Advancing economic analysis beyond the equilibrium framework

Twentieth century economics was dominated by the development and refinement of the concept of economic equilibrium. While it is worthwhile to understand the properties of economic equilibrium, equilibrium concepts have dominated economic thought to the point that they have obscured some of the more important issues economists have always strived to understand. At least since Adam Smith’s time, economists have tried to understand the causes of prosperity, and how economic welfare can be enhanced, but these issues are best understood outside the equilibrium framework. The foundations provided by the Austrian school point toward ways that economic analysis can expand beyond the equilibrium framework.

Buchanan’s constitutional political economy: exchange vs. choice in economics and in politics

This article discusses the methodological foundations of Buchanan’s constitutional political economy. We argue that Buchanan is a constitutional economist because he is an economist or a political economist. In other words, Buchanan is a constitutional economist—he insists on the necessity of focusing on constitutions and to analyze the “rules of the social game”—because he defines economics as a science of exchange. Buchanan’s definition of economics is not only specific, it is also opposed to the definition of economics that other economists retain and, above all, opposed to the definition of economics that many public choice theorists use. The latter have, in effect, adopted the Robbins 1932 definition of economics as a science of choice that Buchanan criticizes and rejects. Buchanan’s constitutional economics can be a branch of public choice only under certain conditions.

The Austrian roots of the economics of institutions

This paper presents an analysis of the way the Austrian theory of institutions evolved from Menger’s main works. It also tries to advance the idea that the economics of institutions, when it deals with the emergence and evolution of rules and norms from interacting individuals, is inspired by Menger’s work and more generally by the Austrian analysis of the emergence and evolution of institutions. Recent works in the economics of institutions build on this earlier Austrian work to make it more formalized and testable.

F. A. Hayek’s influence on Nobel Prize winners

F.A. Hayek’s broad research program has led some to conclude that his impact on economics has been minimal. This citation study examines the frequency of Nobel laureates cited by other laureates in the official Prize Lectures to understand how elite economists influence other elite economists. It finds that Hayek is the second most frequently mentioned laureate in the Prize Lectures, and he has the second most publication citations of the laureates. Hayek’s influence on the top tier of economists is substantial.

Darwinism in economics: from analogy to continuity

Currently there is an ongoing discussion about how Darwinian concepts should be harnessed to further develop economic theory. Two approaches to this question, Universal Darwinism and the continuity hypothesis, are presented in this paper. It is shown whether abstract principles can be derived from Darwin’s explanatory model of biological evolution that can be applied to cultural evolution. Furthermore, the relation of the ontological basis of biological and cultural evolution is clarified. Some examples illustrate the respective potential of the two approaches to serve as a starting-point for theory development.

Situational logic in social science inquiry: From economics to criminology

Karl R. Popper proposed that the method of explanation in economics, or situational logic, should become the general model for analyses across the social sciences. This article makes good Popper's proposal by extending situational logic to a social problem outside the traditional scope of economics: crime. Specifically, the discussion reviews models developed by economist Gary S. Becker and criminologist Ronald V. Clarke. Becker's ‘economic approach’ to crime incorporates essential features of situational logic. Clarke's ‘situational crime prevention’ offers an even better demonstration; it explicitly incorporates the ideas of piecemeal social engineering and unintended social repercussions. Popper took situational logic from Menger and the Austrians, making this emerging area of criminology an extension of Austrian economics.

On good government

Besley’s treatment of principled agents is a major contribution to public choice and political economy. By focusing on politics as an agency problem, he has shown the way to a new generation of research on the interface of politics and economics.

Constitutional choice and European immigration policy

The EU’s immigration policy is evaluated from the standpoint of constitutional economics. The main conclusion is that European immigration policy is trapped in a system of constitutional regulations that is too rigid as it is exclusively oriented towards the protection and securitisation of European borders. As such, it is not capable of allowing the development of a problem-solving capacity based on successive trials, and this produces negative outcomes for the whole of the EU.

Robert Heilbroner and the Growing Concern with Poverty in the US

This paper examines Robert Heilbroner’s 1950 article in Harper’s Magazine on poverty in the USA. It argues that this piece was the first attempt to raise popular concerns about poverty in the USA after World War II, and in many ways sought to do what John Kenneth Galbraith’s The Affluent Society and Michael Harrington’s The Other America accomplished. Heilbroner was not successful in bringing the issue before poverty to public attention because he wrote at a time of great economic growth and at a time before TV brought images and ideas to a large fraction of the American public. He also wrote in a very conservative era, where McCarthyism reared its ugly head and where calls to eradicate poverty were met with intimations of a Communist conspiracy.

Social Market Economy: origins,meanings and interpretations

This paper investigates various possible meanings of ‘Social Market Economy’—60 years after its political initiation in Germany. We focus on the variety of intellectual sources that influenced the formation and interpretation of the concept in Germany during the first half of the last century. Our particular attention is on Müller-Armack’s definition of a rather dualistic concept of ‘social’ versus ‘market economy’ and the subtle differences it has with an original (Freiburg School) view of ordo-liberalism that lends itself more easily to a constitutional economics perspective.

Toward ‘Wisely Managed’ Capitalism: Post-Keynesian Institutionalism and the Creative State

Post-Keynesian Institutionalism (PKI), a synthesis of post Keynesian and institutional economics, emerged in the USA as a strand of evolutionary economics in the early 1980s and has attracted increasing attention in recent years. This article examines milestones in the development of PKI, devoting particular attention to the tradition’s conception of the role of the state. The first section identifies antecedents to PKI in the writings of John R. Commons and John Maynard Keynes. The second describes how PKI emerged against the backdrop of increasing dissatisfaction with neoclassical Keynesianism in the era of stagflation. The third summarizes the subsequent contributions of Hyman P. Minsky, whose work was a model of PKI in the 1980s and 1990s. The final two sections outline PKI’s contemporary characteristics and identify elements of an agenda for future research. PKI has always been about achieving a more humane form of capitalism, which requires the state to play a creative role in shaping economic life.

Are residual economic relationships normally distributed? Testing an assumption of neoclassical economics

In both theoretical and applied contexts, neoclassical economics typically assumes that residual economic relationships are mean-zero, finite-variance, normally distributed random variables. However, many have challenged this view, from various perspectives. The Austrian economists, specifically in the tradition of Mises and Rothbard, reject outright the effort to mathematically model human choices. This Austrian view is often derided as unscientific. However, some of the most mathematically sophisticated work in financial economics also rejects the orthodox bell curve. In this paper, we test Benoit Mandelbrot’s “stable Paretian” hypothesis on ten major macroeconomic data sets and reject the normal distribution in nine of them. We further argue that the stable Paretian hypothesis (and, more generally, the field of “chaos theory”) is far more compatible with the Austrian position than one might initially suspect.

The Social Economics of Neoliberal Globalization

The recent period of intensive and extensive development of global economic integration, or globalization, has reached a crossroads. The regime of the neoliberal Great Capitalist Restoration is not sustainable and fundamental governance changes must be made. This paper adds perspective to the choices that must be made at this critical juncture of the global social economy by applying the master concepts of Schumpeter’s Creative Destruction and Polanyi’s Protective Response.

Conceptions of property rights and norms

The social norm literature in law and economics fails to account for the differences between the two major conceptions of property rights. The differences between the two conceptions affect people’s utility function by affecting how increases in property rights are perceived. This paper discusses how the modern, in rem, conception evolved from an older, in personam, conception; it also discusses how economics has absorbed the modern, in rem, conception. The paper demonstrates that if people do not perceive the benefits of modern property rights, they will follow their social norms if the government or planner imposes modern property rights on them. In the end, this allows one to make a fuller discussion of why norms economize information. This discussion has various consequences ranging from developmental economics to financial market economics and cannot be ignored.

The evolution of IT innovations in Swedish organizations: a Darwinian critique of ‘Lamarckian’ institutional economics

Fundamental correspondence and analogies between the evolution of technological and biological innovations call for an ‘innovation Darwinian’, ‘universal Darwinian’ or ‘memetic’ approach to understanding technology innovation. Neo-institutional, in fact pseudo-Lamarckian evolutionary economic theory, represented by North, Nelson and Winter, Freeman and others, is criticized. Pseudo-Lamarckian (“by volition”) evolution is explained and analyzed on Darwinian grounds (as intentional and artificial selection), as is Schumpeter’s definitions of creative and imitative innovation. Data from a web survey among Swedish public and private organizations in 1999 are studied. Data show that Darwinian co-evolutionary interaction between producers and users or clients provide essential conditions and stronger influence on creative IT innovations than both ‘Lamarckian’ strategies and competition.

Corporate social responsibility and the ‘game of catallaxy’: the perspective of constitutional economics

The paper examines the issue of corporate social responsibility (CSR) from the perspective of constitutional economics, focusing on the distinction between a political community’s constitutional choice of the rules of the “market game,” and the market players’ sub-constitutional choice of strategies within these rules. Three versions of CSR-demands are identified and discussed, a “soft,” a “hard”, and a “radical” version. The soft version is concerned with the issue of how “socially responsible” corporations ought to play the market game within existing rules. The hard version is about how the rules of the market ought to be changed in order to induce “socially responsible” corporate behavior. And the radical version questions the compatibility of CSR and the logic of the market game, calling in effect for adopting some alternative economic regime.

The concept of choice: why and how innovative behaviour is not just stochastic

The goal of this paper is to highlight the importance of the concept of choice. To do so, a synopsis of the most important contributions to this topic—featuring an eclectic set of scholars across disciplines—is provided. As central to the argument, John von Neumann’s contributions, game theory and simulation techniques on von Neumann machines, are identified. Innovation (economic and theoretic) as the driving force behind human evolution seems to head for a new scientific paradigm based on von Neumann’s ideas.

Separation of powers and the erosion of the ‘right to property’ in India

There has been a substantial erosion of the ‘right to property’ with respect to state takings in India, reflected in a progression of amendments to the Indian Constitution. Among other things, these amendments signify a violation of the doctrine of separation of powers. To study the implications of this on governance in relation to state takings, this paper juxtaposes a narration of events that describe the progressive erosion of the ‘right to property’ against a heuristic analytical structure that seeks to capture the costs of violating the doctrine of separation of powers. This analysis is then utilized to point to the social costs that characterize the state acquisitions (takings) regime in India.

Politics, selection and the public interest: Besley’s benevolent despot

This paper is an assessment of Besley’s attempt to orchestrate a rapprochement between public choice theory and conventional public economics—with its characteristic normative orientation towards public policy. In this paper, I first try to set the Besley enterprise in the context of earlier work—focussing on my own work with Buchanan (The Power to Tax and The Reason of Rules). I then direct attention to three aspects of the Besley enterprise: whether selecting for competence depends on having solved the motivation problem (either by incentive or selection means), how selection mechanisms might be supported institutionally and the possibility that selection processes might create incentives at the ‘dispositional’ level.

The economic analysis of social norms: A reappraisal of Hayek’s legacy

This paper is organized as follows: first, we show that the reference to the notion of group selection is coherent with the other parts of Hayek’s thought. Second, we develop the idea that recent works in terms of the emergence and evolution of social norms corroborate in part Hayek’s theses in this domain. Finally, we put to the fore some drawbacks in Hayek’s approach and propose means to solve them.