In “Popper, Weber, and Hayek,” I claimed that the economic and political world governed by social democracy is too complex to offer hope for rational social‐democratic policy making. I extrapolated this conclusion from the claim, made by Austrian‐school economists in the 1920s and 30s, that central economic planning would face insurmountable “knowledge problems.” Israel Kirzner's Reply indicates the need to keep the Austrians’ cognitivist argument conceptually distinct from more familiar incentives arguments, which can tacitly reintroduce the assumption of omniscience against (...) which the Austrian economists rebelled. Callahan's Reply illustrates the need to keep in mind the hypothetical, conditional nature of economic arguments. Notturno's Reply changes the subject by asserting the intrinsic value of social‐democratic participation, regardless of its outcomes—even while, like Talisse's Reply, ignoring the evidence that public ignorance and elite dogmatism probably can't be mitigated by more information or by appeals to be open minded. And Hill focuses on the very real imperfections of market and other private‐sphere decision making, without weighing the shortcomings of the political alternatives. Markets and other private‐sphere decision arenas don't have to be perfect for them to improve upon public‐sector processes. In the latter, cognitive demands tend to be much greater, because of the divergence of modern social problems from the conditions that would have faced the hunter‐gatherers whose cognitive apparatus we have inherited. (shrink)

Karl Popper's methodology highlights our scientific ignorance: hence the need to institutionalize open‐mindedness through controlled experiments that may falsify our fallible theories about the world. In his endorsement of “piecemeal social engineering,” Popper assumes that the social‐democratic state and its citizens are capable of detecting social problems, and of assessing the results of policies aimed at solving them, through a process of experimentation analogous to that of natural science. But we are not only scientifically but politically ignorant: ignorant of the (...) facts that underpin political debate, which are brought to our attention by theories that, as Max Weber emphasized, can be tested only through counterfactual thought experiments. Public‐opinion and political‐psychology research suggest that human beings are far too unaware, illogical, and doctrinaire to conduct the rigorous theorizing that would be necessary to make piecemeal social engineering work. F.A. Hayek realized that the public could not engage, specifically, in piecemeal economic regulation but failed to draw the conclusion that this was due to a specific type of political ignorance: ignorance of economic theory. (shrink)

G.L.S. Shackle stood at the historic crossroads where the economics of Hayek and Keynes met. Shackle fused these opposing lines of thought in a macroeconomic theory that draws Keynesian conclusions from Austrian premises. In Shackle 's scheme of thought, the power to imagine alternative courses of action releases decision makers from the web of predictable causation. But the spontaneous and unpredictable choices that originate in the subjective and disparate orientations of individual agents deny us the possibility of rational expectations, and (...) therewith the logical coherence of market equilibrium over time. (shrink)

Hayek developed two contradictory epistemologies. The epistemology for which he is famous attributed dispersed knowledge to economic actors and credited the price system for aggregating and communicating this knowledge. The other epistemology attributed to human and non-human organisms alike the error-prone interpretation of stimuli, which could never truly be said to be “knowledge.” Several of the paradoxes of Hayek's economic and political thought that are explored in this symposium can be explained by the triumph of the first epistemology over the (...) second, including his historical interpretation of socialism as a planning mentality; his tendentious definitions of “liberty” and “justice”; and his opposition to economic redistribution even as he endorsed all manner of economic and social regulations. (shrink)

Hayek's later work on the possibility of socio-economic order in decentralized market economies is an exercise in contrastive causal explanation as conceptualized by realist social theorists and philosophers. This interpretation of Hayek's work lends support to the view that Hayek's post-1960 writings can be thought of as an example of comparative institutional analysis. It also provides a means of reinforcing Hayek's own efforts to establish the scientific credentials of his work.

Mark Pennington’s Robust Political Economy is a systematic exposition of a framework for analyzing institutional performance. The Robust Political Economy framework evaluates institutions according to their ability to solve knowledge and incentive problems. On grounds of robustness, Pennington combines insights from Austrian market-process theory and public-choice theory to defend classical liberalism from several compelling critiques. These include theories of market failure in economics; communitarian, deliberative-democratic, and liberal-egalitarian theories of justice; and concerns with social capital, domestic and international poverty, and ecology.

In this paper, I argue that recent sociological theory has become increasingly bifurcated into two mutually incompatible styles of theorizing that I label formalist and behavioral-realist. Formalism favors mathematization and proposes an instrumentalist ontology of abstract processes while behavioral-realist theory takes at its basis the "real" physical individual endowed with concrete biological, cognitive and neurophysiological capacities and constraints and attempts to derive the proper conceptualization of social behavior from that basis. Formalism tends to lead toward a conceptually independent sociology that (...) in principle requires only minimal reference to the empirical and ontological storehouse of other disciplines, while behavioral-realist theory leads to an interdisciplinary sociology that can be located within a hierarchy of behavioral sciences, leading to questions regarding the relationship between sociology and other disciplines as well as issues of transdisciplinary unification and possible interdisciplinary reduction. I explore the consequences of this split for the project of explanatory sociological theory within the context of how it has manifested itself in sociological network theory and social psychology. I close with a critique and assessment of formalist tendencies in sociological theorizing. (shrink)

ABSTRACTSchumpeter’s theory of socialism pivots on his response to Ludwig von Mises’s claim that rational economic calculation is “impossible” in a socialist economy. Mises held that because socialism eliminates market prices for the means of production, it is impossible under socialism to know the relative scarcities of productive inputs, and thus to determine rationally which of any number of technologically feasible production projects to pursue. Schumpeter appears to assume away Mises’s epistemic concerns about socialism by contending that it is theoretically (...) possible to determine which goods should be produced in a socialist economy if all the relevant data are known—which begs the question Mises had asked. Did Schumpeter really commit such an elementary error of interpretation? Or was the appearance of doing so part of his attempt to communicate to the reader of Capitalism, Socialism and Democracy a host of reservations about the likely consequences of socialism in practice, even as he ostentatiously praised its feasibility in principle? (shrink)

:This essay offers a “nonideal” case for giving institutional priority to markets and private contracting in the basic structure of society. It sets out a “robust political economy” framework to examine how different political economic regime types cope with frictions generated by the epistemic limitations of decision-makers and problems of incentive incompatibility. Focusing on both efficiency arguments and distributive justice concerns the essay suggests that a constitutional structure that prioritizes consensual exchange is more likely to sustain a cooperative venture for (...) mutual advantage. (shrink)

Economists tend to view ignorance as ?rational,? neglecting the possibility that ignorance is unintentional. This oversight is reflected in economists? model of ?information search,? which can be fruitfully contrasted with ?information browsing.? Information searches are designed to discover unknown knowns, whose value is calculable ex ante, such that this value justifies the cost of the search. In this model of human information acquisition, there is no primal or ?radical? ignorance that might prevent people from knowing which information to look for, (...) lacking omniscience. Unlike ignorance that is rationally chosen on the basis of an accurate cost/benefit calculation, radical ignorance can explain human error. An account of error as grounded in radical ignorance bypasses the need to appeal to irrationality in order to explain economic (and other) mistakes. (shrink)

De Long's criticisms of our explanation of unemployment patterns in the United States are empirically false. His assertion that we have the direction of causation reversed collapses in light of the lag between artificially high wages and unemployment. Nor are his claims about the nature of cyclical movements in productivity and real wages consistent with the data. Finally, his contention that the model we present does not work in the post‐World War II era is, at best, misleading. The evidence shows (...) with remarkable consistency that government attempts to prop up wages have caused twentieth‐century increases in U.S. employment. (shrink)

In Free Market Fairness, John Tomasi defends classical-liberal principles not because of real-world considerations but on ideal-theoretic grounds. However, what constitutes a sufficiently “ideal” ideal theory is debatable since, as Tomasi shows, regimes that range from laissez faire to heavily interventionist can all be classified as legitimate from the perspective of ideal theory. Conversely, if ideal theory can allow for realistic constraints, as Rawls does, then we should recognize that even under ideal-theoretic conditions, political actors face logistical, epistemic, and motivational (...) challenges that only intensify in the real world, where questions of feasibility become paramount. (shrink)

Bryan Caplan’s The Myth of the Rational Voter treats several immensely important and understudied topics—public ignorance of economics, political ideology, and their connection to policy error—from an orthodox economic perspective whose applicability to these topics is overwhelmingly disproven by the available evidence. Moreover, Caplan adds to the traditional and largely irrelevant orthodox economic notion of rational public ignorance the claim that when voters favor counterproductive economic policies, they do so deliberately, i.e., knowingly. This leads him to assume (without any evidence) (...) that “emotion or ideology” explain mass economic error. Straightforward, unchosen mass ignorance of economic principles—neither “rational” nor “irrational,” but simply mistaken—is a more coherent explanation for economic error, and it is backed up by the vast body of public‐opinion research. (shrink)

In his critique of Ayn Rand: The Russian Radical, David MacGregor argues that my book trivializes dialectical method. He fails to notice the many nondialectical assumptions that pervade contemporary social theory and practice. Dialectics, as a context‐sensitive methodological orientation, can provide tools for a better grasp of systems and processes in the real world—the goal, as I understand it, of the “post‐libertarian” approach Jeffrey Friedman advocates.

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. (shrink)

Hayek argued that the central question of economics is the coordination problem: How does the spontaneous interaction of many purposeful individuals, each having dispersed bits of subjective knowledge, generate an order in which the actors' subjective data are coordinated in a way that enables them to dovetail their plans and activities successfully? In attempting to solve this problem, Hayek outlined an approach to economic theorizing that takes seriously the limited, subjective nature of human knowledge. Despite purporting to have appropriated Hayek's (...) thought by acknowledging the information-transmitting role of prices, mainstream economists have missed Hayek's point. The predominant tool of formal economics—equilibrium analysis—begins by assuming the data held by actors to have been pre-reconciled, and so evades the problem to be solved. Even the more advanced tools for modeling knowledge in economic analysis, such as the economics of information, assume away either the subjectivism of knowledge and expectations (rendering the coordination of beliefs and plans a trivial matter) or the frictions and “imperfections” of reality (rendering the coordination problem indeterminate). (shrink)

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 Haus‐man'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. (shrink)

Neural activity and social activity share close parallels, particularly the fact that spontaneous adaptations are paramount in both realms. Environmental pressures require organisms and societies to adapt to new and uncertain situations. Adaptations create, respectively, stronger neural and social networks that may, in turn, make the system more resilient to future uncertainties—but only if the adaptations are beneficial to the system.

Abstract 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.

Abstract Many of Boettke's criticisms of formalist 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.

This article pursues the question whether and inasmuch theories of corporate responsibility are dependent on conceptions of managerial freedom. I argue that neglect of the idea of freedom in economic theory has led to an inadequate conceptualization of the ethical responsibilities of corporations within management theory. In a critical review of the history of economic ideas, I investigate why and how the idea of freedom was gradually removed from the canon of economics. This reconstruction aims at a deconstruction of certain (...) axioms of neoclassical economics that hamper contemporary efforts in integrating ethics firmly into management education. I intend to show by these deconstructive endeavors that a constructive use of the idea of responsible freedom could correct and complement the current quantitative focus in business theory through qualitative orientations. I argue that with the help of qualitative success criteria, the strategic integration of the tenets of both business ethics and Corporate Social Responsibility into business practice can be advanced by further research. (shrink)

From the perspective of a realist philosophy of social science, the recent explosion of criticisms of mainstream economics, including reinvigorated Austrian criticism, provides what seems like a rich opportunity to join what are too often disjoined disciplinary interests and inquirers, and also to extend the arguments not only as regards the realist theory of social science, but also as regards the implications of this approach for economics. I begin with a minimum sketch of key features of realist philosophy of science (...) as I understand it. The central difference turns on the role and nature of explanation and of theory, between what is frequently termed ‘deductivism’, and on an alternative in which explanation requires the articulation of a causal mechanism, for example, the mechanism provided by molecular chemistry that gives us an understanding of oxidation. I take the position that in social science, explanation requires social causal mechanisms. I consider the Austrian contribution from this point of view and conclude with some hints regarding how the foregoing bears on our understanding of capitalism and socialism. (shrink)

Do markets generate a “just” wage? The answer to this question will depend upon the particular theory of the market that the political economist employs. When comparing actual labor markets with the neoclassical theory of competitive equilibrium as its normative benchmark, Joseph Heath argues that factor pricing is orthogonal to normative issues such as distributive justice. We argue that Heath’s conclusion, though not invalid, follows from a similar normative benchmark of equilibrium, one that evaluates factor pricing without taking into account (...) the institutional conditions within which factor prices emerge. Though indeed classical political economists and early neoclassical economists failed to deliver an explicit theory of distributive justice, what Heath overlooks is that implicit to their understanding of the market process was an institutional theory of distributive justice. (shrink)

ABSTRACTIn Robust Political Economy, Mark Pennington argues for a minimal state founded not on neoclassical economic principles but on a return to classical liberalism. Pennington makes his case on the basis of Hayek’s “knowledge” problem and public-choice theory’s “incentive” problem. While this is a welcome start, classical liberalism is a promising agenda for a new economics, and for the “reform of capitalism,” only if it is accompanied by an explicit rejection of Milton Friedman’s subordination of normative to positive economics, and (...) by a move beyond the traditional division of the economy into twin spheres to embrace a third element: the domestic sphere. (shrink)