Abstract:
The application of rational choice to non-market decision making has revolutionized
comparative economics. A fruitful methodological symmetry now prevails in the
analysis of economic systems, emphasizing how their underlying institutions affect
individual incentives. Most importantly, comparative work now includes traditionally
non-economic spheres, such as politics, legal systems, and culture. While this approach
represents a huge step forward from the institutional vacuums of earlier models, it has
inherited the faulty economic anthropology of the market socialists that created those
vacuums in the first place. Failure to account for differences in knowledge-generating
properties between institutions has created several blind spots in this new literature.
These essays examine the implications of taking knowledge seriously in modern
comparative economics. The first argues that a pure rational choice approach that
endogenizes institutions leaves no theoretical space for inefficiency, and that Hayekian
knowledge problems must be the root cause of unrealized gains from trade. The second
makes the case that market institutions provide tighter epistemic feedback than do
democratic political institutions. The result is that markets generate the gains from trade
automatically, while politics is reliant on mental models to substitute for institutional
feedback. The third essay explores the relationship of this Austrian approach to
heterodox social ontology. It makes the case that Austrians, by holding rational choice
and knowledge problems side by side, get the best of both the heterodox and mainstream
approaches to understanding social reality.