Vol.12 Nos.1-2 ---- Winter-Spring 1998
Contents
Politics and Economics
Leif Lewin | Man, Society, and the Failure of Politics
Why are political decisions often unfortunate? In replying to this question
public-choice theorists fail to distinguish individual conditions from systemic
ones. Instead, they make sweeping claims about the egoism of man and the failure
of politics. But the real problem is that we often experience government failures
despite the best, the most benign motives on the part of citizens, politicians,
and bureaucrats. Better than the theory of man's innate self-interest is the theory
of the unintended consequences arising from the inherent shortcomings of the political
system. To wish well but to do evil--that is the dilemma of politics.
Anthony Woodlief | Unforeseen Consequences and
Pathological Self-Reinforcement: Why Cities Decline?
Peter Salin's The Ecology of Housing Destruction and Salin's
co-authored work with Gerald Mildner, Scarcity by Design, provide
fascinating evidence of the unintentionally harmful effects of urban
policies, and their role as catalysts for further harmful policies designed
to ameliorate previous harms. The result is a web of counterproductive
regulations confronting bewildered policymakers and frustrated citizens.
In his The Federal Government and Urban Housing, on the other hand,
R. Allen Hays not only misses the existence of these complex policy dynamics,
but fails to assess accurately the consequences of the housing
policies he favors. His work does, however, offer useful insights into the
nature of policy decisions.
Alvaro Vargas Llosa | A Capitalist Revolution
in Latin America?
While it is true, as Paul Craig Roberts and Karen Lafollette maintain in
The Capitalist Revolution in Latin America, that Latin America has
begun to break away from its statist tradition, the basic culture of
mercantilism, corporatism, and interventionism remains, underpinned by the
positivist tradition that has made public policy and legislation a
substitute for the rule of law, as reflected in a schema of essential
rights. The confusion between a private-enterprise economy and a free
economy is at the heart of the failure of Latin America to create a truly
competitive, privilege-free, and institutionally adequate economic
environment, while the divorce of market
economics from the rule of law has led to an authoritarianism that has
undermined the transition from a state-led to a private-enterprise economy.
Lowell Gallaway and Richard Vedder | The State and
Labor in Modern America
One of the distinctive developments of the postwar era in the United States
has been the relative decline in the economic significance of labor unions.
Melvyn Dubofsky offers the hypothesis that this has resulted from a shift in
public policy that represents a return to pre-New Deal notions of the proper
relationship between government and unions. But a much more likely
explanation lies in the changing nature of American life. Increases in
education and advances in transportation and communications have weakened
greatly the traditional worker-versus-capitalist paradigm that is at the core
of Dubofsky's thinking. As this has happened, labor unions have increasingly
become relics of a previous age.
J. Bradford De Long | It Doesn't Work
Vedder and Gallaway are mistaken in their attempted demonstration that
government policies to raise real wages have been the source of most or all
U.S. unemployment in the twentieth century. Their case depends on a presumed
correlation between high unemployment and high real wages that has not
existed since World War II, and on a naive confusion between correlation and
causation: just because real wages and unemployment were both relatively
high during the Great Depression does not mean that high real wages were the
cause of high unemployment. More likely, the reverse is true. The
ascription of high unemployment to higher-than-equilibrium real wages is not
always in error. But there is no reason whatsoever to believe Vedder and
Gallaway's claim that the government's policies to raise wages have been "the
major cause of high unemployment in the United States."
Warren J. Samuels | Murray Rothbard's Austrian
Perspective on the History of Economic Thought
Murray Rothbard's Austrian Perspective on the History of Economic
Thought demonstrates his mastery of the literature. But his interpretation
of the development of economics reflects, and is therefore severely limited
by, his Austrian-libertarian perspective. Indeed, Rothbard appropriates the
history of economic thought principally to advance his perspective, as seen
in his neglect of social control, his identification of his desired economic
system with the natural order of things, and especially in his denigratory
treatment of Adam Smith--at bottom for not being an Austrian economist and a
true libertarian. A partly informed, party myopic and sometimes useful
interpretation, this is the work of an ideologue.
Werner Troesken | Postwar Economic Stabilization:
A Stylized Half-Truth
Conventional wisdom maintains that without government intervention,
capitalism is prone to collapse, as it did during the 1930's, and that only
Keynesian policies have stabilized post-World War II capitalism. But recent
research suggests that postwar economic stabilization is largely a
statistical artifact, the result of poor prewar data, and that the Great
Depression was caused, not by the inherent instability of capitalism, but by
policy errors made by government agencies. Thus, we should not be so quick
to credit the economic successes of the last 70 years to enlightened
intervention.
Steven Horwitz | Keynes and Capitalism One More
Time: A Further Reply to Hill
Greg Hill continues to miss my distinction between what is true of
free-market capitalism and what is true of the interventionist forms of
capitalism that characterize Western economies. It is central banking that
triggers lower aggregate demand when the public's desire to save grows. If
increases in saving occur through the holding of additional private bank
liabilities, rather than central-bank created money, banks could adjust their
supply of liabilities so as to keep saving and investment equal and avoid
reductions in aggregate demand. Hill's alternatives to market-driven
financial intermediaries also fail to compare fairly the market and political
processes.
Greg Hill | An Ultra-Keynesian Strikes Back:
Rejoinder to Horwitz
In real-world markets, individual intentions cannot be brought into
perfect harmony before decisions are taken. Choices made without this
pre-ordering--choices made in ignorance of one another--produce unwanted
outcomes. It is this absence of coordination among plans, not centralized
banking, that is the primary cause of macroeconomic market failure. Steven
Horwitz's free-banking alternative would aggravate the collective-action
problems inherent in economies without complete markets.
Daniel M. Hausman | The Faults of Formalism
and the Magic of Markets
Contrary to Peter J. Boettke's essay, "What Went Wrong with Economics?",
there is no connection between "formalism" and the alleged inability of
mainstream economists to regard theoretical models as anything other than
either depictions of real market economies or bases for criticizing market
economies and justifying government intervention. Although Boettke's
criticisms of the excesses of formalism are justified, Austrian economists
such as Boettke need to justify their view that government interventions
into economic affairs are inevitably harmful.
Robert Heilbroner | The Self-Deception of Economics
Formalization has led contemporary economics to turn its back on the
study of capitalism as the social order to which it owes its origins and
its intrinsic analytical focus. As a consequence, contemporary economics
turns a blind eye to the empirical analysis of capital accumulation, the
real-world properties of markets, and the bifurcation of political power
that endow capitalism with its unique historical properties. Instead,
economics takes scientific, not social, analysis as its model, a view that
gives an ideological cast to its findings.
Thomas Mayer | Boettke's Austrian Critique of
Mainstream Economics: An Empiricist's Response
Many of Boettke's criticisms of formal economics are justified. However,
he defines formalism so broadly that it becomes practically synonymous with
mainstream economics, while his criticisms primarily target the sins of
formalist economics more narrowly defined. And since he treats Austrian
economics as the only viable alternative to mainstream economics, he
incorrectly awards victory to Austrian economics. While Austrian economics
has some valuable ideas to contribute to mainstream economics, it has serious
deficiencies of its own.
Peter J. Boettke | Formalism and Contemporary
Economics: A Reply to Hausman, Heilbroner, and Mayer
Economic formalism crowds out the analysis of change and adjustments to
change under capitalism. The style of analytical narrative that was
practiced by the first generation of neoclassical economists, in contrast,
is more productive of genuine economic understanding. Despite Daniel
Hausman's challenging argument to the contrary, I maintain that Joseph
Stiglitz's work is formalist at its core. While I agree with Robert
Heilbroner's critique of contemporary economics, there is a limited sense in
which nonformalist economics can rely on universalistic assumptions. And
Thomas Mayer has provided useful guidelines for focusing nonformalist
analysis on real-world economic problems.
Maurizio Viroli | On Civic Republicanism:
Reply to Xenos and Yack
Current debates about patriotism and nationalism have so far failed
adequately to take into account the historical meaning of republican
patriotism. For classical and modern republican theorists, love of country
is a charitable love of the republic and its citizens. It is an attachment
to the political values of republican liberty and to the culture based upon
them. As such, it is a theoretical alternative to both civic and ethnic
nationalism, and it is not at all confined within the bygone experience of
city-states.
Nicholas Xenos | Questioning Patriotism:
Rejoinder to Viroli
The tradition of republican patriotism articulated by Maurizio Viroli
only seems to avoid the naturalizing dangers inherent in the discourse of
nationalism, whether in its so-called civic or ethnic modes. Rousseau's
comment that he wishes the patrie to be experienced as "la mere
commune des citoyens" reflects the republican patriot's desire to find
a home in the patria. This sentiment originated in Rome and comes
down to us primarily in texts written in the immediate aftermath of the
Republic's demise, a period characterized by widespread physical uprooting.
The sentiment of republican patriotism can thus be seen as a nostalgic
reaction to a sense of personal and political deracination and loss. In
their yearning for a political home, at least, republican patriots like
Rousseau share the rhetoric and desire of nationalists, and that similarity
should cause us concern.
Bernard Yack | Can Patriotism Save Us From
Nationalism? Rejoinder to Viroli
Viroli is right to draw a distinction between republican patriotism and
nationalism. But in arguing that the former can correct the problems
associated with the latter, he places too much trust in the descriptions of
patriotism offered by republican theorists. In practice, republican
patriotism has been almost as fierce and hostile to outsiders as nationalism.
Patriotism might make us better citizens, but it will not make the world a
more peaceful or generous place.
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