Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Friday, December 24, 2004

Economics Devoid of Property Rights, Institutions, and Entrepreneurship

Cafe Hayek has an intriguing summary of a recent article by Dan Johannson in the December, 2004, issue of Economic Journal Watch. Johannson examined most of the major textbooks in microeconomic and macroeconomic theory, and industrial organization. From Cafe Hayek:
...[A]ny model that rejects change, uncertainty, and creativity also, necessarily, rejects entrepreneurship. That’s pretty obvious. But any such model rejects also property rights – or, rather, rejects the rich role that property rights play in reality....
...[T]he analytically closed, formal, axiomatic equilibrium modeling that prevails in modern economics misses these vital insights. It misses the role of institutions – including that most important institution of all: property rights.

As a former director of The Centre for Economic Analysis of Property Rights, I am very sympathetic to this criticism of modern economics.

However, I think Johannson goes too far when he asks,
"But is it possible for researchers to describe and analyze, for instance, the progress of the furniture industry or the progress of the computer industry, in a credible way, without taking account of the entrepreneurs Ingvar Kamprad or Bill Gates and the entrepreneurial function they have carried out, manifested in founding and expansion of IKEA and Microsoft?"
In a word, "Yes."

Let me pose a question that might shed some different light on the subject: What if there had been no Bill Gates and no Microsoft?

My expectation is that some other firm would have developed approximately the same software in approximately the same time frame and faced approximately the same legal entanglements from having been too successful. If this expectation is correct, then it is important that economic theory not place too much emphasis on specific entrepreneurs or specific institutions.
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