Recently, political economists have started to apply behavioral economics insights to the study of political processes, thereby re-establishing a unified methodology. This paper surveys the current state of the emerging field of “behavioral political economy” and considers the scope for further research.
This paper argues that F.A. Hayek anticipated the notion of ‘recursive utility’ and analytically reconstructs his informal exposition of the optimal saving process. The scope of analysis is restricted to Hayek’s largely unrecognised contribution in Utility Analysis and Interest in 1936, restated as chapters 17 and 18 in The Pure Theory of Capital, first published in 1941. It is shown that Hayek characterised efficient dynamic choice as an infinite series of two-period optimality conditions by transforming an infinite-horizon optimisation problem into a perpetual confrontation of current and prospective utility, that he hinted at the axiomatic base of stationary and weakly separable dynamic preferences, and that he endogenised the subjective discount rate to substantiate his claim that the interest-rate path in a perfect-foresight equilibrium is unidirectionally determined by the marginal productivity of investment (and not by thrift). Hayek’s vision of dynamic social efficiency and dynamic equilibrium is completely characterised.
The Austrian School of Economics is an intellectual tradition in economics and political economy dating back to Carl Menger in the late-19th century. Menger stressed the subjective nature of value in the individual decision calculus. This school of economic thinking spread outside of Austria to the rest of Europe and the United States in the early-20th century and continued to develop and gain followers, establishing itself as a major stream of heterodox economics.
The Oxford Handbook of Austrian Economics provides an overview of this school and its theories.
Joseph A. Schumpeter and Ludwig von Mises were both Austrian-born economists, both were students of Böhm-Bawerk and von Wieser, yet whether they both may be classified as ‘Austrian economists’ is a controversial issue. This paper takes a closer look at the mixture of commonalities and disagreements in their writings that have given rise to the ambivalent assessments of their ‘Austrian’ credentials.
in: José Colen/Elisabeth Dutartre-Michaut (Hrsg.), The Companion to Raymond Aron, New York 2015, 31-44. Go to the e-book.
Robert Sugden has recently elaborated upon the case for a normative standard of freedom as “opportunity” that is supposed to cope with the problem of how to realign normative economics – with its traditional rational choice orientation – with behavioral economics. His approach however lacks psychological substance.
The paper analyzes the political economy of capitalist transformation in nineteenth century Germany. The emergence of capitalism after 1806 gives an example that economic freedom can precede political freedom, leaving the political power of the “dominant coalition” intact. The paper argues that the German capitalist transformation was instigated by competition among the European states. Primarily it was conducive to the monopolization of the coercive power of the state. As a result competition among the states drove a wedge between the interests of the monarch and his supporting dominant coalition (landed gentry). The increasingly independent public administration in Prussia which was influenced by Adam Smith’s liberal ideas organized a political bargain which established economic freedom in various sectors but took the economic interests of the landed gentry into account. In various aspects the sweeping institutional change was Pareto-superior for groups, which made capitalism also acceptable for the elite group.
The paper argues that there are certain parallels between the ideas of ordoliberalism and the framework of limited and open access order (LAO/OAO) as developed by North, Wallis, Webb and Weingast (NWWW): Both approaches focus on the “interdependence of orders”, and both share an emphasis on state capacity in processes of social transition. I also argue that the ideas of the ordoliberals might give impulses for the further development of the LAO/OAO research agenda. Firstly, whereas NWWW mainly deal with the transition process from LAO to OAO, the members of the Freiburg school intensely dealt with the danger that an OAO might revert into an LAO. Accordingly, they spent much effort on developing policy proposals that aimed at preventing such a ‘re-feudalisation’ (Franz Böhm) of society. Secondly, especially when it came to the issue of accomplishing reforms, they also considered the role of informal institutions and beliefs, a topic somewhat neglected in the LAO/OAO-framework in its present form.