Posts filed under ‘Austrian Economics’
O&M at the AoM
| Peter Klein |
O&M will be well represented at the Academy of Management annual meeting in Philadelphia, 3-8 August 2007. Former guest blogger (and Philly native) Joe Mahoney is president-elect and program chair for the Business Policy and Strategy Division, so you know the program will be good.
I am chairing a Professional Development Workshop (PDW) titled “The Austrian School of Economics: Applications to Organization, Strategy, and Entrepreneurship” featuring former guest bloggers Mahoney and Dick Langlois along with Elaine Mosakowski, Yasemin Kor, Nicolai, and myself. Teppo of orgtheory.net has put together a session on “Entrepreneurship and Strategic Organization: Taking Stock, Problems, and Future Directions” which includes Jay Barney, Todd Zenger, Kirsten Foss, Mosakowski, Nicolai, and me. Other sessions of note include a PDW on the fifth anniversary of the excellent Strategic Organization (Nicolai is in that one too, along with O&M favorite and guest blogger Chihmao Hsieh’s mentor Jackson Nickerson); a session on the philosophical and epistemological foundations of strategy and organization theory, organized by Teppo and featuring regular O&M commentator J. C. Spender; a session on cognitition in organizational economics; and many other interesting workshops, lectures, and sessions on organization, strategy, entrepreneurship, and the market process.
PS: Before you go, be sure to study this article on Philadelphia dining from the current issue of Food and Wine Magazine.
Conference on Austrian Economics and the Firm
| Peter Klein |
Last week I attended an interesting discussion conference sponsored by the Atlas Foundation, “Austrian Market-Based Approaches to the Theory and Operation of the Business Firm.” Former O&M guest blogger Dick Langlois was there, as were Pete Boettke and Fred Sautet of The Austrian Economists, Tony Woodlief of the Market-Based Management Institute, Saras Sarasvathy, Peter Lewin, Ivan Pongracic, Anthony Evans, and several others. (A selection of papers, written for the conference, will appear in the Review of Austrian Economics.)
The participants clearly believe the Austrian tradition has something of value for researchers and teachers in business administration. There may also be Austrian lessons for practitioners, though there was less consensus on exactly what these lessons are and how they should be communicated. One theme that emerged clearly from the discussions was the depth and variety of the Austrian approach. Despite a shared commitment to the general framework of the Austrian school there were many disagreements about core theoretical issues and much uncertainty about what these ideas imply for firm boundaries, strategy, entrepreneurship, and public policy. (more…)
Does Hayek Still Matter?
| Nicolai Foss |
I may be wrong, but I have the feeling that the thought of Friedrich von Hayek is receiving less and less attention. This worries me for personal reasons — I wrote my Master’s Thesis in economics in 1989 on Hayek’s business cycle theory, and his work has continuously served as an important source of inspiration to me (e.g., this paper) as well as to countless others — and for the reason that Hayek’s thought is too important to vanish in influence. (more…)
Unintended Consequences and the Social Sciences
| Nicolai Foss |
According to a prominent tradition in economics and classical liberal thought, the social sciences (particularly economics) are primarily concerned with explaining unintended phenomena, whether more temporary outcomes, such as market phenomena, or more permanent ones, such as institutions, in terms of the intentional actions of multiple interacting agents. In contrast, the social sciences are not really taken up with explaining individual action per se.
This is an understanding, or perhaps even doctrine, that is perhaps most famously associated with Hayek, but it has also been echoed by Ludwig Lachmann (among Hayek’s contemporaries) and by many modern Austrians, as well as by philosophers, notably Karl Popper, Michael Polanyi, and Edna Ullman-Margalitt, and (non-Austrian) economists such as Andrew Schotter (in his 1981 book on institutions). (Of course, the notion of unintended consequences itself is by no means unique to classical liberal economists but can be found in the thought of most major thinkers on social science and political philosophy).
However, there are several problems with the doctrine that the social sciences are mainly about unintended consequences. Here are two that seem to have not been previously noticed: (more…)
Lionel Robbins at 75
| Peter Klein |
This year’s Austrian Scholars Conference featured a panel on the 75th anniversary of Lionel Robbins’s influential Essay on the Nature and Significance of Economic Science. (Both the first and second editions of the book are available online at mises.org.) Robbins’s definition of economics as “the science which studies human behavior as a relationship between scarce means which have alternative uses” is sometimes considered so pedestrian, so completely subsumed into the mainstream of economic theory, that the book itself gets little attention today. However, as explained by the panelists at the Robbins session mentioned above, the book’s argument is sophisticated and nuanced, and definitely still worth reading.
The LSE, Robbins’s professional home, is hosting a conference on the book in December 2007, sponsored by the LSE and the journal Economica. “The purpose of this conference is both to renew the considerations of Robbins’s theme and reflect on the current nature and significance of economic science as well as examine Robbins’s own position from a historical perspective.” Details below the fold (courtesy of SSRN).
NB: Israel Kirzner’s first book, The Economic Point of View (1960), about the history of the definition of economics, is also now available online. (more…)
More on Socialist Calculation
| Nicolai Foss |
In an excellent book review of GC Archibald’s Information, Incentives and the Economics of Control, Tyler Cowen raised a number of neglected points concerning the socialist calculation debate. (The review is published in the apparently now closed Journal of International and Comparative Economics 5: 243-249 (1995) and unfortunately isn’t online).
Cowen argued out that the victors in the socialist calculation debate “… have shied away from the hard questions,” and that it is necessary to “push the boundaries of the calculation argument.” For example, what if a dictator who has read Mises instructed his managers to compete as in a regular market economy (i.e., not as in an Oskar Lange-economy), with the dictator being the residual claimant monitor? Would that work? It might not — but that would primarily be because of excessive monitoring costs.
Cowen also indirectly questions the Misesian emphasis on calculating prices. Experience shows that socialist managers systematically set prices too low (because they can gain from creating excess demand, while they cannot gain from setting the right prices). But this would seem to presuppose that socialist “managers are in fact very good at calculating the proper price.” In other words, there is really no “calculational chaos,” as predicted by Mises.
The Kaleidic Career
| Peter Klein |
Old-timers may remember Ludwig Lachmann’s metaphor of the kaleidoscope, popularized in his 1976 essay “From Mises to Shackle: An Essay on Austrian Economics and the Kaleidic Society” (Journal of Economic Literature 14, no. 1: 54-62). Lachmann borrowed the metaphor from G.L.S. Shackle, who wrote of a society “interspersing its moments or intervals of order, assurance and beauty with sudden disintegration and a cascade into a new pattern.” In this fundamentally disorderly system, Lachmann maintained, there are no systematic equilibrating tendencies. As Roger Garrison succinctly put it, “In a kaleidic world, one pattern of prices gives way to another, but there can be no claim that a given pattern is any closer to a general equilibrium, or represents any higher degree of coordination, than the one that preceded it.”
Personally, I find the kaleidic metaphor rather unhelpful. As I’ve noted before, I see the Kirzner-versus-Lachmann debate over the “tendency toward equilibrium” that dominated Austrian economics during the 1980s as a big distraction. The point is not whether markets actually converge to some kind of long-run equilibrium, but whether in the absence of any change in the underlying data prices would tend to converge toward “final” equilibrium values. The founding Austrians such as Menger, Böhm-Bawerk, and Mises thought the profit motive was sufficient to establish such tendencies, but they were not primarily interested in long-run equilibrium prices. Instead, they sought a framework for explaining the actual, day-to-day prices that unfold in historical time. (Look for a paper on this soon.)
Anyway, the kaleidic metaphor eventually fell out of favor with Austrian economists. But now it’s back, in the context of the “kaleidic career.” (more…)
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…)
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…)
Political Economy of the Internet
| Peter Klein |
Some time ago I wrote a short, popular piece on the political economy of the internet, focusing on its origins as a set of federal government projects. For a more comprehensive, scholarly take, see this paper by Massimiliano Neri, presented at this past weekend’s Austrian Scholars Conference.
Hayek and Wikipedia
| Peter Klein |
This passage from a 2006 New Yorker essay on Wikipedia caught my eye:
As an undergraduate, [Wikipedia founder Jimmy Wales] had read Friedrich Hayek’s 1945 free-market manifesto, “The Use of Knowledge in Society,” which argues that a person’s knowledge is by definition partial, and that truth is established only when people pool their wisdom. Wales thought of the essay again in the nineteen-nineties, when he began reading about the open-source movement, a group of programmers who believed that software should be free and distributed in such a way that anyone could modify the code. He was particularly impressed by “The Cathedral and the Bazaar,” an essay, later expanded into a book, by Eric Raymond, one of the movement’s founders. “It opened my eyes to the possibility of mass collaboration,” Wales said.
The Hayek-Wikipedia connection has been noted before (e.g., this post by Cass Sunstein on Larry Lessig’s blog — scroll down for a comment by Jimmy Wales himself). While there’s no reason to doubt that Hayek was a significant influence on the wiki model, the passage above has an apocryphal ring. If “The Use of Knowledge in Society” made an impression on Wales as an undergraduate, I’m impressed; it’s not exactly an easy read. (I gave up assigning it in my classes a few years ago, substituting Jensen and Meckling’s “Specific and General Knowledge, and Organizational Structure” instead.) And who would describe Hayek’s rather dry, technical paper as a “free-market manifesto”?
NB: The New Yorker article is getting a lot of airplay this week because of a serious attribution error, discussed here.
“Right-Wing Crap-onomics”
| Peter Klein |
Charismatic public figures tend to be lightning rods both for criticism and for praise. Ronald Reagan, for example, aroused far more passion among both supporters and detractors than did the first President Bush, just as Bill Clinton was both loved and hated far more than Jimmy Carter.
Thus it’s no surprise to find a discussion of Foss and Klein at the student-run Austrian Economics Forum degenerating into a shouting match. (At least this discussion is more civil.)
And check out the comments to this blog post on microfinance. One commentator links to O&M (this post), to which another commentator replies: “The blog you link espouses right-wing crap-onomics. Note one of the categories listed their is the Austrian school of economics, which is just about as effective as the American school of nation-building.”
Isn’t it nice how the web brings out the best in people?
The Essential Rothbard
| Peter Klein |
My admiration for the great libertarian polymath Murray N. Rothbard is no secret. Indeed, I would name Rothbard and Oliver E. Williamson as the most important influences on my own intellectual development. So I was delighted to receive a copy of The Essential Rothbard, an overview of Rothbard’s intellectual contributions by former O&M guest blogger David Gordon. David makes use not only of Rothbard’s published works — a bibliography, included at the end of the book, fills 53 pages of small type! — but also a huge collection of unpublished correspondence, memos, and manuscripts. (Justin Raimondo’s biography An Enemy of the State is also worth a read, but focuses more on Rothbard’s political activities than his core scholarly contributions.)
Particularly interesting is the 9th chapter, “The Unknown Rothbard: Unpublished Papers,” covering Rothbard’s thoughts on Leo Strauss, Willmoore Kendall, and Ernest Nagel (one of Rothbard’s teachers at Columbia) along with generally negative reviews of Hayek’s Constitution of Liberty, Anthony Downs’s Economic Theory of Democracy, and Douglass North’s Economic Growth of the United States, 1790-1860, among other books.
Three Great Austrian Economists in One Book!
| Nicolai Foss |
My co-blogger abundantly possesses that increasingly scarce resource: Modesty. So, I suppose it falls on my shoulders to announce to the blogosphere that the Mises Institute has just published a beautiful new edition of Carl Menger’s Principles of Economics with a foreword by Peter. (more…)
New Paper by Mario Rizzo
| Nicolai Foss |
Just back from a loooong vacation in Vietnam, involving plenty of trashy crime novels; what better way is there to recover intellectually than reading a characteristically thoughtful paper by Mario Rizzo?
In “Paternalist Slopes,” Mario and his co-author Glen Whitman take issue with those who use arguments from the “biases” part of the bounded rationality literature to justify interventionism. Here is the abstract:
A growing literature in law and public policy harnesses research in behavioral economics to justify a new form of paternalism. Contributors to this literature typically emphasize the modest, non-intrusive character of their proposals. A distinct literature in law and public policy analyzes the validity of “slippery slope” arguments. Contributors to this literature have identified various mechanisms and processes by which slippery slopes operate, as well as the circumstances in which the threat of such slopes is greatest. The present article sits at the nexus of the new paternalist literature and the slippery slopes literature. We argue that the new paternalism exhibits many characteristics identified by the slopes literature as conducive to slippery slopes. Specifically, the new paternalism exhibits considerable theoretical and empirical vagueness, making it vulnerable to slopes resulting from altered economic incentives, enforcement needs, deference to perceived authority, bias toward simple principles, and reframing of the status quo. These slope processes are especially likely when decisionmakers are subject to cognitive biases – as the new paternalists insist they are. Consequently, soft paternalism can pave the way for harder paternalism. We conclude that policymaking based on new paternalist reasoning should be considered with greater trepidation than its advocates have suggested.
Capital and Its Structure in PDF
| Peter Klein |
Ludwig Lachmann, a colleague of F. A. Hayek at the LSE in the 1930s and later professor of economics at the University of the Witwatersrand in Johannesburg, made major contributions to the Austrian theory of capital. His most important book, Capital and Its Structure (1956), is now available on the web as a PDF file (courtesy of the Mises Institute, which continues to add to its impressive online book collection).
Chandler the Misesian?
| Peter Klein |
I spent some time a couple of summers ago reading through Murray N. Rothbard’s personal correspondence, housed with the rest of his papers at the Mises Institute in Auburn, Ala. Rothbard was an extremely prolific writer, and his many letters — long, detailed, provocative, and funny — are as valuable and informative as his published writings.
I came across one curious exchange of letters from the early 1950s between Rothbard and Alfred D. Chandler, Sr., father of Harvard’s Alfred D. Chandler, Jr. Rothbard is describing his plans for producing a textbook expounding Misesian principles (what became Man, Economy, and State). Chandler writes: “I would like to show you what I have already done on a popular Mises, as well as to discuss plans for its future. Also as you say it is time for all good ‘Misesians’ to come to the aid of the party.” In a subsequent letter Rothbard notes: “As a Misesian, I think you’ll be interested in learning that the latest issue of the American Economic Review, just published, has its lead book review devoted to [Mises’s] Human Action. . . .”
Chandler Jr. tells me he doesn’t recall his father working on any such “popular Mises.” Mises’s student Percy Greaves later came out with a glossary, Mises Made Easier, and Bob Murphy is currently preparing a study guide for Human Action. But no record of Chandler, Sr.’s project seems to have survived. If readers know anything about this, please let me know.
Dilemmas of Formal Economic Theory
| Peter Klein |
In “Dilemmas of an Economic Theorist” (Econometrica, July 2006) Ariel Rubinstein reflects on the meaning, implications, and relevance of formal economic modeling:
What are we trying to accomplish as economic theorists? We essentially play with toys called models. We have the luxury of remaining children over the course of our entire professional lives and we are even well paid for it. We get to call ourselves economists and the public naively thinks that we are improving the economy’s performance, increasing the rate of growth, or preventing economic catastrophes. Of course, we can justify this image by repeating some of the same fancy sounding slogans we use in our grant proposals, but do we ourselves believe in those slogans?
Rubinstein goes on to identify four dilemmas facing the formal economic theorist: (more…)
New Edition of Menger’s Principles
| Peter Klein |
The Mises Institute has produced a new edition of Carl Menger’s path-breaking Grundsätze der Volkswirtschaftslehre [Principles of Economics], originally published in 1871. Menger’s Principles not only introduced the concept of marginal analysis, it presented a radically new approach to economic analysis, an approach that still forms the core of the Austrian theory of value and price.
The new edition includes Hayek’s introduction to the 1934 English edition and a new foreword by yours truly. The book itself continues to be availble in a free online edition.
Conference on Ragnar Nurkse
| Peter Klein |
The Tallinn University of Technology, Estonia, and The Other Canon Foundation, Norway, are organizing a 2007 conference to celebrate the birth of Ragnar Nurkse, often called a Norwegian or Swede but in fact the world’s most important Estonian economist. Here is the call for papers. “This conference will discuss Nurkse’s work also in relationship to his contemporaries in development economics, and the common elements of development economics from Antonio Serra to Nurkse — among them technology, finance, institutions, problems of foreign ownership — will be highlighted.”
Nurkse was an occasional visitor to Mises’ private seminar at the Vienna Chamber of Commerce. He rejected the Austrian theory of capital, however, preferring a model in which capital is virtually homogeneous and self-reproducing. (See his “The Schematic Representation of the Structure of Production,” Review of Economic Studies, June 1935.)
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