Posts filed under ‘- Klein -’
| Peter Klein |
Longtime readers of this blog expect skepticism about behavioral social science. One of my issues is the assumed, but unexplored, assumption that private actors and market institutions cannot deal with behavioral anomalies, and therefore government intervention is necessary to make people act “rationally.” But if we can really improve health outcomes by putting the chocolate cake behind the carrot sticks in the display case, why wouldn’t profit-seeking entrepreneurs exploit this fact? Consumers pay substantial price premiums for organic produce, grass-fed meats, and other healthy products, even when the purported health benefits are long-term and uncertain. Wouldn’t some patronize the behavioral-economics-influenced grocer? “Our shelves are arranged to encourage healthy food choices.” Add earth tones, hipster music, an onsite juice bar, and the place will make as much money as your local Whole Foods.
To be a little less flippant: consider adverse selection theory. Many people misread Akerlof’s famous paper as a call for government regulation of used-car markets (or, worse, as a demonstration that used-car markets can’t exist). In fact, as Akerlof states plainly in the original piece, his theory explains the existence of private assurance mechanisms such as warranties, third-party certification, quality signalling, and the like.
A recent Forbes piece puts it this way: How do you make money by helping mitigate behavioral anomalies? Cognitive biases “have been accepted into the mainstream of economics and pop culture, particularly since the recent publication of popular books such as Richard Thaler and Cass Sunstein’s Nudge, Dan Ariely’s Predictably Irrational, and Daniel Kahneman’s Thinking, Fast and Slow. Even so, relatively few companies have attempted to use behavioral economics to try to change people’s behavior around overeating, smoking, or other bad habits many are desperate to break.” The focus is on the diet company StickK, which takes advantage of loss aversion (pun intended) to help people achieve weight and other goals.
StickK is a cool site, and I hope it is successful. But, if behavioral theory is so powerful and general, why aren’t more entrepreneurs taking advantage of it?
| Peter Klein |
I have a chapter in a new book edited by David Howden and Joseph Salerno, The Fed at One Hundred: A Critical View on the Federal Reserve System (New York: Springer, 2014). My chapter is called “Information, Incentives, and Organization: The Microeconomics of Central Banking,” and builds upon themes discussed many times on this blog, such as Fed independence. Here is a SSRN version of the chapter. The book comes out next month but you can pre-order at the Amazon link above.
| Peter Klein |
Another book recommendation, also courtesy of EH.Net. The book is Organizations in Time: History, Theory, Methods (Oxford University Press, 2014), edited by Marcelo Bucheli and R. Daniel Wadhwani. (Bucheli is author of an excellent book on the United Fruit Company.) Organizations in Time is about of the use of history in management research and education. Perhaps surprisingly, the field of business history is not usually part of the business school curriculum. In the US at least, business historians are typically affiliated with history or economics departments, not management departments or other parts of the business school. EH.Net reviewer Andrew Smith notes the following:
Until the 1960s, economic history and business history had an important place in business school teaching and research. Many management scholars then decided to emulate research models developed in the hard sciences, which led to history becoming marginal in most business schools. History lost respect among positivistic management academics because historians made few broad theoretical claims, rarely discussed their research methodologies, and did not explicitly identify their independent and dependent variables. Historians in management schools became, effectively, disciplinary guests in their institutions.
The period from 2008 to the present has witnessed a revival of interest in history on the part of consumers of economic knowledge in a variety of academic disciplines, not to mention society as a whole. . . . It is now widely recognized that there needs to be more history in business school research and teaching. However, as Marcelo Bucheli and Dan Wadhwani note in the introductory essay, this apparent consensus obscures a lack of clarity about what a “historic turn” would, in practice, involve (p. 5).
This volume argues that the historic turn cannot simply be about going to the historical record to gather data points for the testing of various social-scientific theories, which is what scholars such as Reinhart and Rogoff do. Rather than being yet another device for allowing the quantitative social sciences to colonize the past, the historic turn should involve the adoption of historical methods by other management school academics. At the very least, people in the field of organization studies should borrow more tools from the historian’s toolkit.
Read the book (or at least the review) to learn more about these tools and approaches, which involve psychology, embeddedness, path dependence, and other concepts familiar to O&M readers.
| Peter Klein |
As with other technologies involving network effects, the early telephone industry featured competing, geographically overlapping networks. Robert MacDougall provides a fascinating history of this period in The People’s Network: The Political Economy of the Telephone in the Gilded Age (University of Pennsylvania Press, 2013). From the book blurb:
In the decades around 1900, ordinary citizens—farmers, doctors, small-town entrepreneurs—established tens of thousands of independent telephone systems, stringing their own wires to bring this new technology to the people. Managed by opportunists and idealists alike, these small businesses were motivated not only by profit but also by the promise of open communication as a weapon against monopoly capital and for protection of regional autonomy. As the Bell empire grew, independents fought fiercely to retain control of their local networks and companies—a struggle with an emerging corporate giant that has been almost entirely forgotten.
David Hochfelder wrote a thoughtful review which appeared today on EH.Net. As Hochfelder points out, the history of the telephone is not just about technology and market structure, but broader social themes as well:
At one level, this is a story about industrial competition. At a deeper level, it reveals competing visions of an important technology, the social role that it ought to play. MacDougall shows that the Bell System and the Independents envisioned the telephone in far different ways. Bell, especially under Theodore Vail, president of AT&T between 1907 and 1919, sought to build a unified telecommunications network that spanned the United States. Bell Canada espoused a different vision, that the telephone ought to remain an expensive urban medium primarily used for business purposes. Both Bell systems shared the ideology that the telephone industry ought to be controlled by centralized, national corporations. On the other hand, the Independents described the Bell System as a grasping octopus that wanted a stranglehold over the nation’s communications. The Independents offered instead a vision of the telephone as a people’s network that enhanced local ties and preserved community autonomy. In the United States, MacDougall claims that the Independents’ vision for the telephone “descended from a civic understanding of communication that went back to the American Revolution,” that “free and open communications were a basic ingredient of democracy” (p. 5). On a more mundane level, the Independents encouraged social uses of the telephone — like gossiping and banjo-playing — that the Bell System actively discouraged at the time.
| Peter Klein |
My colleague Randy Westgren has two thoughtful posts on entrepreneurial opportunities (1, 2). Randy shares my unease with the construct of opportunity, which began as a metaphor introduced by Israel Kirzner, only to be reified by entrepreneurship scholars looking for a central organizing construct. My own view is that the concept of opportunity is redundant at best, misleading at worst. Randy expresses the same idea: “If the opportunity is so important to the entrepreneurial process, why are there so many mediating actions and decisions between the existence and the outcomes? How much of the outcomes does the existence of the opportunity explain?” He goes on to propose some useful taxonomies for making sense of the literature. More to come.
| Peter Klein |
Nicolai and I are interviewed by Angel Martin for the Spanish-language site sintetia. An English-language version is here. We wax eloquent on entrepreneurship theory, research, teaching, policy, and more. Personally, I think I sound more profound in Spanish, but that’s probably because I can’t read Spanish.
| Peter Klein |
Besides the essay on Mark Casson discussed below, the Strategic Entrepreneurship Journal has released forthcoming profiles of Ian MacMillan (by Rita McGrath), Arnold Cooper (by Tim Folta), and Steve Klepper (by Rajshree Agarwal and Serguey Braguinsky), as part of its series on “Research Pioneers.”
| Peter Klein |
Some findings that would not have surprised Carl Menger:
Ode to the sea: Workplace Organizations and Norms of Cooperation
Uri Gneezy, Andreas Leibbrandt, John A. List
NBER Working Paper No. 20234, June 2014
The functioning and well-being of any society and organization critically hinges on norms of cooperation that regulate social activities. Empirical evidence on how such norms emerge and in which environments they thrive remains a clear void in the literature. To provide an initial set of insights, we overlay a set of field experiments in a natural setting. Our approach is to compare behavior in Brazilian fishermen societies that differ along one major dimension: the workplace organization. In one society (located by the sea) fishermen are forced to work in groups whereas in the adjacent society (located on a lake) fishing is inherently an individual activity. We report sharp evidence that the sea fishermen trust and cooperate more and have greater ability to coordinate group actions than their lake fishermen counterparts. These findings are consistent with the argument that people internalize social norms that emerge from specific needs and support the idea that socio-ecological factors play a decisive role in the proliferation of pro-social behaviors.
I await comments below about how social norms emerge and persist not because they facilitate cooperation and joint gains, but because they legitimize existing social structures or support exploitation or power or. . . .
| Peter Klein |
Lepore only deals with the easy marks in her take down of Christensen and one suspects Christensen and his supporters can easily fend those off. It is the fundamental contradiction in taking a positive theory towards prediction that is where this entire ‘disruption industry’ falls down. I’d like to see journalists engaging more on that level so that we can be done with those bridges too far for good.
What Josh means by “fundamental contradiction” is that a disruptive technology, in Christensen’s definition, must not only be behind the cutting edge in some technical dimension, but also satisfy unmet consumer demands. The latter must be uncertain ex ante, otherwise the market leaders would also be developing the disruptive technology. Christensen advises incumbents to “disrupt themselves,” but this assumes they know which technologies will eventually be disruptive. Because they don’t, they must choose among several alternatives, including “do nothing” (i.e., try to exploit late-mover advantage).
The incumbent’s decision, contrary to Christensen’s reasoning, reflects entrepreneurial judgment, which may or may not be correct. There is no formula for managing disruptive technologies.
See also Lynne’s insightful commenta.
| Peter Klein |
An interesting paper from Mara P. Squicciarini and Nico Voigtländer examines the role of “knowledge elites” — individuals at the upper tail of the human capital distribution* — in French economic growth around the time of the Industrial Revolution. Key passage:
To measure the historical presence of knowledge elites, we use city-level subscriptions to the famous Encyclopédie in mid-18th century France. We show that subscriber density is a strong predictor of city growth after 1750, but not before the onset of French industrialization. Alternative measures of development confirm this pattern: soldier height and industrial activity are strongly associated with subscriber density after, but not before, 1750. Literacy, on the other hand, does not predict growth. Finally, by joining data on British patents with a large French firm survey from 1837, we provide evidence for the mechanism: upper tail knowledge raised the productivity in innovative industrial technology.
In other words, growth is driven by the knowledge (and, presumably, skills, preferences, and beliefs) of the elites, not the population at large.
Squicciarini and Voigtländer don’t deal directly with the distribution of income and wealth (they do show that regions with higher Encyclopédie subscriber density had higher per-capita incomes), presumably those individuals in the upper tail of the knowledge distribution were also one-percenters in income or wealth. This brings to mind one of Bertrand de Jouvenel’s arguments about inequality, namely that it spurs technological innovation:
[I]t is a commonplace that things which are now provided inexpensively to the many, say spices or the newspaper, were originally luxuries which could be offered only because some few were willing and able to buy them at high prices. It is difficult to say what the economic development of the West would have been . . . if the productive effort had been aimed at providing more of the things needed by all, to the exclusion of a greater variety of things desired by minorities [i.e., elites]. . . . History shows us that each successive enlargement of the opportunities to consume was linked with unequal distribution of the means to consume.
I suspect Squicciarini and Voigtländer’s knowledge elites were largely the same as de Jouvenel’s “minorities” (in a robustness check for reverse causation, Squicciarini and Voightländer use membership in scientific societies as a proxy for knowledge elites, and these scientific societies were the primary producers and consumers of scientific instruments, for example). What would Monsieur Piketty say about this, I wonder?
| Peter Klein |
2012 marked the 30th anniversary of Mark Casson’s classic work The Entrepreneur: An Economic Theory. Casson was one of the first economists since Frank Knight to elaborate on the role that uncertainty and judgment play in entrepreneurial decisions. Casson’s book offers not only a critique of the theories of competition and the firm offered in neoclassical microeconomics, but also a positive theory of the entrepreneur as a judgmental decision-maker under uncertainty. Casson’s work had a strong influence on the Foss-Klein approach to entrepreneurship, as well as Dick’s work on the theory of the firm.
Sharon Alvarez, Andrew Godley, and Mike Wright have written a nice tribute to The Entrepreneur in the latest edition of the Strategic Entrepreneurship Journal.
Mark Casson’s The Entrepreneur: An Economic Theory (1982) has become one of the most influential books in the field of entrepreneurship. For the first time, this article outlines its origins and summarizes its main themes. The article goes on to show how Casson’s subsequent research has closely followed the research agenda he set for himself in The Entrepreneur and illustrates the continuing challenge his work presents to entrepreneurship scholars. The article is based on an interview the authors conducted with Mark Casson on the thirtieth anniversary of the book’s publication.
As Sharon, Andrew, and Mike note, “Casson’s incorporation of Knightian judgment into a broader economic framework is probably the area where the book has had its greatest impact (albeit mostly among management scholars and not economists).” For Casson — as well as Knight — judgment constitutes decision-making under uncertainty that cannot be captured in a set of formal decision rules, such that “different individuals, sharing similar objectives and acting under similar circumstances, would make different decisions” (Casson, 1982, p. 21). Unfortunately, while judgment continues to play an important role in entrepreneurship research, it has been largely overshadowed (in my reading) by the opportunity-discovery perspective that builds on Kirzner rather than Knight (though that perspective is itself coming under heavy fire).
The paper is gated, unfortunately. But you can access Casson’s own summary of his (and others’) ideas in this EconLib article.
| Peter Klein |
A new paper from former guest blogger Peter Lewin:
University of Texas at Dallas – School of Management – Department of Finance & Managerial Economics
Metropolitan State University of Denver
A comprehensive understanding business-cycles needs to account not only for the allocation of resources over time, but also for resource allocation across industries at any point in time. Intertemporal disequilibrium has been a common theme of many theories of the business-cycle. But to properly understand how these “time-distortions” take place and how the price-mechanisms that drive them work, a clear and well-defined conceptualization of the “average length” of the structure of production, is required. The insights provided by Macaulay’s duration and Hicks’s Average Period do this. We show that financial duration and related concepts have a direct connection to macroeconomic stability. By doing this we point to important implications for macroeconomic policy. We claim not only that a low interest rate contributes to the creation of asset bubbles, we show also the market mechanism through which the real sector is affected. We argue that to accept that duration matters for resource allocation is to accept the core of the Austrian Theory of the Business Cycle (ABCT) and, therefore, that to reject the ABCT core thesis suggests also rejecting the importance of duration for resource allocation.
| Peter Klein |
New economic historians have turned their back on traditional historians and sought their place among economists. This has provided good jobs for many scholars, but the acceptance by economists is still incomplete. We therefore have two challenges ahead of ourselves. The first is to argue that economic development can only be fully understood if we understand the divergent histories of high-wage and low-wage economies. And the other big challenge is to translate our economic findings into historical lessons that historians will want to read. These challenges come from our place between economics and history, and both are important for the future of the New Economic History.
His broader claim is that the disciplines of economic history and economic development should be more closely integrated. “Both subfields study economic development; the difference is that economic history focuses on high-wage countries while economic development focuses on low-wage economies.”
| Peter Klein |
That’s the title of a new review paper by Nicholas Bloom, Renata Lemos, Raffaella Sadun, Daniela Scur, and John Van Reenen, summarizing the recent large-sample empirical literature on management practices using the World Management Survey (modeled on the older World Values Survey). Here’s the NBER version and here’s an ungated version from the LSE’s Centre for Economic Performance.
This literature has been rightly criticized for its somewhat coarse, survey-based measures of management practices, but its measures are probably the most precise that can be reliably extracted from a large sample of firms across many countries. In that sense it is on par with the Global Entrepreneurship Monitor, the Economic Freedom Index, and other databases that attempt to capture subtle and ultimately subjective characteristics across a broad sample.
Here’s the abstract of the Bloom et al. paper:
Over the last decade the World Management Survey (WMS) has collected firm-level management practices data across multiple sectors and countries. We developed the survey to try to explain the large and persistent TFP differences across firms and countries. This review paper discusses what has been learned empirically and theoretically from the WMS and other recent work on management practices. Our preliminary results suggest that about a quarter of cross-country and within-country TFP gaps can be accounted for by management practices. Management seems to matter both qualitatively and quantitatively. Competition, governance, human capital and informational frictions help account for the variation in management.
It provides a nice overview for those new to this literature. An earlier review paper by Bloom, Genakos, Sadun, and Van Reenen, “Management Practices Across Firms and Countries,” appeared in the Academy of Management Perspectives in 2011, along with some critical comments by David Waldman, Mary Sully de Luque, and Danni Wang.
| Peter Klein |
Like Peter Lewin, Walter Block, Mario Rizzo, and Peter Boettke, I greatly admire the late Gary Becker, a pioneer in many areas of economics and sociology, a strong proponent of economic and personal freedom, and by all accounts a terrific teacher, mentor, and colleague. But I confess that I have always had qualms about the concept of “human capital,” along with the analogous constructs of social capital, knowledge capital, reputation capital, and so on. These are metaphors for capital in the narrow sense, and I worry that the widespread use of “capital” to denote anything valuable and long-lived obscures important issues about actual, physical capital that can be divided up, measured, priced, and exchanged. Witness the confusion over “capital” as Thomas Piketty uses the term. Here is something I wrote before:
[O]ne of my pet peeves [is] the expansive use of “capital” to describe any ill-defined substance that accumulates and has value. Hence knowledge, experience, and skills become “human capital” or “knowledge capital”; relationships become “social capital”; brand names become “reputation capital”; and so on. I fear this terminology obfuscates more than it clarifies.
I don’t mind using these terms in a loose, colloquial sense: By going to school I’m investing in human capital or diversifying my stock of human capital; if this gets me a high-paying job I’m earning a good return on my human capital; as I get old I forget new things, so my human capital is depreciating rapidly; and so on.
But we shouldn’t take these metaphors too literally. In economic theory capital refers either to financial capital or to a stock of heterogeneous alienable assets, goods that can be exchanged in markets and analyzed using price theory. Their rental prices are determined by marginal revenue products and their purchase prices are given by the present discounted value of these future rents. Knowledge is not, strictly speaking, capital, because it is not traded in markets does not have a rental or purchase price. What markets trade and price is labor services, and it is impossible to decompose the payments to labor (wages) into separate “effort” and “rental return on human capital” components. Some labor services command a higher market price than others because they have a higher marginal revenue product. Some of this wage premium may be due to intelligence or experience, some due to complementarities with other human or nonhuman assets, some due to hard work, and so on. But these are all determinants of the MRP, and hence the wage, not different kinds of factor returns.
Moreover, the entrepreneur needs cardinal numbers to compute the value of his capital stock, to know if it is increasing or decreasing in value, and so on. I can’t measure my stock of human capital, I don’t know for sure if it is increasing or decreasing over time, I can’t calculate the ROI of a specific human-capital investment, etc., because there are no prices and no measurable units. Knowledge may be “like capital,” in the sense that it lasts, that you can add to it, that you benefit from it, etc., but it isn’t literally a capital good like a machine or a refrigerator.
If we think going to school is valuable and increases lifetime earnings, why don’t we just say, “going to school is valuable and increases lifetime earnings,” rather than, “there is a positive return on investments in human capital”? Is there a good reason to prefer the latter, besides scientism?
| Peter Klein |
A new NBER paper on 19th-century manufacturing firms in Massachusetts finds that incorporation rates, ownership concentration, and and managerial ownership varied systematically with technology (factory versus artisanal production, use of unskilled labor, etc.). In other words, governance forms were not determined primarily by the legal or regulatory environment, social and cultural issues, the desire for legitimacy, or other noneconomic factors, but by standard agency considerations.
Corporate Governance and the Development of Manufacturing Enterprises in Nineteenth-Century Massachusetts
NBER Working Paper No. 20096, May 2014
This paper analyzes the use of the corporate form among nineteenth-century manufacturing firms in Massachusetts, from newly collected data from 1875. An analysis of incorporation rates across industries reveals that corporations were formed at higher rates among industries in which firm size was larger. But conditional on firm size, the industries in which production was conducted in factories, rather than artisanal shops, saw more frequent use of the corporate form. On average, the ownership of the corporations was quite concentrated, with the directors holding 45 percent of the shares. However, the corporations whose shares were quoted on the Boston Stock Exchange were ‘widely held’ at rates comparable to modern American public companies. The production methods utilized in in different industries also influenced firms’ ownership structures. In many early factories, steam power was combined with unskilled labor, and managers likely performed a complex supervisory role that was critical to the success of the firm. Consistent with the notion that monitoring management was especially important among such firms, corporations in industries that made greater use of steam power and unskilled labor had more concentrated ownership, higher levels of managerial ownership, and smaller boards of directors.
| Peter Klein |
Gary Becker died yesterday at the age of 83. Becker was a living legend of the Chicago school, and an active scholar, even chairing a current dissertation committee. Hayek called Becker “one of the most gifted men of the Chicago school” and “theoretically a more sophisticated thinker” than Milton Friedman or George Stigler.
Here are past O&M references to Becker, including Becker’s comments on organization theory in light of Williamson’s Nobel Prize. And here’s a short paper by me on T.W. Schultz’s human-capital approach to entrepreneurship, about which Becker showed little interest, despite his development of Schultz’s human-capital construct. Brian Loasby has a nice chapter on “Human Capital, Entrepreneurship, and the Theory of the Firm” in the Oxford Handbook of Human Capital, edited by Alan Burton‐Jones and our friend J.‐C. Spender (Becker’s foreword is online).
I attended the 1992 meeting of the Mont Pèlerin Society, when Becker was president. Someone arranged for Becker to meet with me and the other graduate students. The sense among the student attendees was that MPS was becoming, under Becker’s leadership, too mainstream, respectable, and tame. Where were the radical libertarians, Austrians, and other free thinkers? As I recall, poor Becker was bombarded with a bunch of questions along these lines, which he handled kindly and gracefully. He had nothing but good things to say about Mises, Hayek, Hazlitt, and the other MPS founders. A fine gentleman.
A friend of mine was at Chicago in the 1990s when Becker was in his mid-60s and already a Nobel Laureate. Like most economists in the department, my friend went to the office and worked Saturdays and Sundays. Becker was usually the first to arrive and the last to leave. “He’s not only the smartest person here,” I was told, “but the hardest worker!”
| Peter Klein |
Carl Menger’s methodology has been described as essentialist. Rather than building artificial models that mimic some attributes or outcomes of an economic process, Menger sought to understand the essential characteristics of phenomena like value, price, and exchange. As Menger explained to his contemporary Léon Walras, Menger and his colleagues “do not simply study quantitative relationships but also the nature [or essence] of economic phenomena.” Abstract models that miss these essential features — even if useful for prediction — do not give the insight needed to understand how economies work, what entrepreneurs do, how government intervention affects outcomes, and so on.
I was reminded of the contrast between Menger and Walras when reading about Henri Matisse and Pablo Picasso, the great twentieth-century pioneers of abstract art. Both painters sought to go beyond traditional, representational forms of visual art, but they tackled the problem in different ways. As Jack D. Flam writes in his 2003 book Matisse and Picasso: The Story of Their Rivalry and Friendship:
Picasso characterized the arbitrariness of representation in his Cubist paintings as resulting from his desire for “a greater plasticity.” Rendering an object as a square or a cube, he said, was not a negation, for “reality was no longer in the object. Reality was in the painting. When the Cubist painter said to himself, ‘I will paint a bowl,’ he set out to do it with the full realization that a bowl in a painting has nothing to do with a bowl in real life.” Matisse, too, was making a distinction between real things and painted things, and fully understood that the two could not be confused. But for Matisse, a painting should evoke the essence of the things it was representing, rather than substitute a completely new and different reality for them. In contract to Picasso’s monochromatic, geometric, and difficult-to-read pictures, Matisse’s paintings were brightly colored, based on organic rhythms, and clearly legible. For all their expressive distortions, they did not have to be “read” in terms of some special language or code.
Menger’s essentialism is concisely described in Larry White’s monograph The Methodology of the Austrian School Economists and treated more fully in Menger’s 1883 book Investigations Into the Method of the Social Sciences. For more on economics and art, see Paul Cantor’s insightful lecture series, “Commerce and Culture” (here and here).
[An earlier version of this post appeared at Circle Bastiat.]
| Peter Klein |
Everyone’s talking about inequality. I confess don’t find inequality terribly interesting, intrinsically. Of course, inequality that results from special government privilege — the incomes of top executives at Lockheed Martin or Goldman Sachs, the speaking fees earned by Hillary Clinton, the wealth of US sugar farmers — should be analyzed and criticized, and those privileges removed. Firm policies that result in pay differentials — pay-for-performance schemes, for example — are important and interesting, not because they generate inequality per se, but because they have systematic and significant effects on firm behavior and performance. Of course, inequality may have important long-run social and cultural effects, but these are highly speculative and not obviously actionable.
I haven’t yet read Thomas Piketty’s new book but am aware of — and amazed by — the buzz it’s generating. I suspect most of the excitement reflects confirmation bias: people who think inequality is the major issue of our time naturally think this is the most important economics book of the decade, probably before reading it. (Naturally, I’d love to exploit that formula in marketing my own books.)
I do have a few thoughts on how the discussion is framed, in light of Piketty’s work. First, Piketty and his admirers define “capital” as a homogeneous, liquid pool of funds, not a heterogeneous stock of capital assets. This is not merely a terminological issue, as those familiar with the debates on capital theory from the 1930s and 1940s are well aware. Piketty’s approach focuses on the quantity of capital and, more importantly, the rate of return on capital. But these concepts make little sense from the perspective of Austrian capital theory, which emphasizes the complexity, variety, and quality of the economy’s capital structure. There is no way to measure the quantity of capital, nor would such a number be meaningful. The value of heterogeneous capital goods depends on their place in an entrepreneur’s subjective production plan. Production is fraught with uncertainty. Entrepreneurs acquire, deploy, combine, and recombine capital goods in anticipation of profit, but there is no such thing as a “rate of return on invested capital.” (more…)
| Peter Klein |
The International Society for New Institutional Economics has established four new awards, named after the pioneers of new institutional social science: the Ronald Coase Best Dissertation Award, Oliver Williamson Best Conference Paper Award, Douglass North Best Paper or Book Award, and Elinor Ostrom Lifetime Achievement Award. Details on the awards, and a call for nominations for the Coase, North, and Ostrom awards, are on the ISNIE site. (Sadly, my suggestion for a Best Organizational and Institutional Economics Blog Award was not heeded.)