A Ordem das Regras na Economia e os Limites do Intervencionismo Dr. Antony Mueller Professor de Economia, UCS

Laws vs. Rules Laws in the sense of legal laws are made and imposed (e.g. military draft) Laws in the sense of legal laws are made and imposed (e.g. military draft) Laws in science are held to be immutable Laws in science are held to be immutable Rules emerge spontaneously Rules emerge spontaneously Rules are evolutionary Rules are evolutionary Order of rules can be seen as a complex of unintended consequences of human action (result of human action but not of human design: money, language, trade, markets, the Internet) Order of rules can be seen as a complex of unintended consequences of human action (result of human action but not of human design: money, language, trade, markets, the Internet)

Order vs. System “System” in terms of its “structure” is conceived as static “System” in terms of its “structure” is conceived as static Order is conceived as something that has emerged and is evolving Order is conceived as something that has emerged and is evolving Order implies high degrees of freedom for its variables Order implies high degrees of freedom for its variables Human action as the singular element of the economic order: perception, interaction, correction Human action as the singular element of the economic order: perception, interaction, correction

Order vs. Organization Organizations are based on command structures – hierarchical (including paternalistic) Organizations are based on command structures – hierarchical (including paternalistic) Organizations have specific aims (e.g. profit for a company) Organizations have specific aims (e.g. profit for a company) Order has no specific aim. Rules emerge and evolve for the benefit of the individual or the group (e.g. language, money) Order has no specific aim. Rules emerge and evolve for the benefit of the individual or the group (e.g. language, money) Rules of organization are often explicit; rules of order mostly implicit (firm - market) Rules of organization are often explicit; rules of order mostly implicit (firm - market)

The concept of order in economic theory Aristotle: cosmos and taxis Aristotle: cosmos and taxis Saint Thomas: natural law – positive law Saint Thomas: natural law – positive law Quesnay: ordre positif – ordre naturel Quesnay: ordre positif – ordre naturel Adam Smith: natural order (invisible hand) Adam Smith: natural order (invisible hand) Carl Menger: economic institutions as unintended and unplanned consequences of human action Carl Menger: economic institutions as unintended and unplanned consequences of human action Ludwig von Mises: regression theorem of the value of money Ludwig von Mises: regression theorem of the value of money Friedrich Hayek: constitutional economics Friedrich Hayek: constitutional economics Walter Eucken: theory of ordo-economics Walter Eucken: theory of ordo-economics

Organizational view of economics Mercantilists (treasury wealth) Mercantilists (treasury wealth) Socialists (expropriation) Socialists (expropriation) War economics (WWI, WWII, Cold War) War economics (WWI, WWII, Cold War) Modern Interventionists (social justice, market imperfections) Modern Interventionists (social justice, market imperfections) Stabilizers (modern macroeconomics) Stabilizers (modern macroeconomics) Development Strategists (Myrdal, CEPAL) Development Strategists (Myrdal, CEPAL)

Epistemological Aspects: Positivism old and new Positivism (Auguste Comte: savoir pour prevoir et prevoir pour pouvoir) Positivism (Auguste Comte: savoir pour prevoir et prevoir pour pouvoir) Control theory (Paul Samuelson) Control theory (Paul Samuelson) Economy as object of organization (Central planning – War Economics) Economy as object of organization (Central planning – War Economics) Control of human action (Behaviorism) Control of human action (Behaviorism) Economics as a (failed) predictive science Economics as a (failed) predictive science Limits of the economics of control (“Thinking men cannot be ruled”) Limits of the economics of control (“Thinking men cannot be ruled”)

Epistemological Aspects: Complexity Economic Phenomena as Complex Phenomena Economic Phenomena as Complex Phenomena Limits to prognosis (unstable relations) Limits to prognosis (unstable relations) Pattern predictions (QTM) Pattern predictions (QTM) Explanation of the Principles (e.g. price ceilings) Explanation of the Principles (e.g. price ceilings) Evolutionary Falsification (theory and history) Evolutionary Falsification (theory and history) The economic problem as a co-ordination problem (no equilibrium) The economic problem as a co-ordination problem (no equilibrium) Conceit of Knowledge (Hayek) Conceit of Knowledge (Hayek)

Types of economics Situational economics (game theory, economic information theory, experimental economics, psychological economics) Situational economics (game theory, economic information theory, experimental economics, psychological economics) Homo oeconomicus models Homo oeconomicus models Market behavior models Market behavior models Macroeconomics Macroeconomics Institutional Economics Institutional Economics Constitutional (or Ordo-) Economics (Hayek/Eucken) Constitutional (or Ordo-) Economics (Hayek/Eucken)

Smith-Ricardo-Marx Tradition Individual wealth – wealth of nations Individual wealth – wealth of nations Productivity – Division of Labor – Markets – Prices and Money (Smith) Productivity – Division of Labor – Markets – Prices and Money (Smith) “Classes” and “countries” as economic agents (Ricardo) “Classes” and “countries” as economic agents (Ricardo) Objective Theory of Value Objective Theory of Value Development Laws (Marx/Malthus) Development Laws (Marx/Malthus) Supremacy of the State Supremacy of the State

Smith-Mill-Menger Tradition Productivity – Division of Labor – Markets – Prices and Money (Smith) Productivity – Division of Labor – Markets – Prices and Money (Smith) Private Property (Mill) Private Property (Mill) Subjective (marginal) Valuation (Menger) Subjective (marginal) Valuation (Menger) Economic Calculation (Mises) Economic Calculation (Mises) Dispersion of Knowledge (Hayek) Dispersion of Knowledge (Hayek)

Constitutive Principles Abstract “Rule of Law” Abstract “Rule of Law” Subsidiarity Principle Subsidiarity Principle Definite Property Rights Definite Property Rights Free Markets (limited regulation) Free Markets (limited regulation) Strict Profit-Loss-Rules (economic calculation) Strict Profit-Loss-Rules (economic calculation) Transparency and Accountability (corporate and governmental governance) Transparency and Accountability (corporate and governmental governance) Monetary Order (different from mere “price stability”) Monetary Order (different from mere “price stability”) Free money and banking (Hayek/Rothbard/White) Free money and banking (Hayek/Rothbard/White)

Regulative Principles Constancy of economic policy Constancy of economic policy Unity of economic policy Unity of economic policy Order criteria of intervention Order criteria of intervention Minimal Taxation Minimal Taxation Limited Government Activity Limited Government Activity Prudential Supervision of Competition Prudential Supervision of Competition Incentive-oriented social security systems Incentive-oriented social security systems

Research Focus Strong limited State vs. Weak unlimited Government Strong limited State vs. Weak unlimited Government Evolutionary Order vs. Social Engineering Evolutionary Order vs. Social Engineering Pattern Prediction vs. Specific (quantitative) Prognosis Pattern Prediction vs. Specific (quantitative) Prognosis Explanation of the principle vs. Econometric Modeling Explanation of the principle vs. Econometric Modeling Complexity Models vs. Reductionist Models Complexity Models vs. Reductionist Models Analysis in Categories of “Order” vs. “Systems-” and “Organization”-Categories Analysis in Categories of “Order” vs. “Systems-” and “Organization”-Categories

Conclusion: The Limits of Interventionism Absence of the preconditions for effective intervention: Absence of the preconditions for effective intervention:  Knowledge Problem (economic knowledge as largely tacit, specific, dispersed, individual, subjective)  Prognosis Problem (lack of quantitative laws)  Control Problem (volitional freedom in human action)  Value Problem (subjective-individual vs. objective-collective)