Archive for March, 2007

Reader’s Reports on The Road to Serfdom

| Peter Klein |

A new edition of The Road to Serfdom is coming out this year, positioned as volume 2 of The Collected Works of F. A. Hayek. Like all the volumes in the Collected Works, it includes a new foreword (here by series editor Bruce Caldwell), standardized and corrected notes and references, and previously unpublished supplementary material. This week’s Chronicle of Higher Education features some excerpts from the new material. Here, for example, are the reader’s reports on the manuscript, solicited by the University of Chicago Press in 1943 from Frank Knight and Jacob Marschak: (more…)

28 March 2007 at 2:44 pm 1 comment

March & Simon: Early Socialist Calculation Revisionists

| Nicolai Foss |

It is now commonly recognized that the majority of the economics profession for about four decades held an erroneous view of the nature of the “socialist calculation debate.” In particular, the nature of the arguments put forward by Mises and Hayek were misconstrued.

Revisionism took off in the mid 1980s with the work of Peter Murrell (e.g., here) and Don Lavoie (e.g., here). From a mainstream perspective, Murrell argued that the Austrians had developed sophisticated insights in property rights economics and the agency problem and had applied these insights to the problem of socialist calculation. Lavoie highlighted the distintive Austrian knowledge argument in the calculation debate, in particular emphasizing Hayek’s contribution. A bit later, Salerno and others emphasized the distinctiveness of Mises’ contribution. Thus, whereas Mises stressed the need for a distributed process of entrepreneurial judgment in the context of a private ownership economy characterized by uncertainty, Hayek put more of an emphasis on the impossibility under socialism of harnessing and processing massive amounts of knowledge, particularly under dynamic conditions. (more…)

28 March 2007 at 9:40 am 1 comment

Two Papers on Entrepreneurship

| Peter Klein |

Joe Salerno, “The Entrepreneur: Real and Imagined.” Contrasts Kirzner’s concept of the pure entrepreneur, an agent who possesses superior alertness to profit opportunities but himself owns no resources, with an alternative concept of the entrepreneur as property owner, a concept with equally strong roots in the Austrian tradition. Complements the Knightian approach emphasized in several of these papers.

Steve Phelan, “Entrepreneurship as Expectations Management.” Starting from the resource-based view of the firm, explores how firms can influence market participants’ beliefs about the value of resources it possesses. An interesting attempt to integrate entrepreneurship into the RBV.

27 March 2007 at 9:18 pm 1 comment

Management by the Really Big Numbers

| Peter Klein |

Management by the numbers may work after all. But what about management by the really big numbers?

Paul Slovic, writing in Foreign Policy about genocide, says we are “numbed by numbers” — really big numbers, that is.

Why do good people ignore mass murder and genocide?

The answer may lie in human psychology. Specifically, it is our inability to comprehend numbers and relate them to mass human tragedy that stifles our ability to act. It’s not that we are insensitive to the suffering of our fellow human beings. In fact, the opposite is true. . . .

The psychological mechanism that may play a role in many, if not all, episodes in which mass murder is neglected involves what’s known as the “dance of affect and reason” in decision-making. Affect is our ability to sense immediately whether something is good or bad. But the problem of numbing arises when these positive and negative feelings combine with reasoned analysis to guide our judgments, decisions, and actions. Psychologists have found that the statistics of mass murder or genocide — no matter how large the numbers — do not convey the true meaning of such atrocities. The numbers fail to trigger the affective emotion or feeling required to motivate action. In other words, we know that genocide in Darfur is real, but we do not “feel” that reality. In fact, not only do we fail to grasp the gravity of the statistics, but the numbers themselves may actually hinder the psychological processes required to prompt action.

Here is a longer version of Slovic’s piece, with references.

Are managers, likewise, unable to extract meaningful information from really big numbers? Is this a cost of centralized decision-making, or a limit to firm size or scope for a given degree of centralization? What would Harold say?

26 March 2007 at 11:58 am Leave a comment

Process Explanation: What Is It, Really?

| Nicolai Foss |

As I have recounted on an earlier occasion (here), my interest in economics was, after about 1.5 years of a somewhat unsuccessful economics study, finally stimulated by discovering what may broadly be called “process approaches” to economics, particularly the work of Axel Leijonhufvud, and Austrian and evolutionary approaches. I was captivated by the claims inherent in these approaches of studying “real” market “processes” in “time,” taking account of “genuine uncertainty,” “surprises,” “ignorance,” etc. — all in contrast to the (I then thought) mindless neoclassical obsession with equilibrium states.

Clearly, the Austrian marketing effort seemed much superior to the mainstream one, much less dull and much more concerned with reality. (more…)

24 March 2007 at 11:36 am 1 comment

Pomo Periscope X: Foucault Deconstructed

| Peter Klein |

This week’s Times Literary Supplement includes Andrew Scull’s review of a new translation of Foucault’s History of Madness, the book that launched the French philospher’s public career. (HT: A&L Daily.) The first English edition, Scull notes, had the great merit of brevity, if not accuracy.

Madness and Civilization was not just short: it was unhampered by any of the apparatus of modern scholarship. What appeared in 1965 was a truncated text, stripped of several chapters, but also of the thousand and more footnotes that decorated the first French edition. Foucault himself had abbreviated the lengthy volume that constituted his doctoral thesis to produce a small French pocket edition, and it was this version (which contented itself with a small handful of references and a few extra pages from the original text) that appeared in translation. This could be read in a few hours, and if extraordinarily large claims rested on a shaky empirical foundation, this was perhaps not immediately evident. The pleasures of a radical reinterpretation of the place of psychiatry in the modern world (and, by implication, of the whole Enlightenment project to glorify reason) could be absorbed in very little time. Any doubts that might surface about the book’s claims could always be dismissed by gestures towards a French edition far weightier and more solemn — a massive tome that monoglot English readers were highly unlikely, indeed unable, to consult for themselves, even supposing that they could have laid their hands on a copy.

From the extended edition, published now in English for the first time, we learn that Foucault’s primary sources were narrow, outdated, and superficial. (more…)

24 March 2007 at 11:23 am Leave a comment

Measuring the Institutional Environment

| Peter Klein |

An central problem in empirical research on institutions is the difficulty of measuring key attributes of the institutional environment. Secure property rights, respect for the rule of law, transparency, free markets, norms of fairness and reciprocity, and similar characteristics are held to be critical for economic development. But how do you know them when you see them?

Most of the literature has used indicators derived from secondary data, such as the economic freedom measures produced by the Fraser Institute and Heritage Foundation, Witold Henisz’s polcon database, the World Bank’s database of political institutions, various indexes of shareholder and creditor rights compiled by the La Porta gang, and the like. These measures have much to recommend them, but may proxy only indirectly for the real institutional constraints of interest.

This paper by Jan Svejnar and Simon John Commander takes a different approach: it asks. The authors use primary data from the Business Environment and Enterprise Performance Survey (BEEPS), in which managers of several thousand firms in 26 transition countries are asked for their subjective perceptions about tax and regulatory policy, uncertainty about regulatory change, macroeconomic stability, the effectiveness of the judiciary, corruption, crime, infrastructure, and other institutional characteristics. (The authors conclude that most of the variation in firm performance is explained by time-invariant country fixed effects, and that individual institutional variables have little explanatory power, suggesting that existing studies using secondary measures of institutional characteristics may overstate their effects.)

23 March 2007 at 9:39 am 1 comment

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Our Recent Books

Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
Nicolai J. Foss, Strategy, Economic Organization, and the Knowledge Economy: The Coordination of Firms and Resources (Oxford University Press, 2005).
Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
Nicolai J. Foss and Volker Mahnke, eds., Competence, Governance, and Entrepreneurship: Advances in Economic Strategy Research (Oxford, 2000).
Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy: Explorations in the Resource-based Perspective (Routledge, 2000).