Schumpeter and the end of Western Capitalism: Can crypto-currency prove him wrong?

I recently came across a newish article titled ‘Schumpeter and the end of Western Capitalism’ by William Kingston in the Journal of Evolutionary Economics. This line in particular caught my eye: “The decline of capitalism began when financiers were released from this discipline, and it ended with the catastrophe caused by belief that bureaucratic control could replace it.”

Overall the paper sketches what is a very interesting thesis (Schumpeter’s, that is) placed in the context of the GFC and beyond. Well worth the read. It is good to see someone calling out the crisis for what it was – something of a Schumpterian-Minskian-Olsonian-Hayekian Frankenstein’s monster. The common thread: overcentralisation and the pathology of control. It blows my mind that people writing decades ago, up to a century ago, could be so prescient.

The abstract is below and a link to the article is here.

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More great words from James Buchanan (with Viktor Vanberg this time)

[S]ocialism failed not only because of incentive incompatibility and an inability to utilize knowledge effectively; socialism failed, also, because it allowed little scope for the exercise of creative choice on the part of the participants in the economic process. Or, to state [this] somewhat differently, universalized benevolence could surmount the incentive incompatibility; universalized omniscience (in its usual meaning) could surmount knowledge limits. But even perfect altruists who know everything must live and work in real time. The best of intent will not allow the future to be brought within the present, no matter how perfect the knowledge of the present may be. And if the institutional structure embodies the presupposition that such a feat is possible, stagnation and failure must emerge.

[…]

If there is one central constitutional implication of radical subjectivism, it is the recognition that a constitutional framework which accounts for the creativity of the human mind has to be one that allows for, and provides, favorable conditions for learning and adaptation at all levels at which we engage in problem solving, including the level at which we choose the constitutional framework for all other efforts. It should be a framework within which experimenting and exploration are possible, yet one that imposes constraints on the explorative process that make for responsiveness to constituents’ interests as well as for viability in a broader environment. Markets are, as we have suggested above, a paradigm case for such a framework, and the constitutional implications of radical subjectivism may also be stated in the form of a recommendation that we ought to seek, in general, at all levels of problem-solving activity, to provide for market-like frameworks for competitive exploration of alternative solutions. To recommend, in this sense, the market as a model for explorative, adaptive systems, is not to say that we ought to leave everything to “the market,” in the ordinary sense. It is to say that we ought to expose our solutions to the various problems we face to competitive constraints that work like market constraints.

James Buchanan & Viktor Vanberg (2002) ‘Constitutional Implications of Radical Subjectivism, The Review of Austrian Economics, Vol. 15, No. 2/3, pp. 121–129.

The benefits of ‘the market’ are not present simply because the market is some sort of mythological ‘perfect institutional form’. The market works because it ceaselessly cranks through the evolutionary algorithm – ‘variation-selection-retention’ as it is often succinctly put. Buchanan and Vanberg recognise the importance of creativity, experimentation, learning, and adaptation – and rightly state that centralised, monopolistic, or monocentric institution forms (i.e., intrusive social democratic government, socialism, totalitarianism, and so on) suppress economic evolution. In this sense decentralised institutional systems can be thought of as more ‘dynamically efficient’ (as opposed to benevolent, omniscient central planning, which, if it existed, might be considered ‘statically efficient’) – though a better word is ‘evolvable’.

But then, how do we apply an evolutionary algorithm to constitutional craftsmanship? Stay tuned for a radical subjectivist reinterpretation of the constitutional design problem as evolutionary search!

Richard E. Wagner on entangled political economy, degeneracy and robustness

Below are some words from Richard E. Wagner’s article ‘Retrogressive regime drift within a theory of emergent order’ published in the Review of Austrian Economics in 2006 (Rev Austrian Econ (2006) 19: 113–123). This is the earliest – indeed, the only! – work I have found on the link between degeneracy and robustness in political economic systems. The paper is very good, but even so, what is reproduced below is all there seems to be on this important topic – about 500 words – in the entire literature. Suffice to say, much more work is needed on this interesting topic.

In a nutshell, Wagner’s hypothesis is:

[…] robustness is facilitated through polycentric organizational arrangements that entail high degeneracy, while fragility and the emergence of decadence is facilitated in relatively hierarchical arrangements that possess low degeneracy.

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