The Austrian contribution to the development of law and economics is the study of endogenous rule formation, or the spontaneous evolution of social institutions, which can be traced to the founder of the Austrian School, Carl Menger. While Menger’s emphasis on spontaneous institutional analysis was born out of the Methodenstreit, a methodological battle engaged against the German Historical School, this chapter argues that the Austrian contribution to law and economics emerged directly from the socialist calculation debate against market socialism. This debate, we will argue, played an essential role in the re-discovery of the institutional framework in economics during the post-WWII era, particularly in the development of law and economics. In the aftermath of the socialist calculation debate, Menger’s earlier emphasis on institutional analysis was reemphasized by F.A. Hayek, who in turn influenced the early pioneers of law and economics, particularly Aaron Director, Ronald Coase, and Bruno Leoni.
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Peter J. Boettke and Todd J. Zywicki
Åke E. Andersson and David Emanuel Andersson
The games of markets including entrepreneur-driven economic development have always taken place on an arena of the combined material and non-material infrastructure. The infrastructure thus constitutes the arena; it is public capital that facilitates and constrains the rapid “games” of buying and selling that economic agents play. Agents perceive the arena as stable because its evolution is so much slower than that of markets for goods and services. Synergetic theory is well equipped to handle such multiple timescales. Its application to economic phenomena enables us to show that competitive equilibrium theory requires prior specification of the infrastructural arena, which consists of public knowledge, space-bridging networks and institutions. Synergetic theory can also help us avoid the pitfalls of conventional macroeconomic theory. In this chapter, we demonstrate how macroeconomic equilibrium depends on the infrastructure. We claim that all goods are durable and are thus instances of capital. This means that historical trajectories, current outcomes, uncertain expectations and changes in spatial accessibility all influence the growth and fluctuations in the value of capital goods. Dynamic non-linear interactions between scientists, inventors and entrepreneurs affect investments. New technological or design ideas spread most easily among spatially proximate firms within communication and transport networks. Such network effects shape processes of spatial clustering, agglomeration and urbanization. Based on causal and various econometric considerations, it has been common for economists to resort to difference equation in their modeling strategies. But if we include dynamic interactions within a system of difference equations—so as to accommodate realistic causal assumptions—it will often result in complex models with chaotic outcomes. However, there are ways out of chaos in economic modeling. The first is to focus on continuous dynamic synergetic models, which implies a careful separation of variables and dynamic processes according to their relevant timescales as well as the collectiveness of their impacts.
An Illusion of Democratic Political Economy
Giuseppe Eusepi and Richard E. Wagner
The book’s theme is an elaboration and refinement of the early-twentieth century orientation toward public debt that Antonio de Viti de Marco set forth. As the book’s title asserts, public debt is a misnomer for a democratic scheme of political economy. To declare a democratic polity to be indebted is akin to observing a grin without a cat, to recall Dennis Robertson’s view of Keynes’s liquidity preference theory. While the entire book develops this claim, this chapter explains how standard macro theories of various types are more myth than reality, and with the mythology obscuring the realities of the domination-subordination relationships that suffuse democratic regimes.
Richard M. Salsman
Not until the Enlightenment and the financial revolution in the eighteenth century did sovereigns borrow publicly, regularly, and responsibly. Constitutionalism, the rule of law, ethical acceptance of lending, and more respect for sanctity of contract increased creditors’ willingness to lend. Three centuries of data show that public leverage – the ratio of public debt to GDP – was highest at the end of the Napoleonic Wars and World War II. Public leverage since 1980 has increased steadily for many sovereigns, but for most of them leverage is still far below prior peaks. The multi-decade rise in public leverage reflects burgeoning welfare states but also coincides with an anomalous decline in public borrowing costs, due mainly to repressive central bank policies.