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« Wal-Mart, the Coast Guard, and Hurricane Katrina | Main | More Evidence for Wal-Mart's Nobel Prize »


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Interesting post.

When I first read the papers by Leeson and Sobel on this topic I was hooked. But deeper investigation into the "failures" of government and the "successes" of private enterprise reavealed to me how misguided it is to approach the subject from an exclusively comparative point of view, using as examples organizations that are inherently interdependent. For example, the existence of informal institutions depend on external enforcement mechanisms that have historically been provided by governments. Similarly, formal institutions are strengthened appreciably by certain conventions and norms that evolve informally. This important connection makes any dichotimaztion highly suspect.

Individual responses to crises typically take the form of problem-solving activities within an institutional framework composed of rich mixtures of private-like and public-like organizations that, to repeat, defy classification in a spurious dichotomy.

Now most Austrians rebuke any attempt to explain social phenomena in terms of mutually reinforcing institutional structures. But this is mistaken. The very success of "organizations" like Wal-Mart is the result of institutions that serve to enable Wal-Mart to operate in the first place. Similarly, my education is not attributable to my curiosity alone, but also to my parents, teachers, and even Dr. Horwitz!

Individuals, and their actions, are entirely dependent upon the institutional frameworks they find themselves in.

Let me close by giving two examples related to Austrian economics.

1. I find it curious that Mises, in his book Human Action, repeatedly emphasized how ends must be taken as "given" because no universal standard can be employed in evaluating the selection of certain aims. While this may be true, it overlooks the powerful insight others have made concerning the way in which individual preferences and opportunities are affected by existing institutions.

2. Austrians have never tired of referring to Menger's clever explanation of the evolution of money. But this "spontaneous phenomenon" does not start from a pre-institutional state of nature. Rather, the peculiar way in which money developed took place within certain institutions that doubtless influenced considerably the outcome of this particular phenomenon. And if the institutional arrangement had been different, then it is reasonable to expect the outcome to differ markedly from that we observe today as well.

You know Matt, you might actually read the study and see that my comparison is not just "public" vs. "private" but also "centralized" vs. "decentralized", which helps explain why the Coast Guard was successful during Katrina.

And would you find the following quote to be a good example of understanding that individual preferences are affected by existing institutions?

"Community of language is at first the consequence of an ethnic or social community; independently of its origin, however, it itself now becomes a new bond that creates definite social relations. In learning the language, the child absorbs a way of thinking and expressing his thoughts that is pre-determined by the language, and so he receives a stamp that he can scarcely remove from his life."

or this?

"In this sense, the tastes of man, as is also true of his opinions and beliefs and indeed much of his personality, are shaped in great measure by his cultural environment."

Surely it is not true that "most Austrians rebuke any attempt to explain social phenomena in terms of mutually reinforcing institutional structures"? That is surely the approach of the "new institutional political economy" as sketched by Boettke and others. It is not a violation of methodological individualism and it involves comparative analysis of alternative institutional structures, a la Horwitz et al.

One can take issue with Mises' insistence on the "given" nature of ends because we can challenge and revise ends as well as means. He probably meant "given for the moment".


As I read the post, public and private mechanisms for disaster relief were being compared. I don't think the success of Wal-Mart as a commercial entity has anything to do with the "institutional framework" of FEMA. I think Wal-Mart and FEMA are about as separate as institutions can be.

I think the clearest dichotomy between "private" and "public" institutions is how they come into existence: trade or conquest. Admittedly this can often be blurry as well, but in the case of FEMA vs. Wal-Mart, I think the differences are pretty clear.

The paper that I wanted to promote is "The New Comparative Political Economy" by Boettke, Coyne, Leeson and Sautet. There seems to be another version on line with only Pete's name on it.

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