Value and exchange in law and economics: Buchanan versus posner

Meir Kohn’s Exchange and Value claims that economics can be organised around two opposed paradigms, the exchange and the value paradigms. In this paper, we apply this dichotomy to characterize the analyses proposed by economists in the field known as “law and economics”. We compare and contrasts the perspectives proposed by two prominent scholars—James Buchanan and Richard Posner—and argue that they, respectively, represent the exchange and the value paradigm in law and economics. More precisely, we show that Buchanan sticks to a definition of economics based on the exchange paradigm, and this leads him to define law and economics in a rather specific, different, narrower than Posner’s way to define law and economics—a definition that corresponds to a conception of economics based on the value paradigm.     

Complexity Economics as Heterodoxy: Theory and Policy

Complexity economics has quickly become a powerful research program for real-world economics in recent years. This article provides an overview of complexity economics, and argues that it is incompatible with the “equilibrium” and “optimality” conceptions of the mainstream and its “market economy.” Instead, it develops older heterodox — including evolutionary-institutional — issues like self-organization, emergence, path?dependence, idiosyncrasies, lock-ins, or skewed power distributions. Also, the space for emergent institutions through the “intentionality” of agents, including their improving collective performance, reducing complexity, and others, is investigated. This article considers complex adaptive systems through “games on networks” in an “evolution-of-cooperation” perspective. Moreover, a surge in policy implications of economic complexity has emerged, even if still rather general. With some more specific implications derived, the article again reveals the close similarities with long-standing heterodoxies: namely, pragmatist policy conceptions in this respect.     

The institutional approach to economic history: Connecting the two strands

This essay examines the historiography of two episodes in history—the scattering of plots in the open fields in the Middle Ages and the transition to the factory system in the Industrial Revolution—to shed light on the uses of institutional economics in economic history. In both of these episodes, economic “just-so” stories advanced our understanding of history. What animated intellectual innovation in both cases was a bold conjecture about the raison d’être of a puzzling institutional structure. But what ultimately enriched our understanding was the process of conjecture and revision those conjectures set off. In both episodes, the revised conjectures that best withstood criticism and revision were those that saw the phenomena not as static snapshots of economic agents confronting an economic problem but rather those that embedded the phenomena within a larger economic problem and within a process of economic change. In the end it is an account of institutional change—what I call the good old New Institutional Economics—that connects the use of institutional economics to explain puzzling historical phenomenon with the role of institutional economics in addressing the big questions of economic growth.     

Principles of economic justice: Marketplace and workplace applications

Mainstream economics argues that ethical standards are essentially relative, that they differ from one person to the next, and are entirely outside the limits of legitimate inquiry for economic science. Our view is that there are certain objective ethical standards to be applied that parallel the three modes of human interaction in economic affairs: person to person, superior to subordinate, and member to group. Those standards are given by the principle of equivalence, principle of distributive justice, and principle of contributive justice. The key to integrating those standards into mainstream economic thinking is to begin with what happens in every exchange involving economic agents who are well-informed and free to act. What is gotten in the exchange is more highly valued than what is given up. However, there must be limits to that gain—identified in mainstream economics as profits, consumer surplus, and economic rent—in order to prevent one party from taking advantage of another and to assure that market exchange serves all economic agents fairly and effectively and not just those with the power and will to turn gain into excess. Mainstream economists argue that sufficient limits are imposed by the “invisible hand.” We argue instead that limits must be imposed more deliberately and directly by human economic agents and that those limits are supplied by the three principles of justice.     

Exchange and evolution

This paper offers an extension of the distinction of [Kohn, Cato Journal, 24:303–339 (2004)] between the two paradigms of modern economic theory—value and exchange—as derived from the generic–operant framework of [Dopfer and Potts, The general theory of economic evolution, Routledge, London, (2007)]. I argue that Austrian and evolutionary economics can be analytically unified about a general framework of rule coordination and change that I shall call the generic value paradigm. This is an analytic generalization of Kohn’s “exchange paradigm” that will allow us to redefine his conception of the “value paradigm” as the operational value paradigm in terms of the economics of known and fully exploited opportunities. The generic value paradigm, in turn, underpins the economics of the growth of knowledge and the evolution of the economic order as an open-system process due to the origination, adoption, and retention of novel generic rules. Austrian economics is then circumscribed as a special case of the more general “generic” analysis of the coordination and evolution of economic rules.      

A constitutional paradigm is not enough—would sovereign citizens really agree to manipulative nudges?—A reply to Christian Schubert

In this short note I reply to a comment made by Christian Schubert, who argues that my criticism of libertarian paternalism cannot be upheld under a constitutional economics paradigm. I disagree: it is implausible to assume that sovereign individuals behind a veil of ignorance would actually agree on manipulative nudges from the public sector. Resorting to a constitutional economics paradigm does not diminish the force of the manipulation objection—libertarian paternalism remains morally objectionable. Moreover, where sovereign citizens would agree on permissible (morally legitimate) nudges behind a veil of ignorance, these would no longer constitute “paternalism” under its commonly agreed definition. More constructively, the only morally defensible paternalistic nudges would be those that improve welfare while respecting or, better yet, improving individual autonomy. These are not the typical nudges defended by libertarian paternalists.     

Social Provisioning as a Starting Point for Feminist Economics

The past decade has seen a proliferation of writing by feminist economists. Feminist economists are not identified with one particular economic paradigm, yet some common methodological points seem to be emerging. I propose making these starting points more explicit so that they can be examined, critiqued, and built upon. I use the term “social provisioning” to describe this emerging methodology. Its five main components are: incorporation of caring and unpaid labor as fundamental economic activities; use of well-being as a measure of economic success; analysis of economic, political, and social processes and power relations; inclusion of ethical goals and values as an intrinsic part of the analysis; and interrogation of differences by class, race-ethnicity, and other factors. The paper then provides brief illustrations of the use of this methodology in analyses of US welfare reform, gender and development, and feminist ecological economics.     

An Alternative Approach to the Institutional Economics of the Eurozone Crisis

I argue that the Eurozone crisis is neither a crisis of European sovereigns in the sense of governmental over-borrowing, nor a crisis of sovereign debt market over-lending. Rather, it is a function of the “sovereign debt market” institution itself. Crisis, I argue, is not an occurrence, but an element fulfilling a precise technical function within this institution. It ensures the possibility of designating — in the market’s day-to-day mechanisms rather than analytical hindsight — normal (tranquil, undisturbed) market functioning. To show this, I propose an alternative view on the institutional economics of sovereign debt markets. First, I engage literature on the emergent qualities of the institutions “market” and “firm” in product markets, concluding that the point of coalescence for markets is the approximation of an optimal observation of consumer tastes. I then examine the specific institution “financial markets,” where the optimal observation of economic fundamentals is decisive. For the specific sub-institution “sovereign debt market,” I conclude that the fundamentals in question — country fundamentals — oscillate between a status of observable fundamentals outside of markets and operationalized fundamentals influenced by market movements. This, in turn, allows me to argue that the specific case of the Eurozone crisis is due to neither of the two causes mentioned above. Rather, the notion of “crisis” takes on a technical sense within the market structure, guaranteeing the separation of herd behavior and isomorphic behavior on European sovereign debt markets. By the same token, the so-called Eurozone crisis ceases to be a crisis in the conventional sense.     

What If There Are No Conventional Price Mechanisms?

Inspired by Frederic (“Fred”) S. Lee’s theoretical contribution to institutional-heterodox economics, I make the case that the neoclassical price mechanism is not only flawed, but also irrelevant for the study of actual coordination mechanisms, hence the price mechanism — as a theory as well as a way of thinking — should be discarded. While this position was addressed by early institutionalists, starting with Thorstein Veblen, later institutionalists have not completely rejected the price mechanism. The sympathy for the price mechanism has prevented institutionalists (and other heterodox economists) from fully developing an alternative theoretical framework concerning how actual economic activities are organized. I, therefore, provide an institutionalist-heterodox framework of the provisioning process focusing on business enterprise activities. This framework shows how institutional economics becomes more refined and useful when it is married to other traditions in heterodox economics, in particular, Marxian, social, and post-Keynesian economics. Such an integrative approach is what Fred Lee showed through his work toward producing a better theory and policy for the underlying population.     

The individual and the market: Paul Samuelson on (homothetic) Santa Claus economics

Paul Samuelson often used the term “Santa Claus economics” for mathematical models with empirically unrealistic assumptions. I focus on one particular member of the Santa Claus family that Samuelson was very sceptical about: homothetic general equilibrium models (where all agents have identical homothetic preferences). I argue that Samuelson's concerns about these models provide insights into how he viewed the relationship between the individual and the market, a relationship that has implications for not only his economic theorising, but also his broader political–economic vision. His criticisms are also relevant to some ongoing debates within contemporary economic theory.     

Values and the Economics Principles Courses

Every economics teacher has probably wrestled with the problem of how to deal with values, and because of recent student demands for relevance this problem has become more troublesome. Professor Horton believes that economists should teach “only what we believe has been scientifically established” and “should not promote particular values or particular social decisions….” He asserts that values and goals should be considered in economic classes, however, and in this article he suggests a procedure for teaching a unit on values and goals.     

You can’t beat something with nothing: getting an alternative into the curriculum

This paper describes an alternative paradigm, “contextual economics,” which is being developed, initially, in the form of an introductory microeconomics textbook. This paradigm gives special attention to the goals of economic actors and of the discipline of economics; and to the physical and the social/psychological contexts within which economies function.     

Towards an Austro–German theory of uneven economic development? A plea for theorising by inclusion

Based on Meir Kohn’s distinction between research programmes based on ‘value’ and ‘exchange’ (2004), this paper argues for a ‘production’ paradigm based on the tradition of Menger and Schumpeter. It is suggested that this production-based programme could use, as its starting point, Schumpeter’s (Wesen und Hauptinhalt der theoretischen Nationalökonomie, 1908) attempt to mediate in the Methodenstreit by arguing that different types of economic problems require theories at different levels of abstraction. This opens up for ‘theorising by inclusion’, an approach combining key elements both of traditional German economics and of Austrian economics in the Mengerian tradition.     

Socioeconomics and the new “battle of the methods”: Towards a paradigm shift?

During the last ten or fifteen years the old separation between economics and other social sciences has increasingly been challenged by economists applying the neoclassical paradigm to problems that traditionally concern the other social sciences. The main thesis of this paper is that this so-called “economic imperialism” threatens to unleash a new paradigmatic struggle in the social sciences, which is likely to be just as destructive as the old Methodenstreit. It is in this situation that socioeconomics emerges as a viable alternative since it emphasizes the need for a systhesis of the findings of several social sciences when an economic problem is analyzed. The article stresses the original battle of the methods at the turn of the century that gave birth to a set of ideas, analogous to those of Etzioni on socioeconomics, namely what Max Weber called Sozialökonomik. The emergence of “economic imperialism” is described, and the essay ends with a plea for a socioeconomics in the sense of a broad, overarching approach to economic analysis. Economic imperialism, it is concluded, threatens to close the door to new developments in economics; socioeconomics, on the other hand, tries to keep it open.     

TWO OR THREE PROBLEMS CONCERNING SOCIAL STABILITY AND OUR MEASURES OF WELFARE: WHAT CAN ECONOMISTS LEARN FROM OTHER SOCIAL SCIENCES?*

This paper takes up several problems that are related to psychology, political science and ethics—disciplines that we regard as neighbours on the boundaries of economics. I pay particular attention to such topics as mass psychology and social stability, democracy and economic performance and the notions of wellbeing and happiness. After laying out some of the history of academic discourse on these problems and notions, I reconsider the nature of discrepancy between microlevel motivations and macrolevel phenomena, trade‐offs between equality and liberty and the problem of measurement of social welfare and “happiness” from the perspective of “dissociation of intention and consequence”.     

What are the ethics of welfare economics? And,are welfare economists utilitarians?

Four questions: (1) What is welfare economics? (2) Is it an ethical system?  (3) How do welfare economists differ from one another? And (4), how do they differ from other economic ethicists? Then utilitarianism is discussed. I was taught, and have inferred to others, that welfare economists are utilitarians. They are not. Welfare economics is an atypical form of welfare consequentialism: consequentialist in that whether an act or policy is right or wrong is a function of only its consequences—the adjective “welfare” because the only consequences that matter are the welfare (well-faring) consequences. Most welfare consequentialists are neither welfare economists nor utilitarians. And, most moral philosophers are not welfare consequentialists—neither are most normal folk.     

The Case,if Any,for Economic Literacy

To be essential “for the literate man,” knowledge must be a requisite to important communication and economically acquired. Therefore, argues Stigler, “… economics belongs in everyone's education once we have learned how to teach it.” He then goes on to illustrate the difficulty of conveying essential economic understanding, including the important difficulty economists have had in grasping their own subject.     

The Histonomic Approach to Economics: Beyond Pure Theory and Pure Experience

This article starts off with the distinction between logico-deductive and empirico-deductive approaches to economic theory. The logicodeductive approach, for instance neoclassical economics, uses an axiomatic framework that has only little empirical substance. The empirico-deductive approach, for instance, Ricardian economics, attempts to state economic theory as a “typical” structure of reality. It appears that the latter approach touches reality more closely and is more sensitive to intellectual enrichment and to substantial empirical evidence. However, both approaches operate within the basic assumption applied in classical physics, that theory must represent an invariant structure of reality—highlighting in this case economic phenomena that do not change over time. In the following, the induction issue is given new life, suggesting its validity under the non-conventional assumptions ofvariancy and time-asymmetry. A “histonomic” approach stressing the importance of making theoretical (-nomic) statements about economic phenomena that are basically historical (histo-) in their non-classical properties of variancy and time-asymmetry is favored.     

Remembering Joseph M. Becker,S.J.

“Critique” of the Neoclassical paradigm in economics is a vital intellectual contribution in its own right. The prevailing wisdom and last word in economics, enforced by the socializing experiences of young would-be economists, is that if you can’t build a better theory immediately, without resources or access to debate and discussion, you have no right to criticize the existing paradigm, This requirement cuts off challenge and debate in economics, strongly deters the development of alternative theories, and leads to a weaker, less interesting economic science.     

Shifting the paradigm: Value in feminist critiques of economics

“Critique” of the Neoclassical paradigm in economics is a vital intellectual contribution in its own right. The prevailing wisdom and last word in economics, enforced by the socializing experiences of young would-be economists, is that if you can’t build a better theory immediately, without resources or access to debate and discussion, you have no right to criticize the existing paradigm, This requirement cuts off challenge and debate in economics, strongly deters the development of alternative theories, and leads to a weaker, less interesting economic science.