Archive for August, 2006
Hoffman on Greif on Institutions
| Peter Klein |
Philip T. Hoffman reviews Avner Greif’s Institutions and the Path to the Modern Economy: Lessons from Medieval Trade (Cambridge University Press, 2006) for EH.Net. Hoffman says the book “represents the cutting edge when it comes to the study of institutions.”
The 50th Anniversary of a (Forgotten?) Classic
| Nicolai Foss |
50 years ago Don Patinkin’s Money, Interest, and Prices: An Integration of Monetary and Value Theory was published. This is one of those relatively rare books that has both been widely used as a textbook (when I began studying economics at the University of Copenhagen in 1983, it was still used as an advanced textbook in monetary theory) and as a standard reference in the relevant field (another example could be Scherer’s Industrial Market Structure and Economic Performance).
These days, the book is probably only being read by aging specialists in monetary theory, and Patinkin is not likely to be a name that is known to many modern economists (cf. Peter’s terrifying story of professional ignorance). And yet, the list of the accomplishment’s of Money, Interest, and Prices is extremely impressive (cf. this paper by Olivier Blanchard). Thus, the book clarified the meaning of Say’s law, Walras’ Law, the classical dichotomy, the value theory vs monetary theory issue, and the the loanable funds vs. liquidity preference issue in ways that have been generally accepted ever since.
A personal note: I met Patinkin in 1987 at a conference in honour of John Hicks in Aalborg. I was still a student then, and remember asking him some pretty silly questions. However, he was extremely nice and invited me to dinner the same evening in a local restaurant. When I arrived he was seated with Robert Clower and Axel Leijonhufvud! Edmund Phelps later joined. Only time I have ever been so close to so many celebrities.
It Was Only a Matter of Time
| Peter Klein |
We professors know that students, not faculty, hold the real power at universities. (They get ratemyprofessors.com; we get the rather feeble, though cathartic, Rate Your Students.) So this was only a matter of time.
Technological Development and the Boundaries of the Firm
| Nicolai Foss |
Increasingly, my favorite journal is Management Science (along with Organization Science). It seems to me to feature more research that is truly at the frontier than, say, Strategic Management Journal and the Academy of Management Journal, and one will certainly not encounter the silly pomo exercises that too often feature in the pages of the Academy of Management Review.
Of course, a journal is made great by the great articles that are published in it. Case in point: Jeffrey T Macher’s “Technological Development and the Boundaries of the Firm: A Knowledge-based Examination in Semiconductor Manufacturing” in the June issue. (more…)
Econ Superblogs
| Peter Klein |
These econ blogs get mentioned by The Economist in “The Invisible Hand on the Keyboard”: DeLong, Becker-Posner, Mankiw, and Setser. (According to Technorati, the top five econ blogs are Beppe Grillo, Crooked Timber, Marginal Revolution, The Long Tail, and Professor Bainbridge.)
Why do economists blog? Mostly for fun, and also to increase one’s professional influence, say The Economist’s celebrity bloggers. Here at O&M, we do it to make the world a better place. Really.
Update: Crooked Timber’s John Quiggin has a chapter (not available online, unfortunately) on economics blogs in a new book, Uses of Blogs.
Update 2: Brad DeLong explains econ blogging in the Chronicle of Higher Education. (See also his comment below.)
Mises University
| Peter Klein |
For the past several years I have had the pleasure of lecturing at the Mises University, a week-long instructional seminar on Austrian economics and related disciplines. I never expected to see a favorable write-up in the Wall Street Journal, but here it is:
Sweet Home Alabama
By KYLE WINGFIELD
August 4, 2006Auburn, Alabama
Growing up, I never thought of Alabama as a beacon of academia. Living in its capital city of Montgomery for two years didn’t exactly change my mind. It wasn’t until I moved to Europe that I realized the Heart of Dixie was a wellspring of sensible economic thinking.
One by one, I met young, capitalist Continentals who had studied in Auburn. Not at Auburn University, mind you, which is Alabama’s largest college but is associated more with physical specimens like Bo Jackson than with free-market philosophers. Rather, they had flocked to the Ludwig von Mises Institute, a think tank located just off campus that preaches the works of Hayek, Rothbard and other economists from the Austrian School — including, of course, the institute’s namesake.
Theories of the State
| Richard Langlois |
I was interested to see Peter’s post about the agency theory of the state — and glad to have the reference. I was actually just about to write about something related.
One of my favorite courses to teach is European Economic History. When I talk about the origin and development of the state, I rely on Meir Kohn’s distinction between territorial government and associational government. Territorial governments are the predatory states of Douglass North and Mancur Olson; associational governments arose in the interstices of territorial ones, typically as guilds of guilds in medieval cities, for the purpose of providing public (club) goods. Associational governments had existed in places like Athens and Rome, of course, again as clubs of wealthy merchants and land owners to provide public goods. But the interesting story is how territorial governments came to take on associational features — so that they could also be “owned” by their citizens — while, as we and Rozeff would agree, they retained a predatory dimension because of agency costs.
Meir Kohn is an interesting economist at Dartmouth whom I met a couple of years ago when we were involved in one of Axel Leijonhufvud’s summer schools in Trento. He is writing a textbook on European economic history, which is available online in manuscript. The aspect I was originally going to write about is Meir’s interesting claim that war was a far more important restraint on economic growth than Malthusian population factors in the pre-modern period. He proposes a cyclical account: the monarch taxes the population to finance war, which, along with the physical devastation of the war, reduces the population to subsistence; war eventually exhausts the treasury, forcing the monarch to wage peace for a while; this allows economic growth to spring up again, which leads to another round of taxation and war. Bob Higgs has written in the American context about the negative effects of war on growth. Does anyone know of anyone else who’s talked about this in the European context? This strikes me as a fertile area for cliometricians.
Strategizing, Disequilibrium, and Profit
| Nicolai Foss |
Stanford University Press has just published John A. Matthews’ Strategizing, Disequilibrium, and Profit. A 14-page sample is available here.
Matthews, who holds the Chair of Strategic Management at Macquarie Graduate School of Management, Sydney, has contributed for many years to what is sometimes called “industrial dynamics,” that is, the strongly empirically oriented intersection between process approaches to economics (evolutionary and Austrian views) and strategic management (mainly the capabilities and resource-based views). Accordingly, the main sources of inspiration for the current book are Schumpeter, who provides the overall dynamic view of the economy as an evolving system; Knight, who contributes a theory of profits, and Penrose who contributes a theory of the firm.
The book may be read as a frontal attack on strategic management’s dominant perspective, the resource-based view. (more…)
An Agency-Theoretic Analysis of the State
| Peter Klein |
Tim Swanson recommends this series by Michael Rozeff, “The State as an Organization” (part 1, part 2, part 3). Rozeff is a Rochester-trained financial economist (currently Louis M. Jacobs Chair of Financial Planning and Control at the University at Buffalo) and not surprisingly, his analysis is an agency-theoretic one. The main point is that the mechanisms that mitigate agency problems in firms — competition in the product market, the market for corporate control, discipline from suppliers of capital, the market for managers, etc. — are largely absent in governments. Writes Rozeff:
States are organizations whose composition, aims and methods depend on the institutions the society uses to control agency costs. The classical liberal vision was of a contractual state cleverly arranged so as to keep agency costs low. The ideal contractual state is an organization that, like a corporation, is owned by its principals, who are the citizens. Commissioned by them, the state’s aims are to dispense law and justice which includes protecting the resources or property of its owners. . . .
With weaker controls over agency costs, we observe instead varieties of the predatory state. Here the state moves toward becoming an autonomous organization, more like a company owned and operated by one person or a small group of persons but without outside stockholders. Its residual claimants are its members. They are the owners. Citizens do not own the predatory state. They are the prey.
Greif on Jones on Culture
| Peter Klein|
Avner Greif reviews Eric Jones’s Cultures Merging: A Historical and Economic Critique of Culture (Princeton University Press, 2006), for EH.Net:
For some scholars, a society’s culture determines its economic destiny. For others, culture is malleable reflecting deeper political and economic variables and hence is epiphenomenal to economic outcomes. In this interesting book, Eric Jones (author of The European Miracle among other publications, a Professorial Fellow at Melbourne Business School, University of Melbourne and an Emeritus Professor at La Trobe) provides a useful survey of this debate and argues for a middle ground.
Evolutionary Economics and Economic Policy
| Nicolai Foss |
Among the many heterodox economics approaches, evolutionary economics seems to be the perhaps most thriving one, and also the one that is best able to gain some (albeit probably very limited) measure of respect from more mainstream economists. There is also significant overlaps with disciplines in business administration, particularly strategic management.
Among the reasons why evolutionary economics may have been a more successful intellectual enterprise than, say, “old” institutional economics, post-Keynesian economics, and Austrian economics is that it, in contrast to the other three heterodox approaches, embraces formal method, has a strong empirical orientation, and has been a strong voice on matters that relate to innovation and industrial change, areas where neoclassical economics has been rather silent.
It is clear that evolutionary economists see their approach as an encompassing one, and often see it is being a direct theoretical competitor to neoclassical economics. This is very clearly signaled in the locus classicus of the approach, Richard Nelson and Sidney Winter’s, An Evolutionary Theory of Economic Change from 1982.
There is, however, one point where evolutionary economics is remarkably weak, namely the theory of economic policy. (more…)
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