Organizations and Markets

| Peter Klein |

Railing against corporate dictatorship, delocator.net helps consumers find locally-owned cafes, bookstores, and movie theatres in their area — alternatives to the “invasion” of Starbucks, Borders, and their ilk. The site itself is actually quite an interesting capitalist idea in its freshness and creativity, and people certainly should eat or drink or shop where they are most comfortable. That’s the beauty of competition! And the kind of community-building that often takes place at familiar, time-tested, local shops is to be encouraged.

But to say local businesses possess some kind of moral magic simply by virtue of being family-owned and homey is preposterous.

That’s Brooke Levitske, writing on the Acton PowerBlog. Recently a friend asked what I thought of Wendell Berry and his agrarian, anti-industrial philosophy. My response was similar: If people wish to live according to these principles, more power to them. I object only when materialist urbanites are forbidden by law from pursuing their own path to enlightenment.

Incidentally, does anyone remember the WSJ article a few years back suggesting that local cafes benefit when Starbucks moves to town? The theory is that the presence of a Starbucks increases local demand for premium coffee, providing spillover benefits to local stores. I haven’t seen any systematic evidence on this, however.

| Peter Klein |

Five principles of Jewish economic theory, as described in Judaism, Markets, and Capitalism: Separating Myths from Reality by Corinne Sauer and Robert M. Sauer (forthcoming from the Acton Institute):

• Work, creative activity, and innovation are the avenues through which the divine image is expressed.
• Private property rights are essential and must be protected.
• The accumulation of wealth is a virtue not a vice.
• Man has an obligation to care for the needy through charitable giving.
• Government is inefficient and concentrated power is dangerous.

Sauer and Sauer compare this passage in 1 Samuel to Hayek’s warnings in The Road to Serfdom: (more…)

| Chihmao Hsieh |

Remember the times when families would get together at the dinner table for a meal and little Johnny would yell out, “Can we turn on the TV during dinner?” Ah yes, those were the good ol’ days.

How 1990s.

Nowadays, as highlighted in this AP article released today, television is not only losing its grip on families but also on individuals. (more…)

| Peter Klein |

Back to cognitive biases and heuristics. One interesting and common example is a sort of stereotype or social category bias. To make sense out of complex information about people we often think in terms of clusters of attributes, assuming that individuals possessing one trait in the cluster possess the other traits as well. Economics professors, for example, tend to be logical, systematic, nerdy, and socially awkward. If we meet someone who is logical, systematic, and nerdy, we assume he is also socially awkward, even without knowing anything specific about his social skills.

This came to my mind last fall when when reading about Mel Gibson’s film Apocalypto. Gibson’s Passion of the Christ made him a hero among conservative Christians. In promoting Apocalypto, an action-adventure set during the twilight of the Mayan empire, Gibson was harshly critical of the Bush White House, likening the US invasion and occupation of Iraq to Mayan imperialism and the death of US soldiers to Mayan human sacrifice. In response, the conservative film critic Michael Medved accused Gibson of selling out to “Hollywood liberals.” (more…)

| Peter Klein |

Dan Hammond shows how economists approach religion with this cheeky  summary of Ekelund, Hébert, and Tollison’s Marketplace of Christianity (MIT, 2006).

The Roman Catholic Church had an enviable monopoly for centuries, so powerful that it was able to engage in first degree price discrimination. Like all monopolists, though, it struggled with technical inefficiency and potential entry. The former manifested itself in excess capital investment in beautiful cathedrals and paintings. To forestall entry it practiced usual monopolistic techniques such as limit pricing, but also tortured and killed competitors. By the end of the fifteenth century the Vatican’s pursuit of ever larger monopoly rents against the background of technological progress (the printing press) set the stage for successful entry by an entrepreneurial monk named Martin Luther. Once Luther’s firm got a foothold, all hell broke loose. Actually, it was not all hell; it was all heaven. For as every student of economics learns, when monopoly gives way to competition consumer surplus expands. There were direct gains for consumers as the price fell from the breakup of the Catholic monopoly and, in addition, the entrants lowered real production costs.

The latter welfare gains warrant explanation. What happened is that the entry of Protestant firms reduced the real cost of itch relief by doing away with ornate churches, daily masses, pilgrimages, sacraments, and middlemen confessors. This is a classic case of efficiency gains from entrepreneurial innovation, not unlike the more recent case of Wal-Mart.

And you wonder why people worry about economic imperialism?

| Peter Klein |

Brief follow-up to our earlier post on the Galileo Legend. Happened to catch on the radio today “Galileo” by the Indigo Girls, from their 1992 album Rites of Passage. The song opens thusly:

Galileo’s head was on the block
the crime was looking up for truth
and as the bombshells of my daily fears explode
I try to trace them to my youth

The chorus, a fortiori, makes Galileo into a sort of secular saint:

How long till my soul gets it right
can any human being ever reach that kind of light
I call on the resting soul of Galileo
king of night vision, king of insight

I’ll buy the “king of night vision” part — Galileo’s greatest achievement, after all, was his improvements to the telescope — but “king of insight” seems a little extreme. (It’s a catchy tune, however.)

| Peter Klein |

Entrepreneurship has been described as charismatic leadership or charistmatic authority. But what exactly is charisma?

The WSJ’s Saturday edition reviews Philip Rieff’s posthumously published Charisma: The Gift of Grace, and How It Has Been Taken Away from Us. Rieff, the distinguished cultural sociologist who taught at Brandeis, Berkeley, Harvard, and Penn, began the book in the late 1960s but went on to other projects, completing it just before his death earlier this year. Reviewer Adam Wolfson describes the book as a jeremiad against popular culture, much like Allan Bloom’s Closing of the American Mind. (more…)

| Cliff Grammich | 

The Intercollegiate Studies Institute has announced its 2006 Templeton Enterprise Award winners.  The awards are “presented annually to scholars under forty who have produced the very best books and articles in the field of humane economics and culture over the past two years.” Many of the honored works, e.g., Thomas Woods’ The Church and the Market, provide an interesting reconciliation of (Catholic) Church teaching with free market economics, drawing inferences one won’t typically see in staff work of the bishops’ conferences. 

| Steven Postrel |

Arnold Kling has proposed that “libertarian conservatives” form an “Ideological Affirmation Task Force” (IATF) and requested comments on an initial draft of such an affirmation. Borrowing the lingo of Internet governance, he calls this an “IATF RFC.” I loosely qualify to be part of the interested group, so here are a few random thoughts, not a systematic treatise, on his first draft (which is a quick read, so you might want to look at it): (more…)

| Peter Klein |

Speaking of social capital. . . . In case you missed it, there was a recent flap over research by Robert Putnam purportedly showing that racial and ethnic diversity is harmful to social capital. A Financial Times column broke the story in October 2006, implying that Putnam — feeling guilty about the study’s politically incorrect implications — was delaying or suppressing the results. Putnam put out a press release claiming the newspaper report was one-sided, though not addressing the claim that he was holding back the findings.

Steve Sailer calls Putnam’s remarks to the FT, while in Sweden to receive a prize for his work in Bowling Alone, “one of the more irony-laden incidents in the history of celebrity social scientists.” Arnold Kling thinks Putnam is a publicity hound who “position[s] his research in ways to maximize sensationalist coverage, and then complain[s] about sensationalist coverage.”

| Cliff Grammich | 

Peter kindly draws my attention to a study by Neil Gross at Harvard and Solon Simmons at George Mason, released last fall but discussed this week here, here, and here, about religiosity of American professors. Among the findings: (more…)

| Peter Klein |

We noted previously how little most practicing scientists know about the history and philosophy of science. In many cases this is harmless; does the average chemist really need to know Lavoisier from Priestly? However, when scientists speak and write about the meaning of science, the role of science in society, public policy toward science, and such broader issues, such ignorance can be devastating.

An example is the legend that Galileo Galilei was persecuted by the Catholic Church for his heretical belief that the earth revolves around the sun. In popular myth Galileo represents the lone crusader, the revolutionary with the courage to speak out against the Establishment and the popular fallacies of his day. Don Boudreaux titles an (otherwise excellent) item on free trade “What Galileo Must Have Felt,” writing that “[w]hen I read or hear protectionists such as Sen. Byron Dorgan, I think that I can imagine what Galileo felt as he listened to the Leaders of his day insist that the sun revolves around the earth.”

The problem is that the leaders of Galileo’s day didn’t think the sun revolves around the earth. My former colleague Thomas Lessl is an expert on Galileo, and from him I learned that virtually every aspect of the Galileo legend is false. (more…)

| Peter Klein |

James Emery White, president of the highly regarded Gordon-Conwell Theological Seminary, is thinking about Ronald Coase. In a year-end reflection he writes that the most important phenomena of 2006, for religious organizations, may be the wiki, the blog, and the virtual firm.

[W]hat began with eBay, MySpace, Wikipedia and YouTube may not stop with revolutionizing how companies such as Goldcorp or Proctor and Gamble operate (or are even identified). The heart of the change involves the ever-widening rejection of professional/intellectual elites, and the diminution of those organizations which exist as either the gathering of such elites, or serve as the repositories of their supposedly exclusive knowledge. Further, those organizations that were once thought necessary for basic transactions of other natures — such as communal transactions — may also face a rude awakening.

Such as the church.

As posed by [an article in] USA Today, “So if a core reason companies exist is to lower transaction costs, what happens if that reason goes away?” Do we have reasons for such institutions as a school, newspaper, court of law, or church beyond “transaction costs?” And my great fear is for the church, particularly in light of the woefully inadequate and often heretical ecclesiology present within the Christian faith at large which is already reducing both the value and definition of the church to utilitarian forms.

The economics of religion is a growing field (see Larry Iannaccone’s resource page), but I’m not aware of much work by economists or sociologists on the impact of technology on the existence, boundaries, an internal structure of religious organizations. Any suggestions?

| Nicolai Foss |

Danish party politics is essentially all a variation on one basic theme. Thus, we have extreme left social democrats, less lefty social democrats, middle-of-the-road social democrats, and conservative social democrats.  The conservatism of the latter, currently in power, lies in their wish to keep the total tax burden at its current level (which given the recently announced Swedish tax cuts will make Denmark the World leader in income taxation). The other social democrats essentially wish to let the tax burden increase, and few see any problems with a marginal tax rate that goes into the 70s and beyond.  All in the name of equality, of course. 

Recently, the  minister of social affairs made a major faux pas that upset virtually everyone. She argued that economic equality should not be seen as an independent policy goal.  Her political life barely survived the media turmoil that immediately arose. The predictable “jungle law,” “heartless market mentality,”"egoistic conservatism,” etc. labels were applied to the minister’s apostasy. The moral outrage was immense.

Enter Arthur C. Brook’s Who Really Cares? The Surprising Truth About Compassionate Conservatism which I am reading at the moment.  It amounts to a frontal, data-based attack on the ideology that underlies redistributionism, that is,”in lieu of statist redestribution, nobody would really care for the poor, and most certainly not conservatives and libertarians.” (more…)

| Nicolai Foss |

Although it lies somewhat outside the scope of the Pomo Periscope (cf. this and this), Steven LaTulippe has an interesting commentary, “Statism, Post-Modernism, and the Death of the Western World,” at LewRockwell.com that simultaneously blasts post-modernism and defends cultural conservatism, while reaching from “Sex and the City” (here is another great blasting of that show) to Oswald Spengler.  It is a bit like “Scruton light.” (more…)

| Peter Klein |

Lest the “Pomo Periscope” series below make you think we at O&M are anti-literary or anti-narrative, let me tell you about one of my favorite literary scholars, University of Virginia professor Paul Cantor. A specialist in Shakespeare and English Romanticism, Cantor has recently begun writing about the relationship between literature and economic theory (and, in his Gilligan Unbound, the relationship between economics and pop culture).

Cantor burst on the (economics) scene with a 1994 article in the Review of Austrian Economics, “Hyperinflation and Hyperreality: Thomas Mann in Light of Austrian Economics.” Focusing on Mann’s 1925 short story “Disorder and Early Sorrow,” set in the waning days of the Weimar Republic, Cantor explores the parallels between hyperinflation and “hyperreality,” the condition of being unable to distinguish fact from fiction. “If modernity is characterized by a loss of the sense of the real,” writes Cantor, “this fact is connected to what has happened to money in the twentieth century.” Mann’s story, as interpreted by Cantor, illustrates how closely the commercial and cultural worlds are linked. (Cantor has also written about the economic views of such diverse literary and cultural figures as Percy Bysshe Shelley and W. C. Fields.)

Here is a series of Cantor lectures from a July 2006 seminar on “Commerce and Culture.” Topics include “The Economic Basis of Culture”; “The Economics of Painting: Patronage vs. the Market”; “The Economics of Classical Music: Patronage vs. the Market”; “The Economics of Modernism”; and “Totalitarianism and the Arts in the 20th Century.” All are well worth watching.

| Peter Klein |

A German entrepreneur wants to create a nostalgic smokers’ haven above the clouds by starting a nicotine-friendly airline offering Cuban cigars, caviar and flight attendants in designer uniforms — as well as smoking allowed in every seat.

Thanks to Lew Rockwell for the link. Incidentally, starting in January 2007 smokers in my town of Columbia, Missouri, will be banned from all restaurants, bars, and even the most sacred space of any American college town — the football stadium.

| Peter Klein |

What would Dalrymple say about this?

| 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…)

| Peter Klein |

Astute readers will have noticed this blog’s professed interest in both classical liberalism (or libertarianism) and cultural conservatism. But are they compatible? Classical liberals are often portrayed as social and cultural libertines, products of the Enlightenment, modernism, and the secular revolt of Reason against traditional moral authority. Indeed, responding to an earlier post on the political leanings of sociologists, a commentator wrote: “I am honestly curious about how you square the rational ambitions of classical liberalism with the irrational conservative ideals on ‘orthodox Christianity’ and reliance on Authority?”

The answer is simple: classical liberalism is a political doctrine, and cultural conservatism is, well, a cultural doctrine — more precisely, a set of social, cultural, and moral beliefs or principles. (more…)

| Peter Klein |

It’s no secret that academic intellectuals tend to favor socialism and interventionism over the free market, agnosticism and warm-and-fuzzy universalism over orthodox Christianity, cultural relativism over tradition and authority, and so on. Indeed, studies of US professors’ political affiliations consistently find a strong leftward bias. Hayek ascribed the hostility of the intellectual classes toward capitalism to selection bias. Schumpeter noted the intellectual’s “absence of direct responsibility for practical affairs,” emphasizing “the intellectual’s situation as an onlooker — in most cases, also an outsider — [and] the fact that his main chance of asserting himself lies in his actual or potential nuisance value” (Capitalism, Socialism, and Democracy, 3rd ed., p. 147).

Now comes a new study of academics’ political affiliations using voter-registration records for tenure-track faculty at 11 California universities. The study, by Christopher F. Cardiff and Daniel B. Klein, finds an average Democrat:Republican ratio of 5:1, ranging from 9:1 at Berkeley to 1:1 at Pepperdine. The humanities average 10:1, while business schools are at only 1.3:1. (Needless to say, even at the heartless, dog-eat-dog, sycophant-of-the-bourgeoisie business schools the ratio doesn’t dip below 1:1.)

Here’s the most interesting finding. What department has the highest average D:R ratio? You guessed it: sociology, at 44:1. Perhaps some of our readers of the sociological persuasion could tell us why, and what this means. (more…)

| Peter Klein |

Among the last published papers of the libertarian polymath Murray N. Rothbard — one of my intellectual heroes — is his 1994 article “Nations by Consent: Decomposing the Nation-State.” Here Rothbard distinguishes sharply between the state, as a political entity, and the nation, a “complex and varying constellation of different forms of communities, languages, ethnic groups, or religions.” He goes on to develop a theory of appropriate national boundaries, based on the principle of volunary association and the empirical claim that people tend to associate with particular familial, linguistic, cultural, and religious groups. “One goal for libertarians should be to transform existing nation-states into national entities whose boundaries could be called just, in the same sense that private property boundaries are just; that is, to decompose existing coercive nation-states into genuine nations, or nations by consent.”

A March 2006 working paper by Alberto Alesina, William Easterly, and Janina Matuszeski, “Artificial States,” proposes several measures of the degree to which state boundaries are “natural” — corresponding roughly to Rothbard’s nations — or “artificial.” One measure identifies state borders that split ethnic groups into separate states, while another uses fractal geometry to characterize borders as straight or squiggly, assuming that straight borders are more likely to be articifially drawn and not corresponding to natural geographic or ethnic boundaries. The authors show that their measures are closely correlated with the usual measures of national economic performance (the more natural, the better).

What does all this have to do with organizations? The capabilities literature distinguishes between firm boundaries that are “natural,” or organic, and those that are artificially constructed. (more…)