Joe, Note I use the word "might" not "is" to discuss correctness and productiveness of Machlup's interpretation. Mine is an invitation to inquiry, not a settled position. I am intrigued at the moment about path dependency in the market for ideas, and how those paths can be changed. Not necessarily a normative agenda as much as a pure intellectual curiosity. Mario and Roger made my other points I'd like to make. Pete

Roger, I don't disagree with either Barkley or you, but I think you are both not seeing the arbitrage opportunity that exists between the literatures on computability and the philosophical points about the contextual nature of knowledge, and the distinction between syntactic knowledge and semantic knowledge. I'd like to explore the possible complementarities between these arguments. However, I do want to disagree a bit about soccer (or any advanced sport) that requires on the spot judgements constantly --- this is my points about degrees of freedom (in the machine sense, obviously not statistical sense). Pete

BTW, I thought this was a very interesting interview with Stiglitz by Russ Roberts. http://www.econtalk.org/archives/2012/07/stiglitz_on_ine.html And Barkley --- Stiglitz to me is still the towering economic theorist of his generation, so I cannot think of him as a hack even when he goes over the top about issues. I don't think of Krugman's actual contributions --- which are not trivial -- in the same light, so to me when he goes off the rails it isn't as surprising (in short, this was always in him). There is probably all sorts of things wrong with my interpretation, but that is how I come down on it. Stiglitz -- listen; Krugman -- cringe.

1. I think there is some measuring issues. 2. I probably had some miscalculation of the money demand and money supply situation that resulted in my overly pessimistic view of Fed policy 3. The consequences I was thinking about are long term consequences and they haven't worked their way through the system yet. What I don't see is an issue of the failure of predictability for the reasons that Morgenstern identified so many years ago -- namely that a prediction/warning if heeded is in fact doesn't produce the predicted outcome. I don't think Bernanke et al were concerned with the inflation predictions. 4. I am still puzzling my way through how to understand our recent monetary policy history. I am not persuaded by market monetarism, but I am analytically persuaded by monetary equilibrium theory. So I can sleep at night, I quite my discomfort by thinking it is some combination of (1) mismeasurement and thus hidden inflation, and (3) the consequences are coming down the pike.

Do you agree with the quotes I provided from Hayek and Friedman, and then also from Smith from TMS and WoN in the post? If you do, then you and I are in basic agreement with perhaps subtle differences. But can you imagine Janet Yellen agreeing with those quotes in deep substantive ways? I cannot. Paul Krugman? Larry Summers? Greg Mankiw? In fact, in Mankiw's JEP paper, he is pretty explicit about his belief that economics is a tool of social control to be wielded wisely no doubt, but nevertheless wielded by trained experts. Read those quotes again, so you sincerely believe that if we had a system where bad men can do least harm we would have the Fed?! Do you believe that if we had a system where arrogance and opportunism were held constantly in check, that we would have a CEA? The metaphor outside of the Federal Trade Commission is there for a reason -- man controlling/taming the beast of commerce. Foreground and background in arguments do not mean abandonment, they mean emphasis. As good coaches know, what you emphasize becomes what you are. You can have all the caveats in the world, but in the end -- what you emphasize is what you are. If you are willing to do more with government, it means by definition in those instances where you are willing to do more you are pessimistic about the market solving the problem on its own, and optimistic about the state providing a solution. Again saying that is not derogatory toward that position, it is merely clarifying the position being held.

Daniel, As you know the Cambridge economists like Pigou said many of the same things about politics and bureaucracy that were later stressed by public choice thinkers. But they didn't emphasize them. They were more optimistic about state action than those qualifying remarks might indicate, and also while they also could be quoted saying good things about the market, they were less optimistic about that institutional arrangement. So pessimism about the market v optimism about the state. BTW, fast forward 50 years and you can find similar quotes about market failure in Buchanan and Tullock to what you have read elsewhere, but they are more pessimistic about state corrective measures. Markets fail, but governments fail as well. I actually don't think I am cherry-picking, I actually think I am trying to be fair-minded to someone and a position which I am in radical opposition to, and I am trying to find a reasonable way to voice that criticism. It isn't political ideology, it is a judgement call about the weight of the theory of economics and the evidence of economic history says about the alternative institutional arrangements we are examining. Pete

Xerographica, I don't have time to really get into this with you. But if you read the economics literature, you will find out that prices embody opportunity costs, and if you read your own post -- the influence you are talking about due to control over resources are profits, and the penalty of that loss of resources are losses. On your scheme, you should look at the literature on Quasi-Markets in the municipalities debates --- read the Ostroms work and the critiques. It will give you a good frame of reference. Finally, I think you might also want to look at the literature on demand revealing processes in public goods provision. Tullock spoke about this quite a bit and there are various schemes some of which mimic yours. The problem is of course operationalizability. I do think it is a mistake for you to characterize "free market economists" as a class who 'never realize' --- many of those economists have done a lot of work on this --- from the Italian public finance theorists right up to today and my colleague Richard Wagner. Pete

the correct German word it has been pointed out is: *Auflockerung" --- which if I have this right translates to "freeing up" or"loosening up" the market economy.

John -- It is called a scholarly monograph, and libraries are full of them. Authors have no control over the price of the books, that is set by publishers. And pricing a book at a trade publication price doesn't mean it will sell to the targeted audience. This is a book written by a scholar intended for other scholars. Finally, I don't think I have ever met an academic author that is completely happy with either the pricing or the marketing of their books. Reading a book doesn't require owning it, just borrow from the library and if they don't have there is a thing called interlibrary loan services. BTW, I am sure in short order a paperback copy and a digital copy of Storr's book will be made available.

Yes Mario, Wicksteed is not an advocate of laissez faire, but his economic analysis of decision-making on the margin, of the pricing process, of the origins of social cooperation under the division of labor, It is his positive analysis and methodology that is so attractive, not his necessarily his policy preferences.

See Mario Rizzo's remarks ... http://thinkmarkets.wordpress.com/2013/01/09/james-m-buchanan-a-preliminary-appreciation/

Jason, As I said in my own blog post, this blog is a very positive development. Also there is a ground-swell of renewed interest in PPE as you know and your blog stands to be at the forefront of that conversation in the blogosphere. The point you make about 'motivation' and ideal theory is of course the same strategy that Mises and Hayrk took in their engagement with respective models of socialism. And it was why they focused on the calculation/knowledge argument ... Socialism would have to forego the "division of knowledge" in society by institutional design. This argument would be true even if only the saintly were in control. So I am intrigued to learn about the issue of 'force' that you bring up concerning public choice and also the calculation problem. Finally, one of the things I have found difficult in interdisciplinary discourse is to get non-economists to make a distinction between incentives and motivation on the one hand, and knowledge and information on the other, let alone the distinction between theoretical tracing of tendencies and direction, and empirical magnitudes. But again let me stress, this is a very welcomed development in the blogosphere and I hope the conversation stays at the level you set the standard for.

Check this out: http://hnn.us/articles/116855.html Also, I recommend reading Stephen Lansing's Priest and Programmers: Technologies of Power in the Engineered Landscape of Bali (Princeton, 1991 [2007]).

Dave, Reading LLL really changed me from my youthful dismissal of Hayek as a "leaker" to an appreciation of Hayek as among the greatest (perhaps greatest) classical liberal political economist. I agree with Greg, however, that reading LLL alongside the essays in Studies and New Studies contextualizes Hayek's argument significantly. But now I often return to his essay "Individualism: True and False" in _Individualism and Economic Order_ and especially p. 11-14, to see his statements of the robust political economy project. Pete

One of the issues that have really been clarified for me over the last few years is that what could be termed the Horwitz point --- Ought doesn't imply can --- can be reversed and -- Can doesn't imply ought. Yet in politics, the way Senators and Congressmen and Presidents talk is all about whether they "can" pass a piece of legislation. Oren Hatch the day after Ted Kennedy was on Fox news talking about the virtues of Ted Kennedy because he could work with him to get things done --- they could work together to get the votes to pass legislation. Hatch didn't stop to ask whether they "ought" to pass. He even ended the interview by saying that it was too bad that Senator Kennedy's time ran out because he was sure they could have worked together to get a health care bill passed. This penchant for "Yes we can" along with statist values and the lust for power (and in Kennedy's case a rather ugly personal history which has been swept under the rug) really does not speak well for the fate of the US economy and a politics fitting of a free people.

Steve and others, I am disappointed to see the conversation get derailed into a discussion of whether or not Steve is an inflationist. He is not. He is thinking about monetary policy as if the Fed was able to pursue a monetary equilibrium theory set of policies --- matching money supply with money demand. But as for inflation, Steve has written very forcefully on the costs of inflation. He just also believes that "bad" deflation, causes disturbances in the economy as costly as inflation. But do note that Steve is also in favor of "good" deflation --- falling prices attributed to gains in productivity in an economy. He is not a "price level stability" advocate per se. OK, so stop making false claims about Steve's position. But lets do challenge him (and others) on two issues --- 1 theoretical and 1 empirical. First, lets say we agree with monetary equilibrium theory, can a central banking system actually in practice manage the money supply so effectively to match money supply with money demand? I think one of the main arguments for a free banking system is that central banks face a knowledge problem in accomplishing this task (Selgin's argument). If that is indeed the case, isn't it a mistake to then ask a central bank system in a crisis to respond as if it was a free banking system and engage in a "quantitative easing" (separating it from the bailout now) to equilibrate the monetary system? If so, might it not be better to simply freeze the monetary base and allow market prices to adjust? This brings me to the second issue -- which is empirical. Nickolaj raised this, but what about the recession of the early 1920s and the quick turn around. The understanding of the facts that was put forth in the post are in fact the facts as I understand them (are they true?) and if so, then doesn't that suggest that we would have market adjustments quickly? So to Steve, Bill, etc. --- lets say I agree with the argument for monetary equilibrium theory (which I do), isn't the problem with a central banking system precisely that it CANNOT possibly behave in a way that would meet the demands that the theory put on it? There is a "pretense of knowledge" evident in demands to engage in "quantitative easing". In other words, when we find ourselves in the second (or third) best world, trying to pursue a first best policy with the policy instruments of that second (or third) best world results in not first best policy results, but worse than second (or third) best outcomes. By doing what we did last fall, we have unleashed a policy regime far worse --- not just in scale and scope, but also in terms of the unchecked cycle of deficits, debt and debasement --- than had we not attempted quantitative easing (let alone the bailout). And if you consider this perspective for a minute, then doesn't the data from the Minn Fed, etc. concerning the actual lack of a credit freeze last fall come into an entirely different light of importance? If this story is right, then what we have done is take a market correction, turn it into a crisis through government interventionism, and then transform it into a potential catastrophe through further government interventions. And, if on the other hand, we had simply let prices do their work and guide the reallocation of resources in a market correction for bad decisions, the economy would have recovered and the Smithian gains from trade and the Schumpeterian gains from innovation would put the economy on a path of prosperity. Why is this alternative story to the Cowen one, or even the Horwitz one, fundamentally flawed? No quantitative easying, no bailouts; no fiscal stimulus package; no new regulations. Just let insolvent banks fail, market prices adjust to changing circumstances, and tie the hands of the rulers so they cannot let political expediency guide their decision-making.

Steve, Tyler is a brilliant debater, but his point isn't just a debate point, it is also a subtle point once you depart from line-in-the-sand libertarianism. My problem has always been (and you can see this in Why Perestroika Failed next to last chapter where I attempt to engage in political theory) that I seek to develop a rule utilitarian argument that dovetails with the moral philosopic principles of self-ownership and non-aggression and can be instituted through constitutional design (Hume-Hayek meet Locke-Nozick and get together via Hobbes-Buchanan). In other words, the bright lines are drawn, but not by reference to rights theory, and they are instituted through soclal contract. Perhaps the exercise is only wishful thinking on my part and doesn't work, but it is how I reconcile positions in my mind. But Tyler is making a Warren Samuels type point about government and the market. The bright line drawing is an act of intervention in this way of thinking. So the bottom line is that Tyler is pushing us to say that IF there was no bailout (put aside for the moment the technical question of monetary policy independent of the bailout), then the normal process of bankruptcy through our current court system would have demanded an increase (as you right point out) in the scale of government no less dramatic than what we have seen. I agree with your distinction between scale and scope, and that the real issue is scope (I've gotten mocked at on more than one ocassion by my studentes such as Ed Stringham and Pete Leeson for my insistence that it is scope and not scale that is the real problem of government). But Tyler's concerns are also why several of the proposals on how via bankruptcy market correction could have coped with the crisis call for stripped down procedures. So not only is Tyler claiming that if we would have gone in the more "liquidationist" direction would government have grown as big as it has now, he actually argues that given the short-run pain and suffering and with the Congress we have that we would have had a far bigger government now than what we currently have. Obviously at this point, we are in a world of pure speculation, but the scale and scope of government has grown drastically in the last year as a fact; the counter-factual argument on both sides is more difficult to make. But what Tyler does admit is that the long-run consequences of our current policy path may in fact be extremely dangerous. What I'd like to suggest is that those long-run costs MUST be incorporated into our current assessment of the situation. If what we have merely done is stave off immediate troubles in adjustment, but threaten future complete collapse, then we haven't just given ourselves time to fight another day. We have simply treated a hang-over by getting drunk again and again and again. The end game (that Tyler and Randy) admit is a problem isn't really and "end game" as much as the way the game is played (a point Dick Wagner made to me). Once these insitutions are not contrainted to their old functions, but have new power why would they go back to the old ways (Higgs's ratchet effect). If you think of Hayek and Buchanan/Wagner as diagnosing the basic problem of monetary and fiscal policy, and Mises and Hayek (and John Taylor) as having indentified the root of the financial crisis to begin with, then we have to say that Higgs both with his concept of regime uncertainty and non-monetary distortions to market adjustment, and his identification of the phenomena of the ratchet effect in politics, probably does more to help us understand the difficulties than any other thinker. Imagine if Ben Bernanke in studying the Great Depression had focused on those aspects discussed in Higgs's Crisis and Leviathan and his articles on the Great Depression in JEH, rather than the more monetary factors, then what would his hammer had looked like when he thought he saw the nail? Applied economics without taking into account political economy is not good applied economics no matter how brilliant the economists is who is doing it. Public choice analysis is not a footnote, it requies that endogenization IF a full assessment of the costs are to be made. I would just like to insist that in discussions of political economy, that we incorporate into the analysis at the start the sort of costs associated with the institutional transformation that is required. As you say, questions not only of scale, but of scope, and how once that scope has been increased to meet an immediate "crisis" what are the cost of restricting that scope back to previous levels. All of these costs must be considered in making an assessment of the costliness of policy A versus policy B. So, in my mind, the way Tyler posed the original question (while an important question to pose) and more importantly the way he answered it, did not include the full cost accounting of the options. He focused more or less on short-run and direct effects, and while admitting the existence of, but not incorporating them, the long-run and indirect effect. To me these long-run and indirect effects are not just institutional (they are, and these are major issues since the scope of government has indeed grown and we don't have any good idea of how to reduce that scope), but also the unleashed cycle of deficits, debt and debasement. Our current policy path is not viable, it is like treating a hang-over by going on another drinking binge (or taking another shot of heroin if that was the drug of choice) not allowing the system to correct and return to "normal". So I conclude that government is not the corrective, it is the cause of the crisis. And while I do think questions of scale matter (remember Buchanan's thought experiment about the fly growing 9 times its size and the question of fiscal dimensionality), the more important issues are related to scope. And once the scale and scope of government has been increased to meet a crisis, how costly is it to get government to reduce scale and scope to return to levels consistent with a regime of liberty and prosperity.

Nikolaj, Your understanding of Kirzner's lecture is very weak, perhaps you should write to him. He does answer mail from careful scholars. In fact, what you claim about the socialist calculation debate is so far removed from the argument that Kirzner (and Lavoie) provide that it is almost impossible to correct in this medium as you get wrong every single statement of the position articulated. THEY NEVER CLAIMED THE SOCIALIST ARGUMENT WORKED AGAINST MISES. They claim the socialist misunderstood the dynamic nature of Mises's argument (something Mises himself said often in Socialism and subsequent writings). Hayek is not changing the argument, he is emphasizing a different slice of the argument --- that is why there is a Mises-Hayek argument. I hope you will read a paper I have coming out entitled "The Context of Context" which explains why Hayek was led to emphasize the contextual nature of knowledge in the context of the socialist calculation debate. As for my class, we are not engaged in any "deconstruction", but we are engaged in interpretation and the telling the story of modern Austrian economics --- just as anyone must when doing this sort of history of ideas. And as I have said before for the philosophically literate mixing deconstruction with hermeneutics is actually very wrong; to the philosophically illiterate it is excusable but sad (in the same way that it is sad when the economically illiterate might believe this or that popular myth about markets). But you will note, I don't have a single article on the syllabus about hermeneutics let alone deconstructionism. But instead a lot from Mises and Rothbard. But since neither of them can be there, we have to read and interpret their work. Wow, there comes that word again "interpret". How you jump from the necessity to interpret texts and constructing narratives to "postmodernist philosophy" I have actually no idea unless that is what you wanted to see before you read it and wanted to believe before you could think through it. Same with the Kirzner lecture the other day. You watched but didn't listen; you heard words, but didn't understand. You only understood what you already had decided in your own head. It must be nice to know what everyone is saying before they say it. Seriously, don't you think you should engage individuals before dismissing them for positions they in fact do not hold? You bring a lot of energy to these issues. Why not direct that energy in a positive and productive direction rather than paranoid delusions about a Kirznerian hidden agenda and or a Lavoie/Boettke plot to corrupt Austrian ideas with deconstructionism?

Jared and others, First, I never admitted callousness, I admitted that I think compassion is best left to family and friends and that we do not have the capacity to push compassion as a viable public policy at the national level. Second, I am separating out both the scholars role (pure understanding) from the activist position (advocating this or that policy). My argument is that the economists must understand the value of emotional appeals, but that they cheapen the value of their role in society when they themselves appeal to emotiive explanations. The fact that I have had a hard time communicating this position to readers is an indication of (a) my bad writing skills and (b) the lure of emotional appeals such that criticisms of emotive explanation are in fact dismissed as callousness and emotive! Third, as a subject of political science obviously political psychology is a huge field --- Jon Elster has done much on this. We who are interested in social change should invest heavily in learning this literature. Fourth, on reasonableness in democratic discourse --- well yes I am being idealistic --- Habermasian even --- ideal speech community, etc. But the debate at the moment in our country is about the nature of democratic discourse (e.g., townhall meetings) --- have you watched Bill Maher or even David Letterman criticize conservative critics of President Obama's health care plan?; how about President Obama himself? Are we really having a serious discussion about health care policy? Are we really having a serious discussion about economic policy? President Obama promises one --- remember the campaign promises about post-ideological Washington and open debate and discussion? Rahm Emanuel must have missed that point! Finally, and this is more direct response to Jared --- I don't want to beat, I want to have a reasonable discussion in which the teachings of economics are placed at the center of any of these discussions. To me (I might be wrong) so much of the current discussion is about whether we can pass a piece of legislation, not whether we SHOULD pass it. And when it comes to analyzing whether we should, economics plays a huge role in the assessment of policy options. Yes, due to emotive appeals, the logic of economic analysis is often (not always) dismissed. This is what bothers me. Pete

Jared, Yes, that is what we have to (a) first understand, and (b) defeat, if we hope to get rational public policy. I think the last thing we want is for economists to be making concessions in their analysis to the part of the mind where reason doesn't go. That doesn't mean we don't need to understand that --- we most certainly do. But our goal (if we want to move beyond pure understanding) should be to figure out ways to resist this move and to develop among the population more sensibility to the failure of this style of political rhetoric. Look at the clip by Dana Carvey --- that is the logically outcome of the politician feeling our pain in my opinion --- and it is ridiculous. We should make politicians who want to feel our pain, really feel it. Mockery, ridicule, satire, etc. The political discourse in the US is a mockery of rational discourse. Our job as analysts I think should be to point this out, not to join in the spectacle.

Dave, Yes, but only in the same sense that I talk above about Rand's perspective --- as illustrations of broader systemic points. As an issue of family matters, of course; as an issue of friends, of course, but as an issue of community member --- yes, but less so. By the time we get to issues of being a citizen of the world, I view rape, disease, natural disasters, and illustrations of a broader system point that I find more analytically appealing. I think compassion, both of the left and of the right, should be rejected in politics though practiced everyday with family and friends. Is my position incoherent? In saying that I honestly don't believe I am ignoring the concern with the least advantaged in society and the systemic forces that are working against them. It is about reasoning about the economic and political system, not the particular case either of devastating failure or heroic success. I am all for story telling in the social sciences (heck I wrote an essay under that time 20+ years ago), but it is a story about the system, not the plight of any one individual. Don't tell me about Grandma, tell me about the elderly. See what I mean? Not sure if I am articulating my position well enough.

And as a matter of empirical fact, Rothbard's Man, Economy and State had a significant influence among the small number of younger economists that Israel Kirzner is talking about --- Mario Rizzo and Jerry O'Driscoll; Roger Garrison; Larry Moss; Karen Vauhgn; Walter Block; Joe Salerno; Walter Grinder; Don Lavoie; Rich Fink; Jack High; Richard Ebeling, etc. all read Man, Economy and State and met Murray in his apartment to discuss ideas. Some of these individuals rose to be very close to Murray at various times between 1960-1980. Of course, this doesn't address the influence that Murray had beyond economics through his book, including Man, Economy and State, on thinkers such as Ralph Raico, Ron Hamowy, and Leonard Liggio --- who in turn were very important thinkers and teachers at university and through their involvement with IHS and other groups during this period. Israel Kirzner is talking about specific points about the economics profession. Remember the theme of his talk --- which is a puzzle --- had can the Austrian reputation fall so fast (in the 1930s and 1940s) when in his mind the major break through in economic science are about to made in 1940s in the writings of Mises and Hayek. Listen to his careful comments on Hayek's "The Meaning of Competition" and how Mises pointed this essay to him. Professional influence is one thing, professional contribution is another. You can say someone didn't have influence, without saying that they didn't make a contribution. As Kirzner says later in the lecture, Rothbard was a major contributor/expositor of the Misesian system as he saw it. We all can agree with that.

Nikolaj, You really should listen to the entire lecture. BTW, Kirzner published Market Theory and the Price System in 1963 and Essay on Capital in 1966. He doesn't claim them to be critical successes either. Lets look at sales, course adoptions, citations, reviews, etc. Any conceivable measure of influence in the profession to "test" Kirzner's empirical claim. He is not making a judgment on quality, he is making a statement about facts concerning influence at a particular time in history. Listen to the claims being made and offer the appropriate criticism. As Kirzner often says of his own Market Theory and the Price System --- the biggest "failure" in academic publishing history. He didn't think it sold 100 copies, and it was supposed to be a textbook. At the same time, he will tell you (or you can read about it) that his work on coordination in that book laid the ground work for his later developments of the Austrian theory of the market process. He is not excluding Rothbard from the Austrian revival (listen around 1:00 mark), he is explaining the reality of being an Austrian economists in a PhD granting educational institution in the 1960s and early 1970s.

Ed, "Catastrophe" can be averted provided the warning is heeded. This is the idea of the endogenous public choice theorist (developed by Ulrich Witt in relationship to Hayek's Road to Serfdom and why Britain did not go down that road completely). The reason they didn't was because Hayek's ideas provided an effective warning. Obama might be pushing against a screen door (not a steel door), but we have seen evidence that the door still has it latch locked. We need a reinforced steel door with a deadbolt, etc., but starting with a screen door and locked latch, perhaps we can keep Obamonomics from just walking straight in without any challenge. That is the only way I know how to respond to the challenge you put for us. Pete

K Sralla, Check out Kirzner's lecture linked to in the immediately previous post around the 1:01 mark. Pete