Sat, 1 September 2018
Today's guest is Peter Boettke of George Mason University and we're discussing his recent book in the Great Thinkers in Economics series: F. A. Hayek: Economics, Political Economy and Social Philosophy.
This book explores the life and work of Austrian-British economist, political economist, and social philosopher, Friedrich Hayek. Set within a context of the recent financial crisis, alongside the renewed interest in Hayek and the Hayek-Keynes debate, the book introduces the main themes of Hayek’s thought. These include the division of knowledge, the importance of rules, the problems with planning and economic management, and the role of constitutional constraints in enabling the emergence of unplanned order in the market by limiting the perverse incentives and distortions in information often associated with political discretion. Key to understanding Hayek's development as a thinker is his emphasis on the knowledge problem that economic decision makers face and how alternative institutional arrangements either hinder or assist them in overcoming that epistemic dilemma. Hayek saw order emerging from individual action and responsibility under the appropriate institutional order that itself emerges from actors discovering new and better ways to coordinate their behavior. This book will be of interest to all those keen to gain a deeper understanding of this great 20th century thinker in economics.
Note for those interested in buying the book: IF you are at a university and your university library has the Springer subscription (which most do), you can order a print-on-demand version---MyCopy---for $25, so that makes it somewhat more reasonable than the library prices. You can also get a discount flyer here.
Fri, 9 September 2016
This week's episode of Economics Detective Radio deals with the economic thought and continuing popularity of Marx. No, not Groucho! The other Marx!
My guest on the podcast is Phil Magness, a historian who teaches at George Mason University. Phil recently wrote a piece entitled, "Commie Chic and Quantifying Marx on the Syllabus." Recently, the Open Syllabus Project released a data set including thousands of college syllabi. To many people's surprise, Marx and Engels' Communist Manifesto enjoys massive popularity!
Phil took a closer look at the numbers and reached some startling conclusions:
What could account for the popularity of The Communist Manifesto? Phil identifies two hypotheses: First, it could be the case that Marx simply is the most important thinker who has ever lived, beating out all but Plato by a wide margin. Second, Marx could be enjoying outsized popularity because university faculty outside of economics are overly enamoured with his thought.
The latter seems like the truth.
While Marxian thought does dominate some corners of philosophy, history, literary criticism, and many other subfields, we would expect classes in those areas not to focus on The Communist Manifesto but on Marx's other works. Das Kapital is in 1447 syllabi, right around Rousseau's Social Contract.
The Communist Manifesto is a political leaflet, not a work of deep scholarship. The fact that it dominates not only the works of other thinkers but also Marx's other works indicates that it is assigned primarily for its political conclusions.
How has Marx Avoided the Dustbin of History?
Marx' economic thought was rejected by economists even within his own lifetime. All of his economic analysis shared a fatal flaw: the labour theory of value.
Marx observed that capitalists earn profits above the wages paid to workers. In his framework, this would only be possible if the capitalists exploited the workers. This was met with an empirical challenge: If profits are the result of exploitation, how come profit rates aren't highest in capital-intensive industries? Instead they are relatively consistent across the entire economy.
Engels claimed that Marx would resolve this issue in the later volumes of Kapital. He even held a Prize Essay Competition to see if anyone could anticipate Marx' solution to this seemingly intractable problem. But the later volumes didn't offer a satisfactory solution.
Austrian economist Eugen von Böhm-Bawerk wrote the definitive critique of Marx, Karl Marx and the Close of His System. The marginal revolution of the 1870s, which laid the groundwork for all of modern economics, offered a simple solution to the problem that has stood the test of time: interest.
As Böhm-Bawerk points out, workers are paid when the work is performed. But capitalists only earn revenue once the final product is sold. So if production takes time, we must account for interest. A unit of currency today (gold, silver, dollars, pounds, etc.) is not worth the same as that same unit tomorrow or next year. Leaving aside inflation, people subjectively value money today over money in the future. When you adjust future revenues accordingly, profits are actually very close to zero throughout the economy.
This is the explanation that any modern economist will give you. So when a modern economist assigns Marx, it's to teach about his role in the history of economic thought, not to teach his ideas on their own merits. That's why so few economists are assigning Marx at all!
Marx the scientist may have fallen out of favour, but Marx the political theorist survived and thrived. Marx inspired the political left, and through a twist of fate his adherents came to power in Russia and spread his influence around the world.