'
&
$
%
NEW PERSPECTIVES
ON
POLITICAL ECONOMY
Volume 1 Number 2
ARTICLES
Carnis: Coase and the Economics of Crime
Kaza: The Austrian School in the American Economic Review
(1911-2004): The Initial and Final Decades
Kvasniˇcka: Independence and Responsibility of Central Banks
Kindlová: Ovlivˇnování investic a „špatné“ investice
2005
ISSN 1801-0938
New Perspectives on Political Economy
Volume 1, Number 2, 2005, pp. 1 – 31
Coase and the Economics of Crime
Laurent Carnis∗
JEL Classification: D23, D6, D74, K42
Abstract: “The problem of social cost” is a major piece of Coase’s legacy. It constitutes the
foundation of the neo-institutionalism movement. This article tries to provide a solution
to situations characterized by disputes on the use of resources. We propose a libertarian
and Rothbardian re-examination. In the first section, the Coase theorem is the object of a
personal appraisal. The second section stresses the common points between the Coasian
approach and the classical school of the economics of crime. The third section examines
the consequences of both of these theories for public policy.
∗
Researcher at the French National Institute for Transport and Safety Research. He works for the GARIG
department. He is also an associated researcher of the LAEP department of the University of Paris 1. A
first version of this paper was delivered during the Austrian Scholars Conference in Auburn (Alabama),
March 2004 for a session on Law and Economics with Walter Block, Peter Klein and Roy Cordato. The
author would like to thank Nicolai Gertchev for his precious comments. The usual caveat applies.
2 New Perspectives on Political Economy
1 Introduction
“The problem of social cost” constitutes a true revolution for analyzing the harmful effects
resulting from incompatible uses of resources. The traditional pigouvian analysis
supposes that governmental intervention limits such situations of conflict. The approach
in terms of private and social costs focuses on the deficiencies of the market. On the
opposite, Coase suggests that some harmful acts should not necessarily imply compensation.
The true criterion he refers to is the total available product it is possible to reach.
The different results have to be compared for the different social arrangements (Coase,
1960)1. He therefore emphasizes the importance of the institutional environment. The
Coasian analysis shows that many flaws characterize the traditional analysis of welfare
economics. The Coasian analysis stands as an alternative.
This article deals more particularly with the formal links between the Coasian theory
and the classical school of the economics of crime (Carnis, 2002)2. The first section
develops the different results that the Coasian analysis achieves. It emphasizes the consequences
of the Coase theorem, which have been very much adopted by the mainstream
economists. The second section analyzes the common points between both theories and
stresses their entangled character. The third section is concerned with the implications
for the enforcement of law and order.
This article is based on the Rothbardian theory of property rights. This theory
implies that legitimate property rights have four possible origins: self-ownership, homesteading,
exchange of previous legitimate property and production (Rothbard, 1982)3.
Justice supposes the respect of these legitimate property rights and considers all physical
invasions of legitimate property as crimes4. This theory constitutes the general framework
from which it becomes possible to cast a new light upon the Coasian analysis.
This contribution can be considered as being one possible Rothbardian re-examination
of Coase’s insights.
1
Ronald H. Coase (1960), “The Problem of Social Cost”, The Journal of Law and Economics, Vol. III,
October, p. 40 and 43.
2
For a definition of the classical school of crime, see Laurent Carnis (2002), “Economic Approach of
Crime: Mainstream Economics vs. Rothbard”, Paper delivered in the honor of the 40th Anniversary of
Murray Rothbards Man, Economy and State, March, Ludwig Von Mises Institute, Auburn, Alabama.
3
Murray N. Rothbard (1982), The Ethics of Liberty, Humanities Press, p. 33
4
It means the victim bears a true damage
Carnis: Coase and the Economics of Crime 3
2 The Coase Theorem: a personal and critical appraisal
Coase’s contribution on the problem of social cost deals with actions having harmful
effects for another party. The solution Coase proposes consists in choosing the social
arrangement that permits to increase the total available production for society.
The General Framework
The general premise of Coasian analysis is to consider the problem we face as not being a
unilateral one (A harms B), but having a reciprocal nature (A can harm B by undertaking
a specific action, but if B prevents A from acting in order no to be harmed, A bears a
damage from B.) (Coase, 1960)5. Consequently, Coase assumes that disputes result from
situations where the rights are either unclearly defined (clean air) or are not correctly
identified (problem of noise and its intensity). He supposes also cases where there are
some contradictions between the exercise of the different (bundles of) rights. For Coase,
a dispute between parties is the outcome of oppositions between legitimate claims to
exercise a right (Coase, 1960)6. For the sake of an example, let us suppose two kinds
of vehicles (cars and trucks) on the road network. Their drivers hold, according to the
Coasian analysis, a legitimate property right of using the road. Unfortunately, there
is an incompatibility between both these vehicles. The heterogeneity of their physical
characteristics can drive to a surplus of road accident and can be the origin of social
losses. Typically, we are in presence of a conflict about the use of a scarce resource.
This analysis has never considered the possibility that among claims some could be
illegitimate and could constitute a true invasion of a legitimate property right (Carnis
2002)7. In the above example, it does not finally matter whether the accident means a
violation of a legitimate property right on the body of the victim or rather on her vehicle.
What is truly at stake here is the existence of a damage. Therefore, a strong criticism
can be raised against the Coasian analysis for the lack of relevance given to the ethical
dimension of property rights. It is symptomatic that through his long article Coase
evokes the decisions of judges without never dealing with the principles of justice. And
5
Ibid. p. 2.
6
Ibid. p. 13.
7
Ibid., p. 5.
4 New Perspectives on Political Economy
yet, these principles should motivate the judges’ decisions. Is it meaningful to separate
the notion of rights from what is right (North, 2002)?8 This remark repeats a critique
made previously by Rothbard on the absence of a theory of justice characterizing the
mainstream works (Rothbard 2000 (1974))9.
The general objective of Coasian economics is concerned with the search for the
maximum of production (Coase, 1960)10. “If we are to attain an optimum allocation
of resources, it is therefore desirable that both parties should take the harmful effect
(the nuisance) into account in deciding on their course of action” (Ibid.)11. To reach
this objective requires making some tradeoffs between the different activities, because
of some contradictions between plans of production. This tradeoff is made possible by
establishing a scale of value permitting the comparison. The easiest way to proceed is
the comparison of the different levels of output for the use of the same resource. If we
follow our example, it means we have to compare the different wealths tied with the use
of the different vehicles : the freight transport for trucks and the output of the car users.
Consequently, the allocation of resources among the population depends on the specific
search for efficiency without consideration for the legitimate owner.
What answer should be given is, of course, not clear unless we know the value
of what is obtained as well as the value of what is sacrificed to obtain it (Coase 1960,
p. 2)12
.
The efficient situation is reached when the social cost is minimized. The minimization
of the social cost implies that the less productive use of resources will be forgone or, to
put it differently, the most highly use of resource has to be preferred. The social cost is
minimized when there is an additional production or more goods and services to share
among the population. If production is 100 monetary units in the case of the truck activity
and only 90 from the use of cars, it follows priority has to be given to the truck
for using the road network. This perspective is very important insofar as it implies it
8
Gary North (2002), “Undermining Property Rights: Coase and Becker”, Journal of Libertarian Studies,
Vol. 16, no 4, fall, p. 80 and 858
9
Murray N. Rothbard (2000 [1974]), Egalitarianism as a Revolt Against Nature, 2nd Edition, Ludwig Von
Mises Institute, Auburn, Alabama, p. 91-96
10
Ibid., p. 10
11
Ibid. p. 13
12
Ibid., p. 2
Carnis: Coase and the Economics of Crime 5
becomes also possible to make some tradeoffs between rights, independent from their legitimacy.
Indeed, to give the right of using a specific resource consists, as a matter of fact,
in allocating the property rights on this resource. The objective of efficiency implies then
the possibility of excluding the current owner from his own legitimate property (North,
2002)13. Consequently, the legitimate owner sees his own right to exclude trespassers annulled,
while others benefit from these opportunities to exclude legitimate owners from
their own properties. The property right is no more absolute but becomes conditional,
determined by a questionable trade-off (Carnis, 2002)14. Finally, it undermines the foundations
of property rights.
By elevating the “right to inflict damage” to the same level as the right to demand
compensation for a violation of a property right, Coase has effectively compromised
the latter right by making a potential right out of the ability to inflict damage.
The application of Coase’s argument would destroy property rights by attempting
to extend the status of property right to a man’s ability to damage his neighbor’s
property (North, 2002)15
.
The Zero Transaction Cost Situations
The first part of the Coasian analysis supposes a zero transaction cost world. He assumes
that the conditions of the pure and perfect competition model are verified. Under
these conditions, the maximization of the value of production becomes possible and is
reached through market transactions. The market process will direct the resources towards
the most productive owners independently of the initial allocation and the legal
rule. However, Coase recognizes the process is not possible if rights have not been previously
established. “. . . Without the establishment of this initial delimitation of rights
there can be no market transactions to transfer and recombine them” (Coase 1960)16. We
must stress here the contradiction that lies between the proposition of zero transaction
cost and the alleged necessity of previously defined property rights to initiate the process.
Indeed if it is assumed that there is no transaction cost, then the absence of previously
13
Ibid., p. 89-90
14
Ibid., p. 3
15
Ibid. p. 90
16
Ibid. p. 8
6 New Perspectives on Political Economy
defined property rights would not constitute a difficulty because it would be possible to
allocate these rights (for the initial assignment) to the most productive use at zero cost.
On the very opposite, the need for clearly defined owners suggests that some costs are
at stake and that there is no reason why it would not be the case for the entire process
described by Coase. Here, there is a serious contradiction within the Coasian framework.
This contradiction is not taken into account by some mainstream economists who
assume the conclusions and popularize the results by giving them the well-known name
of the Coase Theorem. The Coase theorem consists in two different claims: an efficiency
claim and an invariance claim.
If one assumes rationality, no transactions costs, and no legal impediments to
bargaining all misallocations of resources would be fully cured in the market by
bargains (Calabresi quoted by Zerbe, 2001)17
.
Consequently, the market process would be able to solve all inefficient situations. However
this result occurs only when the conditions of perfect competition are assumed.
Consequently, the theorem does not hold any more when there are high positive or prohibitive
transaction costs. This efficiency claim stresses both the efficiency of the market
process for situations with low transaction costs and its inefficiency for other situations.
In fact, it delimits the area of efficiency of the market process and establishes accordingly
the limits of a free market process. If the car users hold the right of using the road network,
the truck companies can offer a compensation of 90 monetary units for obtaining
the car owners’ renunciation to use the road. The level of production then is 100, i.e. 90
+ 10. If the truck companies benefited previously from the use of the road network, the
production would still be 100.
The claim of invariance suggests that legal rules do not affect the allocation process.
This result is highly significant insofar as it implies a separation between the economic
approach and the legal one. Then, in such a world of zero transaction costs, the allocation
of resources would be independent from the Law. In a sense, the legal dimension does
not matter. The notion of property right becomes meaningless.
17
Richard O. Zerbe Jr. (2001), Economic Efficiency in Law and Economics, New Horizons in Law and
Economics, Edward Elgar, p. 85
Carnis: Coase and the Economics of Crime 7
In a world of perfect competition, perfect information and zero transaction
costs, the allocation of resources in the economy will be . . . unaffected by legal
rules regarding the initial impacts costs resulting from externalities. (Regan quoted
by Zerbe, 2001)18
.
The main conclusions of this analysis lead to the adoption of the classical model of competition
(model of pure and perfect competition) as the standard, according to which
actual situations are being considered optimal or not. In a zero-transaction-cost world,
the rule of law is immaterial. However, it must be stressed that some economists, as
Zerbe for instance, reject this classical model as the standard to abide by. They assert
that transaction costs are ubiquitous in the real word. Consequently, to consider a world
without transaction costs is to assume a completely imaginary world, or a meaningless
one. Although these economists do make some progress by admitting the only, real,
world that we are continuously facing, and which is characterized by imperfect information
and costs of negotiation, there is no progress whatever concerning the importance
of the rule of law and its ethical foundation (Ibid.)19.
Even more problematic is the endorsement of the Coasian model by some Austrian
economists. Indeed Boudreaux seems to share the efficiency claim. He asserts:
Rather than focus on what James Buchanan . . . calls the “invariance version”
of the Coase theorem – according to which alternate assignments of liability generate
the very same physical allocation of resources – it is truer to Coase’s essential
message to focus on the fact that ability to bargain freely is practically necessary and
almost always sufficient, to internalize the full subjective costs of resource use upon
owners of property rights. (Boudreaux, 1998)20
.
Although Boudreaux is clearly right by asserting costs are subjective because judgments
of value are subjective, he is wrong when he deduces an inclination to negotiate for both
18
Ibid. p. 85
19
Zerbe makes a strong criticism of Coases analysis, the solution of compensation proposed by Hicks
and Kaldor. Instead of taking into account the transaction costs, Zerbe proposes new criteria, which
are unfortunately characterized by the same flaws (possibility of interpersonal comparisons, confusion
between actions and willingness to pay or to accept, etc.) (Zerbe, 2001, particularly chapters 1 and 2)
20
Donald J. Boudreaux (1998) The Coase Theorem, in Peter J. Boettke (ed.), The Elgar Companion to Austrian
Economics, Edward Elgar, Chapter 27, p. 186
8 New Perspectives on Political Economy
parties to reach a situation of efficiency. For instance, a landowner can refuse to sell
his piece of land to a farmer who could increase the production of corn by cultivating
it. The landowner could prefer to keep his property because this way he obtains higher
psychic revenue. The farmer could offer $ 100.000 to acquire the piece of land, but
the owner could refuse. Maybe one reason, which explains this behavior, is that his
psychic income is increased by the existence of the external effect. He takes pleasure in
restraining the production of the farmer. For the case of the road network, the car user
could refuse compensation because he benefits from psychic revenue provided by the use
of his car (feeling of freedom and of autonomy). These examples clearly show there is
no such a situation of efficiency. Market transactions permit only to satisfy some plans
followed by individuals according to their own scale of value. That some external effects
are internalized through market transactions is a consequence, but on no account is it
objective.
In fact, Boudreaux is assuming that the definition of rights obeys a criterion of efficiency.
In this way, his analysis is similar to those of Demsetz and Posner. But is the
allocation of rights only, and really, a question of efficiency?
The Coase theorem is the explicit recognition that ability to bargain induces
people who exercise their property rights to internalize the costs of these exercises –
that is, that an owner of a right includes non-owners’ assessments about a particular
exercise of that right as part of his own assessment (Boudreaux, 1998)21
.
Still more problematic is the situation with high bargaining costs. The solution then is
found in the awarding of the right by the court to the parties that value it most highly
(Ibid.)22,23. Consequently, awarding the right to the person that will present the most
highly productive use constitutes the solution to the dispute. In this sense, efficiency is
the objective followed by the court24 and is defined as enhanced production or physical
goods. However, the resolution of conflicts by researching an objective of efficiency
is contradictory with the assertion of subjective valuation, previously made. Indeed, if
21
Ibid. p. 181
22
Ibid. p. 182
23
It supposes such an ability of appraising the different productions by the judges and to yield such evaluation
at an costs inferior than those established by the market.
24
Such as assertion is doubtful because it assumes the judge is following this objective and not his particular
interest of personal interpretation of what constitutes the efficient solution at the level of society.
Carnis: Coase and the Economics of Crime 9
the judge awards the right by weighting the different costs, this supposes he is able to
identify them and to define an objective scale of value before even making comparisons.
But one consequence of the subjective valuations is the impossibility to add them up and
to make interpersonal comparisons (Rothbard, 2000 (1974))25; 199126). Consequently, it
is contradictory to assert a subjective dimension for the personal valuations while striving
after efficiency through the modeling of law.
The Existence of Transaction Costs and The Consequences for This Analysis
The next step of Coase’s reasoning consists in introducing transaction costs. Then Coase
shows the importance of the initial delimitation of property rights (Coase, 1960)27. Indeed,
a new arrangement would be possible only if the additional value of the production
is higher than the costs of transaction. From the example of the conflict on the use of the
road network, if the transaction costs, which permit the transfer of the right of using the
road network, is 12 and the car users are holding the right, then it is no more possible to
reach the efficient situation. Indeed, the total costs would be 102: 90 for the compensation
of car drivers and 12 for the transaction costs. But the available production for the
truck companies is only 100. If the truck companies hold the right, the efficient situation
is already reached and no transaction cost is implied. The transaction costs are perceived
as obstacles on the path from one equilibrium toward another28.
Once the costs of carrying out market transactions are taken into account it is
clear that such a rearrangement of rights will only be undertaken when the increase
in the value of production consequent upon the rearrangement is greater than the
costs which would be involved in bringing it about. (Ibid.)29
25
Ibid. chap. 4, p. 91; 1997, chap. 6, p. 125
26
Murray Rothbard (1991), L’économie du bien-être: une reconstruction, in Economistes et Charlatans,
Collection laissez faire, Les Belles Lettres chap. 4 ; see also from the same author, “Law, Property Rights,
and Air Pollution” in The Logic of Action 2 , Applications and Criticism from the Austrian School, Edward
Elgar (1997) and Egalitarianism as a Revolt Against Nature and Other Essays, 2nd Edition, Ludwig Von
Mises Institute, Auburn, Alabama (2000)
27
Ibid. p. 16.
28
If we follow North’s analysis on institutions and the institutional change, there is a path dependency.
See Douglass C. North (1990), Institutions, Institutional Change and Economic Performance, Cambridge
University Press, pp. 93-94.
29
Ibid. p. 16.
10 New Perspectives on Political Economy
Consequently, the new combination is restrained by the previous allocation, so that it
can be impossible to reach the objective optimal allocation. For these situations, the
market transactions and the market process are unable to yield an efficient situation.
Coase stipulates three solutions to solve these inefficiencies, which are designed as the
“so-called” market failures.
The firm itself represents one solution. It permits to internalize the problem of
allocation of resources by solving it inside the firm30. The manager then decides the
allocation of resources (Ibid.)31.
He chooses the best use of resources for the firm in order to maximize the profit32.
Two constraints limit this solution. The first one is relative to the cost of coordination or
the cost of organization inside the firm itself compared to the cost of market transactions.
The additional value yielded by the production of a firm has to be higher than the costs
of its creation and its functioning, and has to present a higher net value than that of
the market. The second limitation stems from the fact that the firm is assumed to own
various properties about which there are a conflict. If the firm was not the owner of
these resources, the problem would then not be solved. In the case of our example, the
solution could take the shape of a private owner of the road network, which decides the
type of user that could benefit from the use of the resource. In that way, such a system
has already worked on a small scale in the case of the highway, which excludes bicyclists,
pedestrians and any low-speed vehicles.
Another, second, solution is governmental intervention through regulations, which
“state what people must or must not do and which have to obey” (Ibid.)33. In this case,
the government decides to allocate the resources in the manner it seems as optimal. The
state can mobilize its apparatus and use violence to reach its goals. Concretely, for our
case, it could take the form of a restriction of the truck use during the week-end, as it is
actually in France. Special-purpose and very heavy or large vehicles have to be escorted
30
For a presentation of this paradigm, see Ronald Coase (1937), “The Nature of the Firm”, Economica, (4).
31
Ibid. p.16.
32
We do not deal here with the problem of divergence between the objectives of the manager and the
owners of the firm. Let us suppose, in order to simplify the problem, that the owner is also the manager
of the firm.
33
Ibid. p. 17.
Carnis: Coase and the Economics of Crime 11
by police motorcycle. Another way to deal with the conflict is to impose a special speed
regulation for the heavy vehicles or a differentiated speed limit for other vehicles.
Just as the government can conscript or seize the property, so it can decree that
factors of production should only be used in such-and-such a way. Such authoritarian
methods save a lot of trouble (for those doing the organizing). Furthermore, the
government has at its disposal the police and the other law enforcement agencies to
make sure than its regulations are carried out (Ibid.)34
.
The intervention of courts constitutes the third solution to the problem of allocating
resources. The legal assignment by courts is justified again by attributing a role of economizer
to judges. They would be able to allocate the resources to their highest productive
uses. The analysis of court decisions by Coase seems to conclude that globally the judges
follow an economic criterion for awarding the rights.
A thorough examination of the presuppositions of the courts in trying such
cases would be of great interest . . . Nevertheless it is clear from a cursory that the
courts have often recognized the economic implications of their decisions and are
aware . . . of the reciprocal nature of the problem. Furthermore, from time to time,
they take these economic implications into account, along with others factors, in
arriving at their decisions (Coase, 1960)35
.
This interpretation of the court activity raises the question how only one person, the
judge, would be able to gather the appropriate information to decide the optimality of a
specific arrangement of rights. This supposes the judge benefits from a specific quality a
superiority on the other members of society. Moreover, this conception neglects the possibility
of interference with the judge’s own values. The judge could consider efficiency
would justify that his political friends have to be the only owners of resources. He can
use the legal process to promote his own financial interests or his own conception of
what efficiency must be. Is there only one expression of what is an efficient allocation?
Can the judge’s conception of efficiency differ from economist’s one? The most crucial
limit to this solution, that Coase has never dealt with, is relative to the cost of functioning
of the courts. A very complex conflict can require huge spending; other cases could
34
Ibid. p. 17.
35
Ibid. p. 19.
12 New Perspectives on Political Economy
cost more than the gains the parties would earn. Then what is the solution to follow in
presence of “judicial failure”?
The different solutions proposed by Coase invite to more criticism to such an analysis.
Indeed the possibility of giving to the State the outrageous power to reallocate the
rights stresses the conditional character of such rights. Coase himself seems to share the
opposition between the legal arrangement of rights (by voluntary exchanges) and their alteration
by a violent intervention (Coase, 1960)36. However we must concede that Coase
put some limits to the State intervention (as a solution) through a comparison between
the costs of such an allocation and those of the market process and also by sustaining
that policy-makers generally over-estimate the gains of government interventions. The
solution would then be to compare the costs of the “market failure” to the costs of the
“government failure” (interventionism + judicial process). But again, how is it possible
to compare subjective valuations at all?
How can Coase assert a governmental intervention could reach optimal allocation
when there is a tendency to over-estimate the benefits derived by such an intervention? In
fact, Coase has opened a Pandora’s box. He justifies the governmental hindrances without
even defining correct means to limit sub-optimal interventions. Since economists’
advances on the issues of bureaucracy and rent-seeking activities, it is well-known the
governmental agents will use of their power to justify more control on the economic activity
and more State interventions, upon which ultimately depend their own positions.
To sum up the argument, the intervention of the government permits to reduce the
transaction costs by allocating the resources by force. This argument, developed by
Coase, is interesting because it suggests that interventionism or the judicial process can
solve ultimately the problem of allocation. The government or the judge will be able to
identify the highest productive use of resources and appears as being a cost economizer
and a social engineer. However, it raises a crucial issue for the Coasian analysis. Why and
how can the governmental agent or the judge hold better information than the private
agents? The different works of Mises on the problem of economic calculation and the
36
Ibid. p. 17.
Carnis: Coase and the Economics of Crime 13
contributions of Hayek on the problem of information show clearly the superiority of
the market process on central planning (Hayek, 1991 [1953])37, (Mises 1990 [1920])38.
Coase’s Approach and The Economics of Crime
Some scholars deduce from Coase’s work the ability of the market to tend towards efficiency
and to solve the disputes about different uses of the same resources. They assume
implicitly the market performs well when there is no transaction cost. The pure and perfect
competition is conceived as the standard from which efficiency can be appraised. In
fact, the zero transaction cost world constitutes at best a normative approach. Another
possible interpretation is to show the importance of legal assignments. Indeed, Coase
agrees that the real world deals with positive costs of transaction (Coase, 2000)39. The
legal allocation becomes very important insofar as it constitutes a constraint for the objective
of reaching the optimal allocation with previously attributed rights, and a resource
to recombine these previous assignments
In a world in which there are costs of rearranging the rights established by the
legal system, the courts, in cases relating to nuisance, are, in effect, making a decision
on the economic problem and determining how resources are to be employed. It was
argued that the courts are conscious of this and that they often make, although not
always in a very explicit fashion, a comparison between what would be gained and
what lost by preventing actions which have harmful effects (Coase 1960)40
.
Because there are few situations with low transaction costs, it must be deduced that the
market process (peaceful exchanges) cannot reach alone the economic optimality. The
limits of the market process can be solved by the creation of organizations (private firms
or governmental entities). Another means to reach the social optimal solution is the alteration
of previous assignments by violent means or the criminal activity. In this way, the
violation of some property rights can permit to reach the social optimum and represent
37
Friedrich von Hayek, (1991 [1953]), Scientisme et sciences sociales, Collection Agora, p. 163.
38
Ludwig Von Mises (1990 [1920]), Economic Calculation in the Socialist Commonwealth, Ludwig Von Mises
Institute, Auburn, Alabama.
39
Ronald Coase (2000), Le coût du droit, Collection Droit, Economie, Société, Presses Universitaires de
France, p. 94.
40
Ibid. p. 28.
14 New Perspectives on Political Economy
an alternative way to peaceful exchanges. The organized crime with private organizations,
the forced redistribution of rights by the State or the partial enforcement of law
represent alternative solutions for the maximization of the social welfare. According to
Coase, the social arrangement, which permits the highest level of production, must be
preferred. Consequently, because the positive transaction cost situations are the general
cases, there is no reason that a free market constitutes the appropriate solution. Here are
the connections between Coasian’s analysis and the economics of crime approach, which
need to be more deeply investigated.
3 The Coasian Analysis and the Economics of Crime
The analysis defended by the classical school of crime consists in applying the neoclassical
hypothesis to the economics of crime (Carnis 2004)41. These authors (Becker, Ehrlich. . . )
assume that it is possible to apply the principles of the marginal analysis to determine a
social optimum and to conceptualize an equilibrium by a process of maximization that
allows to reach an efficient situation (Stigler, 1970)42.
The goals of the different works of the classical school of crime are to show that
the criminal obeys a system of incentives and that it is possible to determine an optimal
quantity of crimes (Ehrlich, 1973)43. The criminal’s behavior is then the outcome of
comparable gains and costs, the tradeoff between which reflects his rationality. Because
the criminal acts rationally, the authority in charge of justice and law-enforcement can
provide a rational answer. This is clearly the purpose of Becker’s article on the economic
approach to crime (Becker, 1968)44.
The major articles on economics of crime did not quote Coase’s article on the problem
of social cost, although there are clearly some common points. More accurately, they
41
Laurent Carnis (2004), “Pitfalls of the Classical School of Crime”, The Quarterly Journal of Austrian
Economics, Winter, 7(4), p. 7.
42
George J. Stigler (1970), “The Optimum Enforcement of Laws”, Journal of Political Economy, May-June,
(3), p. 530.
43
Isaac Ehrlich (1973), “Participation in Illegitimate Activities: A Theoretical and Empirical Investigation”,
Journal of Political Economy, (81)3, p. 559.
44
Gary S. Becker (1968), “Crime and Punishment: An Economic Approach”, Journal of Political Economy,
March-April, (78): 169-217.
Carnis: Coase and the Economics of Crime 15
share the same hypothesis and lead to similar recommendations45. Four points deserve
particular attention: the hypothesis of maximizing production, the absence of a theory of
justice, the justifications for State interventions and the importance of transaction costs
as explanation of market failures.
The Maximization of Production
Coase and the proponents of the classical school of crime sustain the objectives a society
has to follow consist in maximizing the total available product for a given level of the
factors of production. If there were no social conflict on the use of resources between
the individuals, the determination of the total available product would result from an
engineered program for allocating the resources among the different productive uses.
The additional production or the surplus would be yielded by the difference between
the total production and the costs of production. The process of allocation by the price
mechanism would normally allocate the resources to the highly productive uses. Because
there are some interferences between the different uses of resources, the allocation is
considered as being imperfect. The price mechanism would be in default to allocate the
resources towards their highest use when there is a situation of conflict. Indeed, voluntary
bargaining is one possibility for the parties, but only when the individuals recognize the
legitimate use of resources. It is not the case for situations with disputes. Conflict means
a disagreement on the legitimate use of these resources. Consequently, these disputes
represent a cost for society, which adds up to the regular costs of production. They
represent losses, which diminish the available production. The goal then is to minimize
the social cost of attaining the highest possible level of available production for the given
factors of production46.
For instance, Becker asserts in his seminal article:
45
It is not the purpose of this paper to explain the absence of mutual quotations between both analysis. We
want only to stress the similarities of these analysis.
46
If we note : NP=net production, TP=total production, CP= costs of production, SC= social cost,
TC=total costs of production. Then NP=TP-CP (without disputes). With disputes, NP’=TP-CPSC=TP-TC.
Then if CP is given because the available factors of production are determined, TP can
be deduced and NP is easily computed. If SC is positive, there is a decrease for the available production
equals to NP-NP’=SC. Consequently, whatever the program costing (S) for minimizing the costs and
inferior or equal to ∆SC (due to S), it permits to decrease TC and to increase NP’. The losses are reduced
of an amount of (∆SC (due to S) -S).
16 New Perspectives on Political Economy
The method used formulates a measure of the social loss from offenses and finds
those expenditures of resources and punishments that minimize this loss (Becker
1968)47
.
And further in his conclusion:
The main contribution of this essay, as I see it, is to demonstrate that optimal
policies to combat illegal behavior are part of an optimal allocation of resources.
(Ibid.)48
Ehrlich, too, wrote:
The approach economists have taken toward these choices has generally been
based on a “public interest” criterion: the law enforcement authority seeks to maximize
social welfare by minimizing the losses from crime, including the costs of law
enforcement and crime control. (Ehrlich, 1996)49
According to Becker, the offences do not constitute a priori a net loss. For some “harmful”
acts, Becker does not exclude the possibility that the marginal gain is superior to
the marginal cost. In these conditions, these acts increase the total available wealth for
society. However these acts have to be deterred when they represent a net loss for society
(when the marginal cost is superior to the marginal gain). Then an optimal policy must
be decided. Indeed, the purchase of (public and private) protection is considered as being
an unproductive spending (Tullock, 1967)50. They do not increase the total output. Consequently,
the fight against the criminal activities is conceived as a problem of finding
the optimal allocation of these resources for protection, i.e. as a subset of the general
allocation process of resources within society.
This common objective between the proponents of the analysis of crime and Coase
appears obvious with the extension given to the validity of the Coase theorem for all
47
Ibid. p. 170.
48
Ibid. p. 209.
49
Isaac Ehrlich (1996), “Crime, Punishment, and Market for Offences”, Journal of Economic Perspectives,
winter, (10)1, p. 50.
50
Gordon Tullock (1967), “The Welfare Costs of Tariffs, Monopolies, and Theft”, Western Economic Journal,
(V)3: 224-232.
Carnis: Coase and the Economics of Crime 17
harmful effects. Crime is considered as a harmful effect when the associated social costs
are higher than social gains (Becker, 1968)51. So the Coase theorem can be applied to this
kind of action.
The economic problem in all cases of harmful effects is how to maximize the
value of production (Coase, 1960)52
.
The concept of harm and the function relating its amount to the activity level
are familiar from their many discussions of activities causing diseconomies (Becker,
1968).53
The process of maximization implies the definition of an optimal policy. It also suggests
the appropriate reasoning is at the margin. The authority in charge of enforcement or
of delimiting the right does not give a binary answer to solve the problem: accept the
activity or forbid it. The objective is to determine the optimal level of violations, crimes
or harmful effects. This is reached when the marginal gains of illegal acts equal their
marginal costs.
It goes almost without saying that this problem has to be looked at in the total
and at the margin (Coase, 1960)54
Further Coase asserts:
The aim of such regulation should not be to eliminate smoke pollution but
rather to secure the optimum amount of smoke pollution, this being the amount
which will maximize the value of production (Ibid)55
.
Becker shares a similar view:
Put equivalently, although more strangely, how many offenses should be permitted
and how many offenders should be unpunished? (Becker, 1968)56
51
Ibid. p. 173.
52
Ibid. p. 15.
53
Ibid. p. 173.
54
Ibid. p. 2.
55
Ibid. p. 42.
56
Ibid. p. 170.
18 New Perspectives on Political Economy
The Absence of a Theory of Justice
Another common point to these analyses is the absence of a theory of justice. Coase
establishes a distinction between the standards enacted by government and the awards
made by courts (Coase, 1960)57. The legal dimension is composed of a public component
(regulation) and a judicial one (awards). However, the State apparatus supported by police
forces and other law-enforcement agencies enforces the law and controls indirectly the
entire legal process. Then, Coase merely assumes that the enforcement of the law and
most of the legislation have to be controlled by the State. In fact, the law is what the State
says the Law is or what is enforced by its apparatus. He endorses clearly what Barnett
named the position of legal positivism (Barnett, 1977)58.
The proponents of the classical school of crime adopt a similar position. The enforced
law is never a debatable point. The law is given and the objective is to enforce it rationally
and to determine the optimal policy. This can be illustrated by two quotations, which
presents a similar point of view.
The goal of enforcement, let us assume, is to achieve that degree of compliance
with the rule of prescribed (or proscribed) behavior that that the society believes it
can afford (Stigler, 1970)59
.
Instead of instituting a legal system of rights which can be modified by transactions
on the market, the government may impose regulations by transactions which
state what people must or must not do and which have to obeyed (Coase, 1960)60
.
These theories do not present any “sound” ethical foundations for the Law. In these
frameworks, the concept of legitimate property right becomes meaningless. The law is
the outcome of a calculation of social engineering. From a libertarian standpoint, the
enforcement of law can lead to the legalization of violation of legitimate property rights,
by prohibiting peaceful acts and by accepting criminal activities (Carnis, 2002)61. This
57
Ibid. p. 17.
58
Randy E. Barnett (1977), “Restitution: A New Paradigm of Criminal Justice" in Randy E. Barnett and
John Hagel III (eds.), Assessing the Criminal, Restitution, Retribution, and the Legal Process, Ballinger Publishing
Company, pp. 349-383.
59
Ibid. p. 526.
60
Ibid. p. 17.
61
Ibid.
Carnis: Coase and the Economics of Crime 19
position implies that a social value is imputed to rape, murder and other abominable
crimes. That creates some inner contradictions for such an approach62.
. . . Becker introduces a different limitation on punishment the “social value of
the gain to offenders” from the offense. The determination of this social value is
not explained, and one is entitled to doubt its usefulness as an explanatory concept:
what evidence is there that society sets a positive value upon the utility derived from
a murder, rape, or arson (Stigler, 1970)63
.
An Opened Door for State Hindrances
The classical school of crime considers the fight against crime is within the competence
of the State. The State is conceived as a firm producing enforcement by combining labor
and technology of detection and of control64(Votey and Phillips, 1972)65. Coase shares
this view concerning the State as being a special firm. “The government is, in a sense,
a super-firm (but of a very special kind) since it is able to influence the use of factors
of production by administrative decision” (Coase, 1960)66. However, Coase’s analysis
is more ambiguous because not only does it consider government interventionism as a
solution to situations of market failure, but it also pays attention to the dangers of such
a governmental regulation. Coase emphasizes the fact that governmental regulations
can lead to and generate economic inefficiencies (Coase, 1960)67. He asserts that the
tendency of policy-makers to overestimate the benefits, that regulations bring about, is
even more dangerous. However by showing the market failures and the necessity of some
regulations, he opens the door to an autonomous dynamic of regulation. Ikeda illustrated
62
Zerbe tries to avoid this contradiction by integrating in the analysis the notion of “regard for the others”.
To sum up, this concept suggests a crime is considered as such in a society if a majority considers that
the act constitutes a crime. This endeavor is unsuccessful, because it is easy to conceive of a majority that
considers slavery is legitimate for a minority of the population. The criteria of “regard for the others” is
respected and abominable crimes can then be legally justified. Nozick developed a similar argument; see
Anarchy, State and Utopia.
63
Ibid., p. 527.
64
Mises showed clearly the contradiction it implies to consider a governmental agency as behaving as a
private firm. Ludwig von Mises,(1983 [1944]), Bureaucracy, Libertarian Press.
65
Harold Votey and Llad Phillips (1972), “Police Effectiveness and the Production Function for Law Enforcement”,
Journal of Legal Studies, (1)2: 423-436.
66
Ibid. p. 17.
67
Ibid. p. 18.
20 New Perspectives on Political Economy
clearly the latter in his contribution to the dynamics of the mixed economy. Once the
dynamics is engaged, it gets very quickly out of control (Ikeda, 1997)68. It seems Coase
prefers legal intervention through courts and judges rather than regulations issued by the
government. However, these ones are ultimately controlled by the State, because they
need police and justice agencies to enforce their decisions and to make them effective.
There is an obvious link of dependence between both. In fact, Coase is unable to see
he provides justifications for the State regulation, although he thinks that he develops
arguments against its expansion.
Moreover, the legal solution is clearly limited according to the works done by some
economists interested in studying the scope of regulation and of liability. Shavell demonstrates
that four determinants would explain the respective uses of liability and regulation
to limit harmful effects. If the magnitude of harm is higher than the assets of the initiator
of the act, regulation appears to be an appropriate solution. If the regulating authority is
in possession of a better knowledge about risky activities than private parties, regulation
constitutes the best solution. This would also be the case when the tort system brings
about higher costs than the regulation process or when the probability that party escapes
from its liability appears relatively high. In this last case, the incentives to take appropriate
precautions would be diluted (Shavell, 1984)69. Concretely, the tort system implies
costs of functioning, which can quickly become prohibitive, and it also has to address
the same problem of holding the appropriate information. Consequently, the solution of
regulation and governmental hindrances becomes evident and inescapable.
Yet, Coase tries to explain that market transactions or the firm itself can bring private
solutions. He asserts also the governmental regulations can cost more than the amount
of losses avoided. But this scope is so restrained by the importance of transaction costs,
it reduces dramatically the number of possibilities let to private solutions. Coase stresses
that all social arrangements for dealing with harmful effects have costs and that there
is no reason governmental intervention should be less expensive in any specific situation
(Coase, 1960)70. However, this conclusion is far from showing the superiority of the mar-
68
Stanford Ikeda (1997), Dynamics of the Mixed Economy, Routledge.
69
Steven Shavell (1984), “Liability for Harm Versus Regulation of Safety”, Journal of Legal Studies, June,
(XIII): 357-374.
70
Ibid. p. 18.
Carnis: Coase and the Economics of Crime 21
ket process or of a private solution. Coase only claims that the governmental regulation
is not automatically the best solution.
The Importance of Transaction Costs
Although Coase’s objective is to emphasize the importance of transaction costs for the
working of the economy, it is difficult to explain why he gives so much importance,
roughly one third of his article, to a situation with zero transaction costs. In fact, he
accepts the model of pure and perfect competition as the normative standard to understand
the role of law and to explain the presence of the firm and the interventions of
government. Coase deduces from the presence of high transaction costs the existence of
legal institutions and regulations.
A similar point of view is shared by Posner to explain the existence of criminal law71.
According to Posner, criminal law permits to promote economic efficiency by forbidding
the coercive transfers of wealth when transaction costs are low. The prohibition is
justified by the creation of inefficiency in the allocation of resources for such conditions.
For theses situations, the market transactions are the most efficient means of allocation72.
The legal system permits to reduce inefficiencies by discouraging the criminal acts.
The major function of criminal law in a capitalist society is to prevent people
from bypassing the system of voluntary, compensated exchange–the “market”, explicit
or implicit–in situations where, because of transaction costs are low, the market
is a more efficient method of allocating resources than forced exchange. (Posner,
1985, 1195)
Consequently, the prohibited acts constitute an efficient class of acts. It is easier to understand
the logic of this reasoning once it is noticed that all is determined by the importance
of transaction costs. The property rights are not important per se. They reflect only tradeoffs
concerning the transaction costs. Consequently when the transaction costs are very
71
Richard A. Posner (1985), “An Economic Theory of the Criminal Law”, Columbia Law Review, October,
(85)6: 1193-1231.
72
Posner asserts the efficiency of market for low transaction costs must be considered as a definition. “When
transaction costs are low, the market is, virtually by definition, the most efficient method of allocating
resources” (Posner, 1985, p. 1195). But what does he mean for low transaction costs? What are the
hypotheses of such a claim?
22 New Perspectives on Political Economy
high, the involuntary transfers of wealth could be justified if the new user of the resource
yields a net increase of production. The respect of property rights and the enforcement
of law depend on the relative importance of the costs of defining and enforcing them in
comparison to the costs of transaction (Alchian and Demsetz, 1973), (Demstez, 1967)73.
If the gains associated with the definition of a right are lower than its costs, the right is
not awarded. If the costs of enforcement are higher than the damages done, the right is
not enforced and the criminal is not suited.
The maximization of production, the absence of a theory of justice, the justification
of interventionism and the importance given to the transaction costs show clearly common
points between the Coasian analysis and the economic approach to crime by the
mainstream economists. In fact, these theories are similar and entangled, although Coase
does not deal precisely with crime and the economic approach to crime does not refer
explicitly to the theorem of Coase.
4 The Consequences of Coase’s Analysis for Criminal Activity
The previous part emphasized the links between both analyses: the Coasian approach
and the economic approach to crime. More interesting are the consequences implied
by such theories for practical recommendations. Five points will be developed in this
section: the incentives for the criminal activity, the implications in terms of uncertainty
for the definition of rights, the increase of legal costs for society and the dangers of the
extension of governmental hindrances, and the consequences of a static approach.
An Incentive for the Criminal Activity
The Coasian analysis provides an incentive for the criminal activity. Criminal activity is
defined here as being the physical violation of a legitimate property right. By determining
an objective of maximization of production, the Coasian analysis focuses only on the
end to be reached independent from the means used. Here, the end justifies the means.
One consequence of such an approach is the meaninglessness of notions of victim and
73
A. Alchian and H Demsetz (1973), “The Property Right Paradigm", Journal of Economic History, (43):
16-27 ; Harold Demsetz (1967), “Toward a Theory of Property Rights", American Economic Review, (57):
347-359.
Carnis: Coase and the Economics of Crime 23
criminal. Indeed, the criminal can be conceived as being a hero in so far as he makes the
creation of an additional wealth possible. In that respect, he represents an entrepreneur
who combines available resources in a more efficient way. The victim or the person who
bears the consequences of the harmful act is perceived as an obstacle to the search for
efficiency. Consequently, any contestation becomes possible provided that the contestant
shows a better use of the resource. If each person assumes his own use of the resource is
the best one, this theory leads very quickly toward a generalized situation of criminality
and favors the appearance of many disputes and conflicts.
By giving a central importance to the cost of transaction, this approach would recommend
logically to prevent from spending a part of the resources for protection. Indeed,
these expenditures represent a deadweight loss according to Tullock’s analysis (Tullock,
1967)74. The best way to achieve this goal is logically to limit the protection of rights
relative to an optimal level. Thus only optimal “crimes” will remain. These crimes are
considered optimal because they yield more than they actually cost.
This position is also illustrated by the two following quotations extracted from
Coase’s article:
But the problem is to devise practical arrangements which will correct defects
in one part of the system without causing more serious harm in other parts (Coase,
1960)75
.
Pigou is, of course, quite right to describe such actions as “uncharged disservices”.
But he is wrong when he describes these actions as “anti-social”. They may
or may not be. It is necessary to weigh the harm against the good that will result.
Nothing could be more “anti-social” than to oppose any action which causes any
harm to anyone (Coase, 1960)76
.
Conditional Property Rights
The criterion of the social cost consists in comparing the different social arrangements
of property rights. More accurately, the different levels of production associated with
the latter are compared. The highest one determines the efficient social arrangement.
74
Ibid.
75
Ibid. p. 34.
76
Ibid. p. 35.
24 New Perspectives on Political Economy
Coase is right when he says that the market transactions lead the resources towards the
highest productive uses, but he is wrong when asserting this same process permits also
to maximize the total available production. Indeed productive uses can yield also psychic
revenue, that physical goods, and their quantity, cannot account for. In fact, it will be
more correct to assert that the market transactions put the resources into the hands of
the persons that value them the most.
The assimilation of productive use to production permits, however, to determine a
scale for judging the efficiency of the social arrangements. By considering that the level of
production is the objective to be reached, Coase imposes his own preference for determining
the criteria supposedly indisputable and obvious. Consequently, the rearrangement
of rights is a necessity and a logical consequence of this analysis. The delimitation and
the award of rights are not definitive but dependable upon the situation practically at
stance. It means a person could be entitled for six months, but could lose his right after
this period if the empirical conditions evolve. Consequently, the allocation of property
rights can be regularly modified. For the Coasian analysis, the permanent redefinition
of property rights does not constitute a problem considering that the harmful effects
present a reciprocal nature. The individuals do not hold a right but a bundle of rights,
which can enter into conflict for some of them with the exercise of a bundle of rights by
another person.
The cost of exercising a right (of using a factor of production) is always the loss
which suffered elsewhere in consequence of the exercise of that right- the inability
to cross land, to park, to build a house, to enjoy a view, to have a peace and quiet or
to breathe clean air (Coase, 1960)77
.
The incompatibility between the different uses implies, because of the hypothesis of the
maximization of production, that the use that yields the highest level of production will
be preferred. What is problematic in this approach is the manner through which the
arrangement is done, namely through violent means, unlike the market process, which
permits a rearrangement of the rights through peaceful and voluntary bargaining.
77
Ibid. p. 44.
Carnis: Coase and the Economics of Crime 25
The Cost of the Legal Process
The courts are at the center of the legal re-arrangement of rights. The working of courts
must face the costs of functioning. The budgetary constraint leads the authority in charge
of enforcement to renounce to detect, to suit and to punish all criminals. Becker’s model
of crime is a perfect illustration of determining the consequences of an optimal policy of
deterrence (Becker, 1968)78. Stigler asserts, “The cost limitation upon the enforcement
of laws would prevent the society from forestalling, detecting, and punishing all offenders.
. . ” (Stigler, 1970)79. Ehrlich extends the hypothesis of rationality to the choice of
authorities: “. . . offenders, potential victims, buyers of illegal goods and services, and law
enforcement authorities all behave in accordance with the rules of optimizing behavior”
(Ehrlich, 1996)80. Shavell makes a similar reasoning to determine an optimal punishment
(Shavell, 1991)81. This dimension is neglected in the Coasian analysis where the judge’s
decision is obvious to some extent, and even costless. The judge is assumed to hold all
required information to enounce his judgment.
Another cost associated with the functioning of courts is relative to the multiplication
of legal disputes. Because everybody can appropriate whatever resources through legal
disputes (damages), the awards given by courts redefine the limits of the scope between
the legal and the criminal acts. The multiplication of suits will lead to an increase in
the spending made by individuals for legal services, and for paying the judges and the
public agents. This growing expansion of the juridical scope in all different aspects of
the daily life is counterproductive. The courts become the place where the rights can
be negotiated through strategic suits. The law becomes then a factor of production,
which can be bought instead of being a clear rule intended to protect legitimate property
rights. Instead of protecting legitimate property, the legal system represents a strong
attack against justice and generates legal insecurity. This perverse effect represents a true
loss, the counterpart of rent seeking activities, which have been already analyzed by
78
Ibid. p. 170.
79
Ibid. p. 527.
80
Ibid. p. 44.
81
Steven Shavell (1991), “Specific versus General Enforcement of Law”, Journal of Political Economy, (99)5,
pp. 1088-1108.
26 New Perspectives on Political Economy
public choice economists (Tollison and Congleton 1995)82. The legal process becomes
then a means to extract money and resources.
The Interventions of the State
The classical school of crime purports to define the conditions for an optimal public policy.
The fight against crime is a State activity, to which a central role is given. The State
defines what is law, how and at what extent it has to be enforced. The law enforcement is
a public concern and the place given to the private enforcement of law is not important.
Since crime is, by definition, an externality, and the maintenance of law and
order is essentially a public good, the economic literature has focused mainly on the
determination of optimal means of law enforcement and crime control, rather than
the basic rationale for public rather than private enforcement laws (Ehrlich, 1996)83
.
The Coasian position appears more ambivalent on the State intervention. Coase gives a
central role to the State for enforcing the legal decisions and the regulations it enacted.
The ultimate decision is in the authority of the State. It can impose by force its decisions.
However Coase emphasized the risks of legalizing nuisances (Coase, 1960)84. The
State can legalize some harmful acts and crimes, if its “social” computation shows the
inefficient character of the enforcement of law and order. Even more dangerous is this
approach that considers it possible to define an optimal amount of rapes or murders
(Zerbe 2001)85. With such an approach, theft, crime, or also slavery become acceptable if
the criterion of optimality is verified. Again it is only a question of weighting social costs
and gains for each specific action. The enforcement of false rights is acceptable and the
violation of legitimate rights is required. Coase seems to be aware of these consequences,
but he is unable to provide an answer within his framework. This is a logical consequence
of his analysis. “There can be little doubt that the Welfare State is likely to bring
an extension of that immunity from liability for damage, which economists have been
82
Robert D. Tollison and Roger D. Congleton (1995), The Economic of Rent Seeking, The International
Library of Critical Writings in Economics, An Elgar Reference Collection, Elgar Edgar.
83
Ibid. p. 49.
84
Ibid. p. 24.
85
Ibid. p. 189. More accurately, Zerbe asserts the existence of “efficient rape”.
Carnis: Coase and the Economics of Crime 27
in the habit of condemning” (Coase, 1960)86. In fact, the logic of this system leads to a
paradox: the protection of criminals. “Government intervention in the economic system
may lead to the protection of those responsible for harmful effects being carried too far”
(Ibid.)87. In a previous section we showed that a direct consequence of the possibility to
administratively redistribute rights is the increase of legal disputes. This tendency justifies
in fine an extension of the scope for State intervention. The argument leads to a
closed circle. The uncertainty yielded by this legal approach legitimizes the governmental
hindrances. How can an analysis warn against the dangers of the extension of the
scope of governmental hindrances and claim its intervention is non-automatic when the
defended analysis provides the basis for such an expansion? This is the Coase dilemma.
A static approach
To conclude on the implications of such an analysis, we must emphasize a major defect
of the Coasian analysis. This approach suggests comparing different social arrangements.
It supposes the existence of an equilibrium, and that it can be attained through a rearrangement
of the initial structure of property rights. In fact, Coase suggests a static
comparison with given factors of production. The institutional framework is considered
in fact as endogenous. However his analysis has never dealt with dynamic consequences.
This reasoning ignores the effects of incentives. Not only do some (criminal) acts, if considered
legal, become an incentive for committing more crimes, but they also become an
incentive to reduce the level of production. If the rights were more insecure, the people
would reduce their level of production to avoid forced redistribution. In fact, supposedly
a social gain could be attributed to criminal acts; this analysis does not consider the longterm
effects. In the long-term, the costs will be higher and the criminal gains will yield
only net losses88.
86
Ibid. p. 27.
87
Ibid. p. 28.
88
For an introduction to this debate, see, Fred. S. McChesnay (1993), “Boxed In: Economists and Benefits
from Crime”, International Review of Law and Economics, (13): 225-231; Jeff L. Lewin and William
N. Trumbull (1993), “Neither Boxed In nor Circular: A Reply to Professor McChesney”, International
Review of Law and Economics, (13): 232-234; Richard L. Hasen and Richard H. McAdams (1997), “The
Surprisingly Complex Case Against Theft”, International Review of Law and Economics, (17): 367-378;
Jeff L. Lewin and William N. Trumbull (1990), “The Social Value of Crime?”, International Review of
Law and Economics, (10): 271-284.
28 New Perspectives on Political Economy
5 Conclusion
This article presents a Rothbardian appraisal of the Coasian analysis. Unlike the mainstream
economists, who think the Coase theorem constitutes a barrier to governmental
hindrances, we emphasize on the opportunity given to State’s extension by suggesting a
market inability to deal with some situations. In fact, the Coasian analysis undermines
the role of law. It is a direct consequence of the absence of a correct theory of justice.
Coase is right to focus on the importance of the legal dimension of conflicts. But
he makes an error to assert the initial delineation of rights is unimportant. By conceptualizing
the possibility to rearrange the structure of property rights, he legalizes a part
of criminal activities and criminalizes peaceful exchanges. Moreover he gives the opportunity
to expand the scope of State intervention with its so-called role to protect the
property rights.
More problematic is the confusion established relative to the role a market must play.
The market process allocates the resources to the most highly valued uses, and not to the
uses yielding the highest level of product. The Coasian model assumes that people are
only interested in physical things, yet the psychic dimension is the most important one.
Maybe it is one divergence between the approach of subjectivism and “objectivism” for
determining the value of goods. There is also a confusion between the rational decision to
put some limits upon allocating resources for the enforcement of law and order and the assertion
that the delineation of property rights is defined by the costs of law-enforcement.
A crime will never yield a “social gain”. It only destroys value by preventing from peaceful
allocation. Naturally, it represents a gain for the criminal, but the user or the holder
of the resource will never be the legitimate owner. All crimes cannot be avoided because
of the cost of enforcement, but crime will remain a crime forever. Consequently, the
choice is not between two levels of production but between two harms.
Bibliography
[1] Alchian A. and H Demsetz (1973), “The Property Right Paradigm", Journal of
Economic History, (43): 16-27.
Carnis: Coase and the Economics of Crime 29
[2] Barnett Randy E. (1977), “Restitution: A New Paradigm of Criminal Justice" in
Randy E. Barnett and John Hagel III (eds.), Assessing the Criminal, Restitution,
Retribution, and the Legal Process, Ballinger Publishing Company, pp. 349-383.
[3] Becker Gary S. (1968), “Crime and Punishment: An Economic Approach”, Journal
of Political Economy, March-April, (78): 169-217.
[4] Boudreaux Donald J. (1998), “The Coase Theorem”, in Peter J. Boettke (ed.), The
Elgar Companion to Austrian Economics, Edward Elgar, Chapter 27, p. 179-186.
[5] Carnis Laurent (2004), “Pitfalls of the Classical School of Crime”, The Quarterly
Journal of Austrian Economics, Winter, 7(4), pp. 7-18.
[6] Carnis Laurent (2002), “Economic Approach of Crime: Mainstream Economics vs.
Rothbard”, Paper delivered in the honor of the 40th Anniversary of Murray Rothbard’s
Man, Economy and State, March, Ludwig Von Mises Institute, Auburn, Alabama.
[7] Coase Ronald H. (2000), Le coût du droit, Collection Droit, Economie, Société,
Presses Universitaires de France.
[8] Coase Ronald H . (1960), “The Problem of Social Cost”, The Journal of Law and
Economics, Vol. III, October, pp. 1-44.
[9] Coase Ronald H. (1937), “The Nature of the Firm”, Economica, (4), November.
[10] Demsetz Harold (1967), “Toward a Theory of Property Rights", American Economic
Review, (57): 347-359.
[11] Ehrlich Isaac (1973), “Participation in Illegitimate Activities: A Theoretical and
Empirical Investigation”, Journal of Political Economy, (81)3: 521-565.
[12] Ehrlich Isaac (1996), “Crime, Punishment, and Market for Offences”, Journal of
Economic Perspectives, winter, (10)1: 43-67.
[13] Hasen Richard L. and Richard H. McAdams (1997), “The Surprisingly Complex
Case Against Theft”, International Review of Law and Economics, (17): 367-378..
[14] Hayek Friedrich (von), (1991 [1953]), Scientisme et sciences sociales, Collection
Agora.
30 New Perspectives on Political Economy
[15] Ikeda Stanford (1997), Dynamics of the Mixed Economy, Routledge
[16] Lewin Jeff L. and William N. Trumbull (1993), “Neither Boxed In nor Circular: A
Reply to Professor McChesney”, International Review of Law and Economics, (13):
232-234.
[17] Lewin Jeff L. and William N. Trumbull (1990), “The Social Value of Crime?”,
International Review of Law and Economics, (10): 271-284.
[18] McChesnay Fred. S. (1993), “Boxed In: Economists and Benefits from Crime”,
International Review of Law and Economics, (13): 225-231.
[19] North Douglass C. (1990), Institutions, Institutional Change and Economic Performance,
Cambridge University Press, pp. 93-94.
[20] North Gary (2002), “Undermining Property Rights: Coase and Becker”, Journal
of Libertarian Studies, Vol. 16, no 4, fall, pp. 75-100.
[21] Posner Richard A. (1985), “An Economic Theory of the Criminal Law”, Columbia
Law Review, October, (85)6: 1193-1231.
[22] Rothbard Murray N. (2000 [1974]), Egalitarianism as a Revolt Against Nature, 2nd
Edition, Ludwig Von Mises Institute, Auburn, Alabama.
[23] Rothbard Murray N. (1997), “Law, Property Rights, and Air Pollution” in The
Logic of Action 2, Applications and Criticism from the Austrian School, Edward Elgar.
[24] Rothbard Murray N. (1991), “L’économie du bien-être : une reconstruction” in
Economistes et Charlatans, Collection laissez faire, Les Belles Lettres.
[25] Rothbard Murray N. (1991), L’éthique de la liberté, Collection laissez faire, Les
Belles Lettres.
[26] Rothbard Murray N. (1982), The Ethics of Liberty, Humanities Press.
[27] Tullock Gordon (1967), “The Welfare Costs of Tariffs, Monopolies, and Theft”,
Western Economic Journal, (V)3: 224-232.
Carnis: Coase and the Economics of Crime 31
[28] Shavell Steven (1991), “Specific versus General Enforcement of Law”, Journal of
Political Economy, (99)5, pp. 1088-1108.
[29] Shavell Steven (1984), “Liability for Harm Versus Regulation of Safety”, Journal of
Legal Studies, June, (XIII): 357-374.
[30] Stigler George J. (1970), “The Optimum Enforcement of Laws”, Journal of Political
Economy, May-June, (3): 526-535.
[31] Tollison Robert D. and Roger D. Congleton (1995), The Economic of Rent Seeking,
The International Library of Critical Writings in Economics, An Elgar Reference
Collection, Elgar Edgar.
[32] Tullock Gordon (1967), “The Welfare Costs of Tariffs, Monopolies and Theft",
Western Economic Journal, (V)3: 224-232.
[33] Von Mises Ludwig (1990 [1920]), Economic Calculation in the Socialist Commonwealth,
Ludwig Von Mises Institute, Auburn, Alabama.
[34] Von Mises Ludwig (1983 [1944]), Bureaucracy, Libertarian Press.
[35] Votey Harold and Llad Phillips (1972), “Police Effectiveness and the Production
Function for Law Enforcement”, Journal of Legal Studies, (1)2: 423-436.
[36] Zerbe Richard O. Jr. (2001), Economic Efficiency in Law and Economics, New Horizons
in Law and Economics, Edward Elgar.
ISSN 1801-0938
New Perspectives on Political Economy
Volume 1, Number 2, 2005, pp. 32 – 49
The Austrian School in the American Economic Review
(1911-2004): The Initial and Final Decades
Greg Kaza∗
JEL Classification: B19, B29
Abstract: Reference to an Austrian or neo-Austrian economist has appeared in the American
Economic Review each year since the journal was first published in 1911. Topics examined
in the first (1911-20) and last decades (1995-2004) of the AER’s publication include
mathematics’ role in economics, the business cycle, and government central planning and
interventionism.
∗
Executive Director, Arkansas Policy Foundation, 111 Center Street (Stephens Bldg.), 12th Floor, Suite
1200, Little Rock, AR. 72201
Kaza: The Austrian School in the American Economic Review 33
1 Introduction
The American Economic Review (AER), first published in 1911, is one of the leading
economic journals in the United States. An important measure of the AER’s preeminence:
13 Presidents of the American Economic Association, which publishes the quarterly
journal, have won the Nobel Prize in Economics.1 An AER Editor who never
served as President also won the prize.2
Bank of England Governor Mervyn King’s (AER2004, 1-13, a) reference to Austrian
economists Carl Menger (1892) and Friedrich A. Hayek (1976) marked the 94th consecutive
year that Austrians have been cited in the AER.3 This impressive history of
publication includes references to traditional Austrians like Menger, Hayek, Eugen von
Bohm-Bawerk, Ludwig von Mises, Richard von Strigl, Friedrich von Wieser, Murray
N. Rothbard, Israel Kirzner, and Hans Sennholz. It also includes neo-Austrians such as
Joseph Schumpeter, Gottfried Haberler, Fritz Machlup, Benjamin M. Anderson, and Oskar
Morgenstern. Far from being non-credible, the Austrian School remains relevant in
the pages of one of America’s leading economic journals.
A reference to an Austrian or neo-Austrian economist has appeared in the AER each
year since the journal was first published in 1911 (Appendix). This review is a brief
survey of references to the Austrian School in the initial (1911-1920) and final decades
(1995-2004) of the AER’s history. Topics covered in references to the Austrian School in
both periods include the role of mathematics in economics, the business cycle, and central
planning and Hayek’s problem of knowledge. Some references in the AER’s initial decade
anticipated the final decade. Schumpeter’s observation about mathematics’ limitations
was discounted as econometrics emerged to dominate the AER. His insights about the
1
Eleven economists served as AEA President prior to being awarded the Nobel: Paul A. Samuelson (AEA
1961, Nobel 1970), Simon Kuznets (1954, 1971), Wassily Leontief (1970, 1973), Milton Friedman (1967,
1976), Lawrence R. Klein (1977, 1980), James Tobin (1971, 1981), George J. Stigler (1964, 1982), Franco
Modigliani (1976, 1985), Robert M. Solow (1979, 1987), Gary S. Becker (1987,1992), Amartya Sen (1994,
1998). Two economists served as AEA President after being awarded the Nobel: Kenneth Arrow (AEA
1973, Nobel 1972), Robert E. Lucas, Jr. (2002, 1995).
2
Joseph S. Stiglitz was AER Editor (1986-1993) and was awarded the Nobel in 2001.
3
Garicano and Santos (AER2004, 499-525), one month after Governor Kings remarks, started their essay
by citing Hayek (AER1945, 519-30) on the knowledge problem: “The peculiar character of the problem
of a rational economic order is determined precisely by the fact that the knowledge of the circumstances
of which we must make use never exists in a concentrated or integrated form.”
34 New Perspectives on Political Economy
business cycle fared better. Anderson reviewed central planning in World War I, and
Hayek’s “knowledge problem” was cited in the final decade. Some issues, it appears, are
eternal in economics. Von Mises’ and Anderson’s early criticism of the quantity theory,
however, was not echoed in the AER’s final decade.
2 The Initial Decade (1911-1920)
The Role of Mathematics
Austrian skepticism about the role of mathematics in economics appeared in the AER’s
first year of publication. Wicker (AER1911, 318-20) is the first reference in the AER to
an Austrian or neo-Austrian. Schumpeter’s Das Wesen (1908) is termed “revolutionary”,
and deemed “deserving of more attention and consideration than it has received from
American and English economists.” Wicker praises Schumpeter’s scholarship, observing:
One of the most valuable features of the book lies in its discussion of the views
of other economists. This discussion, which constitutes in the aggregate a large part
of the volume, is quite unusually catholic and kindly. It reveals a closely critical
knowledge of the economic literature of the nineteenth century, both European and
American.
Wicker notes a theme of the book is, “Economic dynamics can never be an ‘exact’ science.”
Mathematics should be limited to “the field of statics”.
The Business Cycle
A reference to the business cycle appeared in the AER’s second year. Clark (AER1912,
873-75) cites Bohm-Bawerk’s “brilliant studies” of “time an element in production” and
“capitol and organization” in his review of Schumpeter (1912). He notes Schumpeter’s
analysis of the business cycle: examines “commercial crises and treats them very properly
as dynamic phenomena–the outcome of a certain unbalanced and uneven progress.”
Clark observes that Schumpeter “draws a distinction between the kind of change which
presents no serious problems for solution and the kind which creates such problems.”
Kaza: The Austrian School in the American Economic Review 35
Population growth and “enlargement of the fund of capital would call for adaptations
which would take place automatically and steadily,” he notes, “while the coordinations
made by entrepreneurs cannot act evenly and extend throughout the whole system at
once.”
Monetary Policy: Criticism of the Quantity Theory
Austrian criticism of the quantity theory of money appeared in the AER’s third year.
Lutz (AER1913, 144-46) is a critical review of Von Mises (1912). Austrian criticism of the
quantity theory of money and the use of index numbers is reviewed. Von Mises contends
that while the quantity theory “contains a germ of truth in the proposition that the demand
for and the supply of money are conditions which affect its value, it does not afford
an adequate explanation of the value of money.” Index numbers “may be of some use in
ascertaining objective use-value”, this “is of relatively little significance, compared with
the subjective significance of a given money quantity.” Index numbers may render a useful
service, but they are “of no significance for the development of the theory of the value
of money.” Lutz is critical. “The work under review,” he writes, “apparently represents
an effort to develop a theory of money which will be in accord with the utility theory
of value in its most extreme subjective applications.” He concludes “the thoroughgoing
application of this theory in all of its detail leads to mainly negative results.” Lutz rejects
this explanation, arguing “there are certain external objective phenomena of price which
may be known, recorded, and studied; and on the basis of these objective manifestations
safe conclusions may be drawn regarding the course of prices and its relation to human
welfare.”
Anderson (AER1916, 168-69, s) continues this Austrian criticism of the quantity the-
ory:
It is, moreover, quite grotesque for static theory to offer itself as a support for its
own foundations. A static or “normal” theory of money and credit, resting on the
notion of accomplished equilibrium, after transitional changes have been effected,
misses the main point as to the function of money and credit. Static theory which
assumes frictionless fluidity, misses the whole point concerning money and credit.
A functional theory of money and credit must be a dynamic theory, basing itself on
36 New Perspectives on Political Economy
an analysis of friction, of transitions, and the like. And this is one reason, among
many, why I find the quantity theory of money indefensible.
Wicksell (AER1919, 927) is an abstract reference to an article critical of Anderson’s attack
on the quantity theory. Phillips (AER1920, 137-40) also notes Anderson’s quantity
theory criticism.
Other Monetary Policy
Johnson (AER1914, 113-16) is a review of Bohm-Bawerk (1912). Johnson explains a
“large proportion of the literature on interest during the last two decades has centered on
Bohm-Bawerk’s theory:” He continues, “It may fairly be said that a primary classification
of economic theorists is based upon the acceptance or rejection of Bohm-Bawerk’s
interest doctrine.” Bohm-Bawerk’s “frequent contributions to the periodical literature of
economics has offered sufficient evidence that he has allowed little of the vast volume
of criticism to escape him,” Johnson notes, reviewing the Austrian’s response to Alfred
Marshall and Irving Fisher. Johnson finds Bohm-Bawerk’s system “logically unassailable”
except for “the single exception of the treatment of the relation of productivity to
the interest rate.”
The passing of Bohm-Bawerk (1851-1914) is noted (AER1915, 947-48) in an abstract
reference to Schumpeter’s memorial (1914). Schumpeter’s tribute is termed, “A keenly
sympathetic summary and appreciation by a pupil and colleague.”
Mitchell (AER1916, 140-61, s) cites Bohm-Bawerk (145n), Menger (143-44), von
Wieser (148n) and Schumpeter (150) in his paper on monetary policy. He writes, “Among
recent tendencies in economic theory none seems to me more promising than the tendency
to make the use of money the central feature of economic analysis.”
Anderson is cited on the limits of fiscal policy in Davenport (AER1917, 1-30).
Central Planning
Anderson (AER1918, 239-56) is a review of U.S. government price-fixing during World
War I. “The more prices the government undertakes to control,” Anderson concludes,
Kaza: The Austrian School in the American Economic Review 37
“the greater the difficulties involved.”
Anderson (AER1919a, 192) opposes peacetime central planning, arguing, “Artificial
control of business and prices should be dispensed with as early as possible.” Opposition
continues in Phillips (AER1920, 137-40), a review of Anderson (1919b), termed “interpretive
and critical, (a) finely and judicially critical, record” for both countries of “economic
transformations” as a result of WWI. This includes Anderson’s scathing and convincing
condemnation of the policy of restricting gold payments within the U.S. and abroad.
3 The Final Decade (1995-2004)
The Role of Mathematics
The AER was dominated in the final decade by econometrics. The majority of references
to the Austrian School are in articles that use econometrics to examine issues. The
methodology is questionable, but the breadth of topics examined by models is remarkable,
including pari-mutuel betting, migration, trade, reputation, and truckers. It appears
there is no problem that econometrics cannot solve.
Hurley and McDonough (AER1995, 949-56) consider the Hayek hypothesis as it relates
to the favorite-longshot bias in parimutuel betting (favorites win more often than
the betting odds indicate, and longshots win less often than the betting odds indicate).
The Hayek hypothesis, according to Nobel laureate Vernon L. Smith (1982), suggests
that markets can work efficiently even when participants have a limited knowledge of
the environment or of other participants.
Hurley and McDonough conclude:
Our model suggests that the subjective win probability on a favorite, or near
favorite, ought to be bounded above by its objective probability adjusted for track
take. This hypothesis appears to be supported by the empirical findings of other
researchers. However, the empirical results of two parimutuel-betting experiments
are not consistent with this argument. The firm conclusion of this paper is that the
bias on the favorite is not explained by costly information and transaction costs.
Carrington, Detragiacha and Vishwanath (AER1996, 909-30) cite Higgs in a footnote
38 New Perspectives on Political Economy
(1976) in presenting a “dynamic model of migration in which moving costs are declining
with the stock of migrants” in the U.S. The authors conclude, “The boll weevil and
WWI provided the impetus for a migration process that continued even as the NorthSouth
wage gap shrank.” This interpretation, they write, is consistent with the views of
others, including Higgs who “emphasize the endogenous dynamics of migration.”
Schumpeter (1942) drives technological change in the model developed by Dinopoulos
and Segerstrom (AER1999, 450-72) that “presents a dynamic general equilibrium
model of R-&-D-based trade between two structurally identical countries in which both
innovation and skill acquisition rates are endogenously determined.” They conclude:
Trade liberalization increases R-&-D investment and the rate of technological
change. It also reduces the relative wage of unskilled workers and results in skill
upgrading within each industry when R-&-D is the skilled-labor intensive activity
relative to manufacturing of final products.
Horner (AER2002, 644-63) cites Hayek (1946) and Schumpeter (1950) in a paper that
“shows how competition generates reputation-building behavior in repeated interactions
when the product quality observed by consumers is a noisy signal of firms’ effort level.”
Horner develops a model, and concludes the “threat of exit induces good firms to choose
high effort, allowing good reputations to be valuable, but its uncompromising execution
forces good firms out of the market.” Economists’ assumptions that “market participants
have complete knowledge of all relevant factors” has “long been criticized as limiting
the applicability of the theory, especially when competition is thought of as a dynamic
process,” as Austrian economists view the issue.
Collins (AER2001, 272-86) cites Higgs (AER1977, 236-45). His model examines fair
employment practices in U.S. labor markets during World War II.
Central Planning
Hayek’s seminal essay (AER1945, 519-30) on the knowledge problem in economics is
cited by Williamson (AER2002, 438-43), which examines private ordering in contracts.
Hubbard (AER2003, 1328-1353) cites Hayek (AER1945, 519-30) in developing a
model that examines capacity utilization gains from on-board computers in the trucking
Kaza: The Austrian School in the American Economic Review 39
industry. Hayek’s “famous analysis of economic organization,” he writes, “are at the core
of a recurring theme in the productivity literature: the premise that information technology
(IT) offers opportunities for large productivity gains.” To Hayek, “understanding
relationships between informational and resource allocation improvements is central for
understanding the performance of economic organizations, and how decreases in information
costs lead to increases in welfare.”
The Business Cycle
Harberger (AER1998, 1-32, a) discusses the cycle as it relates to total factor productivity
(TFP). “To me,” Harberger states, “Joseph A. Schumpeter’s vision (1934) of ‘creative
destruction’ captures much of the story. What he is saying is, yes, it’s a jungle out there,
but the processes of that jungle are at the core of the dynamics of a market-oriented
economy. They are what got us to where we are, and they hold the best promise for
further progress in the future.” He writes:
Schumpeter saw through to the essence of the problem, but it is not wise for us
to be fatalistic in accepting his vision. We cannot lose by making a major effort to
understand the process of TFP improvement where it happens–at the level of the
firm. This is all the more true because of the performance of negative as well as
positive TFP performance.
Other References
Sen (AER1995, 1-24, a) cites Hayek (1960) on the idea of “personal domains” and “protected
spheres” in a footnote.
Chow (AER1997, 321-327, s) argues Hayek’s conception (1949) of individualism as
“an ideal in a Western market economy” is in conflict with China’s economic system.
Chow contends “individualism versus the collective good” is among “the challenges of
the market economy in China” for economic theory. The ideal of individualism, Chow
writes, “is not generally accepted in Asian countries. Individual rights may be in conflict
with the common good . . . In Asian societies, the common good is often considered
to be more important than individual rights. Not only is individual freedom restricted,
40 New Perspectives on Political Economy
but members of a society are educated to serve the society.” According to Chow, market
economies have functioned with a limited amount of political freedom in mainland
China and other Asian countries.
Schumpeter’s “perennial gale of creative destruction” makes another appearance in
Schmalensee (AER2000, 192-96, s), which presents a case for software markets as “Schumpeterian”
in an article on U.S. antitrust issues. Schmalensee quotes Schumpeter (1950,
84), “This gale is driven not by price competition, but by competition from the new
commodity, the new technology . . . competition which strikes not at the margins of the
profits of the existing firms but at their foundations and their very lives.”
Goeree and Holt (AER2001, 1402-22) cite von Neumann-Morgenstern (1944) on
game theory.
4 Conclusion
A brief survey of references to the Austrian School in the initial (1911-1920) and final
decades (1995-2004) of the AER’s history reveals three topics common to both periods:
mathematics’ role in economics, the business cycle, and government central planning and
interventionism.
There is clarity of Austrian views in the initial decade. These include skepticism
about mathematics role in economics; early Schumpetarian cyclical insights that would
flower in the 1930s and 1940s, with variants of Austrian Business Cycle Theory (ABCT)
developed by Hayek and von Mises; and a trenchant assault on the quantity theory led
by B.M. Anderson, Jr.
The Austrian viewpoints presented in the final decade are inchoate and largely ironic.
How ironic that a School known for its skepticism of econometrics should have some of
its greatest works by Hayek and Schumpeter co-opted by mathematical economists for
their econometric models. If the Austrian School was irrelevant or non-credible it would
be ignored in the pages of one of America’s leading economic journals. Yet the frequent
references to Austrians, even in these econometric models, only serves to reinforce the
School’s importance nearly one century after Menger, Bohm-Bawerk, von Mises, Schumpeter
and Anderson first appeared in the AER.
Kaza: The Austrian School in the American Economic Review 41
5 Appendix
Austrian and neo-Austrian economists appeared in the American Economic Review in
the following chronological order:
(1911) Schumpeter
(1912) Schumpeter
(1913) Von Mises
(1914) Bohm-Bawerk
(1915) Bohm-Bawerk
(1916) Austrian School, B.M. Anderson, Bohm-Bawerk, Menger, Schumpeter, Von
Wieser
(1917) B.M. Anderson
(1918) B.M. Anderson
(1919) B.M. Anderson
(1920) B.M. Anderson
(1921) Austrian School, B.M. Anderson
(1922) B.M. Anderson, Bohm-Bawerk, Schumpeter
(1923) B.M. Anderson, Von Mises
(1924) Schumpeter
(1925) Bohm-Bawerk
(1926) Bohm-Bawerk
(1927) Austrian School, Bohm-Bawerk, Menger, Morgenstern. Schumpeter, Von
Strigl, Von Wieser
42 New Perspectives on Political Economy
(1928) Austrian School, Bohm-Bawerk, Morgenstern, Schumpeter
(1929) B.M. Anderson, Bohm-Bawerk, Menger, Von Mises
(1930) Austrian School, Bohm-Bawerk, Haberler, Hayek, Ropke
(1931) Bohm-Bawerk, Schumpeter
(1932) Von Mises
(1933) Haberler, Hayek
(1934) Hayek, Machlup, Morgenstern; Von Mises
(1935) Hayek, Machlup, Von Mises
(1936) Haberler, Ropke
(1937) Machlup, Morgenstern, Ropke, Von Mises
(1938) Haberler, Machlup, Ropke , Von Strigl
(1939) Haberler, Machlup, Menger, Schumpeter, Von Mises
(1940) B.M. Anderson, Machlup, Morgenstern
(1941) Hayek, Machlup, Schumpeter
(1942) Haberler, Machlup, Schumpeter
(1943) Haberler, Machlup, Von Mises
(1944) Haberler, Schumpeter; Von Mises
(1945) Haberler, Hayek
(1946) Hayek, Machlup, Schumpeter
(1947) Haberler, Machlup
(1948) Haberler, Morgenstern
(1949) Haberler, Machlup, Morgenstern, Schumpeter
Kaza: The Austrian School in the American Economic Review 43
(1950) Machlup, Schumpeter,Von Mises
(1951) Morgenstern, Rothbard
(1952) Bohm-Bawerk, Machlup, Menger, Schumpeter, Von Wieser
(1953) Haberler, Machlup
(1954) Haberler, Hayek, Schumpeter
(1955) Bohm-Bawerk, Machlup, Morgenstern
(1956) Lachmann
(1957) Machlup
(1958) Sennholz
(1959) Schumpeter, Von Mises
(1960) Machlup
(1961) Hazlitt, Machlup
(1962) Schumpeter
(1963) Machlup, Rothbard, Sennholz, Von Mises
(1964) Haberler, Machlup, Morgenstern
(1965) Machlup
(1966) Haberler
(1967) Machlup
(1968) Kirzner, Machlup
(1969) Hayek, Machlup, Schumpeter, Von Mises
(1970) Machlup, Morgenstern, Schumpeter
(1971) Machlup
44 New Perspectives on Political Economy
(1972) Haberler, Hayek
(1973) Bohm-Bawerk
(1974) Bohm-Bawerk, Hayek, Machlup, von Mises
(1975) Hayek
(1976) Machlup, Schumpeter
(1977) Haberler, Higgs, Machlup
(1978) Schumpeter
(1979) Morgenstern
(1980) Haberler
(1981) Austrian School, Bohm-Bawerk, Hayek, Menger
(1982) DiLorenzo, Hayek, Higgs, Schumpeter
(1983) Hayek, Holcombe, Schumpeter
(1984) DiLorenzo; Higgs, Schumpeter
(1985) Austrian School, Bohm-Bawerk, Garrison, Hayek, Rothbard, Von Mises
(1986) Hayek, Higgs, Menger
(1987) Machlup, Morgenstern
(1988) Machlup, Schumpeter
(1989) Haberler, Hayek
(1990) Schumpeter
(1991) Hayek, Morgenstern
(1992) Hayek, Mintz, Schumpeter
(1993) Morgenstern, Schumpeter
Kaza: The Austrian School in the American Economic Review 45
(1994) Hayek, Menger, Mintz, Schumpeter
(1995) Hayek
(1996) Higgs
(1997) Hayek
(1998) Schumpeter
(1999) Schumpeter
(2000) Schumpeter
(2001) Higgs, Morgenstern
(2002) Hayek, Schumpeter
(2003) Hayek
(2004) Hayek, Menger
Bibliography
[1] Anderson, Benjamin M., Jr. 1916. “Tendencies in Economic Theory-Discussion.”
American Economic Review (March) 168-69 (s)
[2] Anderson, Benjamin M., Jr. 1918. “Value and Price Theory in Relation to PriceFixing
and War Finance.” American Economic Review (March) 239-56, (s)
[3] Anderson, Benjamin M., Jr. 1919a. The Benefits of Price Readjustment. Economic
World, Dec. 28, 1918. (Abstract) American Economic Review (March) 192
[4] Anderson, Benjamin M., Jr. 1919b. Effects of the War on Money, Credit and Banking
in France and the United States. Carnegie Endowment for International Peace.
Preliminary Economic Studies of the War, No. 15. (New York) Oxford University
Press.
46 New Perspectives on Political Economy
[5] Bohm-Bawerk, Eugen von. 1912. Kapital und Kapitalzins. Zweite Abteilung: Positive
Theorie des Kapitales. (Innsbruck) Verband der Wagnerischen Universitats-
Buchhandlung.
[6] Carrington, William J., Enrica Detragiacha and Tara Vishwanath. 1996. “Migration
with Endogenous Moving Costs.” American Economic Review (September) 909-30
[7] Chow, Gregory C. 1997. “Challenges of China’s Economic System for Economic
Theory.” American Economic Review (May) 321-27, (s)
[8] Clark, John Bates. 1912. “Theorie der wirtschaftlichen Entwicklung,” by Joseph
Schumpeter. (Book review) American Economic Review (December) 873-75
[9] Collins, William J. 2001. “Race, Roosevelt, and Wartime Production: Fair Employment
in World War II Labor Markets.” American Economic Review (March)
272-86
[10] Davenport, H.J. 1917. “Theoretical Issues in the Single Tax.” American Economic
Review (March) 1-30
[11] Dinopoulos, Elias and Paul Segerstrom 1999. “A Schumpeterian Model of Protection
and Relative Wages.” American Economic Review (June): 450-72)
[12] Garicano, Luis and Tano Santos. 2004. “Referrals.” American Economic Review
(June): 499-525
[13] Goeree, Jacob K. 2001. “Ten Little Treasures of Game Theory and Ten Intuitive
Contradictions.” American Economic Review (December) 1402-44
[14] Harberger, Arnold C. 1998. “A Vision of the Growth Process.” American Economic
Review (March) 1-32
[15] Hayek, Friedrich A. 1945. “The Use of Knowledge in Society.” American Economic
Review (September): 519-30
[16] Hayek, Friedrich A. 1946, 1948, 1949. Individualism and Economic Order.
(Chicago) Univ. of Chicago Press
Kaza: The Austrian School in the American Economic Review 47
[17] Hayek, Friedrich A. 1960. The Constitution of Liberty. (London, U.K.) Routledge
and Kegan Paul
[18] Hayek, Friedrich A. 1976. Denationalization of Money. (London, U.K.) Institute
of Economic Affairs
[19] Higgs, Robert. 1976. “The Boll Weevil, The Cotton Economy, and Black Migration,
1910-1930.” Agricultural History (April) 335-50
[20] Higgs, Robert. 1977. “Firm-Specific Evidence on Racial Wage Differentials and
Workforce Segregation.” American Economic Review (March) 236-45
[21] Horner, Johannes. 2002. “Reputation and Competition.” American Economic Review
(June) 644-63
[22] Hubbard, Thomas N. 2003. “Information, Decisions, and Productivity: On-Board
Computers and Capacity Utilization in Trucking.” American Economic Review
(September) 1328-1353
[23] Hurley, William and Lawrence McDonough. 1995. “A Note on the Hayek Hypothesis
and the Favorite-Longshot Bias in Parimutuel Betting.” American Economic
Review (September) 949-56
[24] Johnson, Alvin S. 1914. “Kapital und Kapitalzins,” by Eugen von Bohm-Bawerk
(Book review) American Economic Review (March) 113-16.
[25] King, Mervyn. 2004. 2004. “The Institutions of Monetary Policy.” American Economic
Review (May) 1-13 (a)
[26] Lutz, H.L. 1913. “Theorie des Geldes und der Umlaufsmittel,” by Ludwig von
Mises. (Book review) American Economic Review (March) 144-46
[27] Mitchell, Wesley C. 1916. “The Role of Money in Economic Theory.” American
Economic Review (March) 140-61 (s)
[28] Phillips, C.A. 1920. “Effects of the War on Money, Credit and Banking in France
and the United States,” by B.M. Anderson, Jr. (Book review) American Economic
Review (March) 137-40
48 New Perspectives on Political Economy
[29] Schmalensee, Richard. 2000. “Antitrust Issues in Schumpeterian Industries.” American
Economic Review (May) 192-96 (s)
[30] Schumpeter, Joseph A. 1908. Das Wesen und der Hauptinhalt der theoretischen
Nationalokenomie. (Leipzig) Duncker und Humblot)
[31] Schumpeter, Joseph A. 1912. Theorie der wirtschaftlichen Entwicklung. (Leipzig)
Duncker und Humblot)
[32] Schumpeter, Joseph A. 1914. “Das wissenschaftliche Lebenswerk Eugen von BohmBawerk.”
Zeitschrift Volkswirts, XXIII, (5-6) 73
[33] Schumpeter, Joseph A. 1934. The Theory of Economic Development. (Cambridge)
Harvard University Press.
[34] Schumpeter, Joseph A. 1942, 1950. Capitalism, Socialism, and Democracy. (New
York) Harper & Row
[35] Sen, Amartya. 1995. “Rationality and Social Choice.” American Economic Review
(March) 1-24 (a)
[36] Smith, Vernon L. 1982. “Markets as Economizers of Information: Experimental
Examination of the Hayek Hypothesis.” Economic Inquiry (April) 165-79
[37] Von Mises, Ludwig. 1912. Theorie des Geldes und der Umlaufsmittel. (Leipzig)
Duncker und Humblot
[38] Von Neumann, John and Oskar Morgenstern. 1944. Theory of games and economic
behavior. (Princeton, N.J.) Princeton University Press
[39] Wicker, George Ray. 1911. “Das Wesen” by Joseph Schumpeter. (Book review)
American Economic Review (June): 318-20
[40] Wicksell. Knut. 1919. “Vazelkurzernas gaata.” Ek Tids., No. 4, 1919. (Abstract)
American Economic Review (December) 927
Kaza: The Austrian School in the American Economic Review 49
[41] Williamson, Oliver E. 2002. “The Lens of Contract: Private Ordering.” American
Economic Review (May) 438-43 (s)
(Leading AER articles are marked (a), annual meeting supplements (s), all other articles
are reviews)
ISSN 1801-0938
New Perspectives on Political Economy
Volume 1, Number 2, 2005, pp. 50 – 75
Independence and Responsibility of Central Banks
Michal Kvasniˇcka∗
JEL Classification: E52, E58, E59, E60
Abstract: A strong information asymmetry may exist between central bank managers
and both the public and the government. Therefore managerial discretion of the central
bank managers is possible. On the other hand the government is able to constrain, or
threaten it better than anyone else. For this reason the central bank can neither be fully
controlled by the government, nor fully independent of it. The actual level of dependence
may differ from the formal one, and may not be observable. There can also be many
special-interest groups in the economy that can try either to bribe or threaten the central
bank managers. The strength and aims of these groups may change through the time. For
this reason the generally optimal level of the central bank formal independence might not
exist.
∗
ESF MU Brno, qasar@econ.muni.cz
Kvasniˇcka: Independence and Responsibility of Central Banks 51
1 Introduction
There are organizations in modern economies that neither evolved spontaneously for
some economic reason (like e. g. firms), nor were set up out of pure necessity (like
e. g. army), but were established by governments for their special interests. Usually,
these organizations could not come to existence without governmental power behind
them, and in some cases they would disappear if their governmental protection ended.1
Nonetheless, many of these organizations have evolved through the time (and sometimes
they have changed their environment as well) in such a way that now they subserve
important economic goals–some of them even have a vital role in modern economies. A
great example of such an organization is a central bank, but many other instances are at
hand.
Both historical experience and the public choice theory shows us that such organizations
might be dangerous for society if abused by the government. The theory and
experience also show us that there might be (at least sometimes) a strong incentive for the
government to abuse these organizations. That is why there is a strong pressure to make
some of these potentially dangerous organizations independent of the government. But
with independence new problems arise: the accountability, responsibility, and legitimacy
of these organizations are questionable.
This is precisely what has happened in the case of central banks. In the second half
of the 20th century, central banks were seen as an inevitable part of market economies,
which were necessary to stabilize the business cycle and the banking system, and perhaps
also the price level. Then new theories and evidence appeared showing that the
government can benefit from an abuse of the monetary policy or the central bank itself.
This brought a strong movement toward the independence of the central banks, later
1
The type of organization we have in mind is slightly different form “political firm” (see Eggertsson,
1990, p. 149). “Political firm” denotes “any organization owned by a local or national political unit that
employs labor services and material inputs to produce commodities.” It includes all firms that are run by
a government no matter whether they could be operated in the same way as private firms, or not. Water
and sanitation company is an example of a firm that is often operated as a political firm, but could be as
well operated as a private firm. We have in mind an organization that has a governmental protection of
some kind and is given a privilege or power of some kind to be able to provide some services that could
not be provided without the protection and privilege or power. Imagine a public television (having a
privilege to be financed from taxes), or a central bank (having a monopoly over bank notes issue).
52 New Perspectives on Political Economy
strengthened by an apparent correlation between the central bank independence and a
low rate of inflation. Nowadays most central banks are much more independent of the
government then ever before. But voices come out that the central bank independence violates
the democratic control over the monetary policy and lets one of the most powerful
governmental organization subject to non-elected individuals.
At first glance it seems that we have a choice, or even a trade-off between the independence
and responsibility. A more independent central bank may carry out better
monetary policy (whatever it means) because it is not pushed by potential special interests
of the present government. On the other hand the lack of democratic control is also
higher, which may make the actual monetary policy worse. It seems that there must be
an optimal level of independence. Such an optimal level is presumed, for instance, by
most advocates of the inflation targeting. They usually suppose that the optimal level of
independence of the central bank means that the government sets the ultimate inflation
goal while the central bank is free to use any tools to achieve it. In other words, the central
bank is fully operationally independent and fully goal-controlled by the government.
This view assumes too much. It assumes that the actual level of policy independence
is the same as the formal one. It also assumes that the government always wants to
abuse the monetary policy while the central bank managers are benevolent agents of
the public always struggling for the best available outcomes. Moreover, it neglects also
the fact that there may be special-interest lobbies different form the government. These
presuppositions are not often questioned. The goal of this paper is to question them on
the basis of the positive theory of agency, the theory of bureaucracy, and the theory of
bureaucratic behavior of central banks.
Our hypothesis is as follows: The management of a central bank is by definition a
bureaucracy that has its own goals. Some of these goals are compatible with the government’s
goals, while others are not. There can be also special-interest groups different
from the government that can try either to threaten or bribe the central bank’s bureaucracy
to act in favor of them. There is a great information asymmetry that can make
it difficult both for the government and the public to check the central bank’s actual
performance. This information asymmetry may open the central bank’s management to
informal silent influence of the government, therefore making the expected benefits of
the independence questionable. In the same way it can open it to a silent influence of
Kvasniˇcka: Independence and Responsibility of Central Banks 53
other lobbies as well. Under such an institutional setting the actual performance of the
central bank is determined not only by the degree of its formal policy independence of
the government, but by much broader spectrum of influences. A general solution may
not exist (perhaps except privatization of the central bank, i. e. its destruction).
In the paper we will try to expose this hypothesis in more details and search for the
major players, identifying their interests, possible strategies, and constraints. We will also
try to show which of the conflicting goals will be achieved and to what extent. We will
not try to offer a formal model at this stage since the problem is not yet ready for that.
We will also not try to test the hypothesis yet, for the reasons that will be clear when the
hypothesis is exposed in more detail. We will focus on the case of a central bank, because
it could be seen as a model example of an organization created for the particular interests
of politicians, and because the question of its independence of a government is both
interesting and widely discussed. We hope that it is possible to extend the hypothesis to
many more examples.
The structure of the paper is this: First we analyze the bureaucratic nature of a central
bank, and some of its consequences (section 2). Then we identify the incentives of the
central bank management (section 3), and of special-interest groups that can affect its
behavior (section 4). We try to analyze in what way their goals can influence the behavior
of the central bank managers, and how conflicting goals can be handled by them. In the
end we summarize the hypothesis, and draw some conclusions (section 5).
2 Central Bank as a Bureaucratic Organization
First of all we have to carefully analyze the nature of a central bank. To understand a
modern central bank we have to keep in mind its origin. White (1999) shows there is no
spontaneous tendency for the evolution of central banks. Definitely, some of the functions
provided nowadays by central banks (such as emergency lending, banking supervision
to decrease information asymmetry etc.) may be provided on the voluntary basis
by private clearing houses or other organizations. But there is no spontaneous tendency
to make money independent of a commodity, or create a centralized reserve system, or
an authority able to carry out the monetary policy etc. Bagehot (1873, ch. 2) puts it this
way: “. . . the natural system that which would have sprung up if Government had let
54 New Perspectives on Political Economy
banking alone is that of many banks of equal or not altogether unequal size.” In other
words, if politicians did not meddle with the banking systems in the past, there would be
no central banks nowadays–only commercial banks of a similar size interconnected by
private clearing houses. Some of these banks would issue bank notes convertible at par
into specie.
It was politicians who have created central banks to serve their goal. Bagehot (1873),
Smith (1936), and White (1984, 1999) among others put across that in the 19th century
central banks were usually created to serve fiscal needs of governments. In the 20th
century central banks were established by political pressures as well, sometimes for governmental
fiscal needs, sometimes for other particular reasons (see Rothbard (1999), and
Friedman and Schwartz (1963) for the account for the Fed). However, in all cases central
banks were established by politicians. Kane (1980) says (for the Federal Reserve System):
“After all, the Fed is a political institution designed by politicians to serve politicians.”
(Italics is Kane’s.)
Of course, in many cases the actual outcome of the politicians’ acts have been quite
different from their intentions. Most politicians in the 18th or 19th century did not plan
to establish a central bank at all–they simply wanted to obtain a credit for the government
on more favorable terms. The obvious way to get it (at least from their perspective) was to
give some bank privileges or even monopoly power. Such a bank would be both willing
and able to offer cheaper credit to the government in return. The modern central bank
has evolved step by step from these privileged banks. As Bagehot (1873, ch. 3) says: “Thus
our one reserve system of banking was not deliberately founded upon definite reasons;
it was the gradual consequence of many singular events, and of an accumulation of legal
privileges on a single bank which has now been altered, and which no one would now
defend.” To put it in a different way, a central bank is neither a product of a spontaneous
evolution, nor an outcome of economic reasoning and planned governmental policy. It
is a product of a “political evolution.”
Thus the origin of a central bank shows us that a central bank is an organization with
quite different characteristics from organizations that have evolved spontaneously. It was
given many privileges: the note-issue monopoly, power to set either the monetary base or
interest rates, and the right to regulate commercial banks can be mentioned as the most
important ones. These privileges are granted and protected by the government–without
Kvasniˇcka: Independence and Responsibility of Central Banks 55
its power they could be neither established, nor preserved. In this sense the central bank
shares the part of the governmental power while it is, because of its banking origin (at
least from the legal point of view), a separate organization.
We can understand the nature of the central bank even better if we compare it to a
spontaneously evolved organization, e. g. a firm. There are many dimensions in which a
central bank can be compared to a private organization. Let us mention some of them.
Goal of the central bank
Private organizations usually have a simple well-defined goal for which they were established.
In a case of a firm the goal is profit, or more precisely to maximize of the present
value of all its future profits. All constituents (principals) of the firm (e. g. stockholders)
prefer a higher profit to a lower one. The only controversy could arise over the timing
of dividends, for different stockholders can have different time preferences. This controversy
could be solved easily in the case of public companies, where the stockholder can
have a positive cash flow even if all the profit of the company is reinvested to make more
profit in the future. He or she can simply sell part of his or her stocks, the price of which
is increasing over the span of time. It is possible to reconcile the interests of the firm
owners, even in the case of a proprietorship or a closed corporation simply by choosing
a firm with the desirable timing of income flow. The same holds for other organizations,
e. g. private non-profits as well (see Fama–Jensen, 1985). In other words, private organizations
have an inherent goal (they were created to achieve this goal) and their ultimate
principals force these organizations to achieve it.
A central bank as an artificially constructed organization lacks an inherent goal (if we
neglect the goal to support any special interest of the present government). Moreover, its
goal cannot be derived from the preferences of its ultimate principals–the public. There
is a great diversity among individual households’ preferences for the central bank goal,
and no way to reconcile them. For example, pure debtors prefer unexpected inflation
while pure creditors may prefer a moderate unexpected inflation; savers prefer high interest
rates, investors low ones, et cetera. To carry out a “socially desirable” monetary
policy we need to know a social welfare function, which cannot be constructed (see Roth-
56 New Perspectives on Political Economy
bard, 1956). In other words, no inherent goal of the central bank exists, and its ultimate
principals are not able to unify to push it to achieve it.
If a central bank does not have (and cannot have) any inherent goal, what goal is
it supposed to achieve? In the real world, many (at least in the short run) conflicting
goals are imposed to the central bank by the government (in a broad sense including the
parliament), or by the central bank itself. In such a case we have to learn what goals is the
central bank given on different occasions, and to what extent it tries to carry out each of
the conflicting goals. We can expect when the goal is commanded by the government it
would reflect government’s interests. If it is commanded by the central bank managers
(e. g. because the bank is fully independent of the government, or the government is
not able to control its behavior fully), we may expect it would reflect the interests of the
managers. We will explore what their interests are in the section 3.
Strategies of the central bank
In a deterministic world of full knowledge management would be an easy task. Under
such hypothetical conditions, decision making means mathematical optimization. In the
actual world of uncertainty, mathematical optimization is much less useful since probabilities
of all possible outcomes cannot be stated (in many cases, all possibilities are not
even known). Under such conditions unattainable “optimal behavior” must be replaced
by attainable “sufficient” strategies. Alchian (1950) have shown that economic environment
selects through competition those strategies that under the given conditions imitate
optimal choice better.
Alchian (1950) argues that in an uncertain world, a manager of a firm cannot be certain
that his or her actions are optimal. If his or her action has been better than average
(for any reason, even because of a good luck) compared to a competitor, then his or her
firm earns a higher profit than average. Such profit allows the firm to survive. Profitable
firms (i. e. better fitting to the actual environment) survive while loss-making firms “die
out”. This way the environment choses through competition those who follow rules that
better fit the actual environment. Managers tend to imitate the successful managers–this
way the successful rules spread out through the economy. Both conscious and unconscious
(and even random) modifications of the rules serve (from the social point of view)
Kvasniˇcka: Independence and Responsibility of Central Banks 57
as a mutation. The market process lets the “positive mutations” survive while the “bad
ones” die out. This way the rules adapt themselves to the changing economic environment.
Thus Alchian shows that the competitive market process precisely corresponds
to the Darwinian evolutionary process. Alchian (1950) puts it in this way: “The economic
counterparts of genetic heredity, mutations, and natural selection are imitation,
innovation, and positive profits.”
One consequence of Alchian’s theory is that on competitive markets a simple rule
based behavior might correspond to an optimizing behavior predicted by the economic
theory. For this reason we may model private firm behavior “as if” they equalize the
marginal cost to marginal revenue to maximize their profits. They do not do it consciously,
because the marginal cost and revenues are not actually known–their managers
simply follow the rules that were successful assuring survival in the past. For this reason
we may believe with a reasonable degree of certainty that the strategies applied by private
competitive firms are (or tend to be) optimal, i. e. best achieving their goals. The same
holds true for other competitive organizations as well.
A central bank is absolutely different in this respect. There is no competition among
central banks. A central bank cannot go bankrupt. Moreover, a central bank’s profit is
not derived from the well-provided monetary policy at all (the opposite might be true
since the central bank’s profit is earned from inflation). This is why we have no reason to
believe that the actual rules followed by a central bank are close to the optimal one. They
may be, or need not be–but there is no proof they are. We can believe such a statement
with a much lower degree of certainty.
Environmental complexity of the central bank
The problem of central bank strategies is even more complex because the environment
of a central bank itself is in one sense much more complex than the environment of a
competitive organization. Actions of a competitive non-privileged organization change
its environment only in a marginal way. From its point of view the environment is reasonably
stable in respect to its own actions. But it is not true in the case of a central
bank. A central bank is strong enough to change its own economic environment. When
a central bank changes its strategy, all subjects in the economy have to adapt to its new
58 New Perspectives on Political Economy
strategy. The result is that the behavior of the economic system changes as well. Therefore,
it is much more difficult for the central bank to learn from past experience than it
is for a competitive organization. This is the heart of the ingenious Lucas’ critique, see
Lucas (1976).
The environment in which a central bank operates is quite complex even in many
other senses too. This complexity is probably the reason why we have so many contradictory
theories of monetary theory and policy that still were not falsified. That is why
the monetary management of a central bank is so difficult and subtle work. Another
consequence is that it is extremely difficult to evaluate the performance of a central bank
and especially its managers.
Personnel of the central bank
The choice of a central bank personnel, especially its top management, poses a problem
similar to the choice of a central bank strategy. Romer and Romer (1996) show that
the choice of central bank managers is a key factor for the efficiency of the monetary
policy. The question is how to find the optimal managers, i. e. the managers that are
able to achieve the goal of the central bank best. It is obvious that it is much easier to
find a good general director of a corporation (either profit or non-profit one) than a good
president of a central bank. The reasons are many, a main one being that the goals of
these competitive organizations are expressed better.
Moreover, there is a market for managerial services in the case of competitive organizations.
The market evaluates managers based on their former performance, i. e. the
extent to which they were able to achieve the organization’s goal. It is the easiest in the
case of a profit corporation where the level of the “goal-achievement” can be stated in
numerical terms (as a profit, or a yield etc.).
It is much more difficult to find a good central banker because there are very few
potential candidates (i. e. the market is thin). Moreover, they can hardly be evaluated
on their former performance. Firstly, if they are chosen from outsiders (i. e. not central
bank personnel), there is no prior performance to be observed. (Note that it is quite
often that members of the board of directors of a central bank are appointed from such
outsiders.) Secondly, the outcomes of the bank policy may be biased by external or
Kvasniˇcka: Independence and Responsibility of Central Banks 59
internal shocks. The same is true for the competitive organizations, but in their case there
is a benchmark for the comparison, that being the average of the industry. No similar
benchmark exists for a central bank. Thirdly, a central bank is usually made responsible
for many potentially conflicting goals (private competitive organizations usually have just
one goal). The necessary multi-criteria evaluation is more difficult than a profit-based
evaluation of a firm manager.
Managers are usually appointed by their nearest principals. In the case of the central
bank it means that its managers are appointed by the government (in the broadest sense).
Since the evaluation of potential candidates is difficult, the government has to choose
them on the basis of an ill-defined, obscure criteria. This allows the government to
choose managers that would be willing to seek any goals the government prefers, even its
special interests.
Managerial discretion
A manager that is not in the same time the only residual claimant may have an incentive
to act in his or her own interest even at the expense of his or her principals rather than
in their best interest. Such actions are called “managerial discretion.” A great part of
positive agency literature focuses on the managerial discretion and tools used by both
the principals and the agents to handle it to lower the agency cost. The classical positive
theory of agency was built up by Jensen, Meckling, and Fama, see e. g. Jensen–Meckling
(1976), or Fama–Jensen (1983). Among others, they have shown how managerial discretion
is constrained within private organizations, both profit and non-profit ones. The
threat of bankruptcy is the lowest bottom line of the managerial discretion. The threat
of a takeover presents another one. The stock market and the market for managerial
services are other protections of the residual claimants (or donors). The stock market
evaluates the price of the firm instantly which lowers the monitoring cost for most firm
owners. It lowers the transaction cost of a takeover of poorly managed companies. The
managers labor market does the same for the wages of managers. The managers not
acting in the best interest of their principals may expect that their price on the market
for managerial services would be lower if they got fired. Beside of these low-level bottom
lines there are usually other protections: expert boards, hierarchical control, mutual
60 New Perspectives on Political Economy
monitoring, et cetera. All these protections guarantee with a good degree of certainty
that most managers try to act in the best interest of their principals.
We have almost no such guaranties in the case of a central bank. First of all, the
survival of a central bank is not connected to its performance. A central bank cannot go
bankrupt (at least the central bank issuing fiat money cannot go bankrupt), and its profit
is not derived from the well-provided monetary policy (see above). Neither there exists
a direct link between the survival of a central bank management and its performance.2
Central bank managers could be dismissed in some countries if the outcomes of their
monetary policy do not satisfy the policy objective (e. g. inflation target on the New
Zealand), but it is by no means a common practice. Moreover, there are usually many
exceptions that allow the bank avoid any punishment even when such a formal rule exists.
An information asymmetry between a central bank management and its principals
(the government and the public) is another cause of a low accountability of the central
bankers. It is very costly (and often even impossible) for them to monitor the actions
of the central bank properly to learn whether its actions were following their interest.3
Special knowledge possessed only by few monetary theorists is necessary to evaluate the
central bank performance. Most of these theorists work directly (as employees) or indirectly
(through the system of research grants) for the central bank, so their judgment is
far from being independent. Most of the rest of them usually work (directly or indirectly)
for a government, which is supposed to be a possible threat for the monetary policy. The
only potential independent critics are those few monetary theorists at universities and
research organizations that take no part in central bank or governmental research grants.
A central bank may also take steps to increase the information asymmetry. Goodfriend
(1986) analyzes the tendency of central banks to conceal important information
about their monetary policy. No matter if the central bank secrecy makes its policy easier,
or not, it certainly lowers the accountability of the bank. Moreover Chant–Acheson
(1972) show in the case regarding the Bank of Canada that a central bank has a tendency
2
The bottom line for the central bank management is not only much weaker than the bottom line of
a commercial firm, but also than that of a government since a government may not be reelected if its
performance is regarded as poor by the majority of voters.
3
We are speaking about particular interest of those individuals (or about some arbitrary goals). As we have
shown above there is neither a common, or “social” interest in the monetary policy, nor an inherent goal
of the central banks.
Kvasniˇcka: Independence and Responsibility of Central Banks 61
to choose its instruments (and their mix) in such a way that lowers the transparency of
its policy. In their other paper (1973b) they argue that a central bank may even create a
“mythology” to lower its accountability. The reason for such behavior will be presented
in the section 3.
For all these reasons, the only threat the central bankers face in most countries is a
possibility that they would not be reappointed, or that the central bank status, rights and
privileges would be altered. There is only one power able to do it, that of the government.
Because of the information asymmetry and all the problems stated above, the government
has to choose the central bankers on the basis of very incomplete information. On the
one hand it increases the central bankers potential for managerial discretion, but on the
other hand it also makes it easier for the government to force the central bank to act
on its own behalf because it can threaten the central bankers. If it blames the central
bankers, there is no simple way how to learn whether the bank is right or wrong. The
government can punish the bank simply on the basis of its blame.
Bureaucratic nature of the central bank
We have seen above that the central banks were created by politicians to serve their special
interests, but through the time they obtained special right and privileges that allow them
to conduct the monetary policy. This was made possible by the governmental power
that guarantees these rights. In the same time the banks are given objectives by the
government. From this point of view the management of a central bank is bureaucracy,
or a bureaucratic management, see Mises (1944).
Central banks have no inherent goals, only the goals given by the government. But
the same does not hold for its managers. The central bankers are agents of the government
(and of the public), but poorly constrained ones. It allows them to act in their own
interests. Therefore, to understand the behavior of a central bank we have to first understand
the incentives of its managers. This is what the theory of bureaucratic behavior of
central banks explores. We will summarize its findings in the next section.
62 New Perspectives on Political Economy
3 Incentives of the central bankers
The general concept of bureaucracy and its behavior goes back to Weber (1997). The
approach was then applied to central banks in many papers on the theory of bureaucratic
behavior of central banks; for the summary see White (1999, ch. 8). Some of the
classical authors in this field are Acheson and Chant (1972, 1973a, and 1973b), Friedman
(1982), Kane (1980), and Toma (1982). The theory views central bank managers as poorly
constrained agents that may seek their own interests, which may deviate the monetary
policy they carry out from its optimal course (whatever it may be). The authors analyze
the general incentives of the central bankers, and then use their findings to explain some
deviations of the monetary policy practice from its theory.
Let us summarize the major incentives attributed by the theory to the central
bankers. The theory assumes that the utility of the central bankers is derived first of
all from their prestige, and safety (or the self-preservation of the central bank). Other
potential bureaucratic goals (like on-the-job consumption, hoarding of power, or high
wage rates) are neglected–either the authors assume they are not important for the central
bankers, or that they do not have a considerable influence on the monetary policy of
the bank.
Prestige is assumed to be a goal per se for a central bank. It is derived from the
position of the bank in the social hierarchy. It “reflects the public’s and other groups’
concern with the goals associated with the bureau, the bureau’s degree of responsibility
for such goal and the public’s and other groups’ opinion of actual performance relative
to the expected performance.” (Chant–Acheson, 1972, p. 14) Their prestige is influenced
by many factors: The importance the public associates with the bank’s goals, the public’s
rating of the bank’s performance, the bank independence et cetera.4 The theory predicts
that the central bankers tend to act in such a way that enhances or at least protects their
prestige.
Central bankers’ safety includes two interrelated parts: They seek to preserve the
“life” of the bank, and they seek to preserve their jobs there. The preservation of the
4
Friedman (1982) even hypothesizes that the central bankers have an interest in a macroeconomic instability
since in times of macroeconomic instability their services are seen as more important by the public, i.
e. their prestige rises. (We do not think this is a real problem.)
Kvasniˇcka: Independence and Responsibility of Central Banks 63
bank is necessary for their own job safety, and also for their prestige as it signals the
importance of the bank in the economy.
These two ultimate objectives (prestige and self-preservation) create an incentive
structure for the central bankers’ behavior. The theory predicts many phenomena we
can observe in the real world (some of them were mentioned above).
First of all, a central bank seeks to keep its operations secret. It usually resists to
offer information about its actions. Such secrecy not only rises the prestige of the bank,
but it also protects it against criticism. The same reasons have motivated the bank not
only to obfuscate rather than offer information, they also motivate it to create a “central
bank mythology”–to persuade the public, the government etc. that the central bankers
are fierce fighters against inflation, that they are able to carry the monetary policy out
better than any ironclad rule, and that their task is extremely complex and beyond all
understanding of laymen on the one hand, but on the other hand that they cannot be
blamed for any failure because there are many factors affecting the policy outcomes out
of their control, because the transmission is not well-understood et cetera. This way
all successes can be attributed to the bank, but all failures can be attributed to external
shocks, irresponsible fiscal policy et cetera. Under the information asymmetry the bank
can always argue that without its provident policy the outcomes would be much worse.
(For details see especially Friedman, 1982, and Acheson–Chant, 1972, 1973a, 1973b.)
Second, for the same reasons a central bank opposes any ironclad rules and sticks
to incomplete discretionary policy, and complex instrument-mixes, because it further
lowers the ability of outsiders to monitor the actions of the bank–and this way to criticize
it for a poor performance. Moreover, if the bank had admitted that the discretionary
policy could be replaced by a rule (i. e. by an automaton), its prestige would have
diminished to zero (ibid, see especially Friedman, 1982).5
Third, the theory predicts that a central bank will struggle for its independence.
If a bank is independent, and its responsibility for the monetary policy is not shared
with other agencies, its prestige is ceteris paribus higher. Moreover, a higher degree
of independence allows the bank to protect itself–a more independent bank can got into
5
We do not share the idea that the monetary policy could be replaced by an automaton reasonably–we do
worry that such a change could under the present regulatory system destabilize the banking system.
64 New Perspectives on Political Economy
more conflicts with other organizations or special interests groups, but it also has a better
chance to handle these conflicts (ibid).
Fourth, a central bank has an incentive to avoid any conflict with a group that is able
to alter its social status, especially to threat its independence, or even self-preservation, i.
e. with a group that has superior understanding of its actions, and that has a power over
the bank. This group is usually identified with the government.
Among others, it means that when the bank is given conflicting policy goals, it aims
most eagerly to achieve the goals that are identified with the bank most (i. e. the responsibility
is shared with other agencies least), the goals, the achievement of which can be
most easily observed and monitored, and those that are most important for the group
that can threat the bank’s (and central bankers’) safety (ibid).
One might ask why the government allows the bank to carry out the nontransparent
incomplete monetary policy, especially if it lowers its control over the bank. Kane
(1980) offers a simple and radical answer: It is because such policy is beneficial for the
government as well. First of all, it allows the bank to obey informal commands of the
government–even those aiming at the government’s special interests. We will analyze
this possibility in the next section. Second, it allows the government to use the bank as
a scapegoat to be blamed in hard times. When an economic slowdown occurs the government
can blame the bank not to loose the public, and the bank is still safe–its failure
cannot be proved and no steps against its officials are taken because it is formally independent
of the government. In other words, the information asymmetry enhanced by
the bank and the possibility of managerial discretion is mutually beneficial both for the
government, and the central bankers.
We accept all the incentives presented above, and there is one more: Given that the
central bank managers are utility maximizers and in the same time they are poorly constrained
agents, we can expect that they can be “bribed”. The “bribes” can include an
offer of a future important position (e. g. in diplomacy or in an international organization,
or simply renewal of their appointment), an offer of prestige within a group of
people delimited either by a profession, or geographically (exploiting the central banker’s
patriotism) etc.
Kvasniˇcka: Independence and Responsibility of Central Banks 65
We can see that neither the central bank, nor the central bankers have an inherent
goal. The central bankers are bureaucrats that are hired to pursue the goals given by the
politicians. The information asymmetry between them and both the government and the
public make managerial discretion possible. For this reason the actual monetary policy
may deviate from the formal goals given the bank by the government. They may seek
the policy to rise their prestige, and to secure the bank and their own self-preservation.
The theory predicts that the behavior of the central bankers (bureaucrats) is influenced
by the interest of strong special interest groups (or stakeholders) which are able
either to threat, or bribe them (including offers of prestige). Traditionally the theory
explored interactions between the central bankers and the government, which is the
strongest subject that can affect the central bankers. But we will show in the following
section that many more relevant special interest groups may exist. It means that
we have to analyze both incentives and powers of these groups to understand the actual
behavior of the central bank.
4 Incentives of Other Stakeholders
In this section we will explore the interests of selected stakeholders, and their power
to influence the behavior of a central bank. We will look at these stakeholders: the
public, the central and local governments, baning and industrial pressure groups and
other possible special interests. We will contemplate over the role of media as well. The
mutual relationship of these stakeholders is illustrated in a simple diagram.
Public
Central Govt.
Local Govt.
Business
Central Bank
Monetary
Policy
Media
66 New Perspectives on Political Economy
Diagram: Mutual relationships of stakeholders. Solid lines illustrate a direct control,
dashed lines indirect control through elections, and dotted lines an informal influence.
The Central Government
Let us define the central government as the government that has power over the central
bank, i. e. that is the nearest principal of the bank. The central government (in the
broadest sense including the parliament etc.) is definitely the most important stakeholder
influencing the monetary policy. It is the nearest principal of the central bank and it has
power over it. The central government sets the formal goals for the bank. It is able
to change the bank’s social status, and lower its independence. It appoints the bank
management, and so on. The central government has the best opportunity to “bribe” the
central bankers too (e. g. offering them future attractive jobs). The government has also
the best ability to monitor the actual actions and performance of the bank.
Economists usually suppose that the ultimate goal of the government of a democratic
country is reelection. If we take it for granted, we can expect the government to carry
out the policy that maximizes the probability of its reelection.6 To be reelected the
government can do three different types of actions:
First, it can carry out a systematic policy that is preferred by the public (more precisely,
by the majority of voters). This is or course what the government is supposed
to do. The systematic governmental policy changes through time because the public
preferences change over the time. For example, it is probable that in times of high unemployment
the public sensitivity to unemployment is high while its aversion to inflation
is much lower than in inflationary times of full employment. The public preference may
depend on the economic theory too; thus for instance the public may be less averse to
inflation when it is generally believed that a stable trade-off between the inflation and
unemployment exists.
The government translates its policy (i. e. the majority preferences) into the formal
goal of the central bank. We can therefore hypothesize that the lower inflation rates
6
The policy of a given government may be biased by its ideology. However, in general we may neglect the
ideology as a separate factor because a government seeking for ideological reasons a policy that people
do not agree with would not be reelected. Either the government carries the policy that the majority of
people prefers, or the government is replaced by another one.
Kvasniˇcka: Independence and Responsibility of Central Banks 67
achieved nowadays are not an outcome of a higher independence of central bank, but the
lower inflation and the independence of bank are joint-outcomes of the public preference
for a more stable price level.
Another governmental instrument to win voters can be called hyperbolically “bribing
special groups.” The government can carry a policy that is beneficial for a special
interest group, either a social group that forms the voters of the present government or
an industry that is important for the government (e. g. it sponsors the present government’s
election campaign). A policy in favor of labor unions can be other example. This
kind of policy may also affect the monetary policy the government prefers. For example,
it can press the central bank to lower its interest rates in favor of an industry connected
with many voters (the example mentioned by Kane, 1980), or it may raise funds for
transfers from the seigniorage. We can expect that such a policy is more beneficial for the
government if it is not publicly known (because it could raise animosity of other special
interests groups). Therefore we can hypothesize that the government would not set these
objectives to the central bank as its formal goals, but it would press the bank to achieve it
informally. The higher managerial discretion the bank has, the easier it is for the government
to press it informally because the actual instructions cannot be easily guessed from
the policy. The bank has a strong incentive to obey the actual governmental instructions
because it is the government that can threaten the central bankers most effectively.
The third way the government may try to win voters can be hyperbolically called
“fooling voters.” The government can (at least in the short run) “improve” the performance
of the economy creating a political business cycle. For example, lowering of
interest rates usually (at least temporarily) lowers the unemployment rate–usually at the
expense of rising inflation in the long run (and perhaps creating other problems as well).
Such a policy may be beneficial for the government especially before the elections. This
policy is successful (from the point of view of the government) only if it is not expected.
As in the previous case, the government has an incentive to press the central bank to
achieve this objectives informally.
The three types of policies described above are generally inconsistent. For example,
the public may prefer stable price level, so the systematic monetary policy winning the
majority of voters is aimed at little inflation. However, before the elections the government
may try to “cheat the public” by rising inflation to stimulate the economy. We can
68 New Perspectives on Political Economy
expect that the government chooses that mix of the three types of policies mentioned
above, which under the given conditions maximize the number of its voters, or at least
ensures its reelection. Some of the conditions affecting this choice of policies are beside
others the following: First, how easily can the government force the bank to achieve the
objective, second, how easily can the policy be concealed, and third, how much is the
objective associated with the government’s reputation.
Governmental policies of the first type are usually viewed as “proper” economic policies,
while the policies of the second and the third types are seen as an “abuse” of the
governmental control. It is widely shared that a higher independence of the central bank
diminishes the government’s ability to abuse the monetary policy. However, the conclusion
is not straightforward. A higher independence lowers the government’s formal
power over the bank. Informal control is still present, as there is no way how to abolish
it (except to change the bureaucratic nature of the central bank). To simplify the matter,
let us suppose that a higher independence of the bank of the government actually lowers
the governmental control over the bank. At the same time, it rises the benefit of the
government from “abusing” the monetary policy because it lowers the responsibility of
the government for the monetary policy and its outcomes, and the ability to monitor the
central bank actions. The total effect of an increased independence of the central bank is
thus ambiguous.
The Local Government
Let us define the local government as the government of any level that has no direct
power over the central bank, e. g. a state government within a federal country. The
local government has incentives similar to the central government (including a potential
“temptation to abuse” the monetary policy), but it is usually supposed to have no direct
way how to influence the central bank because of the lack of power over it. This barrier
disappears if we admit its ability to bribe a central banker by perhaps offering attractive
future positions, or appeal to his or her patriotism. A very effective “bribe” involves a
coalition of important local governments, which can this way bias the monetary policy
to their own benefit.
Kvasniˇcka: Independence and Responsibility of Central Banks 69
The “temptation to abuse” the monetary policy may be even stronger for a local than
for the central government because the local government can earn all benefits of such a
policy shifting the negative consequences to the central bank and perhaps to the central
government too because local governments are not typically responsible for the outcomes
of a monetary policy.
This influence may be negligible in most cases, at least in small homogeneous countries,
but it can have an important impact on the monetary policy in great heterogeneous
countries or their confederations. The European Union can be such an example. The
formal policy independence of the ECB does not insulate it necessarily from informal
pressures from the member countries. On the contrary, the lack of responsibility to a
central government creates an opportunity for local governments of the member countries
to bias the monetary policy in favor of their countries.
The Public
We have discussed public preferences above. Here we will discuss only the ability of the
public to influence the central bank policy. It seems at the first glance that the only possibility
of the public to influence the monetary policy is through the central government
motivating it to carry out the systematic policy aiming the objectives of the majority
of voters. But this is not completely true. The public has more to offer to the central
bankers directly. First, it can offer them prestige, and second, it can offer them safety (at
least sometimes).
When the central bank is given an inconsistent mix of objectives (both formal and
informal ones) it chooses those which maximize its prestige within the constraint of selfpreservation.
This means that the action taken by the bank can be biased in favor of
public preferences if they are different from the goals given the bank by the government.
We can expect that usually the deviation between the actions of the bank and the actions
desired by the government is not significant since the central government has an ultimate
power over the bank. However, in some cases they may differ, for example in situations
when the government cannot threaten the bank because the public is willing to support
the bank. The government would loose voters if it tried to force the central bank to
achieve objectives that are resisted by the public in such a case. Empirical evidence is
70 New Perspectives on Political Economy
necessary to learn how often is the public able to protect the central bank management
from the informal political pressure. The theory suggests that such cases can be quite rare
because of information asymmetry, and a transaction cost of organizing the public.
Banking and Industrial Pressure Groups
We have mentioned above that there are many potential stakeholders, e. g. industries
sensitive to interest rates, and the banking industry. The industrial special-interest groups
may try to bias the monetary policy in favor of them. We can expect that they are
not able to influence the central bank directly, but only through the central, or local
governments. The only exception may be the banking industry and financial markets
generally. Since there is a close relationship between commercial bank and financial
markets institutions and the central bank, and this industry is often very concentrated,
it is possible that it might be able to “bribe” the central bankers–offering its managers
professional prestige, attractive future jobs etc. However, this direct influence is rather
speculative, and some empirical research is necessary to establish it before it is taken for
granted.
Other Special Interest Groups
Simply for the sake of completeness we have to mention a possibility of other specialinterests
groups that try to affect the monetary policy, most probably indirectly through
the central or local governments. Such groups can be quite specific and no systematic
theory of their behavior can be found. An example of such a group is the inflationist
movement in the 19th century in the United Stated described by Friedman (1994).
Media
Beside direct stakeholders there is one more powerful element in the game, that of the
mass media.7 We do not know of any systematic theory regarding the mass media influence,
but it is obvious that perhaps all stakeholders can use the mass media for their own
benefit. The government (both the central and local ones) can use it to blame the central
7
We are deeply indebted to Paul Cwik for this observation.
Kvasniˇcka: Independence and Responsibility of Central Banks 71
bank for present macroeconomic problems, and to press it to adopt a policy preferred
by it. It can also try to persuade the public to support the governmental policy through
the media.8 The industrial and banking pressure groups can use the media in the same
way to win the public support for their special-interest goals (see Rothbard, 1999 for an
example). This may bring about a monetary policy that would be otherwise seen by the
majority of voters as undesirable.
The mass media can also monitor the performance of the bank and of the government,
and help to organize to public lowering the transaction cost too. In some cases
the government or other stakeholder may be forced to give up their plans, because of the
mass media campaign against it. Thus although the concrete role of the mass media in
any particular event is unclear, it can nonetheless be a powerful player that must be taken
into account.
5 Summary of the Hypothesis
In this paper we have challenged the traditional view that central bank’s formal independence
lowers the government’s potential to “abuse” the monetary policy. This view
stems from the assumption that the central bank managers are benevolent agents of the
public seeking the policy optimal from the public’s point of view.
We presented another hypothesis based on the positive theory of agency, the theory
of bureaucratic behavior of central banks, and the theory of bureaucracy. According to
these the central bank is a governmental bureaucracy, and its managers are governmental
bureaucrats. Their independence means simply a potency for managerial discretion.
Their incentive is not to achieve the “optimal monetary policy” (which is an ambiguous
term referring to the fallacious social welfare function theory), but to maximize their
prestige within the constraint of self-preservation. As bureaucrats they are hired to follow
the instructions of the actual government. This link can be weakened by the central
bank formal policy independence, but cannot be totally removed. The government appoints
and re-appoints the central bank managers, and always can reasonably threaten
the social status of the bankers and even the independence of the bank.
8
This is especially true if the media is owned by the government. Note that public television and public
broadcasting are another instances of a bureaucratic state-owned organizations.
72 New Perspectives on Political Economy
The central bankers are poorly constraint managers, especially because of a great
information asymmetry (often consciously increased by the bank’s actions). For this
reason the governmental control of the bank is never complete. Residual managerial
discretion is always present. The managerial discretion of the central bankers may lower
the governmental control of the bank, but the discretion rises it (in another dimension)
in the same time because it lowers the public ability to monitor and evaluate the central
bank performance, and in this way it allows the government to press the central bank to
achieve even its special-interest objectives (e. g. to create a political business cycle).
Moreover, the full formal independence means that the government cannot be blamed
for the monetary policy outcomes that the public (i. e. majority of voters) regards
as undesirable. It may intensify the incentive of the government to “abuse” the policy
to win voters e. g. by the political business cycle since its negative (from the public’s
point of view) future consequences will not be attributed to the government, but to the
“independent” central bank.
There may also be other stakeholders influencing the monetary policy there. The
actual outcome of the “game” is influenced by their changing objectives, and their relative
power. The most important stakeholder is the public. It influences the central bank
usually indirectly through the government, but in a special cases it can influence it also
directly. Since the government itself is an agent of the public (constrained by elections)
we may expect that the systematic part of the central bank goals (and consequently its
policy) is aimed to achieve the outcomes preferred by the majority of voters (whatever
it may be). The decrease in inflation rates achieved in the last decade or two thus can be
explained rather by a change in the “tastes” of the public than by a sole fact of the banks’
higher independence of the government. However, there still may be non-systematic
deviations of the central bank policy and the public’s desires when the government of
other stakeholders are strong enough to push their interests.
For all of these reasons, it seems that the overall impact of raising the central bank independence
is ambiguous. It can both decrease, or increase the gap between the monetary
policy preferred by the majority of voters, and the actual one. Therefore the traditional
view that the formal independence of the central bank itself ensures that the monetary
policy cannot be “abused” by the government is not correct. We should use it neither as
a building block of our theories, nor of our practice.
Kvasniˇcka: Independence and Responsibility of Central Banks 73
Definitely, we are still far from creation of a “Positive Theory of the Central Bankers’
Behavior”, but some general comments might be done: Firstly, we are certain that both
the positive and normative theory of central banking must take into account a broader
range of factors than only the central government, and the formal central bank’s goals.
We have to carefully analyze the institutional frameworks and actual political and specialinterests
forces operating in the economy. Secondly, the possibility of “abusing” the
monetary policy seems to be inherent in the nature of the central bank itself. It must
not be possible to get rid of it unless the nature of the central bank is changed, unless it is
either subdued to an ironclad rule, or removed. Thirdly, the above presented hypothesis
might give a new perspective to the rules vs. discretion, and central bank vs. free banking
debates.
Bibliography
[1] Acheson, K.–Chant, J. F. (1973a): Bureaucratic Theory and the Choice of Central
Bank Goals, Journal of Money, Credit and Banking, 5(2): 639-655.
[2] Acheson, K.–Chant, J. F. (1973b): Mythology and Central Banking, Kyklos, (2):
362-379.
[3] Alchian, A. A. (1950): Uncertainty, Evolution and Economic Theory, Journal of
Political Economy, 58(3): 211-221.
[4] Bagehot, W. (1873): Lombard Street, Henry, S. King & Co., The Library of Economics
and Liberty.
[5] Chant, J. F.–Acheson, K. (1972): The Choice of Monetary Instruments and the
Theory of Bur Bias eaucracy, Public Choice, 12: 13-33.
[6] Eggertsson, T. (1990a): Economic behavior and institutions, Cambridge University
Press, ISBN 0-521-34891-9.
[7] Eggertsson, T. (1990b): The Role of Transaction Cost and Property Rights in Economic
Analysis, European Economic Review, 34(23): 450-457.
74 New Perspectives on Political Economy
[8] Fama, E. F.–Jensen, M. C. (1983): Separation of Ownership and Control, Journal
of Law and Economics, 26(2): 301-325. Also at SSRN.
[9] Fama, E. F.–Jensen, M. C. (1985): Organizational Forms and Investment Decisions,
Journal of Financial Economics, 14(1): 101-119.
[10] Friedman, M. (1971): Government Revenue from Inflation, Journal of Political
Economy, 79(4): 846-856.
[11] Friedman, M. (1982): Monetary Policy: Theory and Practice, Journal of Money,
Credit and Banking, 14(1): 98-118.
[12] Friedman, M. (1994): Money Mischief: Episodes in Monetary History, Harvest/HBJ,
ISBN 015661930X.
[13] Friedman, M.–Schwartz, A. J.(1963): A Monetary History of the United States 1867-
1960, National Bureau of Economic Research, 1971, ISBN 0-691-04147-4.
[14] Furubotn, E.G.–Richter, R. (1998): Institutions and Economic Theory (The Contribution
of the New Institutional Economics), The University of Michigan Press, ISBN
0-472-08680-4.
[15] Goodfriend, M. (1986): Monetary Mystique: Secrecy and Central Banking, Journal
of Monetary Economics, 17(1): 63-92.
[16] Hayek, F. A. (1945): The Use of Knowledge in Society, The American Economic
Review, 35(4): 519-530.
[17] Jensen, M. C.–Meckling, W. H. (1976): Theory of the Firm: Managerial Behavior,
Agency Cost and Ownership Structure, Journal of Financial Economics, 3(4): 305-
360. Also at SSRN.
[18] Kane, E. J. (1973): The Central Bank As Big Brother: Comment, Journal of Money,
Credit and Banking, 5(4): 979-981.
[19] Kane, E. J. (1980): Politics and Fed Policymaking: The More Things Change the
More they Remain the Same, Journal of Monetary Economics, 6(2): 199-211.
Kvasniˇcka: Independence and Responsibility of Central Banks 75
[20] Kirzner, I. (1997): How Markets Work: Disequilibrium, Entrepreneurship and Discovery,
IEA Hobart Paper no. 133, The Institute of Economic Affairs.
[21] Lucas jr., R. E. (1976): Econometric Policy Evaluation: A Critique in Brunner ,
K.–Melzer, A. H. (eds.): The Phillips Curve and Labor Markets, Carnegie–Rochester
Conference Series on Public Policy 1: 19-46.
[22] Mises, L. (1944): Bureaucracy, Yale University Press, The Mises Institute, ISBN
0-910884-34-X.
[23] North, D. C. (1990): Institutions, Institutional Change and Economic Performance,
Cambridge University Press, ISBN 0-521-39734-0.
[24] Romer , Ch. D.–Romer, D. H. (1996): Institutions for Monetary Stability, NBER
Working Paper, no. 5557.
[25] Rothbard, M. N. (1999): The Origins of the Federal Reserve, The Quarterly Journal
of Austrian Economics, 2(3): 3-51.
[26] Rothbard, M. N. (1956): Toward a Reconstruction of Utility Welfare Economics
in Sennholz, M. (ed.): On Freedom and Free Enterprise: The Economics of Free Enterprise,
Van Nostrand, www.mises.org.
[27] Smith, V. (1936): Rational of Central Banking, LibertyPress, 1990, ISBN 0-86597-
087-4.
[28] Toma, M. (1982): Inflationary Bias of the Federal Reserve System: A Bureaucratic
Perspective, Journal of Monetary Economics, 10(2): 163-190.
[29] Weber, M. (1997): Byrokracie (Bureaucracy) in Škoda, J. (ed.): Autorita, etika a
spoleˇcnost (pohled sociologa do dˇejin), ISBN 80-204-0611-5. Sorted out from Weber,
M. (1972): Wirtschaft und Gesellschaft. Grudriss der Verstehen Soziologie, Tübingen.
[30] White, L. H. (1984): Free Banking in Britain (Theory, Experience, and Debate
18001845), Cambridge University Press, ISBN 0-521-25859-6.
[31] White, L. H. (1999): The Theory of Monetary Institutions, Blackwell Publishers,
ISBN 0-631-21214-0.
ISSN 1801-0938
New Perspectives on Political Economy
Volume 1, Number 2, 2005, pp. 76 – 83
Ovlivˇnování investic a „špatné“ investice
Eva Kindlová∗
JEL classification: B25, E22.
Abstract: The paper presents the theory of investment in the context with the Austrian
theory of the trade cycle. The cycles are caused by interference with the natural rate of
interest. They start with an increase in money supply through credit expansion. Firms
use the money to finance capital goods (or consumers to finance consumption goods).
This changes the capital structure and may result in booms and slumps. The same result
can have stimulation of investment through tax cuts and similar measures which are
intended to increase investment and employment. It gives rise to malinvestments which
have to be removed by desinvestment process.
∗
Fakulta národohospodáˇrská Vysoké školy ekonomické v Praze, katedra ekonomie
Kindlová: Ovlivˇnování investic a „špatné“ investice 77
Jedním ze stˇežejních bod˚u rakouské ekonomie je její teorie výroby a kapitálu. Ta se
ve spojení s teorií ˇcasové preference stává svébytnou alternativou teorií ekonomického
r˚ustu hlavního proudu. A pokud ji propojíme s wicksellovskou koncepcí „pˇrirozené“ a
„penˇežní“ úrokové míry, pak vyúst’uje ve snad v˚ubec nejznámˇejší souˇcást moderní rakouské
ekonomie – její proslavenou teorii hospodáˇrských cykl˚u.
Toto smˇerování rakouské teorie výroby a kapitálu vyplývá z následujících vazeb. Rozdˇelení
spoleˇcenské výroby na výrobu kapitálových a spotˇrebních statk˚u (tedy ˇcasovou
dimenzi spoleˇcenské výroby) mohou v zásadˇe ovlivˇnovat jednak zmˇeny ˇcasových preferencí
ekonomických subjekt˚u, jednak investiˇcní a spotˇrební úvˇer na bázi tvorby bankovních
penˇez.
Výroba spotˇrebních statk˚u Výroba kapitálových statk˚u
Obr. 1
Pˇredpokládejme, že existuje nˇejaké p˚uvodní rozdˇelení spoleˇcenské výroby na výrobu
kapitálových a spotˇrebních statk˚u – viz obr. 1. Stejnou ziskovost podnikání v obou oblastech
zajišt’ují pomˇerné ceny. Dojde-li ke snížení ˇcasových preferencí ekonomických
subjekt˚u (a tak tedy zvýšení jejich sklonu k úsporám), zmˇení se pomˇer celkových výdaj˚u
na nákup obou typ˚u statk˚u ve prospˇech statk˚u kapitálových. V takové situaci budou dosavadní
rovnovážné pomˇerné ceny nahrazeny nerovnovážnými. To zvýší ziskovost podnikání
ve výrobˇe kapitálových statk˚u a sníží ziskovost podnikání ve výrobˇe spotˇrebních
statk˚u (to by se dokonce mohlo stát zcela nevýnosným, ˇci dokonce ztrátovým). Zákonitˇe
a zcela nevyhnutelnˇe by poté následovaly odpovídající pˇresuny mobilních (nespecifických)
výrobních zdroj˚u mezi obˇema oblastmi. ˇCetné, do té doby nevýnosné, investiˇcní
pˇríležitosti by se staly ziskovými, objem investic by rostl. To znamená, že by došlo k
78 New Perspectives on Political Economy
pˇrechodu od dosavadních „ménˇe oklikových“ výrob k produktivnˇejším výrobám „okli-
kovˇejším“.
Celý proces by skonˇcil v okamžiku, kdy by zmˇeny cen kapitálových a spotˇrebních
statk˚u (vyvolané uvedenými pˇresuny a pak i následujícím zvýšením produktivity výroby
spotˇrebních statk˚u1) vedly k opˇetovnému nahrazení nerovnovážných cen novými
rovnovážnými, tedy takovými, jejichž vzájemný pomˇer by znovu zajistil stejnˇe ziskové
podnikání v obou oblastech.
Výroba spotˇrebních statk˚u Výroba kapitálových statk˚u
Obr. 2
ˇCárkované linie vyznaˇcují zmˇenu rozsahu obou výrob po restrukturalizaci.
Nové rozdˇelení spoleˇcenské výroby na výrobu kapitálových a spotˇrebních statk˚u viz
obr. 2, které pˇredstavuje „prodloužení“ procesu spoleˇcenské výroby, by dovedlo dané
hospodáˇrství do nového stavu rovnováhy, která by nahradila tu dˇrívˇejší, jež byla narušena
následnˇe po snížení ˇcasových preferencí ekonomických subjekt˚u. Nový stav rovnováhy
by odlišovaly od toho p˚uvodního dvˇe následující nejzávažnˇejší skuteˇcnosti: nižší
„pˇrirozená“ (rovnovážná) úroková míra2 a to, že by nyní domácnosti nakupovaly vˇetší
množství spotˇrebních statk˚u, než mohly dˇríve, aˇckoli by nyní na spotˇrebu vydávaly nižší
ˇcástku.
1
V d˚usledku jejího nového vybavení vˇetím mnostvím kapitálových statk˚u, které jsou souˇcasnˇe navíc i
výkonnˇejí
2
Jde o d˚usledek snížení produktivity kapitálu (anebo, pˇresnˇeji ˇreˇceno, nižší mezní produktivnosti jeho
stále delších a delších investiˇcních obdobích).
Kindlová: Ovlivˇnování investic a „špatné“ investice 79
Opaˇcné úˇcinky by samozˇrejmˇe mˇelo zvýšení ˇcasových preferencí ekonomických subjekt˚u
(a tedy snížení jejich sklonu k úsporám). Opˇet by byl odstartován proces, který
by ve svých d˚usledcích dovedl ekonomiku k novému rozdˇelení se „zkráceným“ procesem
spoleˇcenské výroby. Nový stav rovnováhy by odlišovala od toho p˚uvodního vyšší
„pˇrirozená“ (rovnovážná) úroková míra3 a to, že by nyní domácnosti nakupovaly ménˇe
spotˇrebních statk˚u, aˇckoli by na jejich nákupy vydávaly vyšší ˇcástku.
Ekonomové moderní rakouské školy jsou hluboce a neochvˇejnˇe pˇresvˇedˇcení, že je
tˇreba dynamiku tržního hospodáˇrství ponechat bezpodmíneˇcnˇe jeho vlastnímu mechanismu,
který jediný je v tomto smˇeru kompetentní: ˇcasovým preferencím ekonomických
subjekt˚u (tedy sklonu jednotlivc˚u k úsporám). Všechny snahy o umˇelé ovlivˇnování (at’
již pomocí investiˇcních úvˇer˚u na bázi tvorby bankovních penˇez, ˇci na stejném základˇe
poskytovaných spotˇrebních úvˇer˚u) jsou z hlediska rakouské teorie výroby a kapitálu zákonitˇe
kontraproduktivní a autodestrukˇcní.
Proˇc tomu tak je? Podívejme se na úˇcinky poskytování bankovních úvˇer˚u na bázi
tvorby bankovních penˇez (pro zjednodušení se soustˇred’me na investiˇcní úvˇery). Východiskem
pro nás opˇet bude nˇejaké existující rozdˇelení spoleˇcenské výroby na výrobu kapitálových
a spotˇrebních statk˚u (viz obr. 1), kdy rovnovážný pomˇer cen zajišt’uje stejnˇe
ziskové podnikání v obou oblastech.
3
Jde o d˚usledek zvýšení produktivity kapitálu (anebo, pˇresnˇeji ˇreˇceno, vyšší mezní produktivnosti jeho
stále kratších a kratších investiˇcních obdobích).
80 New Perspectives on Political Economy
Výroba spotˇrebních statk˚u Výroba kapitálových statk˚u
Obr. 3
ˇCárkované linie vyznaˇcují zmˇenu výroby kapitálových statk˚u, která není podložena
zmˇenou ˇcasových preferencí.
Pˇredpokládejme dále, že budou poskytovány investiˇcní úvˇery na bázi tvorby bankovních
penˇez. To zmˇení v hospodáˇrství jako celku pomˇer výdaj˚u na nákup kapitálových
statk˚u k výdaj˚um na nákup statk˚u spotˇrebních – viz obr. 3. Vˇetší objem poptávky
po kapitálových statcích (vˇetší investice) zp˚usobí vzr˚ust jejich cen. Za této situace budou
dosavadní rovnovážné ceny nahrazeny cenami nerovnovážnými. Ty vyvolají zvýšení
dosavadní ziskovosti ve výrobˇe kapitálových statk˚u a naopak sníží dosavadní ziskovost
ve výrobˇe statk˚u spotˇrebních (eventuelnˇe se zde stane podnikání zcela nevýnosným ˇci
dokonce ztrátovým). To by mˇelo zcela zákonitˇe vést ke zmˇenˇe rozdˇelení spoleˇcenské
výroby.
Kardinálním problémem toho, aby se mohla tomu odpovídající zmˇena bez vˇetších
problém˚u dokonˇcit, je ale to, že domácnosti by kv˚uli ní musely – aˇc samy nechtˇejí –
snížit svoji spotˇrebu. K tomuto kroku, pˇrestože se k nˇemu nerozhodly samy, je m˚uže
na nˇejakou dobu do jisté míry donutit r˚ust cen spotˇrebních statk˚u. K nˇemu zcela zákonitˇe
musí dojít. Pˇri nezmˇenˇeném objemu spotˇrebních výdaj˚u, ho nutnˇe vyvolá pokles
produkce tˇechto statk˚u. K tomu dojde v d˚usledku odlivu mobilních (nespecifických) výrobních
zdroj˚u do výroby kapitálových statk˚u.
Ovšem v okamžiku, kdy se domácnosti, pod vlivem stále tíživˇejší materiální situace,
odhodlají k protiakci a zaˇcnou úspˇešnˇe prosazovat kompenzaˇcní zvyšování svých penˇežních
d˚uchod˚u, dojde zcela nevyhnutelnˇe ke zmˇenˇe dosavadního stavu vˇecí. V d˚usledku
Kindlová: Ovlivˇnování investic a „špatné“ investice 81
r˚ustu mzdových náklad˚u se bude ziskovost podnikání ve výrobˇe kapitálových statk˚u pozvolna
snižovat. Podnikání ve výrobˇe spotˇrebních statk˚u se zase naopak stane vlivem
r˚ustu cen, který bude rychlejší než r˚ust mzdových náklad˚u, natolik ziskové, že to zaˇcne
podnˇecovat zpˇetné pˇresuny mobilních (nespecifických) výrobních zdroj˚u. Ty se budou
realizovat na úkor výroby statk˚u kapitálových, která do té doby rostla díky dodateˇcným
výrobním zdroj˚um pˇricházejícím z výroby spotˇrebních statk˚u.
Uvedeným procesem se v hospodáˇrství vytvoˇrí kritická situace, z níž jsou možná
pouze dvˇe východiska. Ta jsou svými koneˇcnými d˚usledky v podstatˇe stejnˇe katastrofická.
První možnost je pˇredˇcasnˇe ukonˇcit zapoˇcatou a nedokonˇcenou restrukturalizaci
spoleˇcenské výroby a ponechat odbourání „špatných“ investic hospodáˇrské depresi. Pokud
se pokusíme tuto restrukturalizaci dokonˇcit, je tˇreba v úvˇerové expanzi pokraˇcovat
a uvolˇnovat prostˇredky do ekonomiky akcelerujícím tempem. To povede k tomu, že se
rozsah investování nezmenší, „špatné“ investice nebudou odhaleny, ovšem za cenu pádící
inflace. Ani v tomto pˇrípadˇe ale není žádná záruka, že inflace nedosáhne rozmˇer˚u, kdy ji
bude nutné zastavit ještˇe pˇred dokonˇcením dané restrukturalizace výroby. Škody vzniklé
hospodáˇrství se tak nakonec ještˇe znásobí.
V obou uvedených pˇrípadech je proto pro rakouskou teorii výroby a kapitálu tím
nejpravdˇepodobnˇejším koncem všech podobných pokus˚u koneˇcný stav, který se bude
lišit od toho výchozího pˇrevážnˇe jen vyššími cenami. To proto, že jde o snahu umˇele
implantovat tržnímu hospodáˇrství dynamiku, kterou samo o sobˇe momentálnˇe postrádá.
Podobné d˚usledky má i poskytování spotˇrebních úvˇer˚u na bázi tvorby bankovních
penˇez. Vzhledem k tomu, že vede k identickým zmˇenám v ekonomice, není tˇreba se jím
na tomto místˇe nijak dále zabývat.
Z výše ˇreˇceného zcela jasnˇe vyplývá, že impulsy, které mají zvýšit investice a mají
sv˚uj zdroj mimo samotnou sféru rozhodování a jednání individuí, nemají žádoucí pozitivní
úˇcinky a mohou naopak zp˚usobit nedozírné škody. Pokusme se ted’ zamyslet nad
skuteˇcností, která s dˇríve uvedeným zdánlivˇe nemá mnoho spoleˇcného. Jaký dopad na
investování budou mít snahy stimulovat investice jinými cestami než je úvˇerová expanze,
které však pˇresto nemají sv˚uj zdroj ve zmˇenˇe preferencí. Jde napˇríklad o doˇcasné daˇnové
úlevy a podobné zásahy, jimiž se centrální orgány snaží podpoˇrit investiˇcní aktivitu
zejména zahraniˇcních investor˚u. Jaké následky taková opatˇrení budou mít, nelze bez po-
82 New Perspectives on Political Economy
drobné analýzy empirických dat jednoznaˇcnˇe ˇríci. Zkusme se však zamyslet nad jedním
z možných dopad˚u podobných aktivit. Když investoˇri zvažují, zda nˇejakou akci uskuteˇcní
nebo nikoli, rozhodují se na základˇe analýzy náklad˚u investování a jeho výnos˚u.
V pˇrípadˇe náklad˚u nejde pouze o objem prostˇredk˚u, které bude tˇreba vložit pˇrímo do
vybudování investice, ale jedná se i o budoucí „provozní“ náklady, které jsou nezbytné
pro plynulý chod výroby, tedy pro bezproblémové využívání nových investiˇcních statk˚u.
Pˇrevažují-li výnosy nad náklady, investor bude realizaci pˇríslušné investice bezpochyby
naklonˇen.
Pˇredpokládejme nyní, že státní orgány ve snaze „pˇritáhnout“ do ekonomiky zahraniˇcní
investory, pˇrislíbí velice nízké nebo dokonce nulové zdanˇení budoucích pˇríjm˚u
investora, a to po konkrétnˇe vymezenou dobu (napˇr. 10 let). Je otázkou v rámci jak
dlouhého ˇcasového horizontu se investor pohybuje, rozhoduje-li se o svých aktivitách.
Pokud bychom akceptovali pˇredpoklad racionálních oˇcekávání, nemˇelo by dojít k žádnému
mylnému rozhodnutí. Uvˇedomme si však, že v pˇrípadˇe úvˇerové expanze se žádná
mimoˇrádná racionalita od ekonomických subjekt˚u neoˇcekává. Nechají se zmýlit umˇele
sníženou penˇežní úrokovou mírou, která však, pˇri racionálním zvážení všech okolností,
nem˚uže pˇredstavovat trvalou zmˇenu.
Vzhledem k ˇreˇcenému, je možné mít za to, že investiˇcní rozhodování bude zohledˇnovat
pˇredevším aktuální situaci (nebo podmínky relativnˇe krátkého období), s níž má
investor bezprostˇrednˇe co do ˇcinˇení. Zdá se, že m˚uže probˇehnout analogický dˇej jako
je ten, který vede ekonomické subjekty k neuváženým aktivitám vyvolaným úvˇerovou
expanzí. Pod dojmem pomˇernˇe nízkých náklad˚u, který je ale optickým klamem, se rozbˇehne
urˇcité kvantum investiˇcních akcí. Jejich d˚usledkem je již zmínˇená zmˇena struktury
spoleˇcenské výroby, která spˇeje k „prodloužení“ výrobního procesu a všem dalším následk˚um
s ním spojeným. Po jistou dobu se tak m˚uže zdát, ze byly uskuteˇcnˇeny „dobré“
investice, které mˇely ˇradu pozitivních dopad˚u jak na investora, tak na pracovníky zamˇestnané
pˇri realizaci tˇechto akcí. Spokojené mohou být i pˇríslušné státní orgány, které
dosáhly zamýšlených výsledk˚u.
Co se ale zˇrejmˇe stane poté, kdy „daˇnové prázdniny“ vezmou za své. Investoˇri mohou
docela dobˇre zjistit, že to s danou investiˇcní akcí je mnohem složitˇejší, než se p˚uvodnˇe
zdálo. Náklady se najednou výraznˇe zvyšují, což bezpochyby redukuje ˇcistý výnos investice.
M˚uže se tak docela dobˇre ukázat, že jde vlastnˇe o „špatnou“ investici, o jejímž
Kindlová: Ovlivˇnování investic a „špatné“ investice 83
uskuteˇcnˇení bylo rozhodnuto na základˇe mylných dat. Investor pak m˚uže pˇríslušnou
výrobu omezit, ˇci dokonce úplnˇe zastavit, dochází tak tedy k odbourávání neuváženˇe realizovaných
akcí. Není vylouˇceno (i když by zase byla tˇreba podrobná analýza s využitím
empirických dat), že nˇekteré signály potvrzující opodstatnˇenost tˇechto úvah se objevují v
naší ekonomické realitˇe. Nˇekteré zahraniˇcní firmy, podnikající v naší ekonomice opouštˇejí
své pozice a pˇresouvají výroby do jiných zemí. Není to v d˚usledku toho, že u nás
uskuteˇcnily „špatné“ investice?
Doporuˇcení ohlednˇe stimulace investic, které lze na základˇe pˇredcházejících úvah
vyslovit, je prosté. Pouze tehdy, mají-li investoˇri k dispozici nezkreslené a realitˇe odpovídající
informace, mohou ˇcinit kvalifikovaná rozhodnutí o všech svých aktivitách vˇcetnˇe
investování. Jedinou cestou tedy je vytvoˇrit v ekonomice takové prostˇredí, které by v˚uˇci
investor˚um bylo všestrannˇe „pˇrátelské“. Je tˇreba, aby existovaly obecnˇe platné a transparentní
podmínky pro podnikání, které investiˇcním aktivitám bezvýhradnˇe pˇrejí. V oblasti
zdanˇení by se pod tímto zorným úhlem jevilo jako vhodnˇejší, meritornˇe lepší než
nˇejaké „daˇnové prázdniny“, všeobecné trvalé a podstatné snížení daˇnových plateb. Jen
touto cestou lze zabránit podnikatelským omyl˚um a následným zjištˇením o nevyhovující
struktuˇre investic.
Literatura k tématu v ˇceském jazyce
[1] Hayek, F.A.: Soukromé peníze, Liberální institut, 1999
[2] Kindlová, Eva: Vybrané kapitoly z rakouské ekonomie, VŠE, Nakladatelství Oeconomica,
2003
[3] Rothbard, Murray N.: Zásady ekonomie, Liberální institut, 2005
[4] Rothbard, Murray N.: Peníze v rukou státu, Liberální institut, 2001
[5] Šíma, Josef: Trh v ˇcase a prostoru, Liberální institut, 2000