Process
| Dick Langlois |
That’s the promising-sounding title of a new NBER Working Paper by Aaron Edlin and Joseph Farrell. Unfortunately, the argument turns out, in my opinion, to be extraordinarily wrongheaded. Here is the abstract.
Although antitrust courts sometimes stress the competitive process, they have not deeply explored what that process is. Inspired by the theory of the core, we explore the idea that the competitive process is the process of sellers and buyers forming improving coalitions. Much of antitrust can be seen as prohibiting firms’ attempts to restrain improving trade between their rivals and customers. In this way, antitrust protects firms’ and customers’ freedom to trade to their mutual betterment.
The promising part is that they talk explicitly about the competitive process.
The freedom-to-trade perspective . . . stresses the freedom of buyers and sellers to change their trading partners whenever that is mutually beneficial. The aspect of the competitive process that we study here is buyers and sellers exercising this freedom and forming improving coalitions (i.e., new configurations of trading partners). In a highly competitive market a seller who does not give its customers good deals will find that rivals offer better deals to attract these customers. The process of firms fighting over customers and offering them better and better deals raises consumers’ utility skyward. This competitive process is closely aligned with what Schumpeter called creative destruction.
As anyone who has read Schumpeter knows, of course, this is not even close to what he actually meant by creative destruction. (more…)
Blinder: Keynesianism is Right, Because Keynesians Are Really Smart
| Peter Klein |
Alan Blinder’s defense of QE2 is as feeble as Mankiw’s defense of “emergency measures” more generally. Blinder’s argument is simply that QE2 isn’t all that different from standard Keynesian fine-tuning (true) and that Ben Bernanke is smarter than critics like Sarah Palin (duh).”To create the fearsome inflation rates envisioned by the more extreme critics, the Fed would have to be incredibly incompetent, which it is not.” This reminds me of Janet Yellen’s unfortunate 2009 statement that “the Fed’s analytical prowess is top-notch and our forecasting record is second to none. . . . With respect to our tool kit, we certainly have the means to unwind the stimulus when the time is right.”
Blinder apparently thinks that the anti-Keynesian backlash is just some quibbles about this little jot or tittle. He cannot grasp that the growing sentiment against monetary central planning, against fine-tuning, against the whole statist monetary establishment, is a rejection of Keynesianism at the most fundamental level. People are tired of the philosopher kings and their pretense of knowledge.
But this is folly to kings. Consider Blinder’s criticism of Bernanke:
What the Fed proposes to do is neither foolproof nor perfect. Frankly, it’s not the policy I would choose. As I’ve written on this page, I’d like the Fed to purchase private securities and to reduce the interest rate it pays on reserves, even turning it negative. The latter would blast reserves out of banks into some productive uses.
Ah, to think like a king! But the days of the monetary monarchy may be numbered.
Richard T. Ely’s Influence on Woodrow Wilson
| Peter Klein |
Researching and teaching sound economics during the Dark Era (i.e., the Keynesian Revival) can be frustrating and depressing. Keynesian doctrine has been refuted again and again; why won’t this zombie stay dead? What, more generally, is the role of economic education? Can we really transform hearts and minds through reason and dialogue? Or do students and scholars simply seek intellectual cover to justify what they already believe?
Hayek reports that he was originally a mild Fabian but was converted by laissez-faire by Mises’s 1922 book Socialism. Such conversion stories are rare, however, in either direction. With this in mind, I was intrigued by Gary Pecquet and Clifford Thies’s paper, “The Shaping of a Future President’s Economic Thought: Richard T. Ely and Woodrow Wilson at ‘The Hopkins’” (Independent Review, Fall 2010). Pecquet and Thies report that “Woodrow Wilson entered graduate studies at Johns Hopkins University as a classical liberal in his economic views but departed as a progressive. His fateful transformation had much to do with his apprenticeship with Richard T. Ely, who disparaged the laissez-faire policy prescriptions and deductive methodology of classical economics.” Worth a look for those interested in the impact of economic education on economic policy.
Bruce Caldwell on The Road from Mont Pèlerin
| Peter Klein |
Don’t miss Bruce Caldwell’s review of Philip Mirowski and Dieter Plehwe, eds., The Road from Mont Pèlerin: The Making of the Neoliberal Thought Collective (Harvard, 2009). “Mont Pèlerin” refers, of course, to the Mont Pèlerin Society, the association of classical liberal academics and journalists founded by Hayek in 1947. Bruce finds the volume informative, despite its frequently disdainful tone toward its subjects. He also raises an important general point, one that I’ve wrestled with a lot since the financial crisis: does anybody listen to us?
The second question [raised by the book] has to do with the potency of intellectuals to shape world events or, more narrowly, even economic and social policy. It is evident that members of the Mont Pèlerin Society, for all of their diversity, still preferred some form of liberalism . . . to other ways of organizing economic and political affairs. But how important were they in the emerging global consensus that began in the 1980s in favor of trade liberalization and privatization? Were not, for example, the dismal performance of Keynesian demand management policies in the United States, Britain, and elsewhere in the 1970s; the heavy-handed actions of the trade unions in Britain during the “Winter of Discontent”; the sclerotic performance of countries like India who had embraced a modified version of the planning model for their own; and, of course, the patent economic and political failures of the East Bloc, far more important in turning the tide, however briefly, towards globalization? Was not George Stigler (himself a founding member of the Society) right in his comment about economists that “our influence appears to be powerful only when we support policies ripe for adoption” (Stigler 1987, p. 11)?
The Economics of Freedom of Speech
| Nicolai Foss |
Recent, uhhmm, debate here on O&M has made me wonder why we don’t have an economics of freedom of speech. Freedom of speech has been hailed as the fundamental hallmark of free, open societies and a fundamental human right. It is also clear that freedom of speech is under attack, not just by its traditional enemies within various fundamentalist factions of established religions and authoritarian, populist, and socialist/communist regimes, but also by the tendency to turn political disagreements into moral disagreements (in Europe, most prevalent among lefties who just don’t disagree with you but think you are downright evil in case you defend free markets, nuclear power, etc.).
Related to the latter point, increasingly individuals, groups, and nations define certain opinions, political positions, moral judgments, etc. as “hatecrimes.” This position seems increasingly influential in the EU. Proponents of the right to freedom of speech has countered that part of living in a free and open society is that there is simply no right to avoid insults, hurt feelings, and the like. For example, such arguments have been invoked here in Denmark in the aftermath of the Mohammed cartoon crisis, and are currently being leveled against DK legislation regulating blasphemous utterances. However, even the most ardent defenders of freedom of speech draw the line at the explicit verbal promotion of violence against others. And most defenders of freedom of speech would also argue that organizations and associations have the rights to regulate their members’ freedom of speech.
These are clearly externality and property rights issues, and would therefore seem to fall directly within the orbit of economic arguments. And yet, economists have had very little to say about freedom of speech. Specifically, negative or positive externalities are not conventionally seen as including the untraded effects of utterances. One of the few papers that have dealt with these issues, Coase’s “The Market for Goods and the Market for Ideas,” basically argues that if there is a case for regulating the market for goods, there is also a case for regulating the market for ideas (specifically, politicians — which admittedly adds to the attraction of the idea). (more…)
Summary of Dodd-Frank Act
| Peter Klein |
The Dodd-Frank Wall Street Reform and Consumer Protection Act — I’ll refrain from snarks about the title — was signed into law today by President Obama. Here is a very useful summary by William Sweet of the Act’s contents and likely consequences. In a nutshell: “The Dodd-Frank Act effects a profound increase in regulation of the financial services industry. The Act gives U.S. governmental authorities more funding, more information and more power. In broad and significant areas, the Act endows regulators with wholly discretionary authority to write and interpret new rules.” Aren’t you shocked that it passed?
Update: Larry Ribstein is not happy. Weil Gotshal provides further details.
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Hayek Interviews
| Peter Klein |
In 1983 the Earhart Foundation sponsored a lengthy set of interviews with F. A. Hayek in Los Angeles. The transcripts have long been available (and form the basis of the interview parts of Hayek on Hayek), but the complete set of videos has just now been put online, courtesy of the Universidad Francisco Marroquín. The interviewers are an impressive lot as well: James Buchanan, Armen Alchian, Axel Leijonhufvud, Robert Bork, Tom Hazlett, Jack High, Bob Chitester, Leo Rosten, and Earlene Craver. (I hardly recognized the youthful Hazlett!) You can also get the transcripts, if you prefer plain text.
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Quote of the Day, Free Trade and Peace Edition
| Peter Klein |
Go into the London Stock Exchange — a more respectable place than many a court — and you will see representatives of all nations gathered there for the service of mankind. There the Jew, the Mohammedan, and the Christian deal with each other as if they were of the same religion, and give the name of the infidel only to those who go bankrupt. There the Presbyterian trusts the Anabaptist, and the Anglican accepts the Quaker’s promise. . . . If there were just one religion in England, despotism would threaten; if there were two religions, they would cut each other’s throats; but there are thirty religions, and they live together peacefully and happily.
—Voltaire (Letters on England, Letter 6)
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Business Ethics Symposium in Reason Papers
| Peter Klein |
From Reason Papers 31 (Fall 2009):
Articles: Business Ethics Symposium
- Rival Paradigms in Business Ethics —Nicholas Capaldi
- The Need for Realism in Business Ethics —Elaine Sternberg
- The Virtue of Prudence as the Moral Basis of Commerce —Tibor R. Machan
- Hume and Smith on the Moral Psychology of Market Relations, Practical Wisdom, and the Liberal Political Order —Jonathan Jacobs
- Ethics without Profits —Douglas Den Uyl
- Is a Market for Values a Value in Markets? —Alexei Marcoux
- The Sloppiness of Business Ethics —Marianne Jennings
- The Business Ethics of Incarceration: The Moral Implications of Treating Prisons Like Businesses —Daniel D’Amico & Joseph Butt
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Melnyk on Flew
| Peter Klein |
My Missouri colleague Andrew Melnyk penned this nice appreciation of Antony Flew, who passed away 8 April 2010. Flew “was for several decades a heroic defender of classically liberal political philosophy and indeed by far the best known professional philosopher in Britain over that period to champion classical liberalism.” As Andrew notes, “in challenging the spirit of the age as sharply and as unapologetically as he did, he was, and must have known that he was, irreparably damaging his reputation among his overwhelmingly left-leaning professional peers.”
Here are remarks on Flew’s political philosophy from David Gordon, David Conway, and Sean Gabb. Here’s a biographical sketch written for Flew’s 2001 Schlaurbaum Prize, and here’s the acceptance speech.
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Rothbard, Friedman on Health Care
| Peter Klein |
Murray Rothbard and Milton Friedman are no longer with us, unfortunately, but their opinions live on. Lew Rockwell is running a 1994 piece by Rothbard on what was then called Hillarycare, while the Saturday WSJ reprinted a 1996 essay by Friedman on “Soviet-Style Health Care.” My favorite excerpts:
Rothbard on “universal access”:
[T]here is one simple entity, in any sort of free society, that provides “universal access” to every conceivable good or service, and not just to health or education or food. That entity is not a voucher or a Clintonian ID card; it’s called a “dollar.” Dollars not only provide universal access to all goods and services, they provide it to each dollar-holder for each product only to the extent that the dollar-holder desires.
Friedman, quoting a a physician character in Solzhenitsyn’s 1967 novel The Cancer Ward, on Soviet-style “free” health care:
What do you mean by “free”? The doctors don’t work without pay. It’s just that the patient doesn’t pay them, they’re paid out of the public budget. The public budget comes from these same patients. Treatment isn’t free, it’s just depersonalized. If the cost of it were left with the patient, he’d turn the ten rubles over and over in his hands. But when he really needed help he’d come to the doctor five times over. . . .
Is it better the way it is now? You’d pay anything for careful and sympathetic attention from the doctor, but everywhere there’s a schedule, a quota the doctors have to meet; next! . . . And what do patients come for? For a certificate to be absent from work, for sick leave, for certification for invalids’ pensions: and the doctor’s job is to catch the frauds. Doctor and patient as enemies — is that medicine?
Mannepalooza at Austrian Scholars Conference
| Peter Klein |
Tune in here at 3:45 EST today for a live broadcast of the ASC session, “The Contributions of Henry G. Manne,” organized by yours truly. Panelists include me, Alexandre Padilla, Richard Vedder, Thomas DiLorenzo, and Henry Manne. And buy your copy of the Collected Works.
Update: audio files are now available: Klein, Padilla, Vedder, DiLorenzo, Manne.
Mises Quote of the Day
| Peter Klein |
Nothing can be known about such matters as inflation, economic crises, unemployment, unionism, protectionism, taxation, economic controls, and all similar issues, that does not involve and presuppose economic analysis. All the arguments advanced in favor of or against the market economy and its opposites, interventionism or socialism (communism), are of an economic character. A man who talks about these problems without having acquainted himself with the fundamental ideas of economic theory is simply a babbler who repeats parrotlike what he has picked up incidentally from other fellows who are not better informed than he himself.
This is from Mises’s introduction to the 1959 edition of Böhm-Bawerk’s massive 3-volume set, Capital and Interest. Mises gives some further admonitions: “A man not perfectly familiar with all the ideas advanced in these three volumes has no claim whatever to the appellation of an economist.” This is, shall we say, a minority view. And my personal favorite: “A citizen who casts his ballot without having studied to the best of his abilities as much economics as he can fails in his civic duties. He neglects using in the appropriate way the power that his citizenship has conferred upon him in giving him the right to vote.”
Those lacking time to study Capital and Interest in its entirety may enjoy this new edition of Böhm-Bawerk’s essay “Control or Economic Law,” which is more easily digested.
I, Taco
| Peter Klein |
Some California design students tracked the ingredients in their favorite local taco and came up with this cool image.
Of course, it’s supposed to show us the horror of all those food miles, but what I see is the miracle of the market.
Comparative Institutional Analysis and the New Paternalism
| Peter Klein |
Comparative institutional analysis — defined as the assessment of feasible organizational or policy alternatives — is at the heart of the new institutional economics. Most economists and management scholars recognize, at least implicitly, that individuals and organizations don’t think, act, and choose with reference to some kind of global optimum, but are always evaluating trade-offs among imperfect alternatives. Yet, when it comes to public policy, even trained economists and strategy scholars easily lapse into Nirvana mode. Recent examples discussed her at O&M include the debate over Fed independence, the role of financial regulators more generally, and the “soft” or “libertarian” paternalism favored by Obama’s man Cass Sunstein, among others.
The new paternalism literature suggests that private actors suffer from biases and cognitive limitations such as lack of willpower or self-control, status quo bias, optimism bias, and susceptibility to framing effects leading them to make decisions that are inconsistent with their own preferences. By making marginal changes to the options available to market participants (“nudges”), the private benefits and costs of various actions, and the informational environment in which choices are made, market participants can be led to make “better” choices without reliance on heavy-handed, top-down regulation. The problem, of course, is that this literature virtually ignores the cognitive and behavioral limitations affecting policymakers. Incentive problems are an obvious example, along with the “slippery-slope” problem: the vulnerability of new paternalist proposals “to slippery slopes that can lead from modest paternalism to more extensive paternalism” (Rizzo and Whitman, 2009, p. 667).
Mario Rizzo and Glen Whitman’s have written an excellent set of papers on the new paternalism, the latest of which focuses on the knowledge problem, and how dispersed, tacit knowledge about preferences and constraints limits policymakers’ ability to plan paternalist policies that actually make people better off. The paper is here, and Mario blogs about it here. Highly recommended!
The Capitalist Kibbutz
| Peter Klein|
That’s how the Financial Times headlines this fascinating story about the transformation of many Israeli kibbutzim into partially privatized, profit-seeking, professionally managed entities that act in capital, product, and factor markets just like private firms. There are some similarities with the end of the socialist experiment in Russia: “‘The kibbutz was never isolated from society,’ says Shlomo Getz, the director of the Institute for Research of the Kibbutz at Haifa University. ‘There was a change in values in Israel, and a change in the standard of living. Many kibbutzniks now wanted to have the same things as their friends outside the kibbutz.”
The bottom line, from economist and former kibbutznik Omer Moav: “People respond to incentives. We are happy to work hard for our own quality of life, we like our independence. It is all about human nature — and a socialist system like the kibbutz does not fit human nature.” (Via BK Marcus.)
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