Nobels for Ostrom & Williamson Get at Big Thumbs Up From Hayekian Economists

Peter Boettke, Lynne Kiesling, Peter Klein, Vernon Smith, David Henderson, Don Boudreaux, and other Hayekian economists are all applauding the award of the Nobel Prize in Economics to Lin Ostrom and Oliver Williamson.

Here’s Boettke on Ostrom:

We can talk in more depth in the comments on Lin’s great range of work from the analysis of local public economies to the idea of polycentricity, but I want to emphasize something that relates to her methodological stance and the research focus that should be of particular interest to readers of this blog.  She is both a methodological individualist (rightly understood) and a spontaneous order theorists.  In this regard, Lin Ostrom (and Vincent) have represented one manifestation of the research program in the sciences of man (praxeology) by Mises and Hayek in the 1940s.  Actors of limited cognitive capabilities are studied for how the shape and our shaped by the social structures that emerge in a variety of situations to provide voluntary solutions to complex and difficult problems, and they do so in a way that promotes social cooperation under the division of labor.  Read Human Action, chapter VIII, and Individualism: True and False, pp. 11-14 (in Individualism and Economic Order), and then look at Lin’s work in Governing the Commons; Understanding Institutional Diversity; and the 3 volume McGinnis, edited volumes, Readings from the Workshop in Political Theory and Policy Analysis and I think you will see what I am talking about. She has done fundamental research on the central idea of Ricardo’s Law of Association as Mises termed it.  Humanly rational choice and institutional analysis combine to address the most pressing question in the social world — why do some institutional patterns produce societies of peace and prosperity, while others produce societies that suffer under violence and poverty?

Here’s Bob Subrick on Williamson, Ostrom & Hayek:

[Williamson & Ostrom] fit within Hayek’s research program.  Williamson’s classic The Economic Institutions of Capitalism cites Hayek favorably.   In addition, he also argued that Hayek correctly identified the central problem with economic organization– adaptability.  He placed Hayek as a forerunner to his own approach.

Ostrom’s Governing the Commons develops Hayek’s theme of spontaneous order through numerous real world examples.  Non-market institutions solve collective action problems that the price mechanism cannot.  That is the point of Hayek’s later writings — non-market institutions coordinate behavior.  Also, her emphasis on the lack of a “one-size-fits-all” approach resonates with those who are sympathetic to Hayek.

.. [Williamson's] essay in the Journal of Economic Literature .. placed Hayek (along with Arrow, Coase, Simon, North, and Myrdal) as the forerunners of the New Institutional Economics.

And let me add that when Paul Romer says something like this:

Economists…who think that they are doing deep theory but are really just assuming their conclusions, find it hard to even understand what it would mean to make the rules that humans follow the object of scientific inquiry. If we fail to explore rules in greater depth, economists will have little to say about the most pressing issues facing humans today – how to improve the quality of bad rules that cause needless waste, harm, and suffering.

Romer is pointing to the significance of a research program at the core of Friedrich Hayek’s work in economics — and let me suggest that no-one has looked into rule following at a more sophisticated conceptual level than has Hayek.  None, that is, save perhaps Ludwig Wittgenstein, who’s work is deeply compatible with Hayek’s own.  For those interested in the topic I’d particularly recommend Hayek’s essays on rule following in his “Studies in Philosophy” and his discussions of rule following and the evolution of law in his “Law, Legislation, and Liberty”.

In many ways Ostrom & Williamson are very much contributing to an intellectual tradition championed by Hayek and other leading “Hayekians” like James Buchanan and Douglass North.

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Our predictive capacity of the specific things which the economic system will do at a particular date is limited in exactly the same fashion in which our biological knowledge is largely limited if our task were to predict what a living organism will do at a particular date. — F. A. Hayek

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