Coordination Problem

Lifetime Achievement Award to Professor Israel M. Kirzner

On Sunday evening, the Society for the Development of Austrian Economics (SDAE) held its annual diner in Charleston, SC where the Southern Economics Association meetings took place.

After diner, Sanford Ikeda, who is the President of the SDAE, gave an excellent speech on the use of Austrian economics in the understanding of the spatial dimension of market relationships. The evening continued with the SDAE honoring Professor Israel Kirzner with a Lifetime Achievement Award.

As Pete Boettke put it in his introductory speech, the values of true scholarship—especially integrity and dignity—define Kirzner’s work. Kirzner never took intellectual shortcuts and always (painfully) presented his ideas in the most detailed way possible. He never sneered at his intellectual opponents and always adopted the most charitable reading of the view he criticized. Having been around him at NYU and having had the immense honor to collaborate with him recently on a paper, I can attest that Kirzner has embraced these values more than anyone I know. Because of this—or as a result of this—he has been one of the most truly humble scholars around, not playing any intellectual game, but simply pursuing the idea of truth as he saw it. This has been true in his career as an economist but also in the way he has carried himself in his life and in his respect for others.

The motivations for scholarship are often diverse and unrelated to the Aristotelian search for truth. Scholars frequently make arguments for the sake of being heard. In an age where economics has become a game for clever people, Kirzner reminds us that true scholarship can be achieved and that virtues that seem out of this world can be practiced.

Kirzner goes even further, as he insists—following Mises—that the reason for doing economics does not only rest with the love for truth, but also in realizing the importance of (Austrian) economics in the survival of the human race. As Kirzner himself emphasized in his speech:

During my fifteen years as Mises’ students, I learned many lessons from him. And I learned even more lessons by painstakingly studying his published writings over the decades. As you may know, although I consider myself a disciple of Mises in economic theory, I have never subscribed to the overarching philosophical system within which Mises saw his economics as occupying the central place.

Yet, perhaps the most important lesson, which I have learned from Mises, was a lesson located outside economics itself. What Mises taught us in his writings, in his lectures, in his seminars, and in perhaps everything he said, was that economics—yes, and I mean sound economics, Austrian economics—is primordially, crucially important. Economics is not an intellectual game. Economics is deadly serious. The very future of mankind—of civilization—depends, in Mises’ view, upon widespread understanding of, and respect for, the principles of economics.

This is a lesson, which is located almost entirely outside economics proper. But all Mises’ work depended ultimately upon this tenet. Almost invariably, a scientist is motivated by values not strictly part of the science itself. The lust for fame, for material rewards—even the pure love of truth—these goals may possibly be fulfilled by scientific success, but are themselves not identified by science as worthwhile goals. What drove Mises, what accounted for his passionate dedication, his ability calmly to ignore the sneers of, and the isolation imposed by, academic contemporaries, was his conviction that the survival of mankind depends on the development and dissemination of Austrian economics.

…Austrian economics is not simply a matter of intellectual problem solving, like a challenging crossword puzzle, but literally a matter of the life or death of the human race…

Kirzner learned this great lesson from Mises and he carried the torch beyond him. He humbly reminded us at the event on Sunday why we are doing this job. Many economists know how deadly serious their discipline is, but few do the right thing. Kirzner has never faltered in doing his job; he is a real mensch. We all should be Kirznerians now.

Congratulations Professor Israel Kirzner for this well-deserved Lifetime Achievement Award.

What’s your favorite quote from Milton Friedman?

There are many quotes from Friedman that I like. It’s hard to say which one is my favorite. However, as someone ultimately interested in economics and public policy, his book Capitalism and Freedom is paramount. I especially like the following quote from the 1982 preface when he reflects on the role of his book and on his role as an economist:

There is enormous inertia—a tyranny of the status quo—in private and especially governmental arrangements. Only a crisis—actual or perceived— produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.

...and, I should add, economically necessary. Many experiences of policy reform have shown Friedman correct. Policy reforms in New Zealand and the UK in the 1980s have taken place in the face of a general crisis. The same happened, although to a lesser extent, in Australia. It may happen in France in the next few years. One can argue that most Eastern European countries are also examples of this view. True, there are also cases where continuous policy changes have helped improve the status quo. To some extent, many EU countries fall in that category. However, they benefited from the reform experiences in other places. Most of the time, democratic parliamentary systems don’t enable true reform unless there is no other option left.

In this as in other realms, Friedman was ahead of his time. One can only hope that his views on drug liberalization, taxation, and education will some day become part of the mainstream. So what is your favorite Friedman quote?

PS: Pete B has been very busy lately. But he will soon share with us his memories of his encounters with Milton Friedman—especially at the conference organized, a few years ago, by the FED in honor of this great economist.

Local Knowledge and the Incredible Bread Machine in the History of Economic Thought

After being recently fooled by a GMU student, I am going to be cautious with the next one… It happens that Diana Weinert, another GMU student, has an interesting research project on spontaneous order and local knowledge heuristics. She is seeking feedback and comments from anyone interested in the subject. Here is her letter:

Dear The Austrian Economists readers,

I am an economics Ph.D. student at George Mason University, working with Professor Daniel Klein. We are pursuing a research project and are trying to compile history of economic thought instances of “the incredible bread machine.” We take that term “the incredible bread machine” from the title of R.W. Grant’s little book about the vast spontaneous order of millions of activities that make your bread. 

Adam Smith used the example of a woolen coat. Leonard Read used the example of a pencil. A description beginning with a concrete article such as bread has been used to awaken awareness of our immersion in and dependence on spontaneous order and the local knowledge of the individual. These passages work as a heuristic to edify readers in the workings and miraculous element of spontaneous order.

We are looking to compile any and all history of economic thought instances of explicating spontaneous order by reference to a concrete everyday good and the vast concatenation of local knowledge flowing into its creation.

We are also interested in your opinion on why this heuristic device has been so recurrent and effective in explanations of spontaneous order.

To be honest, we are not quite sure what we aim to say about the recurrence of this heuristic. We are not sure why it is significant. But we sense that it is. If you have any suggestions about what we might say about the compilation of incredible bread machine teachings, we will be very grateful.

In addition to “I, Pencil” examples, we are interested in notable pre-Hayek presentations or invocations of local-knowledge/disjoint-knowledge arguments for economic freedom (e.g., as found in Samuel Bailey and Jeremy Bentham, listed below).

You can find the instances we have compiled so far here: Download instances_of_spontaneous_order_diana_weinert.pdf. Please reply in the comments part at the bottom or send me an email (dweinert@gmu.edu) if you are aware of any other examples of the usage of such heuristic devices, if possible with a reference.

Thank you very much!

Diana Weinert

PS: And thank you to Pete Boettke and Fred Sautet for letting us post this on their Blog!

Milton Friedman

Today is a VERY sad day for both those who love economic argument and value economic freedom.  Milton Friedman passed away today at the age of 94.  Samuel Britain in the Financial Times states that only John Maynard Keynes was able to combine a household name with the highest scientific credibility.  But Britain make perhaps the most important point when he states that in Friedman's public intellectual work there is a tight connection between his policy argument and his Nobel Prize winning arguments from his scientific papers.  This tight connection between academic work and public intellectual work is actually the hallmark of Friedman's greatness.

The Principles of Professional Advancement as an Economist

Liberty Fund has published the Collected Works of Armen Alchian (edited by Dan Benjamin).  Alchian is one of the most insightful economists of the 20th century and these volumes do not disappoint.  The first volume contains an essay by Alchian entitled "The Principles of Professional Advancement" and it is well worth reading and thinking seriously about.  He lists 5 and here they are:

#1: "Work with super students."

#2: "Be smart enough to have had the right teachers."

#3: "Plan to be at the right place where your training happens to be useful and be there at the right time."

#4: "Make frequent use of co-authors --- survive co-authorship as friends, and they will keep you on your toes."

#5: "Have superb and cooperative colleagues."

These are, of course, really great rules of thumb for professional advancement, and the explanations behind them that Alchian provides are great.

BTW, in response to one of the comments on the bogus Alchian Amazon.com reviews, I would like to point out that authors have nothing to do with the setting of book prices (that is a function of supply and demand --- and in particular the distorted demand of small print run academic works that are sold to state sponsored academic libraries by academic publishers).  However, the commentator should know that the book that he is complaining about as being too expensive is available on-line at my web site to download for free --- just have to follow the links where I try to make available everything I write if only I could get readers.  I guess the price is still too high :).

Armen Alchian's Book Reviews

If you don't know about Alchian’s reviews of books online see his webpage on Amazon.com. He currently has 28 reviews of important books written by economists and others. It is as good as reading the books themselves. Alchian is almost 93 and like Milton Friedman, he is still going strong. In 2005 he updated University Economics and published it as Universal Economics. Alchian's daughter and Allen were the two co-authors.

See especially his review of Mancur Olson’s Power and Prosperity, Thomas Schelling’s The Strategy of Conflict, John Kenneth Galbraith’s The Affluent Society, Steven Levitt’s Freakonomics, Robert Heilbroner’s The Wordly Philosophers, Karl Marx’s The Communist Manifesto, David Henderson’s The Joy of Freedom, and Alejandro Chafuen’s Faith and Liberty.

While not an Austrian economist, Alchian like many others such as James Buchanan, has been a fellow traveler of the Austrian school for a long time. He reviews three books about Austrian economics: Bettina Bien Greaves’s Austrian Economics: An Anthology, which he sees as a “great read;” Israel Kirzner’s introduction to Ludwig von Mises, which he highly recommends; and finally Peter Boettke’s Why Perestroika Failed, which he deems a “brilliant read.”

Pete will be pleased to read what Alchian says of him: “I have been a fan of Boettke's work for quite sometime so I expected a brilliant work. I was not disappointed. Why Perestroika Failed is definitely in my list of top ten books. Highly Recommended!” After Andrei Schleifer, it’s another top scholar who endorses Pete’s work and his book Why Perestroika Failed. Levitt doesn’t get the same treatment…

Thanks to my friend Jim Rose for the pointer.

Addendum:

The reviews are not from Armen Alchian, they are from David Skarbek, who is a PhD econ. student at GMU and studied at San Jose. Too bad Alchian didn't write those reviews, but the good news is that he is still active and writing. David, next time perhaps choose the name of someone famous but dead a long time ago such as John Locke...

Has Economic Research Reached Diminishing Returns?

Gregory Mankiw has an insightful discussion on why our excitement in learning economics for the first time often times translates into disappointment as we become professional economists.  He argues that there are four basic reasons: (1) diminishing returns --- the earlier economists were able to tackle the juicy low hanging fruit in terms of ideas, but economists today have to stretch farther to get some fruit; (2) stock versus flow --- teaching is based on the stock of existing knowledge in economics which includes all that low hanging fruit while conferences reflect the flow of new learning, which is necessarily thin; (3) selection --- textbooks and courses are based on the best ideas from the past, conferences are based on new ideas most of which will be quickly forgotten; and (4) motivation of researchers must be accounted for --- cannot assume it is about truth and improving the world, the most important motivation in modern academic life might be to impress one's peers with technical mastery and the sort of behaviors associated with this cleverness game are different from the ones associated with being a master teacher.

I agree with Mankiw completely.  But as I have argued in my 2001 address to the SDAE, this stock versus flow point about information and knowledge is under-appreciated and the value of thee discovery of new knowledge within the flow is often misunderstood.

Buchanan Wins White House Medal for Humanities

At the time I decided to attend GMU to earn my PhD in economics in 1984 I was newly married and choosing between four different career options.  I was teaching tennis at Allaire Racquet Club in Wall, NJ and making good money, I could have stayed on doing that and gone part time to graduate school in NJ; the head teaching pro at Allaire and my friend John Joyce was the former doubles partner of the head coach at Auburn and I could have attended graduate school there and worked as an assistant coach, or I could have gone to law school as my original plan when I was getting ready to graduate from Grove City College.  My final choice was to attend George Mason University in Fairfax, VA --- and once there I had to choose between working in the economics department as a research assistant, or working for the tennis coach and teaching at the International Golf and Tennis Club.

Rosemary and I moved to Fairfax in 1984 and I took an assistantship at the Center for the Study of Market Processes.  My mother-in-law (and family in general) didn't understand why we were moving from NJ, let alone to get a PhD in economics, and at a school that nobody ever heard of.  Remember at the time GMU had no final four basketball team and the student population was somewhere around ten thousand, and less than one thousand lived on campus.  In the eyes of my friends and family I was giving up a good paying job to head off to a place equivalent to Montclair State to earn a PhD degree.  Why couldn't I just go to Rutgers at night and keep teaching tennis during the day like any sensible person would do?  And, why would I pursue a degree nobody cared about instead of law school which promised a lucrative career?

Well I would explain as best as I could about the unique forces gathering at GMU --- Austrian economics from Rutgers Newark (Center for the Study of Market Processes) and Public choice from Virginia Polytechnic (Center for the Study of Public Choice) and how this was a new PhD program.  But I think most thought I was rather silly.  The neighbor of my in-laws (who actually attended GMU's Law School) told everyone at a family gathering that my plan was in fact just a waste of time and money since GMU was a no-name school and that if they cared they should talk me out of it.

But as I told everyone four years later in 1988 when I was in the job market --- I studied during my graduate work with Kenneth Boulding, Gordon Tullock and of course James M. Buchanan, who did you study with?  Sitting in Buchanan's class, I imagine, is the closest thing I experienced to sitting in on Mises's private seminar in Vienna, of Hayek's lectures at the LSE, or Knight's class at Chicago.  My first paper for Buchanan (a comment on Nozick's tale of the slave) received a B++ and a warning that I had to watch out for being polemical rather than analytical, on my second paper for Buchanan (on who is the individual in economic analysis) I received an A-- and a warning not to sound too much like him but to develop my own voice!  For grades on the numerous papers I wrote for his classes I lingered in the B++ and A-- range, never quite earning the A I was striving for.  We turned in our papers and within 1 week we received comments and criticisms on our efforts.  Buchanan always ended class with questions rather than answers.  The experience was intellectually exhilirating at the time and has stayed fresh in my mind for the 20 plus years since I sat in his classes.

During my time at GMU (1984-1988) I would take Buchanan's courses in Economics and Philosophy and Constitutional Economics, and I attended the weekly seminar at the Center for the Study of Public Choice -- and the GMU economics department during that time had lots of formal and informal gatherings for faculty and graduate students. (E.g., each summer Buchanan would host a Liberty Fund conference and we are able to observe the discussion).

In October 1986, we all celebrated when Buchanan was awarded the Nobel Prize.  Steve Horwitz was even quoted in the Washington Post about Buchanan's teaching pointing out that he was praising him despite earning a B.  I actually heard the news from my Mom and Dad who woke me up with a phone call to tell me what was just announced on the news.  My Mother-in-Law called shortly after that --- though as she told me whenever anyone asked her what Rosemary and I were doing she told them I was in law school because at least people would understand that!

And how cool was Buchanan upon winning the Nobel.  He granted his first interview to his college newspaper at Middle Tennesse State before speaking with ABC, NBC, etc.  He was as gracious as any Nobel Prize winner --- at his press conference his first remark was to thank Gordon Tullock and his colleagues in public choice for the work they did with him. And he handled the petty criticisms some raised with ease.  He was OUR PROFESSOR and he won the Nobel and he supported our efforts to study Austrian economics and classical liberal political economy, and he encouraged us to "dare to be different."  Though he did chuckle at us who pushed the anarcho-capitalist position and also who thought the counter-culture of the 1960s might be an inspiring movement if you could combine it with sound economics.

Well now the announcement comes that James M. Buchanan will be awarded the 2006 White House National Medal for Humanities. And those memories of 1986 come flooding back.  It is ironic because I am at the Mont Pelerin Meetings in Guatamala and on the way down here I was just thinking (because it was Prof. Buchanan along with Leonard Liggio and Israel Kirzner who sponsored my membership in MPS) --- wow, it was 20 years ago that Buchanan won the Nobel Prize, where the hell did all those years go?!

Congratulations to Professor Buchanan.  He was an inspiring teacher and researcher to generation of students at UVA, VPI and at GMU.  I was lucky to be part of the cohort at GMU that had him as a professor before he won the prize and he had to puruse those obligations.  He never missed our classes or the weekly seminars, and he stressed to all of us the value of a serious work-ethic in academic life.  And we must never forget that at the intellectual level there is no figure in modern economics who has done more to lead to the rebirth of political economy in our discipline and to make economists aware of the need for the philosophical and political dimensions to accompany economic analysis if we hope to gain understanding of the world and useful information for public policy than James M. Buchanan.

Was Galbraith Great?

My review of Richard Parker's John Kenneth Galbraith: His Life, His Politics, His Economics has been published at EH.Net (Economic History Network).

Do We Need Traffic Lights?

Not according to Hans Monderman, a “traffic planner” who is behind the removing of all traffic lights in the northern Dutch town of Drachten (see the article in the Telegraph). The experiment started seven years ago and seems to be working. According to the article, at least two road-related deaths have been avoided since the beginning of the project. Cars go slower but the traffic is smoother so overall one gets around faster.

The article seems to be saying that efficient traffic without traffic lights was achieved by removing all intersections and replacing them with roundabouts. Roundabouts make the traffic smoother and safer, as they limit speed. However, it doesn’t tell us at what cost the operation was done. So while it may be true that roundabouts make the presence of traffic lights unnecessary, they don’t come for free. While I don’t have much sympathy for the type of cost-benefit analysis policy makers and other city planners generally do, I’d be interested in seeing what came out of that exercise to justify removing all traffic lights and replacing them with roundabouts.

Interestingly (or strangely?), the article explains that the system works because it heightens danger on the road by removing the sense of safety one gets with traffic lights, thereby disciplining drivers more. Out of all this seems to emerge some spontaneous rules regulating the traffic among cars, cyclists, and pedestrians. Perhaps it would be worth some field study.

At the end of the day, I am not sure that roundabouts are better than intelligent traffic lights, which regulate traffic taking into account the flow of cars. But since intelligent traffic lights are still too expensive, this is not yet a choice—although traffic planners may think otherwise.

(For those who are not familiar with it, Israel Kirzner has a very good paper explaining the market process using the idea of intelligent traffic lights. It will be republished in the Collected Works.)