Posts filed under ‘– Klein –’
Chestnut Street: The First “Wall Street”
| Peter Klein |
Did you know that the US’s first financial hub was not in New York, but in Philadelphia? So says Robert Wright’s The First Wall Street: Chestnut Street, Philadelphia, and the Birth of American Finance (University of Chicago Press, 2005).
Here’s an interesting point made in Peter Rousseau’s review:
One point that Wright does not make explicitly, but which is nonetheless reinforced by his lively narratives, is the primal nature of real activity as the driving force behind the location and development of finance. At a time when colonial economic activity was more local in nature and commerce more international, Philadelphia’s position as an Atlantic port made it an adequate commercial center, especially since it was already a political center. It was therefore natural for the financial system to have its mainsprings there. A virtuous cycle of real needs leading to finance and promoting further real growth seems to have been the result. But as it became increasingly clear that the new nation and its large land mass was not a featureless plain, the move to New York might be seen as a classic example of Joan Robinson’s famous adage that “where enterprise leads, finance follows.” And follow it did in this case. As Chestnut Street’s best financiers headed off to New York, their expertise went with them. Only large sunk investments in plant and equipment for the Federal mint and the central bank could hold these institutions in the Quaker City, at least until political forces took care of the latter.
Happy Mises Day
| Peter Klein |
We neglected to wish our readers yesterday a Happy Mises Day. Ludwig von Mises was born 125 years ago on 29 September 1881. Guido Hülsmann, whose full-length biography of Mises will appear in 2007, shares some tributes that were published on (or just before) Mises’s death in 1973. Among the accolades: “Recognized as a brilliant contributor to economic thought not only by his disciples but also by many who disagreed radically with his political and social philosophy” (International Herald-Tribune). “The world’s liberal economists [have lost] their most prolific pen” (Daily Telegraph). “He held that a free society and a free market are inseparable. He gloried in the potential of reason and man. In sum, he stood for principle in the finest tradition of Western Civilization” (Wall Street Journal). “The de Tocqueville of modern economics” (CBS television). Murray Rothbard wrote in Human Events:
Readers of Mises’ majestic, formidable and uncompromising works must have often been surprised to meet him in person. Perhaps they had formed the image of Ludwig Mises as cold, severe, austere, the logical scholar repelled by lesser mortals, bitter at the follies around him and at the long trail of wrongs and insults that he had suffered. They couldn’t have been more wrong; for what they met was a mind of genius blended harmoniously with a personality of great sweetness and benevolence. Not once has any of us heard a harsh or bitter word escape from Mises’ lips. Unfailingly gentle and courteous, Ludwig Mises was always there to encourage even the slightest signs of productivity or intelligence in his friends and students.
(For some reason, I never forget Hayek’s birthday.)
Varieties of Capitalist Development and Corporate Governance
| Peter Klein |
That is the theme for the 2007 Asia-Pacific Economic and Business History Conference at the University of Sydney. As noted in the call for papers: “While the historical study of market economies has been commonplace, there are many aspects worthy of further analysis including the role of savings, human capital, technology, government, and changing markets. Corporate governance has received wide attention in the wake of recent enterprise collapses, yet historians have only begun to research differences in corporate governance over time and among countries.”
The keynote speaker is Doug Irwin, author of several outstanding books on international trade theory and policy.
Bounded Rationality and Paternalism Redux
| Peter Klein |
John Cassidy’s New Yorker article on neuroeconomics, and his (and Colin Camerer’s) use of behavioral anomalies to justify paternalistic social policy, has provoked many strong responses. The latest is “Neuro Wine in Old Bottles” by Will Wilkinson, which concludes:
New findings in brain science will certainly help us to improve the technologies of Reason. But our freedom is perhaps the most important of those technologies. So before we get carried away with exciting brain-based arguments for paternalism and regulation, we should remember that it’s not rational, in any sense of the word, to burn the ladder you’re climbing.
NB: Robert Fogel says that economists, too, suffer from cognitive bias — they are too pessimistic. Understandable, given that the economist’s usual role is to correct for foolish optimism, or what Sowell calls the “unconstrained vision.” (Thanks to Bryan Caplan and Russ Roberts for the links.)
The “Essay Tradition” in Economics
| Peter Klein |
On the triumph of formalism in economics (addressed here and here) — not to mention academic insults — I give you this passage in Fred Kaplan’s The Wizards of Armageddon, a history of the RAND Corporation. The subject is RAND mathematician Albert Wohlstetter, the chief theoretician behind the development of US nuclear strategy in the 1950s and 1960s. Writes Kaplan:
[T]he social science division was removed from the rest of RAND — literally, 2500 miles away, in Washington, D.C. Most [of the social scientists] were figuratively removed, too: quantitative analysis had triumphed at RAND, through the spread of systems analysis and game theory and — until the Wohlstetter studies, which put the economids division on top of the strategic business — through the domination over the rest of RAND by the mathematics division. [Wohlstetter, though a mathematician, was associated with the economics division.] These sorts of studies were scientific, so it was thought; there were numbers, calculations, rigorously checked, sometimes on a computer. maybe the numbers were questionable, but they were tangible, unlike the theorizing, the Kremlinology, the academic historical research and interpretation produced by social science. Wohlstetter snootily denigrated all such works as being in “the essay tradition.”
New Journal: Regulation and Governance
| Peter Klein |
Regulation & Governance aims to serve as the leading platform for the study of regulation and governance by political scientists, lawyers, sociologists, historians, criminologists, psychologists, anthropologists, economists, and others. Research on regulation and governance, once fragmented across various disciplines and subject areas, has emerged at the cutting edge of paradigmatic change in the social sciences. Through the peer-reviewed journal Regulation & Governance, we seek to advance discussions between various disciplines about regulation and governance, promote the development of new theoretical and empirical understanding, and serve the growing needs of practitioners for a useful academic reference.
Here is the journal’s homepage. John Braithwaite, Cary Coglianese, and David Levi-Faur are the editors. The interesting editorial board includes anthropologist Margaret Levi, law professors Susan Rose-Ackerman and Cass Sunstein, and economist Kip Viscusi.
Viscusi, by the way, is a player in Vanderbilt University’s new PhD program in law and economics. (The budget for that program is one of the few big-ticket items for which Vanderbilt Chancellor Gordon Gee is not in trouble.)
Friedman-Stigler Correspondence
| Peter Klein |
Historians of economic thought, social-science methodologists, and Chicago School junkies may enjoy J. Daniel Hammond and Claire H. Hammond’s edited volume Making Chicago Price Theory: Friedman-Stigler Correspondence, 1945-1957 (Routledge, 2006). (Friedman, of course, is respected, though not universally admired, here at O&M.) Reviewer Craig Freedman says the Friedman-Stigler correspondence
reflects the way in which the two attempted to transform economics. In particular, we can discern their attempts to reshape economic methodology, as well as their changing views on such issues as equality and income distribution. As we read these letters, the outline of what would form the bedrock of the Chicago School, a distinctive take on price theory, becomes progressively clearer.
Freedman also notes that while Friedman’s influence on monetary theory and policy and economic methodology is well known, Stigler’s defense of Marshallian partial-equilibrium analysis over Walrasian general-equilibrium theory is not as widely appreciated. (more…)
MBA Students and Math
| Peter Klein |
My friend and former colleague Dwight Lee, along with Richard McKenzie, has produced a new textbook, Microeconomics for MBAs: The Economic Way of Thinking for Managers (Cambridge University Press, 2006). Lee and McKenzie have written more books than I’ve read (or colored) and, like all their books, Microeconomics for Managers is a delight — lively and engaging while also systematic, learned, and useful. I’ve been using Brickley, Smith, and Zimmerman’s Managerial Economics and Organizational Architecture for several years and have been quite satisfied, but am considering switching to McKenzie and Lee.
I noticed this plug in the dust-jacket blurb: “This is the first textbook in microeconomics written exclusively for MBA students. McKenzie/Lee minimizes attention to mathematics and maximizes attention to intuitive economic thinking.” I’ve taught undergraduates, MBAs, and PhD students, and haven’t noticed MBA students being more troubled by math than anyone else. Clearly many managerial economics texts, at any level, overemphasize technique over intuition and application. But many MBAs — especially those with an engineering background, which seems to be an increasing number — may actually prefer more math to less. Just a thought.
27 September 2006 at 11:17 am Peter G. Klein Leave a comment
Is the Corporation a Creature of the State?
| Peter Klein |
Piet-Hein van Eeghen argues in the Journal of Libertarian Studies (1, 2) that the corporation’s “entity status” — from which attributes such as limited liability and perpetuity are derived — is an artificial product of state intervention, a feature of the commercial landscape that wouldn’t exist in a truly free market. I think Eeghen is wrong, partly for failing to distinguish between limited contractual liability (which is achievable through contract) and limited tort liability (which isn’t). Limited contractual liability was a standard feature of joint-stock companies long before limited liability became the default rule in English common and statutory law, as Henry Hansmann (among others) has pointed out.
Anyway, for an interesting and lively debate on the corporation’s status in the free market, see this exchange (and the links therein) between Sean Gabb and Stephan Kinsella.
Economic Culture Wars
| Peter Klein |
Mark Thoma points us to an old Paul Krugman column on the “economic culture wars.” There Krugman laments the hostility towards economic analysis expressed by many “literary” or “humanist” intellectuals. Invoking C.P. Snow’s “two cultures” distinction, Krugman tries to explain why a magazine editor added (over Krugman’s strenuous objections) the subtitle “deconstructing the income distribution controversy” to one of Krugman’s articles:
[T]here is a continuing struggle between two ideas of what it means to be an intellectual. One culture is humanist and literary; the other mathematical and scientific. The editor of my article, I now believe, was perhaps unconsciously using the language of critical theory as a way of declaring his allegiance in that struggle; he was saying: “I may write about quantitative stuff like GDP and real wages, but my sensibility is literary.”
I think Krugman’s diagnosis is largely on target, with one important caveat. What Krugman describes as the essentially “mathematical” character of economic analysis I would instead call “logical” or “analytical.” The opposite of literary/humanist, in the cultural divide, is logical/analytical (of which mathematical is a subset). Contrary to Krugman, economics did not become a rigorous, technical subject only after World War II, when verbal economics was systematically replaced by mathematical economics; it had always been so.
New Papers: Chandler, Leijonhufvud, Phelps, Summers
| Peter Klein |
The current issue of Capitalism and Society (volume 1, number 2) features an all-star cast. Alfred D. Chandler, Jr., leads off with his newest article, “How High Technology Industries Transformed Work and Life Worldwide from the 1880s to the 1990s” (abstract below). Chandler recently celebrated his 88th birthday, so new Chandler paper — while perhaps not quite as significant as a new Coase paper — is a major event.
In the same issue is a piece by Foss hero Axel Leijonhufvud, “Understanding the Great Changes: A Comment,” which is a comment on Edmund Phelps’s “Understanding the Great Changes in the World: Gaining Ground and Losing Ground since World War II.” The journal also contains a comment on Chandler by Richard Sylla, a paper by Richard Zeckhauser on “Investing in the Unknown and Unknowable,” and a comment on Zeckhauser by Lawrence Summers. (more…)
26 September 2006 at 10:37 am Peter G. Klein Leave a comment
Mises’s “Intolerance”
| Peter Klein |
Rafe Champion points out that Ludwig von Mises and Karl Popper, despite a shared commitment to classical liberalism and joint membership in the Mont Pelerin society, then the premier scholarly association of free-market intellectuals, didn’t get along. Mises and Popper were miles apart, epistemologically, and neither was enamored of the other’s work. Still, their relationship is interesting and worthy of further study. (Hayek of course was deeply influenced by both men.)
Unfortunately, in the comments to Rafe’s post the subject of Mises’s alleged “intolerance” rares its ugly head. A commentator refers to the story, repeated ad nauseam by Milton Friedman, that Mises once stormed out of a session of the Mont Pelerin society, shouting “You’re all a bunch of socialists!” The inference is that anyone making such a statement in a room full of distinguished non-socialists (Friedman, Stigler, Robbins, Knight) must be an extremist, a crank, or both. (more…)
University of Arizona Program on Law and Entrepreneurship
| Peter Klein |
The University of Arizona’s McGuire Center for Entrepreneurship and James E. Rogers School of Law have teamed up to create a joint program in law and entrepreneurship. The first project is a mock law firm, composed of students from the intellectual property, entrepreneurial law, corporate law, and tax law areas of the law school, that will advise business-student teams in the McGuire Center’s entrepreneurship program. Says law professor Darian Ibrahim: “There isn’t all that much interdisciplinary work in this area, but interest is building among scholars. I feel like we’re on the precipice of something that’s really about to take off.”
25 September 2006 at 11:29 am Peter G. Klein Leave a comment
Albert Fishlow and the New Economic History
| Peter Klein |
Previous posts have touched on cliometrics or the “new economic history” (not quite so new anymore). For interesting reflections on the cliometric revolution see John Majewski’s recent commentary on Albert Fishlow’s 1965 book American Railroads and the Transformation of the Ante-bellum Economy (part of a clever “Classic Reviews in Economic History” series; I’d love to see similar series for management, industrial organization, etc.). As Majewski notes, the “book’s forty-year career is a window from which one can glimpse the transition from the ‘Old Economic History’ to the ‘New Economic History.'” (more…)
25 September 2006 at 11:25 am Peter G. Klein Leave a comment
Demise of the Public Intellectual
| Peter Klein |
Mark Oppenheimer bemoans the demise of “public intellectuals,” scholars who write for the general reader or for academic researchers in other specialty areas. These intellectuals — people who write for periodicals like The New York Review of Books, The New York Times Book Review, Dissent, Partisan Review, Commentary, The New Criterion, and First Things — are still around, but few in academia are aware of them. Among Oppenheimer’s suggestions:
I have long believed that admissions committees at graduate schools should work very differently. Instead of asking for letters of recommendation from undergraduate thesis advisers, admissions committees should try to figure out if an applicant is an intellectual. They should ask: “What do you read outside your proposed field of study? What are your favorite books? Where would you most like to travel, and why? What periodicals do you read?” If a student has no aspirations to travel, doesn’t seem to read much except within her undergraduate major, and shows no interest in academic debates — well, that’s a bad candidate for academe.
Of course, in today’s climate of increasing hyper-specialization, such students are probably at a competitive disadvantage for completing the PhD, finding a job, getting tenure, etc. (Thanks to Teppo for the pointer to Oppenheimer.)
Earmarks and Transparency
| Peter Klein |
The US Congress is under increasing pressure to curb “earmarking,” the practice of inserting appropriations for special projects — typically in the sponsoring member’s home district — into general funding bills. Last week Congress passed a bill authorizing the creation of a public, online, searchable database of federal grants, contracts, and earmarks, listing all sponsors, on the theory that greater transparency will reduce the number of frivolous or corrupt awards for legislators’ favorite pet projects.
As several commentators have pointed out, such a database may add little value, because it’s already easy to figure out who sponsored a particular earmark, simply by looking at whose district the money goes to.
In some cases, however, it’s even easier: the sponsor puts his name on the project. The University of Missouri recently dedicated the Christopher S. Bond Life Sciences Center, a $60 million facility (at right) devoted to interdisciplinary research in the life sciences. Christopher “Kit” Bond is Missouri’s senior senator and member of the Senate Appropriations Committee. Bond personally provided $34 million of the center’s budget through Congressional earmarks. It’s a beautiful building, not far from my office. Bond’s name is right on the front, above the main door, in case anyone entering the building should forget where the money came from.
Evidence That Demands A Verdict
| Peter Klein |
The first time I heard the term evidence-based management I was bewildered. What other kind of management is there? Faith-based management? A priori, praxeological, apodicticly certain management? The concept seems empty and trite, akin to “faith-based religion” or “water-based boating.”
Imagine my surprise to discover that evidence-based management (EBM) is an established approach, or school of thought, in management theory. Its major proponents, Stanford’s Jeffrey Pfeffer and Robert Sutton, write that EBM “means finding the best evidence that you can, facing those facts, and acting on those facts — rather than doing what everyone else does, what you have always done, or what you thought was true.” Hard to disagree with that. But can this be said to constitute a theory? A conceptual approach? A movement?
Evidence-based management is certainly a catchy phrase, generating a Harvard University Press book and articles in such journals as the Academy of Management Review and Harvard Business Review. Nice work if you can get it!
Returns to University Biotech-Transfer Programs
| Peter Klein |
The Milken Institute has released a new study, “Mind to Market: A Global Analysis of University Biotechnology Transfer and Commercialization.” The study ranks the biotech-transfer programs of North American, European, and Asian universities by a variety of critera. Some general findings:
- Among U.S., Canadian and European universities, the United States leads in invention disclosures, patents filed and granted, licenses executed and licensing income. However, European universities surpass their U.S. counterparts in startups established.
- Research activity has a high rate of return. Each 10-point increase in our research papers score contributes an additional $1.7 million in annual licensing income.
- Investments into offices of technology transfer (OTT) also offer high returns. For every $1 invested in OTT staff, the university receives a little more than $6 of licensing income.
I’m not sure what explains the US-European differences. Incidentally, there are healthy and robust literatures on technology transfer from both transaction-cost and resource-based perspectives. I recommend in particular the work of Rachelle Sampson, Janet Bercovitz, and Joanne Oxley (all of whom were influenced by David Teece’s pioneering papers in this area).
Integrating Hirschman and TCE
| Peter Klein |
Another interesting paper from the May 2006 issue of Economic History Review is Tetsuji Okazaki’s “‘Voice’ and ‘Exit’ in Japanese Firms During the Second World War: Sanpo Revisited.” The “Sanpo” was a government-sponsored labor-bargaining organization for large firms. “This article examines the role of sanpo, using prefecture-level and firm-level data, based on a framework integrating the ‘voice view’ of unionism and transaction cost economics.”
Incidentally, Williamson has an interesting discussion of voice in “Calculativeness, Trust, and Economic Organization” (JLE, April 1993; ch. 10 of The Mechanisms of Governance). Responding to the claim that TCE (and the economic notion of “calculative trust” more generally) elevates exit over voice, Williamson writes:
First, if voice in the absence of an exit option is relatively ineffective, which evidently it is (Hirschman, 1970), then voice really does have a calculative aspect. Second, voice works through mechanisms, and those mechanisms are often carefully designed. . . . The voice mechanics are often defined by the terms of the contract. . . . Plainly, the procedures through which voice is expected to work [in a contract] are laid out in advance. Again, therefore, calculativeness is implicated in the design of ex post governance (voice).
In TCE, therefore, the “importance of voice is not in the least discredited. Instead, voice is encompassed within the extended calculative perspective” (pp. 255-56).
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