Posts filed under ‘Classical Liberalism’

Social Justice Quote of the Day

| Peter Klein |

Hayek, interviewed in 1983 by Encounter:

Hayek: “I regard ‘social justice’ as a nonsensical term….”

Interviewer: “But do we have the concept of the ‘social market economy’?”

Hayek: “May I tell you the story of when I last spoke to Dr. Ludwig Erhard? We were alone for a moment, and he turned to me and said, ‘I hope you don’t misunderstand me when I speak of a social market economy (Sozialen Marktwirtschaft). I mean by that that the market economy as such is social, not that it needs to be made social. . . .’ If you had to make the market economy ‘social,’ . . . you can justify every demand that cannot be reconciled with having the market determine prices and incomes. There’s no better way of destroying the market economy than with the concept of ‘social justice.'”

27 October 2012 at 9:10 am 2 comments

Luigi Zingales Blogging on EconLog

| Peter Klein |

Luigi Zingales, an important contributor to organizational economics as well as finance and macroeconomics, and frequently cited here at O&M, is guest blogging at EconLog. I’m looking forward to his posts!

1 October 2012 at 11:06 pm 1 comment

With the Pols

| Peter Klein |

Two years ago I was in D.C. on Hayek-Klein day and found myself on an elevator with Ben Bernanke, upon which I persuaded him to sing me a few bars of Happy Birthday. True story. This year I was in D.C. again, this time to give an organizational economist’s perspective on the Federal Reserve System to the House Financial Services Committee’s Subcommittee on Domestic Monetary Policy and Technology. You can read my written testimony here and see the oral remarks at C-SPAN which has archived the event.

That’s Jeff Herbener to my right and John Taylor to my left, with Jamie Galbraith by Taylor. The one on the end is not Yoda, but Alice Rivlin.

Because the hearing was televised, I can truthfully say, “I’m not a macroeconomist, but I play one on TV.”

8 May 2012 at 2:52 pm 4 comments

The Bizarro World of Professor Sen

| Peter Klein |

Here is another of those head-scratchers, this one from Amartya Sen, about how neoclassical economics is partly responsible for the financial crisis because neoclassical economists believe that markets work “perfectly”:

Since the crisis broke out the economics profession in general and mainstream economics in particular have been severely criticised. Do you think this is justified?

The criticism of mainstream economics is justified to a limited extent. It is certainly true that the focus of attention in mainstream economics has tended to be on assuming the market to be working perfectly and there being no need for regulation. However, while this view has been a very dominant part of mainstream economics, you have to bear in mind that mainstream economics is not all centered around one unified theme. I don’t think all of mainstream economics should be held responsible.

Do you think that neoclassical macro economists should bear the brunt of the blame?

This would be an oversimplification. Neoclassical economics has many different paths. There are mainstream neoclassical economists who have been very critical of the complete reliance on the markets.

I’ve been around neoclassical economists since my undergraduate days and I can’t think of a single neoclassical economist who says that markets work “perfectly” and favoring “complete reliance on the markets.” David Friedman comes to mind, but even his arguments for anarchism are not based on the belief that markets are somehow “perfect,” but that they are less imperfect than regulation. The truth, of course, is that virtually all neoclassical economists favor a substantial amount of economic regulation — government production of law and order, government control of the monetary system, competition policy, and other government actions to combat purported market failures.

Statements like Sen’s make sense only as a rhetorical ploy to fool the reader. If the mainstream thinks, say, that government should control 25% of the economy, and you think government should control 75%, you describe the mainstream as “extremists” who believe in “no government,” thus making your position seem like a reasonable middle ground.  Krugman of course employs the same rhetorical strategy. Sen is obviously too intelligent to mean what he says literally, so I can only assume mendacity. Am I missing something?

26 April 2012 at 10:12 am 2 comments

Review of Allen’s Institutional Revolution

| Peter Klein |

I wrote earlier about Doug Allen’s The Institutional Revolution (University of Chicago 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.

7 February 2012 at 10:16 pm Leave a comment

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…)

23 January 2012 at 10:00 am 6 comments

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.

30 November 2011 at 1:23 am Leave a comment

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