Coordination Problem

The Anatomy of the State

I raised some issues yesterday about the claims on the productivity of government activites.  These were raised as questions and not criticisms to stimulate thought among readers and in the hope of encouraging a dialogue on the role of the state in economic activity and our conception of the state in a free society.

In the interest of full disclosure and though I don't write from a natural rights perspective, the image I have of the state is to the left.  In my youth I was persuaded by rights-based arguments in the libertarian tradition, but I quickly moved to a more utilitarian based economic theory grounded argument --- what is often termed rule utilitarianism as found in Mises and Hayek.  But I cannot shake the image of the state that I have had since my initial conversion to libertarianism in my late teens.

Rothbard was the most influential thinker on me then and his words still inspire much of my political philosophy to this day.  My favorite work of Rothbard's is For a New Liberty, but I also think that "The Anatomy of the State" is perhaps his finest essay in political theory.  The painting from Goya was the cover of the Libertarian Alliance pamphlet and was meant to caputre the essence of the state.  As Schumpeter argued, we must have a pre-analytical cognitive moment of visiion from which we draw the raw material for our analysis.  For me that vision with regard to the state has been since my undergraduate days fundamentally Rothbardian.  I cannot help it, but other visions of the state always appear to me as overly romantic.  Politics without romance, to me, must begin with the recognition that the state is an instrument of coercive exploitation --- organized predation if you will --- and can be and will be used by some to exploit others.  Consensual politics, in others words, does not really make sense.  It is all about predation all the way down, even though I will admit that some states are more predatory than others.

Enough political confessions of basic vision, the real question is whether that vision gives us enough raw material to work with in political economy so that progress can be made in getting at the underlying mechanisms in operation in this world (or a possible world) that once we explicate them we will understand the world better (or the workability of the possible world better).

Can One Be a Classical Liberal and Really Believe This?

Wladimir Kraus has a short essay arguing that government produces nothing ever. In constructing his argument he relies on the work of George Reisman and Ludwig von Mises.  I am very sympathetic to the argument, but it makes me wonder.  Neither Reisman nor Mises argue for anarcho-capitalism.  Instead, they both argue for an essential role for the government in establishing a free economy.  The complete absence of government they entail is inconsistent with the free market economy.  In that sense, government while a consumer of the production of others (through coercive taxation) must be utilizing those funds to produce a political/legal framework that provides security.  The absence of such a formal framework of security will result in a far less productive system of exchange and production.  In other words, government in its capacity as the producer of the framework of security is providing a valuable service that cannot be found elsewhere.  At least that is what is being argued by traditional classical liberals.

Buchanan distinguished in his work -- e.g., The Limits of Liberty -- between the protective state (e.g., court system and police), the productive state (e.g., roads and other public goods), and the redistributive state (e.g., special interest politics and privileges).  The puzzle in Buchanan's work in classical liberal political economy was how can we empower the protective and productive state without unleashing the redistributive state.  Working on this puzzle is very intellectually and practically satisfying for the classical liberal political economist.  Though it is also frustrating because an answer relying on the state to curtail the activities of the churning state seems to be so elusive as to suggest an impossibility theorem.  The minimal state will become a non-minimal state soon after its establishment.

But what is the puzzle that Reisman and Mises give us?  If government produces nothing ever, but we must rely on government to produce the social order, then can we really say government produces nothing ever?  Perhaps the analysis in Mises (that Reisman picks up on), should direct us in a more radical direction. It seems to me that one could argue that government can be necessary, and productive, but it cannot be necessary and always and everywhere unproductive.  Alternatively, we could argue that government is unnecessary and unproductive.  Just because Mises lacked the imagination (as did Hayek) to envision a world in which advanced social cooperation under the division of labor could be produced completely in the absence of any central state authority or lawgiver doesn't mean that we shouldn't pursue the logic of the argument that government produces nothing ever.

I have argued in recent years that we should view anarchism as a progressive research program in political economy.  I distinguish in this work between the utopian anarchism of Godwin, the revolutionary anarchism at Bakunin, the analytical anarchism of Rothbard and Friedman, and the practical or positive political economy of anarchism that one finds in the work of Benson, Greif, Stringham, Leeson, and Coyne. 

Perhaps some definitional clarity is in order.   By anarchism I mean the endogenous creation of rules to govern social intercourse in the absence of a central legal authority and functioning government.  By progressive research program I mean that there are plenty of analytical and empirical projects for scholars to pursue that would be of interest to scholars throughout the fields of economics, history, politics, law, sociology and philosophy.

The key empirical observation is that the world as we know it is filled with, on the one hand, failed and weak states which require institutional transformation that cannot come from the state by definition, and on the other hand, numerous social realms where advanced and complex order has been achieved outside of the watchful eye of the state (e.g., international trade and cyberspace).  The key theoretical puzzle set in motion by this empirical observation is the quest to explicate mechanisms of exclusion and inclusion so that social order can be achieved and that it can benefit from produce of an extensive division of labour (e.g., cooperation and trade in anonymity).

What do you think?  Is there a way to square the older classical liberal argument about the necessity of the state with the Austrian analysis that government is not a producer but a consumer of the productive output of others?  Or does the older classical liberal argument have to yield to the radical libertarian argument?


Recommended Reading:

Edward Stringham, ed., Anarchy and the Law. New Brunswick, NJ: Transactions, 2007.

GMU Econ bloggers

The Mason Gazzette has a story on GMU econ bloggers.  As an added bonus, there is a nice photo of Pete toward the end.

Hayek and Market Design

Over at Knowledge Problem, Mike and Lynne discuss how one can reconcile Hayek's emphasis on the spontaneous emergence of institutions and dynamic market processes, and the rational construction of new markets and redesigning existing markets.

2007 History of Economics Society Meetings

The 2007 HES annual meetings just concluded at GMU, and in my opinion it was a great success. Congratulations to Sandra Peart for planning and running such a great conference.

The HES meetings are professionally and personally my favorite meetings.  Unfortunately, my attendance has been inconsistent of late due to the timing of the conference in June/July (which turns out to be a very bad time for coordinating coaching, conferencing, and the administrative obligations I have been juggling).  But HES has some my closest professional friends: Steve Medema, Ross Emmett, Gary Mongiovi, to name a few.  I don't get to spend enough time with my colleagues at GMU, former students, let alone my old graduate student buddies (Steve Horwitz and my very dear friend David Prychitko), and I certainly haven't seen these HES friends enough over the recent years.  Each of them was immensely important to me at various times in my professional growth and I learned important and lasting things from them that I hope is reflected in my work.  HES has also been the home of great scholars and mentors, such as Warren Samuels, and the next generation of similar figures such as Bruce Caldwell.  Warren was to me the most important professional figure outside of my formal teachers and mentor/colleagues in my own institution.  I know Warren thinks I miss important elements of his position, but it is my own way to blend the work of my formal teachers Boulding, Buchanan, Lavoie, Vanberg, Vaughn, Kirzner, Sennholz and Tullock with his own work on the legal-economic nexus.  Bruce is the leading expert on Hayek, and thus on the history of the fate of the Austrian school in the 20th century.  Both Samules and Caldwell have written some of the best work in the history of economic ideas I have every read, and they have also written some of the wisest statements on the nature of the economic system and the role/task of the economist that I have read.  But we have our differences --- mainly I would argue differences of emphasis and not of a fundamental disagreement.  I am sure both Warren and Bruce shake their head in disbelief as much as in agreement when I open my mouth at the HES meetings, but they have both (since I was a student) encouraged me to keep trying and keep thinking about these issues.  They have been constant sources of encouragement and confidence since our first meeting at HES in 1984.  I cannot believe it has been over 20 years!

This year I was able to juggle the HES meetings with other professional obligations and my coaching obligations due to the location at GMU. (I even coached a game on Sunday afternoon between participating in a session and then attending the annual banquet).  I attended a great session on Lionel Robbins An Essay on the Nature and Significance of Economic Science, and was on a young scholars session chaired by Mary Morgan (one of the really great aspects of HES is the attention paid by senior scholars on the young scholars coming into the field).  There were great plenary talks by James Buchanan and also David Warsh --- both touching on different aspects of Adam Smith, increasing returns and the transformation of economics that is required to catch up to Adam Smith.  I also was on a session devoted to the Freiburg School of Economics and a roundtable session devoted to rememberances of Mark Perlman.  Finally, there was a very intriguing session on Socialism After Hayek.

Mark Perlman was one of the really great mentors to young scholars in the history of economic thought, and one of the best story tellers I have ever met.  He was a special man and it was a great honor for me to have this opportunity to remember him.  The remarks of his daughter at the session, especially her emphasis on "balance" which she learned from her father during his life and also through his illness were wise and touched me and the audience deeply.

The Freiburg School session was extremely packed with ideas which would be of interest to readers of this site, especially those of Walter Eucken.

I have already pointed to Steve Horwitz's review essay on Socialism After Hayek, but Ted Burczak's work is completely engaging and demands our attention.

HES is a great professional society, whose members tend to display the best practice of professional values --- a respect for pluralism, genuine listening to one's critic, broad reading in the literature, etc.   There are "costs" of HES --- much of the research is far removed from the practical affairs of political economy, and there tends to be too narrow a reading of what is currently developing at the cutting edge of the mainstream of the profession.  But these "costs" are far less than the benefits.  The intellectual values on display are the values that reflect best practice in scholarly/scientific engagement, and the social interactions throughout the conference are pleasant and productive.

The Economic and Cultural Dynamics of Globalization

I am currently visiting the Institute on Culture, Religion and World Affairs (CURA) at Boston University.  The Director of CURA is the great sociologists Peter Berger.  CURA evolved from Berger's earlier  Institute for the Study of Economic Culture (ISEC).

I am here discussing the economic and cultural dynamics of globalization.  Berger gave an overview of world religious movements.  He spoke about the secularization thesis, and why the current empirical reality runs counter to the modernization/secularization thesis.  Berger argued that the cultural elite are prone to overstate the case for secularization because of three factors: (1) geographic exception--- Western Europe and Central Europe does conform nicely with the secularization thesis;  (2) sociological selection bias --- members of the intellectual/cultural elite in the human sciences tend to be non-religious (this is not true with respect to the hard sciences) and thus they tend to believe that just as they became less religious as they were educated and "modernized" it is only natural that others will be less religious as they are "modernized"; and (3) confusion between positive and normative statements concerning secularization, so that anti-religious zealotry is wrapped in pro-modernity rhetoric.  These 3 factors make sure that a cultural elite cling to the modernization/secularization thesis beyond where it could reasonably be maintained.

Berger's talk was amazing in its breadth of coverage: from the Pentecostal movement, to Evangelical Roman Catholicism, to Eastern Orthodox, to Islamic Fundamentalism, etc.  Berger showed an explosive growth of capitalism and modernity throughout the world have been coupled with an explosive growth of religious movements.

My talks will not address the growth of religious commitment, but instead will be focused on the role of culture in economic development.

I will be talking about the changing nature of economic discourse which has created space for a discussion of culture and institutions.  I will focus on the interaction between beliefs, values, and norms; formal legal and political structures; and public policy.

The Economics of Pirates Part II: Pirational Choice

Several weeks ago I posted on the first in a three-part series of papers I am writing that examines the economics of pirates entitled, "An-arrgh-chy: The Law and Economics of Pirate Organization."

I am now pleased to present the second paper in this series entitled, "Pirational Choice: The Economics of Infamous Pirate Practices."

Here is the abstract:

This paper uses rational choice theory to analyze the behavior of pirates. It pierces the myth and mystique of pirate behavior and in doing so provides an economics of piratical practice. I consider three infamous pirate practices: the notorious pirate flag, the "Jolly Roger," piratical torture, and pirate conscription. I argue that these seemingly eccentric pirate practices were in fact rationally-chosen responses to the unique circumstances pirates confronted in their pursuit of profit. Further, each practice effectively promoted pirates' goal. My analysis identifies what might be called 'pirational choice.' The distinction between rational and pirational choice lies not in the irrationality of pirates, as traditional pop-culture depictions of pirates suggest, but rather in the unusual circumstances of pirate decision making. These circumstances are responsible for both the extraordinary features that make pirates perfect fodder for entertainment and the distinctive practices that pirates employed.

You can download the paper here. I hope you enjoy it.

Be on the lookout for the finale to my three-part series this fall. Arrgh.

Dissent, Diversity and the Value of Heterodox Traditions in Economics

Tyler Cowen discusses the value of heterodox economics at Marginal Revolution.

Larry White sets the record straight on heterodox economics

Over at Division of Labor, Larry White makes some insightful comments on the recent article in The Nation and subsequently commentary related to mainstream and heterodox economics.

In some recent writings I have tried to introduce the distinction between mainstream and mainline to clarify the issues.  The mainline of economic argument traces from Smith and Hume, through Say and Bastiat, up to Mises and Hayek, and many writers in between and beyond.  The common thread is the proposition of the self-correcting nature of the market economy within specified institutions.  The mainstream of economic argument refers instead not to any substantive proposition, but instead to what is intellectually and politically popular at any given point of time.  Keynesianism, for example, was mainstream, but not mainline.  Austrianism has been mainline, but rarely mainstream in the history of the school.  Throughout much of the history of the discipline of economics and political economy, the proposition of self-correction was the subject of debate --- you either believed the mainline argument or you rejected it.

What it means to be "mainstream" today is completely devoid of any substantive proposition about the self-correcting properties of the market economy. Though the topic still is addressed, one could very well be a major player in the economics profession and remain completely agnostic on this topic.  That means that the nature of the discourse which young economists enter into the profession requires a more subtle understanding of the current issues in order for them to succeed.  It is part technical abilities, part pedigree, and part skill at taking advantage of intellectual opportunities.  But you cannot fly blind and expect to succeed.  Larry's discussion and the links are a great place to start to see what is going on.