Academic Entrepreneurship: Organization Theory Style

We are all act as entrepreneurs as we strive to better our situation.  As Kirzner states it, individuals will be alert to that which is in our their interest to be alert.  This is no less true for the scholar than it is for the businessman.  In fact, many great careers have been built in academia by arbitraging between two previously separated disciplines or thinkers and finding common ground and then building a creative synthesis.  One example would be Oliver Williamson, who was able to bridge a gap between business history (Chandler) and transaction cost economics (Coase) and develop a modern theory of economic organization that moved beyond the firm as a set of production functions and instead opened our eyes to managerial strategy and organizational form.

Among those influenced by Austrian economics, Nicolai Foss has always impressed me as a great arbitrager.  From his dissertation work on, he has always demonstrated an ability to see connections that to others might be hidden from view, but once he exposes them they appear obvious to informed readers.  It is a very wonderful trait to have as a scholar. 

Foss and Peter Klein host a great blog spot entitled Organizations and Markets and recently Nicolai had a very insightful discussion of the treatment by James March and Herbert Simon in their classic work, Organizations, of the socialist calculation issues as they relate to planning both at national policy level and inside the firm.  As Foss points out, March and Simon argue that even if the motivational problem associated with planning could be solved, there would remain a coordination problem that must find a solution. 

Ironically, Gordon Tullock (a scholar closely associated with arguments about the perverse incentives of government policy making) makes a similar coordination based argument in his The Politics of Bureaucracy rather than just an incentive argument to explain the dysfunctionalities of large bureaucracies.

One of the really interesting "facts" about the social calculation debate is that Oskar Lange argued in his original paper that raising questions about motivation would entail abandoning the economic argument and instead move the debate to one concerning psychology and sociology. The modern reader is likely either to gloss over this, or find it confusing.  But that is because they are failing to appreciate the scholarly context of the time.  The value-freedom discourse of the time (1900-1950) meant treating ends as given and limiting analysis to the effectiveness of the choice of means to satisfying given ends.  Questioning the ends of the planner would entail a violation of value-freedom.  This was consistent with the  philosophical perspective that Mises and Hayek followed so their critique of socialism did not entail a critique of motives, but instead assuming high minded motives they questioned how effectively those ideals could be satisfied with the means of socialist inspired policies.

So when Foss even more recently refers to Cowen's discussion of the calculation debate and raises the question of the rational choice planner setting the price below the market clearing levels to maximize rents (an idea that was developed independently by both David Levy and Andrei Shleifer in the early 1990s, though it has its roots in the work of Janos Kornai), I think it should be recognized that the state of play on argumentation had shifted.  Value-freedom was no longer a consequence of argumentative strategy, but now a consequence of certain techniques and procedures of 'testing'.  Intellectual space was opened for public choice issues because the ends being pursued could be treated as a hypothesis to be tested, rather than as an end to be given.  But this subtle shift in the world of ideas is rarely recognized by scholars such as James Buchanan, Bryan Caplan, Tyler Cowen, and David Levy when they insist that motivational issues should take priority over calculational issues in the critique of socialism.

One of my favorite passages from Human Action (1966, 692) reads as follows: "This inference [that the state should run all plants and farms] became logically inescapable as soon as people began to ascribe to the state not only moral but also intellectual perfection. ... But things became different as soon as people  began to ascribe to the state not only the best of intentions but also omniscience. Then one could not help concluding that the infallible state was in a position to succeed in the conduct of production activities better than erring individuals.  It would avoid all those errors that often frustrate the action of entrepreneurs and capitalists.  There would no longer be malinvestment or squandering of scarce factors of production; wealth would multiple.  The 'anarchy' of production appears wasteful when contrasted with the planning of the omniscient state.  The socialist mode of production then appears to be the only reasonable system, and the market economy seems the incarnation of unreason."

There were two ways to challenge this state of play in the intellectual world -- one was to leave alone the assumption of benevolence and challenge the assumption of omniscience (the Austrian approach), while the other was to leave the assumption of omniscience in place and challenge the assumption of benevolence (the public choice approach).  From a philosophical point of view, the public choice approach violated the strictures of value-freedom and entailed attributed ends to ones opponents in a debate. However, it turned out to be accurate that many of the perversities observed in practice were due to misaligned incentives.  Still, the Austrian approach identifies a set of problems that occur even if 'angles' were put in charge and these are concerns that in my opinion should not be forgotten.

In fact, in my attempt to synthesize market process and public choice theory into a framework for political economy analysis I follow a "rule of 3".  I give intellectual priority to the Austrian criticism based on means/ends analysis on the first two cuts of an argumentative engagement with a policy opponent. But if after a clear-cut demonstration that the means chosen are ineffective with respect to the stated ends sought is made (and then repeated), then it seems appropriate to questions whether the stated ends are the real ends being sought by the decision-makers.  The Austrian critique of omniscience opens up to a discussion of means/ends, which then gives way to a public choice critique of benevolence.

Comments

[anon]

"The value-freedom discourse of the time (1900-1950) meant treating ends as given and limiting analysis to the effectiveness of the choice of means to satisfying given ends."

Is there any evidence in support of this claim? Where can I read about it?

The genius of Buchanan was to insist that one model agents symmetrically (benevolence across the board or not)

[Peter Boettke]

On the historical idea --- read Weber's original discussion of value-freedom, and then Hutchinson's work on The Basic Postulates of Economic Science and compare and contrast.

On Buchanan, of course the behavioral symmetry point was brilliant and represented a major step forward. But why was he refered to as doing "normative political economy" when he did that. His constitutional project was completely misunderstood by most critics. And his analytical strategy of using the Hume idea that in design a system of government it is best to treat all man as if they were knaves was treated as a descriptive stance rather than an analytical one. I have written about this in my essay on Buchanan and the rebirth of political economy, but also in an essay with Pete Leeson on Robust Political Economy and Liberalism.

[anon]

"But that is because they are failing to appreciate the scholarly context of the time. The value-freedom discourse of the time (1900-1950) meant treating ends as given and limiting analysis to the effectiveness of the choice of means to satisfying given ends. Questioning the ends of the planner would entail a violation of value-freedom. "

Is there any example of anyone actually saying this during the calculation debate? I thought it was more a case of Hayek not thinking economists as economists had anything to say about ends per se.

In what way exactly is Hutchison's 1938 relevant? Prof. Douglas Mackenzie has a stream of quality papers on Lange and none of them suggest that Weberian value freedom has anything to do with Lange's remarks about sociology.

[Araglin]

Professor Boettke,
It sounds to me like you're using "value freedom" in an odd sort of way. In my previous exposure to the term, it always seemed to refer to the way in which a value-free science explains various features of the social order (e.g. price formation, the emergence of various institutions) by looking at the ends actually pursued by various economic agents, rather than by evaluating those ends as ethically good or bad. Here, it seems that you're using the term to mean never imputing less than totally benevolent intentions to political actors. Can you clarify the conceptual connection (if any) between these two senses?
Cheers,
Araglin

[Peter Boettke]

1. Lange explicitly states in his original paper that questions of motivation are NOT economic questions. You can read that in his essay, but also in Caldwell's JEL survey of Hayek and Socialism.

2. The 1938 book is important because Hutchinson tries to establish the demarcation line in economics based on empirical verification grounds. Weber's argument (and the one Mises followed) argued that economic science could aspire toward objectivity only to the extent the radical subjectivist stance was taken.

3. Doug's papers are solid and should be read, but they don't address this aspect of the debate.

4. I am not using value-freedom in an unusual way, I am using it in the same way that Weber-Mises used it --- treat ends as given, and limit analysis to the examination of the effectiveness of chosen means to satisfy stated ends.

To give a concrete example, very few individuals would ever say they supported the minimum wage because it would hurt the least advantaged the most. No, instead, they argue that they would like minimum wages because it will help the least advantaged. But economic analysis demonstrates that minimum wage legislation is an ineffective means to achieving the goal of helping the least advantaged.

I address many of these issues in my paper "Is Economics a Moral Science?"

[anon]

"Lange explicitly states in his original paper that questions of motivation are NOT economic questions."

Who denies this? But where does lange (or any other player in the calc debate) say this has anything to do with value-freedom?

Prof. Mackenzie's papers do address this point BTW.

[Adam]

If I'm not mistaken, Pete is echoing a subtle (though contentious) point from Mises, one that has been picked up by Kirzner (see his last few articles in the Freeman).

This argument has to do not with pure catallactics--such as the derivation of a demand curve, which is of course value free--but rather with policy advice. That is, if I read Pete, Mises, and Kirzner correctly (and they are in fact saying the same thing), the economist can profer policy advice AS A SCIENTIST rather than an advocate of an ideology, but only if he takes his interlocutors' values as given. That is, the policy advice itself is value neutral. We know the economist is not introducing his own values precisely because he adopts the values of his interlocutor.

Normally this is assumed to be the policy maker, but it need not be the case. Arguments to "the masses" are equally important. This seems to be what Mises means when he says that liberalism is applied economics.