Posts filed under ‘History of Economic and Management Thought’
| Peter Klein |
An important announcement from Ning Wang, editor of Man and the Economy:
Man and the Economy
Call for Papers for a Special Issue in Memory of Ronald Coase
“R. H. Coase: The Man and His Ideas”
Man and the Economy will devote a special issue (December 2014) to the life and ideas of Ronald Coase, the 1991 Nobel Laureate in Economics and Founding Editor of this journal. During his long academic life, Coase devoted himself to economics, which, in his view, should investigate how the real world economy works, with all its imperfections. Coase viewed and practiced economics as a social science, a study of man creating wealth in society through various institutional arrangements. To honor the memory of Coase, we welcome original research articles that extend and develop the Coasian economics, including empirical studies of the structure of production and exchange. We also welcome critical and constructive commentaries that clarify and elaborate the Coasian themes, from a law-and-economics/new institutional economics perspective, which include, but not limited to, topics on transaction costs, property rights, theories of the firm and China’s economic transformation. In addition, we also welcome personal reflections and reminiscences of Coase as a colleague, a teacher, an editor, and/or a friend.
Submissions must be made online via the Journal’s website: http://www.degruyter.com/view/j/me
Deadline for submissions is September 30, 2014.
| Nicolai Foss |
In modern standard economics, property rights as an analytical category are mainly associated with the work of Oliver Hart, largely because of his important work, with Sanford Grossman, John Moore and others, on asset ownership in the context of the boundaries of the firm (the pioneering paper is here). Many modern (younger) economists don’t seem to know of the older property rights tradition, associated with Coase, Alchian, Demsetz, Cheung, Barzel, Furubotn, Umbeck, Alston, Libecap, Eggertson et al. Given the prevalent Whig interpretation of the evolution of economic theory, one may be led to the belief that the modern approach superseded or incorporated everything that was sound in the older, verbal approach, while advancing property rights thinking in rigorous game-theoretical terms.
With a frequent co-author, I have penned a paper, “Coasian and Modern Property Rights Economics: A Case of Kuhnian Lost Content,” that argues that such a view is false. In fact, we argue that there has been something akin to a Kuhnian “loss of content” (Kuhn, 1996) in the move from Mark I to Mark II property rights economics. What we call “property rights economics Mark II” is a more narrow approach in terms of the phenomena that are investigated, namely why it matters who owns the asset(s) in a relation that spans at least two stage of production in a value chain. In contrast, “property rights economics Mark I” was taken up with the complex and contingent nature of real ownership arrangements, and pointed to the many margins on which individual can exercise capture of rights, how they seek to protect their rights, the resources consumed in this process, and the role of institutions in facilitating and constraining such processes. This institutional research program is considerably richer than the one implied by Mark II property rights economics.
| Peter Klein |
A common myth is that successful technology companies are founded by people in their 20s (Scott Shane reports a median age of 39). Entrepreneurial creativity, in this particular sense, may peak at middle age.
We’ve previously noted interesting links between the literatures on artistic, scientific, and entrepreneurial creativity, organization, and success, with particular reference to recent work by David Galenson. A new survey paper by Benjamin Jones, E.J. Reedy, and Bruce Weinberg on age and scientific creativity is also relevant to this discussion. They discuss the widely accepted empirical finding that scientific creativity — measured by high-profile scientific contributions such as Nobel Prizes — tends to peak in middle age. They also review more recent research on variation in creativity life cycles across fields and over time. Jones, for example, has observed that the median age of Nobel laureates has increased over the 20th century, which he attributes to the rapid growth in the body of accumulated knowledge one must master before making a breakthrough scientific contribution (the “burden of knowledge” thesis). Could the same hold through for founders of technology companies?
| Peter Klein |
Some interesting review issues and special collections are hot off the virtual presses. The Journal of Management has just released its annual review issue with a number of valuable papers, including this one of particular interest to the O&M crowd:
The Many Futures of Contracts: Moving Beyond Structure and Safeguarding to Coordination and Adaptation
Donald J. Schepker, Won-Yong Oh, Aleksey Martynov, and Laura Poppo
In this article, we review the literature on interfirm contracting in an effort to synthesize existing research and direct future scholarship. While transaction cost economics (TCE) is the most prominent perspective informing the “optimal governance” and “safeguarding” function of contracts, our review indicates other perspectives are necessary to understand how contracts are structured: relational capabilities (i.e., building cooperation, creating trust), firm capabilities, relational contracts, and the real option value of a contract. Our review also indicates that contract research is moving away from a narrow focus on contract structure and its safeguarding function toward a broader focus that also highlights adaptation and coordination. We end by noting the following research gaps: consequences of contracting, specifically outcome assessment; strategic options, decision rights, and the evolution of dynamic capabilities; contextual constraints of relational capabilities; contextual constraints of contracting capabilities; complements, substitutes, and bundles; and contract structure and social process.
The always-interesting Strategic Organization has also released a package of previously published papers as a virtual special issue titled “Whither Strategy?” I have a soft spot for anything using the word “whither,” but this is a great collection by any name. Check out the ToC:
- Advancing strategy and organization research in concert: Towards an integrated model? | Durand, R. 2012. Volume 10, Issue 3. pp.297-303
- The end of strategy? | Farjoun, M. 2007. Volume 5, Issue 3. pp.197-210
- Strategic organization: A field in search of micro-foundations | Felin, T., & Foss, N.J. 2005. Volume 3, Issue 4. pp.441-455
- The disintegration of strategic management: it’s time to consolidate our gains | Hambrick, D.C. 2004. Volume 2, Issue 1. pp.91-98
- Stylized facts, empirical research and theory development in management | Helfat, C.E. 2007. Volume 5, Issue 2. pp.185-192
- So you call that research?: mending methodological biases in strategy and organization departments of top business schools | Heugens, P., & Mol, M.J. 2005. Volume 3, Issue 1. pp.117-128
- Process thinking in strategic organization | Langley, A. 2007. Volume 5, Issue 3. pp.271-282
- The field of strategic management within the evolving science of strategic organization | Mahoney, J.T., & McGahan, A.M. 2007. Volume 5, Issue 1. pp.79-99
- Walking the walk as well as talking the talk: replication and the normal science paradigm in strategic management research | Mezias, S.J., & Regnier, M.O. 2007. Volume 5, Issue 3. pp.283-296
- Paradigm prison, or in praise of atheoretic research | Miller, D. 2007. Volume 5, Issue 2. pp.177-184
- The Strategy Research Initiative: Recognizing and encouraging high-quality research in strategy | Oxley, J.E., Rivkin, J.W., & Ryall, M.D. 2010. Volume 8, Issue 4. pp.377-386
- The brain as substitute for strategic organization | Powell, T.C., & Puccinelli, N.M. 2012. Volume 10, Issue 3. pp.207-214
- The cultural side of value creation | Ravasi, D., Rindova, V., & Dalpiaz, E. 2012. Volume 10, Issue 3. pp.231-239
- A sociological perspective on strategic organization | Ruef, M. 2003. Volume 1, Issue 2. pp.241-251
- Strategy-as-practice meets neo-institutional theory | Suddaby, R., Seidl, D., & Le, J.K. 2013. Volume 11, Issue 3. pp.329-344
- How to connect strategy research with braoder issues that matter? | Vaara, E., & Durand, R. 2012. Volume 10, Issue 3. pp.248-255
- Big Strategy/Small Strategy | Whittington, R. 2012. Volume 10, Issue 3. pp.263-268
| Peter Klein |
I believe it was Alan Coddington who coined the term “hydraulic Keynesianism” to describe the typical macroeconomics textbooks of the 1950s, “conceiving the economy at the aggregate level in terms of disembodied and homogeneous flows.” The term also has a great visual quality, bringing forth an image of the economy as a giant machine with pumps and tubes and dials and levers, carefully controlled by wise government planners. (Such a machine was actually built by Bill Phillips of Phillips Curve fame.)
Apparently the Atlanta Fed has produced an educational video, “Money as Communication,” solemnly explaining the vital role of the Federal Reserve System in maintaining price stability. Mike Shedlock provides an amusing point-by-point commentary on the video, which surely ranks among the best of government propaganda films. I especially liked the image below, taken from the video, which neatly encapsulates the Fed’s view of its own role in the economic system.
The woman at the keyboard has the wrong hair color to be Janet Yellen, and the man in the middle has too much hair to be Ben Bernanke, but I’m sure the intended audience — schoolchildren and New York Times reporters — will get the idea.
Update: Here is an earlier post by Nicolai on the Phillips Machine.
| Dick Langlois |
I was saddened to learn of the recent passing of Gordon Winston, an interesting economist who should have been better known (to readers of this blog) than he was.
I’m sure I knew of Gordon when I was a student at Williams in the early 1970s, but as I didn’t take any economics as an undergraduate, I never had any contact with him. I really first met him when he interviewed me for a job at Williams in 1983 (which I didn’t get — not his fault). We kept in contact for a number of years after that, including during at least one Liberty Fund conference in the 1980s.
Gordon is probably best known for his later work on the economics of higher education, which I use in teaching. But readers might be even more interested in his earlier work on the timing of economic activities, which resulted in a 1982 Cambridge book by that title. In essence, Gordon was trying to work out in detail how to think about time in a production-function model of economic activity, something that the late Armen Alchian had adumbrated in his famous paper “Costs and Output” (the original 1958 RAND working paper version of which is now available here). Gordon cites Lachmann and Shackle, but I think his biggest influence was Georgescu-Roegen. The book ought to be especially interesting to grad students, since I suspect it opens up a lot of ideas for further exploration.
| Peter Klein |
It’s been another fine year at O&M. 2013 witnessed 129 new posts, 197,531 page views, and 114,921 unique visitors. Here are the most popular posts published in 2013. Read them again for entertainment and enlightenment!
- Rise of the Three-Essays Dissertation
- Ronald Coase (1910-2013)
- Sequestration and the Death of Mainstream Journalism
- Post AoM: Are Management Types Too Spoiled?
- Nobel Miscellany
- The Myth of the Flattening Hierarchy
- Climate Science and the Scientific Method
- Bulletin: Brian Arthur Has Just Invented Austrian Economics
- Solution to the Economic Crisis? More Keynes and Marx
- Armen Alchian (1914-2013)
- My Response to Shane (2012)
- Your Favorite Books, in One Sentence
- Does Boeing Have an Outsourcing Problem?
- Doug Allen on Alchian
- New Paper on Austrian Capital Theory
- Hard and Soft Obscurantism
- Mokyr on Cultural Entrepreneurship
- Microfoundations Conference in Copenhagen, June 13-15, 2014
- On Academic Writing
- Steven Klepper
- Entrepreneurship and Knowledge
- Easy Money and Asset Bubbles
- Blind Review Blindly Reviewing Itself
- Reflections on the Explanation of Heterogeneous Firm Capability
- Do Markets “React” to Economic News?
Thanks to all of you for your patronage, commentary, and support!
| Peter Klein |
Former guest blogger Steve Postrel weighs in on the future of the dynamic capabilities approach (reprinted, with permission, from a thread on Academia.edu). Steve responds to the question, “Is the dynamic capabilities approach outdated?” with some typical insightful remarks.
Since DC is primarily an ex post facto construct measured by sampling on the dependent variable — i.e., if the firm successfully adapts, then it had DC — its prominence is not a sign that it is doing much intellectual work. . . .
[T]o a first approximation, arguments for the importance of DC have tended to be of the form “We know a priori that firms need to be able to change their operational capabilities from time to time; we have examples of successful firms that have adapted in this way and examples of less-successful firms that haven’t; therefore we can say that the successful adapters had more of this valuable thing we will call ‘dynamic capability.’”
Certainly there have been empirical papers that do better than that, by, for example, trying to look at firms that have adapted multiple times, or by identifying specific organizational structures and practices that might enhance adaptability. The difficult issue with looking at a “precursor” like experience is that theoretically experience could reduce DC by causing specialization and lock-in. Other putative precursors suffer from the ex post measurement problem — how do we know if a firm has the right knowledge for adaptation until we see whether it succeeds?
I suspect there are also deeper conceptual problems because DC is equivocal even with perfect measurement. It would be pretty hard to specify what one meant by the “amount” of DC a firm has or to compare the “amounts” that any two firms have. DC is certainly not a completely ordering relation and I’m not sure it’s even a partial order. Without presenting formal models and going back and forth between those and peoples’ intuition about what DC is “supposed” to mean, however, one really can’t pin these problems down enough to tell if they are serious. . . . (more…)
| Peter Klein |
Per Bylund and I have written a paper on Israel Kirzner’s influence on the entrepreneurship literature. It’s titled “The Place of Austrian Economics in Contemporary Entrepreneurship Research” but deals mainly with Kirzner. Comments are appreciated.
The paper was written for a forthcoming special issue of the Review of Austrian Economics on Kirzner’s contributions. We take a nuanced position: While Kirzner’s work underlies the dominant opportunity-discovery perspective in the entrepreneurship research literature, this perspective is increasingly challenged among entrepreneurship scholars, for some of the same reasons that Kirzner’s theoretical framework has been criticized by his fellow Austrian economists. Nonetheless, it is impossible to make progress in entrepreneurship studies, or the Austrian analysis of the market, without engaging Kirzner’s ideas.
| Peter Klein |
Further to my earlier post on Veblen at Missouri, here’s a newly discovered photo of the university’s Faculty of Commerce from the mid nineteen-teens, featuring Dean Herbert J. Davenport in the center with Veblen to his right. (Thanks to @MizzouBusiness for the find.)
| Peter Klein |
We’ve previously discussed attempts to blame the accounting scandals of the early 2000s on the teaching of transaction cost economics and agency theory. By describing the hazards of opportunistic behavior and shirking, professors were allegedly encouraging students to be opportunistic and to shirk. Then we were told that business schools teach “a particular brand of free-market ideology” — the view that “the market always ‘gets prices right’ and “[a]n individual’s worth can be reduced to one’s worth in the market” — and that this ideology was partly responsible for the financial crisis. (My initial reaction: Where to I sign up for these courses?!)
The Guardian reports now on a movement in the UK to address “the crisis in economics teaching, which critics say has remained largely unchanged since the 2008 financial crash despite the failure of many in the profession to spot the looming credit crunch and worst recession for 100 years.” If you think this refers to a movement to discredit orthodox Keynesianism, which dominates monetary theory and practice in all countries, and its view that discretionary fiscal and (especially) monetary policy are needed to steer the economy on a smooth course, with particular attention to asset markets where prices must be rising at all times, you’d be wrong. No, the reformers are calling for “economics courses to embrace the teachings of Marx and Keynes to undermine the dominance of neoclassical free-market theories.” To their credit, the reformers appear also to want more attention to economic history and the history of economic thought, which is all to the good. But the reformers’ basic premise seems to be that mainstream economics is too friendly toward the free market, and that this has left students unprepared to understand the “post-2008″ world.
To a non-Keyensian and non-Marixian like me, these arguments seem to come from a bizarro world where the sky is green, water runs uphill, and Janet Yellen is seven feet tall. It’s true that most economists reject economy-wide central planning, but the vast majority endorse some version of Keynesian economic policy complete with activist fiscal and monetary interventions, substantial regulation of markets (especially financial markets), fiat money under the control of a central bank, social policy to encourage home ownership, and all the rest. We’ve pointed many times on this blog to research on the social and political views of economists, who lean “left” by a ratio of about 2.5 to 1 — yes, nothing like the sociologists’ zillion to 1, but hardly evidence for a rigid, free-market orthodoxy. I note that the reformers described in the Guardian piece never, ever offer any kind of empirical evidence on the views of economists, the content of economics courses, or the influence of economics courses on economic policy. They simply assert that they don’t like this or that economic theory or pedagogy, which somehow contributed to this or that economic problem. They seem blissfully unaware of the possibility that their own policy preferences might actually be favored in the textbooks and classrooms, and might have just a teeny bit to do with bad economic policies.
I’m reminded of Sheldon Richman’s pithy summary: “No matter how much the government controls the economic system, any problem will be blamed on whatever small zone of freedom that remains.”
| Peter Klein |
The University of Dundee’s Scottish Centre for Economic Methodology is hosting a conference 18 November 2013, “Origins of the Theory of the Firm: Ronald Coase at Dundee, 1932-1934.” The program looks really interesting:
- Keith Tribe, “Dundee and Interwar Commercial Education.”
- Billy Kenefick, “‘A great industrial cul-de-sac, a grim monument to “man’s inhumanity to man.” ‘ Dundee by the early 1930s.”
- Carlo Morelli, “Market & Non-Market Co-ordination: Dundee and its Jute Industry – The Case Study for Ronald Coase?”
- David Campbell, “Agency, Authority and Co-operation in the Firm: Coase, Macneil, Marx.”
- Alice Belcher, “Coase and the Concept of Direction: How Valuable are Legal Concepts in the Theory of the Firm?”
- Brian Loasby, “Ronald Coase’s Theory of the Firm and the Scope of Economics.”
- Alistair Dow & Sheila Dow, “Coase and Scottish Political Economy.”
- Eyup Ozveren & Ilhan Can Ozen, “Coase versus Coase: What if the Market Were One Big Firm Instead?”
- Neil Kay, “Coase, The Nature of the Firm, and the Principles of Marginal Analysis.”
| Dick Langlois |
Surprisingly, the following passage is not from O’Driscoll and Rizzo (1985). It is the abstract of a new paper by Brian Arthur called “Complexity Economics: A Different Framework for Economic Thought.”
This paper provides a logical framework for complexity economics. Complexity economics builds from the proposition that the economy is not necessarily in equilibrium: economic agents (firms, consumers, investors) constantly change their actions and strategies in response to the outcome they mutually create. This further changes the outcome, which requires them to adjust afresh. Agents thus live in a world where their beliefs and strategies are constantly being “tested” for survival within an outcome or “ecology” these beliefs and strategies together create. Economics has largely avoided this nonequilibrium view in the past, but if we allow it, we see patterns or phenomena not visible to equilibrium analysis. These emerge probabilistically, last for some time and dissipate, and they correspond to complex structures in other fields. We also see the economy not as something given and existing but forming from a constantly developing set of technological innovations, institutions, and arrangements that draw forth further innovations, institutions and arrangements. Complexity economics sees the economy as in motion, perpetually “computing” itself— perpetually constructing itself anew. Where equilibrium economics emphasizes order, determinacy, deduction, and stasis, complexity economics emphasizes contingency, indeterminacy, sense-making, and openness to change. In this framework time, in the sense of real historical time, becomes important, and a solution is no longer necessarily a set of mathematical conditions but a pattern, a set of emergent phenomena, a set of changes that may induce further changes, a set of existing entities creating novel entities. Equilibrium economics is a special case of nonequilibrium and hence complexity economics, therefore complexity economics is economics done in a more general way. It shows us an economy perpetually inventing itself, creating novel structures and possibilities for exploitation, and perpetually open to response.
Arthur does acknowledge that people like Marshall, Veblen, Schumpeter, Hayek, and Shackle have had much to say about exactly these issues. “But the thinking was largely history-specific, particular, case-based, and intuitive—in a word, literary—and therefore held to be beyond the reach of generalizable reasoning, so in time what had come to be called political economy became pushed to the side, acknowledged as practical and useful but not always respected.” So what Arthur has in mind is a mathematical theory, no doubt a form of what Roger Koppl – who is cited obscurely in a footnote – calls BRACE Economics.
| Nicolai Foss |
In my Hayek Lecture at last year’s Austrian Economics Scholars Conference I argued that Austrian capital theory is deserving of a comeback as an absolute integral part of Austrian economics. I argued that ACT directs attention to the essential importance of heterogeneity and I argued that notions of capital heterogeneity serves to bring the entrepreneur, transaction costs and institutions directly into our understanding of the growth process.
An essential part of ACT is, of course, the work of Eugen von Böhm-Bawerk. On the one hand, Böhm’s work is absolutely seminal, on the other hand, its too strong emphasis on aggregates and simplifying assumptions arguably side-tracked the development of ACT in some key ways. Needless to say, to mainstream economists ACT is Böhm-Bawerkian capital theory because it lends itself to formalization.
A recent example of formalizing Böhm’s theory is Renaud Fillieule’s “A comprehensive graphical exposition of the macroeconomic theory of Böhm-Bawerk.” Fillieule makes a strong case for Böhm’s theory as a precursor of Solowian growth theory and of macroeconomics in general. In contrast to many other commentators on ACT, he is familiar with modern Austrian work on the subject. A very elegant article and most definitely worth a read. Here is the abstract:
This paper offers a comprehensive graphical exposition of Böhm-Bawerk’s formalised macroeconomic theory. This graphical model is used here for the first time to study the effects of the changes in the explanatory variables (quantity of capital, number of workers and level of technical knowledge) on the dependent variables (interest rate, wage and period of production). This systematic application of the model shows that some of the conclusions drawn by Böhm-Bawerk are incorrect and need to be amended. A comparison with Solow’s model also shows that Böhm-Bawerk can legitimately be considered as one of the main originators of the standard contemporary approach in macroeconomics of equilibrium and growth.
| Peter Klein |
I am wary of adding yet another conceptual margin for entrepreneurial action but I highly recommend a new (and for the moment, ungated) paper in the Scandinavian Economic History Review by the distinguished economic historian Joel Mokyr on “cultural entrepreneurship.” Starting from a broadly Schumpeterian perspective, Mokyr focuses on individuals who introduce and disseminate novel ideas:
[E]ach individual makes cultural choices taking as given what others believe. It is not a priori obvious how that affects one’s choices. It may affect them positively because conformism implies that there is some social cost associated with deviancy, or because people may reason that if the majority believes a certain thing, there may be wisdom in it (thus saving on information costs). But there can be a reverse reaction as well, with non-conformists perversely rebelling against existing beliefs. What matters for my purposes is that for a small number of individuals, the beliefs of others are not given but can be changed. I shall refer to those people as cultural entrepreneurs. Their function is much like entrepreneurs in the realm of production: individuals who refuse to take the existing technology or market structure as given and try to change it and, of course, benefit personally in the process. Much like other entrepreneurs, the vast bulk of them make fairly marginal changes in our cultural menus, but a few stand out as having affected them in substantial and palpable ways.
Succinctly expressed: “cultural entrepreneurs are the creators of epistemic focal points that people can coordinate their beliefs on.”
Mokyr’s focus, like Schumpeter’s, is not entrepreneurship per se, but its effects, particularly on long-run economic growth, and his entrepreneurship construct is somewhat undertheorized. But he provides fascinating examples, ranging from Mohammed and Luther to Francis Bacon, Isaac Newton, and Adam Smith. He focuses in particular on Bacon and Newton, describing Bacon’s work as “the coordination device which served as the point of departure for thinkers and experimentalists for two centuries to come. The economic effects of these changes remained latent and subterranean for many decades, but eventually they erupted in the Industrial Revolution and the subsequent processes of technological change.” Newton and the Royal Society “raise[d] the social standing of scientists and researchers as people who should be respected and supported and [provided] them with a comfortable material existence.” (Mostly good.)
I’m not an expert on cultural theory or history and am not sure how much the “cultural entrepreneur” construct ads to our understanding of cultural change (other than relabeling, a frequent worry in entrepreneurship studies). But the paper is a great read, highly provocative and informative, and addresses big questions. Check it out.
| Peter Klein |
As the Niall Ferguson kerfuffle begins fading from memory it’s worth revisiting the underlying issue: What kind of person was John Maynard Keynes, and (how) did his social, cultural, moral, and aesthetic views affect his scientific work?
Here are a few recommended readings:
- Ralph Raico, “Was Keynes a Liberal?” (Independent Review, 2008)
- Schumpeter’s obituary of Keynes (AER, 1946)
- Murray Rothbard, “Keynes the Man” (in Dissent on Keynes, 1992)
These works are not kind to ole’ John Maynard (I’m posting them, what did you expect?). Rothbard, for example, emphasizes Keynes’s “overweening egotism, which assured him that he could handle all intellectual problems quickly and accurately and led him to scorn any general principles that might curb his unbridled ego,” also referring to Keynes’s “deep hatred and contempt for the values and virtues of the bourgeoisie,” including savings and thrift. It’s hard to imagine that Keynes’s personal views on thrift could be unrelated to the now-ubiquitous, über-Keynesian idea that spending, not savings and capital accumulation, is the driver of economic growth.
On time preference, and its social and cultural causes and consequences, I recommend Time and Public Policy by T. Alexander Smith (University of Tennessee Press, 1988), which unfortunately appears to be out of print. Here is a brief review by Israel Kirzner.
| Peter Klein |
Armen Alchian passed away this morning at 98. We’ll have more to write soon, but note for now that Alchian is one of the most-often discussed scholars here at O&M. A father of the “UCLA” property-rights tradition and a pioneer in the theory of the firm, Alchian wrote on a dizzying variety of topics and was consistently insightful and original.
Alchian was very intellectually curious, always pushing in new directions and looking for new understandings, without much concern for his reputation or legacy. One personal story: I once asked him, as a naive and somewhat cocky junior scholar, how he reconciled the team-production theory of the firm in Alchian and Demsetz (1972) with the holdup theory in Klein, Crawford, and Alchian (1978). Aren’t these inconsistent? He replied — politely masking the irritation he must have felt — “Well, Harold came to me with this interesting problem to solve, and we worked up an explanation, and then, a few years later, Ben was working on a different problem, and we started talking about it….” In other words, he wasn’t thinking of developing and branding an “Alchian Theory of the Firm.” He was just trying to do interesting work.
Updates: Comments, remembrances, resources, links, etc.:
- Robert Higgs
- David Henderson (1, 2)
- Jerry O’Driscoll
- Alex Tabarrok
- Doug Allen
- Dan Benjamin
- A 1996 Alchian symposium (gated)
- Alchian and Woodward’s review of Williamson (1985): “The Firm Is Dead, Long Live the Firm”
| Peter Klein |
That’s the title of a new review paper by Nicolai and me for the forthcoming Oxford Handbook of Sociology, Social Theory, and Organizational Studies, edited by Paul Adler, Paul du Gay, Glenn Morgan, and Mike Reed (Oxford University Press, 2013). No, we haven’t gone over to the Dark Side (I mean, the good side), we just think Hayek’s work deserves to be better known among all scholars of organization, not only economists. Unlike many treatments of Hayek, we don’t focus exclusively, or even primarily, on tacit knowledge, but on capital theory, procedural rules, and other aspects of Hayek’s “Austrian” thinking.
You can download the paper at SSRN. Here’s the abstract:
We briefly survey Hayek’s work and argue for its increasing relevance for organizational scholars. Hayek’s work inspired aspects of the transaction cost approach to the firm as well as knowledge management and knowledge-based view of the firm. But Hayek is usually seen within organizational scholarship as a narrow, technical economist. We hope to change that perception here by pointing to his work on rules, evolution, entrepreneurship and other aspects of his wide-ranging oeuvre with substantive implications for organizational theory.
| Peter Klein |
Hayek defined “scientism” or the “scientistic prejudice” as”slavish imitation of the method and language of Science” when applied to the social sciences, history, management, etc. Scientism represents “a mechanical and uncritical application of habits of thought to fields different from those in which they have been formed, and as such is “not an unprejudiced but a very prejudiced approach which, before it has considered its subject, claims to know what is the most appropriate way of investigating it.” (Hayek’s Economica essays on scientism were collected in his 1952 Counter-Revolution of Science and reprinted in volume 13 of the Collected Works.)
Austin L. Hughes has a thoughtful essay on scientism in the current issue of the New Atlantis (HT: Barry Arrington). Hughes thinks “the reach of scientism exceeds its grasp.” The essay is worth a careful read — he misses Hayek but discusses Popper and other important critics. One focus is the “institutional” definition of science, defined with the trite phrase “science is what scientists do.” Here’s Hughes:
The fundamental problem raised by the identification of “good science” with “institutional science” is that it assumes the practitioners of science to be inherently exempt, at least in the long term, from the corrupting influences that affect all other human practices and institutions. Ladyman, Ross, and Spurrett explicitly state that most human institutions, including “governments, political parties, churches, firms, NGOs, ethnic associations, families … are hardly epistemically reliable at all.” However, “our grounding assumption is that the specific institutional processes of science have inductively established peculiar epistemic reliability.” This assumption is at best naïve and at worst dangerous. If any human institution is held to be exempt from the petty, self-serving, and corrupting motivations that plague us all, the result will almost inevitably be the creation of a priestly caste demanding adulation and required to answer to no one but itself.
| Peter Klein |
Ronald Coase has a short piece in the December 2012 Harvard Business Review, “Saving Economics from the Economists” (thanks to Geoff Manne for the tip). Not bad for a fellow about to turn 102! I always learn from Coase, even when I don’t fully agree. Here Coase decries the irrelevance of contemporary economic theory, condemning economics for “giving up the real-world economy as its subject matter.” He also provides a killer quote: “Economics thus becomes a convenient instrument the state uses to manage the economy, rather than a tool the public turns to for enlightenment about how the economy operates.”
I’m sure that’s true for many economists and for some branches of the field, such as Keynesian macroeconomics. But Coase seems to reject economic theorizing altogether, even the “causal-realist” approach popular in these parts. To be useful, he argues, economics should provide practical guidance for the businessperson. However, “[s]ince economics offers little in the way of practical insight, managers and entrepreneurs depend on their own business acumen, personal judgment, and rules of thumb in making decisions.”
Well, that sounds about right to me. Economics provides general principles, or laws, about human action and interaction, mostly stated as “if-then” propositions. Applying the principles to concrete, historical cases requires Verstehen, and is the task of economic historians (as analysts) and entrepreneurs (as actors), not economic theorists. Deductive theory does not replace judgment. Without deductive theory, however, we’d have no principles to apply, and nothing to contribute to our understanding of the economy except — to quote Coase’s own critique of the Old Institutionalists — “a mass of descriptive material waiting for a theory, or a fire.” To be sure, Coase’s own inductive method has led to several brilliant insights. Coase himself has a knack for intuiting general principles from concrete cases (e.g., theorizing about transaction costs from observing automobile plants, or about property rights from studying the history of spectrum allocation), though not perfectly. But, as I noted before, Coase himself is probably the exception that proves the rule — namely that induction is a mess.