Austrian Economics as a Progressive Research Community: Roger Koppl

Some of our readers have questioned whether the contemporary Austrian school of economics is making any progress.  Some have questioned applied work, others believe they have identified fundamental flaws in the theoretical system, and yet others just think the Austrian school has outlived its usefulness altogether.

To counter this, I suggested that we provide links to contemporary Austrian economists and their work to see if this would at least give us a place to start the conversation rather than continually going backward in time to the writings of Mises and Hayek, or even Rothbard and Kirzner.  The first place I would suggest that students and curious colleagues start would be to read all the SDAE presidential addresses since the organization was founded.  The only address not published in the RAE was Karen Vaughn's original presidential address which was published in Advances in Austrian Economics.  If you are interested in getting an electronic copy just email Peter Lipsey at plipsey@gmu.edu, the others are available either at the RAE website at GMU or at the Springer website that most university libraries subscribe to.

The next place would be to track down scholars by name. Go to the RAE, QJAE, and Advances websites, and look up the editorial boards and do a google search of the different scholars and look up their personal webpages and read their papers either off their homepage or through SSRN.  We aren't hiding, you just have to know how to use a computer.

And finally, the parties to this blog have decided that we will try to make the task even easier by highlighting individuals scholars who we think should be brought to attention.  So I start with Roger Koppl.  Roger recently published a piece in Forbes discussing his work on forensic science.  Koppl has always been one of the most energetic and intellectually curious economists I have ever met.  Schutz, Shackle, Machlup ... Walras, Menger, Morgenstern ... complexity, chaos, subjectivism ... big players, expectations, monetary history, and macroeconomics ... and now forensic science and epistemics.  To see the broader framework which informs his critique of current forensic practice see his essay "Epistemic Systems".

Koppl is an energetic and creative thinker, and his work is always on important topics.  If that isn't progress, I am not sure I understand what people are looking for.

Comments

[Daniel J. D'Amico]

A brief summary of Koppl's main thesis:

As an epistemic process criminal trials try to get at the facts of the case. Who done it and how'd they do it? His research exposes a very discomforting fact - the institutional structure of the criminal justice system is often counter-productive to achieving its epistemic goal. Instead of revealing the hard facts of criminal trials, managers and officials within the criminal justice system are often inclined to rent-seek, collude, and bureaucratize. These incentivized behaviors can detract from the facts of the case, and lead to injustice.

Koppl's writings offer some very refined and well-focused policy subscription. If we tie the hands of criminal justice officials in the trial setting then we might be able to foresee and forestall these inefficient Public Choice problems. Don't let DNA specialists know what kind of case they are working on. Insist that scientific evidence be gathered and analyzed by independent agencies.

Koppl's work is not only fascinating in its own right, it speaks as a testament to the real practical powers of Austrian and Public Choice economics. Koppl has had real success in the field of forensic science. He is not only a theorist but an agent of social change.

[matthew mueller]

Great post. I am going to follow Dr. D'Amico and comment on Koppl's work only. This does not mean that he is the only scholar using Austrian economics in very interesting ways.

First of all, I have expressed my dissatsifaction with the Austrian and Public Choice association before. I think libertarianism is responsible for this and not the existence of any real methodological connection. Austrians eschew the rational maximizing understandig of economic theory. But Public Choice theory only works if this assumption is made. Why, then, are these two traditions joined at the hip?

Secondly, it is one thing to attribute institutional inefficiencies to false consciousness; it is quite another thing to make epistemic arguments against the operations of institutions like the criminal justice system. It is facile to suggest that privatization can cure everything. I am much more persuaded by Ted Burczak's arguments in his book "Socialism after Hayek." There he pursues subjectivism consistently and concludes that the subjectivism of the facts and the interpretation of those facts makes any objective judicious decision impossible. Austrians are making a big mistake by identifying themselves as libertarians and anarcho-capitalists first, and Austrian economists secondly. Just compare the work of two contemporary Austrian economists to see what I mean ---- say, Peter Lewin and Walter Block. Now Peter Lewin is an important figure if only because he is the only real Austrian to write about capital theory in the tradition of Ludwig Lachmann. But more importantly, he does not let his political ideology get in the way of his economic analysis. Then look at Walter Block whose work can be summarized in the following way: Privatize, privatize privatize! Rothbard, Rothbard, Rothbard!

And finally, I am not too familiar with Roger Koppl's work, although I have read many papers he has written with William Butos. These two economists have made extremely important contributions to the post-Keynesian/Austrian debate by arguing that Hayek's work in psychology can be used to resist many of the post-Keynesian arguments concerning uncertainty and discoordination. While I don't find their arguments all that persuasive (for example, I think their "horizon principle" argument is confused), I think that they are taking the debate in an interesting direction. Basically, Hayek's work on information and diffuse knowledge is not the appropriate place to go; we need to consult his work in psychology in order to refute the post-Keynesian challenge to economic coordination through decentralized markets.

To summarize, I don't think it is enough to show that there are scholars doing applied work in Austrian economics. We have to examine what kind of applied work they are doing. Butos and Koppl's work is perhaps not a good example because it is more theoretical, but I think they have made a very important contribution to the literature because they have taken the arguments of their enemies seriously and tried to come up with new ways to respond to them. This is a much more productive approach than simply ignoring or dismissing your enemies. For example, when it comes to Keynes, Austrians usually see him in the way that Rothbard did --- that is, not Keynes himself but the economics of Hicks and Hansen! According to Rothbard, Keynes is wrong because what Hicks and Hansen have written about him is wrong. Roger Garrison has also made this mistake. He does not see that Keynesian economics is really post-Keynesian economics. (see Hicks' famous paper in the Journal of Post Keynesian Economics on this). Koppl and Butos are actually responding to Keynesian arguments in new and challenging ways. This is much more productive than simply talking about Keynes in the way that Rothbard and Garrison do.

[Peter Boettke]

Matthew,

I doubt whether anyone who is a researcher in the Austrian tradition would agree with your assessment that they sidestep or ignore their intellectual opponents. Even your critique of Rothbard and Garrison is quite questionable because it is debatable whether Keynesianism is post Keynesianism or income-expediture Keynesianism. This is a very contested issue in the economics literature, not a settled one. So to assert it was a mistake, assumes that it is settled.

Also, on the public choice and Austrian connection, you make an allegation of ideology, but in actually fact there are methodological and sociological issues. First, methodologically the rational maximizing model is not at the core of public choice, methodological individualism and behavioral symmetry are. Second, there are close personal ties related to Knight, Schumpeter, Hayek, Buchanan, and Tullock.

Now to push you further on this, I suggest you look at the special issue of the RAE on the Virginia and Austrian connection, and also contact Adam Martin about the forthcoming conference on these themses again. However, I would really encourage you to read James Buchanan with the same degree of intensity that you read Shackle. In particular, I highly recommend Buchanan's essay "Natural and Artifactual Man". You also might want to read "Shackle and a Lecture in Pittsburgh" and of course Buchanan's Cost and Choice.

On Tullock, see the most recent issue of Public Choice that consists of papers exploring Tullock's contributions to spontaneous order theory.

In the field of political economy there is a rendering of the field informed by Virginia, Bloomington, and NYU traditions, in contrast to a Virginia, Rochester, and Chicago traditions. Have you thought about that? Or only that Chicago/Rochester type of public choice that seems so neoclassical as opposed to "post-classical". I really think you ought to look at Richard Wagner's work as well before you pass such a summary judgement on a field.

Pete

[Josh Hendrickson]

I agree with Matthew that the work of "Keynesians" is all too often attributed to Keynes, not only by Austrians, but also many in the mainstream as well (e.g. advanced macro textbooks continue to claim that Keynes blamed recessions and depressions on sticky prices, which upon reading Ch. 19 of the General Theory is clearly not the case). Nevertheless I am not sure that Post-Keynesianism is the true Keynesianism, but that is perhaps left for a different discussion altogether. Nevertheless, with respect to Keynes, the work of Butos and Koppl has certainly been a breath of fresh air.

I would encourage Matthew to read Koppl's book Big Players and the Economic Theory of Expectations as it is an excellent example of the modern advancement of Austrian economics. Contrary to the REH, Koppl's explanation of expectations is meaningful in the tradition of Hayek (and, to some extent, Keynes). In addition, Koppl successfully outlines why Big Players who are impervious to profit-loss mechanisms (such as a central bank) can adversely affect expectations, cause herding, reduce the information communicated within the market process, and force behavior to shift away from productive activities and toward predictions of how the Big Player will behave.

Critics of the ABCT often cite the lack of empirical work (by which they mean econometrics) and the lack of a theory of expectations. For example, a common mainstream criticism is it is unlikely that business owners and entrepreneurs will repeatedly be fooled by discretionary monetary policy. While Austrians often scoff at this sort of criticism, Koppl's work goes a long way toward explaining the role of expectations in the presence of a discretionary central bank.

I think that Koppl's work goes a long way in bringing the ABCT into the modern macroeconomics debate. Not only does he present a meaningful theory of expectations, but he also uses statistical tools, such as GARCH, X-skewing, and R/S analysis, to illustrate and provide empirical support for his theory that is appealing to mainstream macro and finance scholars.

I know that the authors of the blog are too modest to create a post regarding their own work (perhaps they could write a post on one another's work?), but I think that the work of Pete Boettke and Steve Horwitz warrants serious discussion. Each has had a profound influence on my thinking. Reading "Where Did Economics Go Wrong?" is what began my transition toward a more Austrian view of economics. Additionally, Steve Horwitz's work has been important to the advancement of the ABCT. Most notably, "The Costs of Inflation Revisited" is the most meaningful article written on inflation since Leijonhufvud's "Costs and Consequences of Inflation" in 1981.

[matthew mueller]

Dr. Boettke,

1. I am surprised that you would suggest that it is still questionable today whether Keynesianism (the economics of Keynes) is really post-Keynesianism or IS-LM Keynesianism. Keynes did not create the IS-LM model, and nothing in his work suggests that he even hinted at such a model. The tradition of Keynes follows with Hugh Townshend, G. L. S. Shackle, Paul Davidson, and Hyman Minsky. The other Cambridge economists (Kaldor, Robinson, Harrod, etc.) as far as I am concerned co-opted Keynes' program into their own project of building long-term growth models. They are not even the best sources to consult on this matter. I think the issue was settled when Hicks admitted in a journal article published in the JPKE that his work for which he was awarded the Nobel Prize was entirely misguided and fundamentally mistaken. Now we can question the legitimacy and applicability of the IS-LM model, but there no longer is much room for debate concerning its connection to Keynes' work.

Keynes was the first economist to articulate clearly the reality and implications of true and genuine uncertainty. Frank Knight came close, but his work is flawed. For example, if uncertainty engenders profit, as Knight recognized, then why should we see firms whose intention it is to earn profit? Either the logic is flawed, or Knight's understanding of uncertainty is not correct. Keynes was the true prophet of uncertainty. And Shackle did the most to "operationalize" or at least evangelize the brilliance of Keynes' work on this subject. To draw parallels between IS-LM models and the work of Keynes is both dishonest and retrogressive.

2.) To *describe* the similarities of Austrian and Public Choice economics in terms of methodological individualism doesn't do much to *explain* how they are similar. Now I haven't read as much Buchanan as I would like, but I have read The Calculus of Consent which contains a lucid discussion of methodological individualism. Buchanan and Tullock use the "individualistic postulate" in a way that is entirely distinct from the methodological individualisic postulate found in the Austrian literature. Let me quote a sentence from the Calculus: "our analysis of decision processes reveals that certain rules will allow certain members of the group to use the structure to obtain differential advantage." Now the libertarian in me likes this sentence a great deal, and one can certainly connect this to Hayek's work on legislation and law. But this is not the methodological individualism of the Austrian school. Menger, for example, put emphasis not on rational action directed toward the maximization of "differential advantage", but on the dynamic and unpredictable elements of human nature, elements that are best captured by notions of competition and entrepreneurship a la Kirzner.

A description of similarity is not an explanation of the character of those similarities. You cannot use the existence of commonality as a justifcation for explaining why separate schools have arrived at that position and what they have done with it.

And a brief comment on the "sociological" side of Austrian and public choice economics. I would not classify Frank Knight or Schumpeter as falling into either category. I am not sure what you meant by including them in the list. Knight for example has done more than any other economist to question my faith in laissez-faire by challenging the conventional view of want-satisfaction. I think a wiser approach would be to explicate the differences between people like Hayek, Schumpeter and Knight.

Now I am familiar with Buchanan's work on Shackle. But I read all this stuff before reading Shackle's own work. I remember that Buchanan spoke very kindly of Shackle in "Natural and Artifactual Man" and "The Constitutional Implications of Subjectivism". I will admit now that I should probably go back and re-read these essays to see how my own interpretation differs from Buchanan with respect to Shackle's work (as I am sure there are differences).

I apologize for the lengthy response. I really like talking about this stuff.

[Peter Boettke]

Matthew,

First, I didn't say ISLM, I said Income Expenditure Keynesianism. The original Keynesian model is in the General Theory. The post Keynesian Keynesianism is a heterodox reading of Keynes, not the conventional reading of Keynes. Do you deny that?

Second, by "sociological" I mean overlapping associations. Who wrote their dissertation under who; who was a colleague of who; who talked economics regularly with who; etc. In short, who is influencing whom in the way they do economics and social theory. To use my own personal example, my thinking on economics and social issues is influenced by my teachers (Sennholz, Lavoie, Buchanan, Boulding, Tullock, etc.); their teachers (Mises, Kirzner, Knight, etc.); mentors (Kirzner, Lachmann, Samuels, etc.); colleagues (Rizzo, Weingast, Greif, Cowen, Klein, Caplan, Prychitko, Horwitz, etc.); their influences (Schelling, Hirschmann, Leijonhufvud, etc.); peers (Medema, Leonard, Greif, Mongiovi, etc.); and students (Stringham, Powell, Bealuier, Leeson, Coyne, Storr, Subrick, Evans, Sautet and D'Amico, etc.). All of these influences push and pull my thoughts and interests. And certainly I am not that unusual in this field. E.g., Buchanan and Hayek's work overlaps on so many margins, it is very difficult to not read them as sharing a common agenda even though they never were formal colleagues let alone co-authors.

Both Buchanan and Tullock claim that they were influenced in their attempt to generalize the methods of economics to the field of politics by Ludwig von Mises (praxeology).

I think you would find reading Vincent Ostrom very enlightening as an approach to public choice that is consistent with many of the methodological issues you care so passionately about. I would recommend The Meaning of Democracy and the Vulnerability of Democracies by Ostrom as the book for you.

Keep talking about this stuff!!!

[Peter Boettke]

My research ... a few readers have asked about my curent research. First, my website has most of my publications linked. Second, I am actively engaged in several research projects as the PI at the Mercatus Center. These include the Katrina Project, and the Enterprise Africa and the GPI program in general. Again these are easy to track down via the web. Third, I am constantly doing stuff with Austrian economics and methodology that can be tracked down at the RAE and with the Kirzner collected works project, and my own publications (against available online). But perhaps the best place to find out what I am up to would be to ask the students I am working with at GMU at the moment because they know what I am teaching and writing.

Pete

[Steven Horwitz]

When I've taught macro or HET and had upper-level students read (parts of) The General Theory, I almost always ask an exam question about whether the GT really does contain the IE/multiplier model that is in the Intermediate textbook.

All I know is that every time I read the GT, I'm MORE convinced that the IE model is an accurate representation of Keynes, as is the notion of using the budget to balance the economy.

As Pete rightly points out, IS-LM is a different animal.

And Josh - thank you for your kind comments about the Costs of Inflation paper. If I had to list three of my papers that I thought were important contributions, that one would be on the list. And the comparison to a AL's paper, which I consider a total classic and was very influential on my own thinking, is extremely flattering. Thanks.

[Roger Koppl]

May I weigh in on whether the standard income and expenditure model is in the General Theory? First, thank you to Pete and others for saying kind things about my work. I don't think we should justify our existence by claiming that the mainstream has not yet learned important "Austrian lessons," as we used to do years ago. The point is rather that the marginal value of intellectual investment in the Austrian tradition is ridiculously high. That fact justifies our existence as a separate school of thought without implying anything about the relative value of different schools in any absolute sense.

Getting back to the old income and expenditure model . . . What does it mean to say that the standard model is "in" the General Theory? You can indeed see it there, but the the old fashioned hydraulic version stripped off Keynes's epistemic foundations and replaced them with a mechanistic overlay. If you are willing to strip off the mechanistic overlay, then the standard model is "in" the General Theory. If you are not, then the standard model is contrary to Keynes's basic message and thus not "in" the General Theory.

[Jeffrey Friedman]

May I chime in in support of Matt?

The fact that one can explain the corruption of Austrian economics through personal/educational ties and the autobiographical perceptions of some of the players, including Buchanan (or even Mises, in Buchanan's interpretation of him), does not *justify* this corruption.

I understand Matt's basic point to be that Austrians take "the knowledge problem" to be central. Different (or the same?) ways of parsing the knowledge problem include: ignorance; uncertainty; fallible interpretations of any "knowledge," including erroneous but plausible interpretations.

Mises emphasized the cognitive aspect of his critique of socialism by bracketing the motives of central planners. The problem they faced was not that they were uninterested in achieving prosperity for all, but that they *didn't know how to do it.*

One should not always do this bracketing when performing real-world analysis, but it did highlight a distinctive aspect of Austrian economics: it's "about" knowledge/ignorance/interpretation, not about good or bad intentions. The problem faced by central planners in the Mises argument was not motivational, and all the "incentives" in the world would not have solved it.

From a cognitivist perspective, and at the risk of being overly formulaic, competitive market processes (at the micro level, at least) may offer experimental means by which *ignorant* consumers can find the best products produced by different entrepreneurs who have *fallible* interpretations of what to produce, and who are backed, in turn, by *uncertain* investors.

This is a credible picture of "why capitalism works" (at least to my mind). But it does not necessarily rule out all government intervention in markets--specifically the items on the traditional interventionist list: public goods provision, including the suppression of externalities; wealth redistribution; paternalism; and macroeconomic stabilization.

Now, in my view, there *may* be a way to rule out those "interventions" (itself a problematic concept). But it would almost certainly have to do so by turning from economics to politics, so as to argue that overall, we can expect more government failure than market failure.

One version of the political turn is the public-choice project.

But public choice proceeds by abandoning cognitivism for "motivationism," and in that sense is very Chicago, not Vienna. *If* politicians are as self-interested as consumers and entrepreneurs are assumed to be, then we can expect that what is conventionally called "corruption" will produce almost universal government failure.

The problems with public choice are manifest. Here are some:

1. Self-interest is *not* universal even in the economy, nor is it necessary to make (a cognitivist account of) economics "work." Entrepreneurs may be doing what they love to do or feel a duty to do--bring all the information in the world to everyone in the world, for instance (Google)--and find only secondarily that this produces profits.

Therefore, even if we start from the (absurd) postulate that motives are universal across all social spheres, there is no reason to assume that all government employees will be selfish, because there is no reason to assume this of all market participants.

2. There are obvious reasons why government employees would not be selfish, *relative* to participants in the economy (including the government employees themselves, in their role as consumers rather than "public servants").

In cultures such as ours, "public service" and "politics" in general are normatively considered appropriate only when altruistic. Any familiarity with the actual run of politicians, voters (who tend to vote sociotropically, not selfishly), legislative aides, judges, and bureaucrats would confirm that self-interestedness is a minor problem, and that corruption (in a First-World country where norms of public service have taken root) is rare. So public choice is irrelevant to most of the politics of developed societies.

3. In both developed and undeveloped societies, public choice is completely unable to explain the selfless ideological devotion to political causes that prompts so many on the left (and the right!--how many libertarians, for example, devote themselves to their cause in order to advance their self-interest?) to dedicate their lives to political activism.

4. Bad public policy is much better explained cognitively, through the actors' ignorance (ignorance of the best political means to their own ends, but also, predominantly, ignorance of the best political means for solving "social problems"); and through ideological convictions that lead them to champion mistaken solutions to those problems. In short, an "Austrian" approach would explain contemporary politics far better than public-choice theory does.

Would this cognitivist explanation also serve as an argument against interventions in "the free market"? Maybe. But it would be a difficult and complicated argument to make (I am trying, in a book), because politics has "experimental" democratic processes that, in principle, might match those by which capitalism overcomes the ignorance, uncertainty, and erroneous interpretations of its participants.

*****However: public choice came into Austrian circles about 30 years ago and seemed to offer an easy, catchall, and very American reason why no intervention could ever work: corrupt, power-hungry politicians and bureaucrats are the problem! Smash the state!

Hence, I take it, Matt's point about the deeper allure of the Austrian-public choice alliance: since Austrian economists tend to want to sustain libertarian conclusions, public choice is very convenient for them. Yet in embracing public choice, Austrians had to turn their backs on cognitivism and embrace motivations--"incentives"--as the whole of the story of politics, and now this Chicagoism seems to be creeping into their economic research, too.

Jeff

[Steven Horwitz]

Quick reply Jeff:

If, as you say, public choice requires only that actors are "as self-interested" as they are in markets, and if, as you say, people are not self-interested all the time in markets, then why do we need to throw public choice out completely? If people are a mix of self- and other-interested in both spheres, then PC can explain *some* political outcomes, just not all, much in the same way that self-interested assumptions in economics can explain some/many economic outcomes, just not all.

Might it also be the case that incentives and knowledge are more intertwined than you seem to admit? That is, prices in a market, by providing signals to actors *also* provide incentives to behave in the way those signals might suggest. I tell my students it's a one-two punch. Prices give you both.

It might be that the cognitivist/motivationist is to some degree a false dichotomy. Prices, at least, do both. I'm not willing to abandon the importance of incentives in economics, nor am I in politics, even if they are secondary to the primary cognitive issues.

[Pete]

Jeff's post demonstrates confusion about public choice. No one actually claims that all behavior in politics, or the market for the matter, is strictly self-interested. His criticism of public choice sounds a lot like a freshman college student's criticism of economics upon first exposure: 'But we're not all, always money maximizers!' Turns out, nobody said we were.

Rational choice models of politics, like rational choice models of market behavior, have to make assumptions about people's utility functions. Money plays a pretty big role in most people's utility functions. This is why economics that starts with assuming individuals are income maximizers does such a good job of explaining so much behavior.

You could assume other motivations. And lots of people do. This isn't revolutionary or unusual. The canonical model uses income maximization to operationalize utility maximization because it corresponds to what many people are after--whether they are choosing in the market realm or the political realm.

All that public choice is doing is allowing us to carry this motivation over to the political realm and to see 'what happens'--or rather what theory tells us will happen--when politicians care about themselves instead of about others.

Unless you think that politicians never care about themselves, this would seem to be a useful project. I'm not alone in this assessment. The Stockholm Committee saw it similarly when they awarded J. Buchanan the Nobel Prize.

Incidentally, there's another good reason to assume that politicians are purely self interested for the purposes of analysis: To understand what robust political institutions look like. If we assume 'the worst' about politicians, we can see how 'bad' the outcomes are in this situation and then think about institutional constraints to guard against this 'worst-case scenario.'

James Madison seemed to think that guarding against the worst-case scenario when it came to politics was important. He was concerned about limiting the harm that bad men can do rather than maximizing the good that good men can do in politics. I think he was on to something.

We don't only have to use 'worst-case' assumptions when studying politics. We should do so when studying economies as well. How does do different forms of economy work when men are totally selfish knaves? Even though we're not all selfish knaves, that doesn't mean that exploring this question isn't important.

Doing so gives us important insight into the robustness or fragility of alternative economic systems. If, say, socialism fails when we deviate even a little bit from 'best-case' assumptions about human motivations, we can conclude it's a fragile economic system. If, on the other hand, capitalism thrives when we deviate even a lot from 'best-case' assumptions about human motivations, we can conclude it's a robust system. This is why A. Smith is so important. His invisible hand shows us why capitalism is a robust economic system.

To engage in this comparative exercise we needn't restrict ourselves to assuming 'worst-case' situations for motivations. We should do the same for knowledge. This is what Mises and Hayek were doing. They showed us that capitalism was robust to deviations from perfect knowledge, while socialism was fragile to such deviations.

Seen this way, Austrian economics and public choice are complements--each exploring a different side of robust political economy. Only a misunderstanding of either would suggest they are enemies.

[DPrychitko]

I like Pete's response to Jeff. Yet, I must admit that, as a student of Buchanan, I was not drawn into public choice as much as Pete was. I understood the basic idea before going to grad school. Didn't learn much more public choice as a student of Buchanan.

I was quite impressed, however, by Buchanan's Natural and Artifactual Man article, which I read as an undergraduate, and then later by his Cost and Choice.

While I understand Pete's "complements" point made above, I've chosen to view Buchanan and Tullock's public choice approach as an immanent critique of neoclassical welfare economics. I think it works well that way. And Austrians, or anybody else for that matter, can point to public choice criticisms to expose problems of welfare economics, or the later "new" welfare economics, or what have you.

In a way, it's like pointing to the work of, say, Svetozar Stojanovic as a nice criticism of the theory of command planning -- not embracing Stojanovic, but instead appreciating it as a work of immanent criticism (whether Stojanovic sees it as immanent, transcendent, radical etc. is his issue, not mine).

Be that as it may, I take credit for introducing Pete to Buchanan's Natural and Artifactual Man paper. Pete didn't seem to be aware of this "radical" side of Buchanan -- or, at the very least, of this neat and important paper.

[Peter Boettke]

Jeff,

You are relying on a particular Rochester/Chicago understanding of public choice that influenced political science, it is not the sort of Virginia/Bloomington reading of public choice that one finds in Buchanan or Vincent Ostrom. In fact, Ostrom's book that I mentioned above -- The Meaning of Democracy and the Vulnerability of Democracies -- is explicit about the cognitive limitions of man, and the role of episitemic communities. Public choice in the Viriginia tradition is being confused with Rational Choice in the Rochester tradition by Matthew and Jeff.

Also, I think Pete Leeson's point about the robustness of social systems and the examination of both incentive issues and knowledge issues is 100% correct (of course I would say that because it has long been my position from my first book on and is developed in a paper with Pete).

To see this point, see Hayek's "Individualism True and False" and in particular his discussion of the contribution of Smith and his contemporaries; and compare that with Buchanan and Brennan's discussion of the defense of methodological individualism in The Reason of Rules. And just for good measure, compare that with Hume's argument that when designing governments it is best to start with the assumption that all men are knaves.

So as Pete mentions, the complementary research programs of Austrian economics and Virginia style public choice is really a recapturing of the intellectual agenda in political economy of the Scottish Enlightenment thinkers such as Smith and Hume.

Pete

[DPrychitko]

One further point... a "sociological" one.

Pete views Buchanan with great respect. And I do, too. But Pete goes beyond that and sees Buchanan as a "larger than life" figure. That was clear early on in our grad school years. I enjoyed Buchanan's course and, combined with Boulding's course that same year, it was exciting to be a second-generation(!)student in the Knightean tradition.

But again, Pete was and still is enamoured by Buchanan. He knows him better than I do, of course, but I've always viewed Buchanan as a solid, hard worker, who consistently applied his "put the ass to the chair" work ethic. Not a genius, not a visionary, but a hard-working Tennessee academic who made very important contributions to his discipline. Pete sees more than that, and I think that helps explain, at the margin, Pete's embrace of Virginia Public Choice.

[Peter Boettke]

In the interest of full disclosure ... David Prychitko introduced me to most of the arguments I later came to appreciate in graduate school!!! Including as he mentions, "Natural and Artifactual Man". But once introduced I was hooked.

I am not sure I ever was as successful at stimulating Dave's thoughts with my suggestions of readings and arguments as he was on me --- though I am pretty sure that my coffee inspired rantings were a source of entertainment for both Dave and Steve. We did enjoy graduate school a lot!

Pete

[Brian Pitt]

Dr. Friedman and Matthew,

Buchanan and Tullock, in the Reason of Rules and the Social Dilemma, really challenge readers to think deeply about their theoretic frameworks. An expansive reading reveals that their logic, while homo economicus, proceeds through what Wagner (2007) calls "inside-out logic." The inside-out logic starts with a setting of interaction, and recognizes that strategies and payoffs are created by participants through strategic interaction. My reading of Va. Public Choice (i.e., Buchanan and Tullock) is that it is quite consistent with the spontaneous order theory associated with the Austrian School.

P.S. I have just begun Prychitko's "Why Economists Disagree." I will contrast his intro with my auto-ethnography of this blog.

[Pedro P Romero]

I agree with Brian's point about Richard Wagner's contribution to Public Choice. This lies in his notion of emergence that at the core is spontaneous order. His book Fiscal Sociology and the Theory of Public Finance presents his arguments. Thinking in large heterogeneous groups rather than representative agents, the connectivity of the network, the evolution of the network (of agents). These are not standard neoclassical arguments. No Chicagoism here.

[Bogdan Enache]

Comment by Pete:

"If, say, socialism fails when we deviate even a little bit from 'best-case' assumptions about human motivations, we can conclude it's a fragile economic system. If, on the other hand, capitalism thrives when we deviate even a lot from 'best-case' assumptions about human motivations, we can conclude it's a robust system. This is why A. Smith is so important. His invisible hand shows us why capitalism is a robust economic system."

There is an ambiguity here, one which Buchanan noticed somewhere, but I don't know if he also tried to provide a direct solution: the "invisible hand" (as well as/or the "spontaneous order") has acquired - and is often used with - a double and undifferentiated meaning, describing both a positive process as well as a normatively desired outcome.

With regard to the first aspect, it must be recognized that the "invisible hand" is a pervasive phenomena of the social world and the central problematique of all the social sciences.It exists in all kind of settings : the primitive society, the family, the capitalist society as well as in real socialism - the Utopian fanciful character of "theoretical" socialism/communism stems precisely from its inability to recognize the fact that unintended consequences and invisible hand phenomena are, unlike the world it postulates by imagination, constitutive of the social world.

Consequently, it is not that easy to make the invisible hand, by itself, a criterion by which one can normatively asses a certain institutional setting - say capitalism. The invisible hand, in the positive sense, is also at work in the case of a warring tribe, the mafia, a band of gangsters, a pirate crew and so, right? That, however, doesn't say anything about the normative appraisal of such an institutional setting.

Adam Smith undoubtedly recognized the importance of "the invisible hand" in the working of a (almost) capitalist economy, but even for him it seems that capitalism is primarily distinguished by contrasting the institutional features of the setting in which the invisible hand functions (relatively free exchange, relatively secure property rights etc) with other types of institutional settings where the invisible hand also functions (murder, robbery , conquest, lack of rule of law etc). The (reversed) "mechanics" of the later situation are harder to grasp absent a price system and so on, but they are there. The use of votes and poll results by public choice as a way to capture this phenomena in modern democracies is very ingenious.

[Jeffrey Friedman]

Steve—
1. I didn’t say we have to “throw out public choice completely.” I always defend “modest” public choice theory (PCT) when I criticize *universalist* PCT in Critical Review, and I made similar qualifications above. I agree that the pursuit of self-interest may be *part* of the story of politics in a given time and place, including our own. I'm just saying that in our time and place, it doesn’t explain enough to justify the uses to which *libertarians* now put it.

Who reading this site does not routinely hear libertarians objecting to one or another interventionist proposal by saying that the proposal “ignores the findings of the public choice school”—as if PCT has “found” that self-interest is such a dominant motive in politics and government that intervention that actually accomplishes a public good is well-nigh impossible? The truth is that p.c. has “found” no such thing. It has merely assumed it, a priori.

2. I’m not sure I see how prices can “provide incentives" (but you may have been speaking loosely).

It seems to me that in a given instance an agent either is, or is not, primarily motivated to achieve a certain end (let's say wealth). If he is so motivated, he may interpret a price as providing a profit opportunity. He may then pursue that opportunity. But this means that his action is a means to the end of gaining wealth. Only if one already has that motive does a perceived profit opportunity become an “incentive.” To an ascetic, the perceived profit opportunity would not provide an incentive to do anything.

So while financial self-interest, hence monetary incentives, certainly can, and often do, work together with prices to guide people in what turn out to be profitable directions, this intersection of “incentives” and “knowledge” doesn't license us to blur the distinction between them, nor does it say anything about how universally or frequently the profit motive occurs across cultures, across “market” vs. “political” spheres within a society, or across a given individual from moment to moment.

However, I’m not sure that you disagree with me about any of that, Steve.

Jeff

[Jeffrey Friedman]

Pete B.—
No, unlike in previous posts, in which I criticized rational-choice theory (RCT), I am talking about Virginia PCT now—the self-interest hypothesis—not the mere assumption of instrumental rationality.

RCT has indeed influenced political science, but public choice has not—because it is so flagrantly at odds with so much empirical research in political science.

I am not a fan of Bryan Caplan’s book, because it is devoid of evidence for its claim that “emotion and ideology” are the guiding forces of politics. Had Bryan read deeper in the political science literature, he would have found voluminous evidence for *ignorance* and ideology as the guiding forces. However, I must say this: he did read deeply enough to come across the sociotropic (i.e., public-spirited) voting literature. And he saw that this literature knocks PCT into a cocked hat.

Anyone who is serious about understanding politics should emulate Bryan but go much farther. Set aside for the next half a year all books and articles written by economists! Instead, follow the presidential campaign now underway. You will quickly find that self-interest has precious little explanatory power in the politics of a country such as the United States.

Or, to put a finer point on it, ignorant voters and ideological elites, both of whom are doing their best to serve their interpretation of the common good, set the parameters within which interest groups may work for concentrated benefits. The damage that may be done by special interests is both enabled and constrained by forces of ignorance and ideology that have little to do with self-interest--and that are much more damaging in themselves than special interests are.

When economists discuss topics such as politics that they have not studied, the conversation takes place at such a high plane of abstraction that I wonder if they ever read a newspaper, talk to people who disagree with them politically, or watch TV—let alone read a political science journal. “Behavioral symmetry” is an a priori ideal type, the applicability of which has to be proven, not just assumed. And it has not proved to be very applicable to the politics of developed countries. (A book worth reading: Leif Lewin, *Self-Interest and Public Interest in Western Democracies.*)

Jeff

[Roger Koppl]

Jeff,

Knowledge and incentive are not the same, but they are linked, aren't they? A barber is more likely to notice details of your hair; a dentist is more likely to notice details of your teeth. Kirzner says profit opportunities "switch on" alertness. Is that sort of reasoning OK or mistaken? If it's OK, then aren't knowledge and incentives "intertwined" (to use Steve's word)?

[Jeffrey Friedman]

P. Leeson—
I didn't say that PCT and AE are "enemies," merely that they are different and should be kept distinct. Matt’s question, after all, was: Why are PCT and AE treated nowadays as if they are “joined at the hip”?

His answer, or at least mine, is that this intermingling of the two serves libertarian ideological purposes. As a result, the distinctive and valuable cognitivist concerns raised by AE are being drowned in a sea of PCT “incentives” theorizing—apparently because Austrian libertarians couldn’t think of a way to extend their cognitivist critique of communism to the politics of a social democracy with a freely operating price system.

When communism was the main threat to libertarianism, then Austrian economists emphasized cognitivist arguments that had clear application to central planning. But now that central planning isn’t a live option any more, Austrians suddenly fall back on objecting to the very thing that Mises distinguished from his cognitivist point: namely, the “knavish” motives of government officials.

Does this not say something important about the role of libertarian ideology in driving contemporary AE?

Anyway, back to Pete L. The question I raised is whether knavery or ignorance, “the money motive” or “the knowledge problem,” better explains contemporary politics, and would better repay scholarly attention. To be sure, there is some of both, but life is short, so which should we emphasize--based on our analysis of which is the bigger reality?

This is an empirical question, and Pete, forgive me for opining that you beg that question by blandly asserting that money is “what many people are after—whether they are choosing in the market realm or the political realm.” And you’re not only begging the question—you’re answering it inaccurately. The reality is that for the vast majority of voters, political activists, politicians, legislators, bureaucrats, judges, and their aides, money is *not* their political objective.

I have given the example of self-sacrificing ideologues (such as ourselves) who cannot be explained by PCT. I have given the example of ignorant voters (no, they are not “rationally” ignorant—if they knew their votes didn’t matter, they wouldn’t vote). I have pointed out that corruption among government officials in countries like ours is rare. So where is the *evidence* that financial self-interest is an important part of "many people’s" political “utility function”?

In the absence of such evidence, I conclude that the popularity of PCT among libertarians is due to its handiness as a cudgel to use against any and all government action.

As for the constitutional political economy project, it's a fine intellectual exercise (as is, for example, Marxism—a k a methodologically collectivist PCT). But the putative *importance* of this project rests on the premise that political actors’ greediness is the main threat to good government. And this assumption is not borne out, empirically, in polities like ours.

(Nor, for what it is worth, do I think Madison thought greed was the main problem, either. The main problem that the Founders saw with the Articles of Confederation was *economically ignorant legislation*--such as currency inflation and debt-relief laws. For my preliminary evidence on that, you'll have to read my intro to the new issue of CR, at criticalreview.com)

Jeff

[Jeffrey Friedman]

Roger--
I disagree with Kirzner's notion that profit opportunities have some magical power to reach out and "switch on" entrepreneurial alertness. Doesn't that notion do violence to the premise of "the knowledge problem," namely, that the world is not transparent?

Entrepreneurs are theorists. Sometimes their theory, that price X represents a profit opportunity, is correct. More often, their theory is incorrect--this is why most enterprises go bankrupt. What makes the system work is not some special power of profit opportunities to "speak for themselves," nor some special perceptual organ of entrepreneurs. It is the fact that consumers are free to experiment with the competing results of entrepreneurs' different theories, and to "exit" from repurchasing products that they don't like. Right?

Jeff

[Pete]

Jeff,

I agree; life is short. But this is precisely why we need to 'get it right' and emphasize both knowledge *and* incentive problems, since clearly both are tremendously important.

Incidentally, these two problems are not so distinct, as you seem to suggest. Incentive problems are simply problems of relative costs and benefits. Relative costs and benefits are simply relative prices. In analyzing 'the incentive problem' one is also always analyzing a 'knowledge problem.'

I find it difficult to believe that you're denying the empirical importance of financial self interest in individual decision making. The average American gives away about 10% of his annual income. He keeps the remaining 90% for himself. This behavior looks pretty financially self-interested to me.

Now, it's possible that the average American reverses this '10 for you 90 for me' thinking when he enters the political realm. But the burden of proof is on those who claim such a reversal happens since we have no reason at all to think this would be the case. Certainly the existence of academics and positive voter turnout does not suggest this. (Incidentally, it’s curious to use voter turnout as evidence that self-interest is not at play in the political realm. As I'm sure you're aware, national voter turnout in U.S. federal elections over the last decade has averaged less than 50%).

One final comment: Your reasoning with respect to what motivates individuals in the political realm suffers from an 'either-or' problem. This is most clear when you write:

"The reality is that for the vast majority of voters, political activists, politicians, legislators, bureaucrats, judges, and their aides, money is *not* their political objective."

Utility functions are composed of multiple arguments, not one, and decisions are made on the margin not in 'all-or-nothing' terms, as this passage suggests.

Thus, your statement, "money is *not* their political objective" doesn't actually mean anything unless you're willing to take the rather indefensible position that money *never* plays a role “for the vast majority of voters, political activists, politicians, legislators, bureaucrats, judges, and their aides.”

Judges, politicians, and the rest you point to often face ‘nested’ decisions that are not 'either-or' in form. For instance, after he's been contacted by a state governor whose state has been hit by a natural disaster, the president needs to decide whether to use federal dollars to assist with the state’s disaster recovery. But this isn't a binary choice. The president may decide to make the ‘yes-no’ *component* of this decision with the public welfare in mind, for instance. But there are many margins of this broader decision on which he can exert selfish preferences.

For example, with the public welfare in mind, which is but one argument in the president’s utility function, he may decide to provide federal assistance for the disaster. But now he faces a multitude of sub-decisions related to the specifics of this decision, such as who the contractors will be that will rebuild the roads, what parts of the state will receive help first, and so on. The president may have a contractor friend he would like to help out by awarding him the contract to rebuild, even though, technically, there’s a lower-cost bidder he could go to instead; so, the president awards the contract to his friend, satisfying a selfish argument in his utility function. Or the president may be part owner of a business with a branch located in a certain part of the state and so direct assistance to go to this area first, and so on.

There are innumerable margins of discretion within the broader decisions political decision makers face that allow political decision makers to satisfy both the ‘public welfare’ and selfish arguments in their utility functions. The result in the example above, for instance, is a 'benevolent' meta-decision with a series of smaller, nested self-interested sub-decisions that compose it.

So, stating, as you do, that "money is *not* [various political actors'] objective" doesn't mean anything, since utility functions aren't monolithic, and further, fails to appreciate that political decision making, like all decision making, is made at the margin.

[Brian Pitt]

Who supports giving Pete Leeson the award for the best discussion of marginalities on a blog? I know I do.

[Jeffrey Friedman]

Pete L., again--
A couple of misunderstandings mar your reply.

A minor thing: I mentioned parenthetically that voter ignorance could not be due to a voter’s “rational” calculation that his vote does not count, because anyone who made that calculation would not bother to vote. This parenthetical was a pre-emptive reference to Bryan Caplan and other *non*-public choice theorists of “rational” ignorance (or, as Caplan would have it, “rational irrationality”). You seem to think it somehow devastatingly relevant to mention that many people don’t vote. But nonvoters, by definition, don’t determine political outcomes, and my point was that the broad parameters of those outcomes are determined by ignorant voters and ideological elites. What have nonvoters got to do with this? Nothing.

More importantly, I didn't deny that people are motivated by pecuniary gain *in the market.* I denied that *most* people are motivated by pecuniary gain *in politics.* Yes, this means that there is an asymmetry between economy and polity, private and public. Now you write that “we have no reason” to think there is such an asymmetry. Yet I provided a reason in my first post (search for “2.”), and you simply ignore it, along with all the evidence I supplied, such as self-sacrificing ideologues—not academics!—sociotropic voters, the infrequency of First World corruption, and personal knowledge of the people who work for the government. What evidence *would* you accept?

The reason for the asymmetry is, as I said before, that it is considered *illegitimate* to enter the public sphere for personal gain, while it is considered (somewhat) legitimate to pursue personal gain in the private sphere. The altruistic norm governing the public sphere has 2000 years of cultural momentum behind it (not to mention evolutionary psychology). The idea that it’s legitimate to pursue self-interest in *any* sphere is a comparatively recent development that still encounters stiff cultural resistance. The anomaly, then—as Weber recognized—is the self-interestedness of the economy, not the anti-selfishness of the other spheres of society.

Of course, economists are not taught cultural history, nor do they even seem to be aware of the ethical norms operating to constrain their contemporaries. A graduate education in economics apparently wipes away all awareness of historical particularity.
Marginal-utility analysis is supposed to be enough. But if I feel ethically barred from murder because murder is prohibited by my culture, then shooting my annoying neighbor will not enter into my “utility function,” even at the margin. The reason I don’t shoot him is not because I have better uses for my bullets, but because I consider murder to be wrong. The same is true of pecuniary self-interest in politics, which is why they call it “corruption.” If most people consider corruption wrong, then we have an asymmetry that renders public-choice theory irrelevant.

Economists apparently aren’t taught any political history, either. The presidential misbehavior that you hypothesize, which public-choice theory might well predict would be routine, is in fact so rare that it has never happened. Even in the Teapot Dome scandal, it was the Secretary of the Interior, not the president, who was implicated. A president who steered federal contracts to his friends would be impeached and removed from office were his behavior discovered. Your fanciful story is therefore a perfect illustration of the inapplicability of public-choice theory in our time and place—and of why public choice is considered a joke by political scientists.

As Pete Boettke likes to say, when all you have is a hammer, everything starts to look like a nail. But banging on the world with the tools of marginal-utility analysis may not produce anything but self-important noise. I forgot to respond to your earlier, crucial argument from authority: Buchanan received a Nobel prize! Which just goes to show that imperialistic extensions of economic analysis to realms in which the self-interest hypothesis has minimal application will unduly impress those who are ignorant of politics, culture, and history. And that, perhaps, leads us back to Matt’s larger point, about the irrelevant and trivial nature of so much contemporary economic research.

Jeff

[Pete]

Jeff,

Continuing to use monolithic utility function and either-or reasoning makes your task of critiquing public choice a very easy one indeed. But this approach has the dual drawbacks of not corresponding to economists' actual claims and generating fallacious statements, such as this one:

“if I feel ethically barred from murder because murder is prohibited by my culture, then shooting my annoying neighbor will not enter into my “utility function,” even at the margin.”

Nobody said that ethical convictions (culturally created or otherwise) can’t shape our decision making. Perhaps you’ll be surprised to learn that economists have recognized this and talked about it for many years. Besides which, individuals’ ethical convictions, such as “shooting my neighbor is wrong,” do in fact enter their decision making calculus at the margin.

Like you, I also think that shooting my neighbor is wrong. This just means that ethical convictions constitute arguments in both of our utility functions. But so do many other things that we also indulge, trading off adherence to our ethical convictions at the margin.

A simple example will hopefully make this clear. For instance, if somebody said to me, “shoot your neighbor or I’ll kill your mom,” I would shoot my neighbor, trading off some of one good I value less (adherence to my ethical convictions) in order to get more some more of another good I value more (my mom).

The marginal tradeoffs I face, and thus my behavior, will of course depend upon the particular decision I’m confronted with. If, for instance, somebody said, “shoot your neighbor or you’ll have to pay me $1,” I would choose differently. Similarly, my decision might be different again if my neighbor were Hitler.

Other people may weigh the marginal tradeoffs differently—but they’re still deciding on the margin and they’re still making tradeoffs. Hitmen, for example—even ones who might, other things equal, prefer not to shoot other people—trade off some satisfaction on this margin for additional money. The fact that hitmen weigh the marginal tradeoffs differently is part of the reason why they’re hitmen and we’re not.

The point is that our decision making always: (a) takes place at the margin, and (b) involves tradeoffs with respect to other arguments in our utility functions. This is as true for ethical convictions as it is for any other arguments in our utility functions. Ethical convictions are just another good—perhaps one we put relatively more weight on—but just a good nonetheless, subject to marginal decision making.

I’m glad that you brought up public sector corruption in your reply, because in some parts of the country and at some times, it’s far more rampant than others. You’ll no doubt find this an unusual coincidence, but following natural disasters, for example, when there is great chaos and thus political actors’ expected cost of engaging in corrupt behavior is much lower, public sector corruption spikes rather considerably.

For an economist, this is predictable: the relative cost of a political actor indulging the pecuniary argument in his utility function on the margin has fallen. So, he engages in more corruption. I guess you would chalk this empirical relationship up to magic or coincidence. That’s certainly your prerogative. But you shouldn’t pretend that doing so gives you a superior understanding of individual behavior.

You make several other absolutist claims that are totally indefensible, such as when you write:

“The presidential misbehavior that you hypothesize, which public-choice theory might well predict would be routine, is in fact so rare that it has never happened.”

Except that presidential misbehavior with respect to FEMA declarations is routine. See, for instance, Garrett and Sobel “The Political Economy of FEMA” in EI, which documents such misbehavior.

It may be true that, as you put it, “when all you have is a hammer, everything starts to look like a nail.” But when you don’t even have a hammer, everything starts to look like nonsense.

A comment on your assertaion that:

“public choice is considered a joke by political scientists.”

I think your astonishingly sweeping claim here is on par with your previous claim that self-interest never plays a role in political actors’ decisions. You may think public choice is a joke. But many of the contributors to APSR and AJPS—the top two journals in political science—certainly don’t. Both journals publish ample papers that use public choice reasoning. Indeed, one of the founding fathers of public choice, Mancur Olson, published his seminal paper, “Dictatorship, Democracy, and Development,” in APSR.

I'll stop here since there are rapidly diminishing marginal returns to a conversation in which one of the parties denies that decision making is marginal and involves tradeoffs. Then again, I suppose you don't believe in diminishing marginal returns.

[Jeffrey Friedman]

P. Leeson—
I don’t deny the logic of marginal-utility analysis—only its *importance* in the politics of countries such as the United States. This is a “magnitude issue” that can be answered only empirically. So I ask again what evidence you have for the *prevalence* of self-interested behavior in politics, and I ask again why you fail to respond to the overwhelming evidence against it, which I have repeatedly cited.

You are making a very strong claim: that in the political sphere, on average, 90 percent of most people’s behavior is self-interested. To which I can only say: Prove it.

It’s sad, to me, that apparently they don’t teach Max Weber at GMU, or you would know that conceivably, ethical prohibitions are absolute, not traded off at the margins: Weberian “value rationality." (Have you never read Kant, either?) You dogmatically assert, over and over, that all human behavior is, in Weberian terms, “instrumentally rational.” But that, too, is an empirical claim, and it is wrong.

Weber’s entire career was spent puzzling out how it happened that instrumental rationality came to dominate the modern West—-because, in the context of both Western history and of Eastern cultures, instrumental rationalism was such an anomaly! Now, apparently, instrumental rationalism has sunk its roots so deep in the minds of economists that they cannot even comprehend that there are other forms of human action. This indicates severe myopia about economists' own anomalousness, and the anomalousness of the market economies that they study--where instrumental rationality (in the service of pecuniary self-interest) is, indeed, prevalent.

But even if one has not read Weber or studied other cultures, there is always introspection. Instrumental rationality is, itself, the pursuit of ultimate ends, and no matter how many of those ends one has, they must be arranged hierarchically in order to generate the type of tradeoffs you are now discussing. One’s hierarchy of ends is a meta-end, and nothing can be traded against it (as opposed to tradeoffs of means within it, which serve the hierarchically arranged ends).

Your hierarchy of ends, producing your decision to kill the stranger rather than your mother, is not, itself, tradeable at the margins. So it should not be so difficult to understand how sometimes, people will feel other non-tradeable ethical obligations or prohibitions. This is the norm in the political sphere of developed democracies.

However, even if we grant for the sake of argument that a substantial number of political actors in our time and place consider ethical prohibitions against self-interest in the public sphere to be tradeable at the margins, the question is *how often* they are likely to find themselves facing situations comparable to the choice between killing a stranger and killing your mother. You have constructed a scenario with extremely limited relevance to the politics of developed countries, even if we overlook the common observance in those democracies of *absolute* ethical prohibitions.

Like many economists, in short, you confuse the mere logical possibility of a scenario’s occurrence with its empirical likelihood. Again, Weber is the remedy: not all “ideal types” find any manifestation in a given time and place, let alone universal manifestation.

I should mention that I’m from Chicago, so I’m quite familiar with corruption. (I would note, however, that patronage systems like Mayor Daley’s had a culturally generated sociotropic rationale of their own: they “worked” to provide city services *for all.*) I have no doubt that *some people* are willing to take advantage of the rules, or of breakdowns in the rules, to serve self-interested ends, as in the case of post-hurricane corruption spikes. But your burden is to show that *most people* in politics are like that, 90 percent of the time.

Until you do that, your own examples bear out the triviality of public-choice theory. If we are interested in criminal behavior, public choice is applicable. But most politics and government is not criminal behavior, and in the non-criminal arena, the parameters within which special interests pursue concentrated benefits are set, as I said, by ignorant voters and dogmatic ideologues, whose behavior cannot be explained (as opposed to being explained away) by public choice.

The notion that what stands between the public and the public good is the corrupt lobbying of “special interests” is as conventional and lame as American political discourse itself. In that sense, public choice is an *example* of the political pathologies that Austrians, of all people, should be studying--not feeding. The pathology I have in mind is the simplistic, platitudinous nature of modern political analysis, when compared against the complex "social problems" that modern politics tries to solve.

The simplistic analysis says: Self-interest is the problem. Therefore, politics is a matter of motives. If only we could expunge bad motives, good results would come from politics. Public-choice says: the problem of bad motives is (by virtue of the "symmetry assumption," mind you--not as a matter of evidence) *so bad* that we need constitutional remedies, not merely the election of honest public servants. Is *that* all we have to contribute to the study of politics: a refinement of the simplistic platitudes of contemporary political discourse?

A more complex analysis would say: the problem is that sociotropically motivated voters, activists, ideologues, legislators, bureaucrats, and judges *don't know* how to solve social problems--but they think that they do.

Public-choice theory just feeds on silly fears about special interests that are already done to death by the likes of Barack Obama and John McCain. Why is the problem of "selfishness" in politics so interesting to economists, unless they have succumbed to the notion that "incentives" and their prerequisite, selfishness, are the sum and substance of economics? And why is this a peculiarly *Austrian* interest? (Since when did Austrian economics become a matter of doing amateur, and amateurish, psychology--attributing selfish motives to everyone 90 percent of the time, in contradiction to the results of introspection and of the Verstehende observation of political action?) Pete, for all your lip service to the importance of both knavery *and* ignorance in politics, the marginal-utility analysis that you find so crucial does not explain ignorance (or its offshoot, ideology) at all.

It is sad that your conceptual toolkit is so limited that if we take away your one tool, marginal-utility analysis, the world of politics becomes “nonsense” to you. That says to me that your training in economics has prepared you to understand nothing but the economy. Normally, that would be fine--if you were content to stick to your knitting. Economists can, and should, tell us--more!--about the workings of capitalism and the unintended consequences of "interventionism." Meanwhile, to investigate the *motives*, *ideas*, and *behavior* of the interventionists, we have political psychologists and political scientists, who are sensible enough to ignore universalistic public-choice theorists, such as Tullock and Buchanan. (Mancur Olson was a *modest* public-choice theorist; see p. 161 of The Logic of Collective Action.)

The shame of it, however, is that the *Austrian* emphasis on human ignorance of a complex world has the capacity to do an even better job of making sense of politics than political scientists have managed. Yet, to read your posts, Pete, it would seem that nowadays “Austrian” analysis is indistinguishable from the “incentives matter” economics mainstream. Worse, this doesn’t even seem to be a problem of emphasis: you really do seem to think that *anything but* “incentives” is incomprehensible.

To remind us why we are having this discussion, then, I repeat the initial question of why Austrians have wed themselves so completely to public choice theory, thereby abandoning “the knowledge problem” in anything but name. The knowledge problem has been replaced, now, by “incentives problems” that Mises was able clearly to distinguish from the knowledge problem.

48 hours ago I assumed that the incursion of public-choice theory into Austrian economics was ideologically motivated: an attempt to maintain the relevance of libertarianism after 1989 and the end of central planning. But now I’m starting to think it’s just a question of the failure of young Austrians to think carefully and precisely about what, if anything, distinguishes them from the mainstream—and, indeed, their new habit of emphasizing their connections to the mainstream.
Correct me if I am wrong, Pete, but it seems to me that not a word that you have written couldn't have come from somebody in the econ departments of the University of Chicago or Yale.

So—what is left of Austrian economics?

Jeff

[Steven Horwitz]

Jeff,

Let me take a whack at a different way of viewing public choice and Austrian economics and you tell me if it's more congenial to your vision. I suspect it will differ in degree more than kind.

Human actors enter the political arena because they believe it can remove a kind of Misesian "felt uneasiness" but of a collective sort. That is, they believe they can use politics to solve all kinds of collective problems. They soon discover for reasons all too familiar to Austrians that the problems and the social order are simply too complex to solve in an engineering type of way. They also find that the political process does not provide them with any feedback to learn from those mistakes meaningfully.

They could either give up on politics or they could make use of other means for acting in the political sphere. Some people, or all of the people some of the time, with political power might fall back on self-interest. Given that they have the power, why not use it in those ways if using it as their blackboard theories suggested is so prone to failure? Others will adopt ideologies etc as heuristics or forms of commitment to particular views that allow them to believe they are doing the right thing and simultaneously shield them from the evidence to the contrary.

The interesting question is, I think as you put it, empirically how frequently do each of these sorts of responses take place? We might also ask about what kinds of problems each cause, and what kinds of solutions they require (e.g., constitutional rules to the degree self-interest is the issue and changes in the culture or better empirical social science perhaps to the degree ideologies matter).

The implication is that yes, Austrians probably shouldn't accept public choice stories as the *only* way to understand political action (although Pete B's earlier point about robustness is well-taken), but our own analysis of ignorance suggest that taking refuge in self-interest is at least possible as a response to the failure of public-interest motivated political action.

My point is really that, to the extent it is empirically relevant, one can see self-interest in the political sphere as a consequence of our cognitive limitations. One can also see constitutional rules of the sort public choice argues for as justified by those same limitations (because in the face of them, political actors may revert to self-interest with some degree of frequency).

If I might quote myself at some length from my 2000 RAE piece "From the Sensory Order to the Liberal Order":

"Hayek’s argument for constitutional constraints can address this question in a way consistent with public choice. The core issue for Hayek is not that we are insufficiently altruistic to live without constraints, but that we do not possess sufficient knowledge to do what is right,even if we were sufficiently altruistic. Modern public choice usually criticizes arguments that rely on altruistic political actors by claiming we are, in fact, not altruistically motivated.

The problem, however, is that opponents might continue to press the case that we can be changed. In many ways, Hayek’s argument fuses the public choice emphasis on incentives with the long-time Austrian concern with knowledge. Properly operating social institutions provide actors with both the incentives and the knowledge to take actions that will produce social benefits. Neoclassical analyses of the firm, the market, and the political process tend to focus too narrowly on aligning incentives correctly in order to induce optimal behavior.... For Hayekians, the incentive function of prices, or any other social institution, is clearly important. However, actors require not only motivation, but information in order to make order-generating choices. It is this lack of
information that links Hayek to public choice analyses. The limits on knowledge inherent in Hayek’s view of mind suggests that political self-interest becomes a problem because even well-intentioned political actors are unable to consciously direct resources and create laws in the ways they believe they can, thus leading them to use their power in the service of political self-interest. Constitutional rules are the public expression of our self-recognition of the limits to our reason."

I think today I might change the next-to-last sentence to make it less categorical, but I believe the last sentence is one of the best I've ever written, if for no other reason than it expresses pretty succinctly how I see the link between Austrian economics and Virginia-style public choice.

[Jeffrey Friedman]

Steve--
In support of your thesis, there are interview data compiled by Doris Graber in Evanston, Ill. a couple of decades ago showing the same thing we see watching Jay Leno's ignoramus-on-the-street interviews today: citizens who are embarrassedly aware of their political ignorance. It might be true that such awareness would lead to skepticism about solving social problems, whether among voters (who would, however, then tend to become nonvoters) or government employees—but especially among political actors in the second and third world, where the hopelessness of political action might be more apparent, and where this might be readily explained *not* by "the complexity of the world" or any such thing that you and I accept as a given, but by rampant corruption. ("If everyone else is taking his share, why shouldn’t I?")

However, I wonder if, in a polity like ours, your scenario doesn’t assume that our own Austrian ”complexity" analysis of why government fails is somehow intuitively self-evident to people.

For my part, I find Austrianism in particular, and economics in general, highly counterintuitive, and it strikes me that the only people who believe in any version of economics are those who have studied it rather intensely. Where, then, would people who entered government service in order to solve social problems acquire the theoretical apparatus with which they could spot, let alone explain, government failure later on?

My experience has been that where people like you and me see the failure of too much government, liberals see a record of government success broken only by the accession to political power of "mean-spirited" people (like you and me, it seems)!

On the one hand, they have been taught: just look at how important the British government was in curbing the Dickensian excesses of the Industrial Revolution; look at how FDR needed to tame laissez faire in order to preserve capitalism; look at the crucial role the minimum wage and compulsory unionization have been to the well-being of the American worker; look at the horrors visited upon the Third World by globalization, and visited on American workers by Wal-Mart; look at the importance of “activists” in rectifying these injustices by getting government to act.

On the other hand, when they see political failure, it is a failure of will or motives, not a failure of policies and programs per se: Just look (they say) at the underfunding of social programs by greedy, racist voters; the lax enforcement of regulations by doctrinaire conservatives; the “apathy,” or the distraction by cultural issues, that keeps most voters from doing what they obviously should do: pick themselves up off the couch and vote Democratic every time, so as to keep out of office those rich, racist, doctrinaire conservatives.

I assume that you agree that when you and I think that in resisting political solutions to social problems, we are “seeing the unseen,” or recognizing the paradox of "private vices, public benefits," or appreciating Smithian unintended consequences, it’s not because the unseen has announced itself to our intuition; it’s because we have read Hazlitt, Smith, and all the rest, up to Hayek. This is what makes me think that people who have not read such authors would have no reason to think that there’s anything paradoxical about markets, so they would have no reason to think that intervening in markets might lead to unseen, unintended consequences.

To me, their thinking is simplistic and betrays ignorance of economics. But to them, their thinking is nothing but their own common sense.

On this score, let me recur to the Caplan book again. The deepest problem I have with it is that Bryan seems to think that Econ 101 is so self-evident to any thinking, rational being that anyone who disagrees with Econ 101 must be, literally, crazy.

That, to me, is bizarre (but not crazy!—-merely myopic).

I hypothesize that Bryan has been reading economics and associating with economists ever since majoring in the subject in college. To him, then, basic economics must seem like second nature. By contrast, I read Austrian econ intensively before I got to college-—at a time when none of my friends or relatives was reading econ of any kind, believe me!-—but I never majored in econ and never went to econ grad school (in case it's not apparent). So all my life, from the time I first became politically aware, I have been the only person in my immediate environment who had Austrian-type ideas, or ‘economic’ ideas of any sort. The notion that all those people with different beliefs than mine--all those left-leaning relatives, roommates, acquaintances, students, and colleagues I’ve known over the years--were aware, in some ultimate sense, that their ideas were wrong, but that they persisted in believing in those ideas because they liked to indulge their “preference for irrationality,” overlooks their apparently quite genuine belief that the political solutions that they favored *would* work, if implemented vigorously enough; and the fact that they simply had no exposure to the deviant readings that might make them think otherwise--readings that bumped me out of their orbit at the tender age of 10.

At a much milder level than Bryan's book seems to assume, does your scenario assume that knowledge of what you and I take to be “economic truths” about the complexity of the world, etc., spring from direct observation of reality, unmediated by cultural sources such as Hazlitt et al.?

Jeff

[Steve Horwitz]

Jeff,

I don't think I was saying that political actors *consciously* recognize that complexity stymies them etc.. What I was trying to say is that let's assume they are motivated by other than self-interest but find their attempts to "do the right thing" failing more than succeeding. A lot more perhaps. I'm then assuming NOT that they figure out why they failed. To the contrary - faced with failure and MISSING "our" perspective, they fall back on self-interest and/or some different erroneous framework for analyzing their actions.

In other words, we need political institutions that guard against self-interest because it is one, and I'm willing to say perhaps the modal (though not necessarily the majority), response to the failure of public-spirited politics due to cognitive limitations.

And your point about hanging out with economists is an interesting one in my own case. It might well be that those of us at smaller liberal arts colleges who of necessity spend more time with folks in other disciplines are less likely to be overly economistic. I'd like to think that of myself. However, for some of my colleagues here, engaging in economistic behavior is a response to what they would see, as Pete L does, as the "nonsense" of other social sciences and the humanities.

More important than all of this, however, is that the second period of the Red Wings game is about to start, so I must stop here.

[Jeffrey Friedman]

Steve--It seems somewhat plausible to me, except that the modal explanation in cultures like ours for political failure is "corruption," so I'm not sure the modal fallback position for people who think that they have encountered political failure would be to *contribute to* the problem by becoming corrupt themselves.

More likely, I think, they would take up drinking. But it would certainly bear looking into.

For the sake of "young people" with career choices ahead of them, the social sciences should be carefully distinguished from each other, and from the humanities. Echoing Tolstoy on families, each social science is fucked up in its own way. Political science has its problems, but from what I can tell, they are fewer than in the other social sciences, except psychology; and neither pol sci nor psych engage in postmodernist "nonsense" of the humanities variety. Not that pomo, either, is "nonsense" (and not that you were saying that it is); when I hear economists ridiculing other disciplines as incomprehensible, what I hear is more of the disciplinary arrogance that bespeaks, as you are saying, insularity.

We are all prisoners of our own intellectual cultures, but something about economics seems to convince many economists that they, and they alone, are seeing the world in all its fullness.

Jeff

[Steven Horwitz]

Well what do you expect from a school of economics whose central work of the last century was the one with the narrow, disciplinary title of "Human Action?" ;)

[Steve Miller]

This is sort-of for Jeff:

Why are ignorance and bias mutually exclusive? Why can't the explanation be that the public is biased *because* of profound economic ignorance?

[matthew mueller]

This is a great debate. Before it dies, let me add that I think the real point of contention concerns the compatibility of knowledge and rules.

Jeffrey Friedman consistently raises fascinating points, and he takes Pete Leeson to task by noting his "economism". However, the real point is that Austrians have erred in following public choice theorists and their preeminent concern with motives (engendered by self-interest). Friedman correctly notes that the older Austrians recognized that this was not the real problem. The knowledge of what it is we need to do is what is at issue.

Now the Austrians on this board (Horwitz in particular) respond by saying that "knowledge" and "motives" can be reconciled through the establishment of appropriate rules. But to me this is unsatisfactory because it does NOT sufficiently address the knowledge problem that Friedman has so nicely articulated. It is ironic that the one who is most critical of Austrian economics has in my view given the literature its most faithful reading. Austrian economics is about knowledge problems.

Anyway, I would ask Horwitz this: How do we know what rules to implement in order to avoid the adverse consequences of self-interested behavior in the public realm? Relevant knowledge is an ephemeral phenomenon. Knowledge that is useful today may become obsolete by tomorrow. This is the most important insight I have taken away from Ludwig Lachmann. It is therefore almost impossible to control such a volatile variable as knowledge. And any sustained inquiry into its important features will show that knowledge is intimately connected to uncertainty, since knowledge concerns appropriate action, and the consequences of human action can only be appraised in the future, making the necessary evaluation of actions impossible ex ante. But all the important decisions are made before the action is performed, namely, the decision to act. So how do we know how to act if we will only be able to appraise that action after it has been performed (and incompletely at that)? This all militates against the plea for *rules*. How do we go about designing the appropriate rules in a world of uncertainty?

G. L. S. Shackle was one of the few economists to consistently trace out the logical implications of uncertainty, and he concluded that such a fact goes "beyond the reach of legislation or improvements of organization and technology."

[Jeffrey Friedman]

As usual, Matt gives us something to ponder, so that's what I'm doing.

*If* the preconditions of their theories (such as instrumental rationality and self-interestedness), which economists wrongly treat as "laws," were to hold true in a given time and place, wouldn't it be nice to have constitutional rules in place that (somehow) barred minimum-wage laws in that time and place? At worst, if the preconditions were absent, the rule would be a dead letter.
-------------------

Steve Miller--if in my comment on Caplan, I implied that ignorance and bias are incompatible, I severely misspoke. I agree with you 100% that ignorance enables bias, e.g., ideology.

It is Caplan who presupposes that ignorance and bias are incompatible. His biased voters supposedly *know* they're wrong, such that by failing to study economics, they must be *choosing* to indulge their "taste for irrationality." But nobody chooses to believe something he knows is false.

In my view, it is the voters' ignorance of economics that leads to their "biases." Most voters (believe it or not!) are ignorant of the existence of the discipline of economics, let alone of what economists teach *about* (e.g., tariffs), let alone that what they teach about those subjects might overturn the voters' beliefs about those subjects. This accounts for voters' failure to pay heed to what economists say: they don't know what economists say! If the voters are thereby biased, it is indeed because of their ignorance.

Here, the "logic of choice" not only sheds no light on ignorance, i.e., the knowledge problem--it makes such a problem inconceivable. Caplan's voters possess a sort of omniscience about what they don't know (economics) which enables them to deliberately "choose" to hold opinions that economists (and therefore, supposedly, voters, too) would consider false, because voters like to be wrong!--it's part of their "utility function."

This seems awfully similar, to a noneconomist such as me, to the pretense of knowledge that Austrians have so well criticized, starting with the socialist calculation debate. (Really, though, shouldn't it be called the pretense of omniscience? We can know some things; but we can't know what we don't know. For a voter to be choosing to be "irrational," he would have to know the economics he doesn't know.)

Here's where I, again as a noneconomist, see Austrian and mainstream approaches as incompatible. Austrians are, or used to be, interested in *mistake*--*inadvertent* error. The central planners would be making mistakes; and the market socialists' response simply presupposed that the central planners would know enough to be able to avoid mistakes.

In the mainstream neoclassical view, as I (dimly) understand it, there is no such thing as genuine, inadvertent mistake: all results, even apparently mistaken ones, are deliberate choices (due to the tacit presupposition of omniscience). Caplan follows that line. (Or is it just that he, too, is so cloistered in Econland that he can't imagine that most voters have no clue that economists might have something to say about the things that voters have opinions about; let alone do most voters know what the economists might have to say; let alone do they know the arguments for what they might have to say?)

Am I wrong about any of this? That is not a rhetorical question!

Jeff

[Steven Horwitz]

Matt,

Your position really does amount to theoretical nihilism if you really believe that we can say nothing about the principles by which social orders emerge and sustain themselves. The Austrian-Virginia call for rules is an argument that "explanations of the principle" are possible a la Hayek, which is a position your last post seems to deny.

I don't believe that the uncertainty involved in human decision making means "the necessary evaluation of actions [is] impossible ex ante." We cannot have *certainty* ex ante, but we can make use of mental models of alternative futures and assign varying degrees of certainty to them and then act on them. After all, isn't this more or less the model of The Sensory Order? Hayek talks about the way minds are models of the environment based on past experience.

It is no different for theorist as it is for the actor. Much human action *is* successful, despite uncertainty. I manage to get through my day successful achieving most of my ends despite all of that uncertainty. Maybe you don't!

Ruling out the possibility of reasonably certain ("relatively absolute absolutes" to use JMB's term) theoretical knowledge means we all better pack up and go home.

It also makes me wonder why you even bother engaging in these conversations.

[matthew mueller]

Dr. Horwitz,

You pulled the quick one on me! but these objections are not unfamiliar to the followers of Shackle. Alan Coddington's book "Keynesian Economics: The Search for First Principles" makes exactly the same point you have raised. After spelling out Shackle's theory of uncertainty, he writes:

"One could, of course, having got into this state of mind, spend a good deal of time and energy in trying to convince those who engage in macroeconomics, econometric model building, mathematical economics, general equilibrium theory and so on, of the folly of their ways. But, that task accomplished, there would be nothing left but for the whole profession to shut up shop."

How should the Shacklean respond to this? I am sure you are shaking your head now in excitement fully convinced that you have cornered me. But my quick response would be that economics, if taken in a Shacklean direction, would simply cease to be macroeconomic, econemetric, mathematical, and general equilibrium economics. It would be a new sort of economics. And this is what Shackle intended all along. As Shackle himself confessed once in a letter to Frowen, "It is the philosophical aspect of economics that I have always been mainly interested in." Economics would become a sort of philosophic economics. Careful attention would be paid to the implications of epistemology and metaphysics. Things like Cartesian rationality, causal dualism, universals, determinism vs. free will, and so on, would now be the subjects economists would write about. And I am puzzled why they still refuse to talk about these things today. All of economics is based on theories of epistemology and metaphysics, yet nobody talks about it. Why not? And the cursory readings of Lakatos and Kuhn is not what I have in mind. We need to begin reading the contemporary theories of knowledge. For example, I am moving (at a snail's pace) through Roderick Chisholm's "Theory of Knowledge" book now. So Shacklean "nihilism" does not entail the end to all economic theorizing; it would just put an end to the familiar methods of economic theorizing. And this is what we want! (is it not?)

And I don't think you fully understand uncertainty. I am confused when you write:

"We cannot have *certainty* ex ante, but we can make use of mental models of alternative futures and assign varying degrees of certainty to them and then act on them."

By definition, uncertainty means that you cannot fully specify the number of alternative futures you believe are available. Once you acknowledge the existence of uncertainty, you can no longer specify the complete set of events to which "varying degrees of certainty" can be assigned.

[Roger Koppl]

I think Matt Mueller makes a good point when he says, “Knowledge that is useful today may become obsolete by tomorrow.” But we should probably distinguish between knowledge of general principles and knowledge of specific facts. Facts can move pretty quickly. General principles hold fast. Good rules accommodate rapidly changing facts. Thus, I think it is possible to accumulate reliable, enduring knowledge of the patterned consequences of alternative rule sets. That’s what “indirect utilitarianism” is all about. Even there, by the way, I would say that the complexity of the social world is such that we should generally alter social rules only incrementally. This “Humean status quo bias” is expressed in Popper’s advocacy of “piecemeal social engineering.”

Thanks to Vernon Smith and his collaborators, such as Dan Houser, Kevin McCabe, and Steve Rassenti, we have a technology for identifying the consequences of different rule sets that was not available to thinkers such as David Hume or John Adams, namely, laboratory experiments. We don’t have to predict who will prevail in a double auction or at what price in order to say confidently that this market form does the best job of extracting the available surplus. My coauthors (Robert Kurzban and Lawrence Kobilinsky) and I have been applying V. Smith’s “economic systems design” to epistemological questions, thus doing “epistemic systems design.” Instead of asking which social institutions give us greater efficiency we ask which social institutions give us greater veracity. Click on http://alpha.fdu.edu/~koppl/experiment.doc for an early version of our paper, “Epistemics for Forensics,” coming out in the next number of Episteme: Journal of Social Epistemology. I can’t help feeling that the methods of our paper may represent a good way to have, in Matt’s words, “a sort of philosophic economics” that gives “[c]areful attention . . . to the implications of epistemology.”

[Roger Koppl]

I should have used the following link in my recent post:
http://alpha.fdu.edu/~koppl/updated.doc
That will take you to the latest posted version of the forthcoming Episteme paper. I'm sorry about using the wrong link earlier.
RK

[Steve Horwitz]

Matt,

I didn't say one could come up with exhaustive lists of options, nor that one could assign probabilities to them that match the "real" likelihood that they will occur.

What I did say is that uncertainty is not a barrier to successful action (or, to use Roger's phrase, knowledge of general principles), anymore than gravity is a successful barrier to ascending to the 100th floor or flying to Los Angeles. Just as we beat back the implications of gravity with human ingenuity, so do we navigate the seas of uncertainty with our cultural knowledge and the signals that prices and other socio-economic institutions provide us.

Humans successfully navigate uncertainty all the time and we have acquired knowledge of the social world that has explanatory power. Uncertainty is not a unconquerable barrier to social science anymore than it's an unconquerable barrier to my successfully purchasing and making my dinner tonight.

Paris gets fed and human action is successful. Isn't our task to show how those get done *in spite* of uncertainty rather than wringing our hands about how uncertainty keeps us from rationalistic perfection?

And now, ladies and gentlemen, it is time to go watch my Red Wings win the Cup.

[matthew mueller]

Dr. Horwitz,

Now my reading of Keynes may be unique, but I have always understood him to mean (with the assistance of Minsky and Shackle) that all knowledge claims are mere conventions that are devised in order to deceive people into acting. This is necessarily so because if people accepted the world as uncertain, they would immediately fall into a "state of paralysis"; they would not act. An uncertain world requires the creation of certain conventions in order to permit scope for positive action. So to point to existing bodies of knowledge as evidence of the frivolity of uncertainty misses the argument entirely. But it must be remembered that these "conventions" or "illusions", as Shackle called them, are always and everywhere unstable; and the slightest change in the "news" will reveal quickly just how tenuous our knowledge claims really are. Now, following Minsky's account of financial instability, we can say that as belief in these conventions grows stronger, the likelihood of disaster occurring also increases. These knowledge claims are nothing but precarious devices designed to mask the reality of uncertainty. Therefore, as our faith in them increases, our propensity to err rapidly increases as well. **Knowledge** emanates from uncertainty; it is not evidence of the absence of uncertainty. We need to be clear on that.

[Peter Boettke]

Jeff,

The characterization of neoclassical economics as being absent of genuine choice (including error) is of course why Mises wrote the first 100 pages of Human Action, and Hayek wrote "Economics and Knowledge". But that doesn't mean that the principles of economcs go out the door. They weren't derived from the axiomatic deductions from maximizing assumption in the first place, and they don't depend on that exercise for their existence. Instead, as Mises argues in Human Action, the starting point is not an arbitrary axiom, but reflection on the "essence of human action."

The sort of epistemic concerns which influenced Mises and Hayek's approach to economics also is addressed by Buchanan and Vincent Ostrom and influenced their approach to politics. Buchanan is different than the Beckerian approach.

Matthew ---

Shackle is awesome, but his focus is on the human dilemma and genuine choice (a different perspective on the same problems Mises and Hayek raised), and he is a product of his economic age (see his Years of High Theory). But what if that economic age got the alternatives wrong? In other words, you are thinking in terms of a theory choice that I deny. Thinking about economics philosophically does not mean that you cannot have a science of economics; instead you might just have a philosophical science as Collingwood argued for in the first decade of the 20th century.

To think as you are is to be trapped in the intellectual categories which we have to overcome in my mind for progress to be made. Richard Bernstein wrote a significant book in the 1980s entitled Beyond Objectivism and Relativism, and I would suggest that we are still trying to get beyond those old categories of thought.

Ironcially, it is through the creative reading and blending of Mises and Hayek that I would suggest provides the best path to break through. This is what I mean when I say Shackle with price theory --- it is the way to move from solipicism to social order. See the Prychitko, ed. book on individuals and interpretation.

Pete

[Peter Boettke]

Jeff,

I think we have gone very far afield from the original post --- which was about Roger Koppl and his work on "Epistemic Systems". Koppl's work would in fact be in line with the turn of emphasis you would like to see.

However, I guess I would like to keep the detour going for a bit more because I have to challenge your claim that political scientists consider public choice a joke. This is not at all evident by any measure you choose to examine that claim. First, journals -- look at the APSR and AJPS, look at the top book publishers (Chicago, MIT, Princeton), look at top universities (Harvard, Duke, Stanford, NYU, etc.). So in what sense is public choice a joke among political scientists.

Now a certain caricature of public choice is problematic for those of us who take a consistent subjectivist/humanistic approach to the social and policy sciences. But the logic of economic reasoning holds across time and place (and activity). This is why the "imperialistic" impulse of economics has "legs" in a way that does not catch on with sociology, psychology, philosophy, history, and politics.

Rational choice and spontaneous order theories provide the framework for the unificiation of the social sciences. The trick is that rational choice theory that devolves into mechanical exercises in optimization, and spontaneous order theory that concentrates on equilibrium states, trivialize the unity project and thus must be avoided. But choice theoretic exercises that deal with our ignorance and a complex social setting find amelioration of social tension and the coping with our ignorance in the spontaneous emergence of social institutions within the culture and economy.

Which brings us back to "epistemic systems" and why Koppl's work deserved the post in the first place. Perhaps we could go back to that.

Pete

[Steve Miller]

Jeff, I wrote a longer response but it didn't post for some reason. The short of it is that I clearly misunderstood you, but either I am being too charitable in my understanding of Caplan or you are not being charitable enough. In my view he merely uses a different notion of "ignorance" than you do, but it's hardly his fault. He simply adopted the Stigler/Wittman definition in his response to that literature.

Steve

[Patsy]

Great work.