Monday, March 26, 2012

Austrian Economics Forum Spring '12 #3--Calculus and Consent

After a few years of attending the AEF, the third meeting was my first disappointment with this group.  (I suppose it was bound to happen.)  Yes, there was basketball that diverted some; and yes, there was severe weather; and so attendance was very low, but the real reason was that the topic really just did not fit our group.  It was on Chapters 4-6 of Buchanan and Tullock's The Calculus of Consent (1962). 
For me, the discussion went around and around in a large circle.  The problem actually stems from the last sentences in Chapter 2.

It seems futile to discuss a "theory" of constitutions for free societies on any other assumptions than these.  Unless the parties agree to participate in this way in the ultimate constitutional debate and to search for the required compromises needed to attain general agreement, no real constitution can be made.  An imposed constitution that embodies the coerced agreement of some members of the social group is a wholly different institution from that which we propose to examine in this book.  pp. 19-20.  (emphasis added)
Which political entity, then, could they be talking about?  Even my Home Owners Association fails to fit this definition!  Government is different than another human institution in this sense: it is the only institution that has the legal right to coerce and use force.  Without this definition at the heart of the analysis, the rest is fluff. 

To me the problem with government is the imposition of rules and regulations on groups that do not agree with the "choices" made by government.  We were to discuss the groupings of external costs that Buchanan and Tullock divided into a ("expected costs resulting from purely individualistic behavior"), b ("expected costs of an activity embodying private contractual arrangements designed to reduce [internalize] externalities") and g (total costs imposed by collective decision-making).  But if we agree that there is no coercion to keep people in the constitution, then why would I not just veto everything that I disagree with?  Now repeat that reasoning for everyone.  The result is that groupings fall apart.  Thus, the discussion went in circles and my disappointment.

Austrian Economics Forum Spring '12 #2--Emerging Rules

At our second AEF meeting, we discussed the work of one of the NC State University's Graduate Students, Richard Hammer.  He presented his work, "Life Grows Through Discovery of New Social Rules." 

He argues that life is thermodynamic.  If we start with some simple assumptions about basic life needs (rules to exist), he wants to know how far can we get with this line of analysis.  Can it circle around to be useful for analyzing our own behavior? 

He starts with single cell organisms (SCOs).  They need food and water.  If they lack enough food or water, they will die.  If food and water are distributed homogenously, then we really do not get interesting results, because there is no reason to act--other than simply consume. 

The interesting results begin when we assume that there are pockets of food and water that the SCOs have to go to.  If the food and water are too far apart, the SCOs die.  If they can travel back and forth, then they can survive. 

A fundamental law in economics, The Law of Comparative Advantage (Mises called it The Law of Association), is based upon specialization and the division of labor.  It says that when we trade, we can benefit.  We have certain advantages over others.  It might be that our skill set or natural talents are better than another's.  It might be as simple as being closer to a natural resource than another.  The point is that it is our differences that allow up to benefit.

So if we posit that food and water is irregularly distributed, then some SCOs will have a comparative advantage over others.  Some SCOs will be closer to the food and the others will be closer to the water.  This means that if they cooperate, both groups will be better off than if they opertated in autarky. 

So far, so good.  I agree, but I didn't really see much benefit to this line of analysis.  However, others did.  They asked, "Why do cells in our bodies perform particularized functions for the benefit of the overall body?"  Their reasoning followed along these lines...

When SCOs start to cooperate, they are able to specialize.  When they specialize, they give up other functions and become dependent upon other SCOs.  Thus, we see the inklings of the transformation from SCOs to multi-cellular organisms.  Additionally, a side discussion of meme theory took place.

All-in-all, it was an interesting disucssion, but I fail to see how such theories can circle back and inform economic theory.  Why make an argument by analogy?  Why not just make the argument?

I am reminded of a quote by Böhm-Bawerk, where he attacks arguing by analogy.  It took place in his debates on Capital and Interest theory with John Bates Clark.  He says,

There seems to dwell in the human heart an enervating proneness for playing the poet in matters of science, and for placing by the side of the common natural things and forces with which we have to do in the world of prose visionary doubles in the form of all sorts of mystical beings and powers, to which a semblance of reality is imparted by means of an ‘elegant’ abstraction. I hold this practice to be fraught with greatest danger to science. If one departs from the bare truths of nature by only a hair’s breadth, scientific accuracy of thought is irretrievably lost the sway of truth gives place to that of words and sounding phrases.
Until next time...