ABSTRACT
In his new book, Daniel Klein demonstrates the originality of his thinking. He ranges well beyond the confines of neoclassical economics and links his themes to the tradition of (British) classical liberalism, which he defines as ‘best represented byAdam Smith, and politically by Liberal Party politicians Richard Cobden, John Bright, and William Gladstone’ (p. 320). Klein insists that readers understand the differences between ‘concatenate coordi-
nation’, in which its ‘components or elements find an order more pleasing or desirable according to some relevant standard’ (p. 317), and ‘mutual coordination’, in which actions ‘mesh according to a situational coincidence of interest’ (p. 321). Concatenate coordination was what economists meant by ‘coordination’ from around 1890 to the 1960s, and it often referred to ‘social order’ where employee coordination is imposed not by the price mechanism but by an entrepreneur’s commands. Mutual coordination, explains Klein, emerged in the 1960s with Thomas Schelling and game theory.At the same time, concatenate coordination receded, losing ground to ‘efficiency’, ‘social welfare function’and ‘optimality.’He implies economics is the poorer since concatenate coordination lost ground. These distinct coordinations are explored in greater detail using Smith’s
example of the labourer’s woolen coat fromWealth of Nations (WN I.ii.12:22-24), which Klein says (p. 55-6), and I agree, is of special concatenate significance compared with Smith’s more famous example of pin-making, which he took from Diderot’s Encyclopédie (Peaucelle 2006). Klein links the woolen coat example to Hayek’s ‘spontaneous order’, supported with a literature survey. He criticises ‘general equilibrium’models for ignoring the process of ‘concatenation of market activities that makes a woolen coat’. Klein (p. 73-5) explores ‘co-operation’, helpfully supported by formal discussions of concatenate and mutual coordination that turn on the ambiguity of cooperation when either concatenate coordination or mutual coordination are present. Knowledge is the other pole of Klein’s book. He turns his attention to what D.
N. McCloskey dubbed as ‘Max-U’ theorizing and the logic of choice optimising among multiple ends with limited means. He discusses Israel M. Kirzner’s work in detail, particularly on ‘entrepreneurship’, which also involves discovering new
ends and means by transcending what is currently available. Klein (p. 13-15) quotes Somerset Maugham’s short story of a verger discovering an opportunity for opening a tobacco shop. He does so and makes his fortune. He was not seeking a business opportunity; he need not have acted having found one; he could just as easily have grumbled and looked elsewhere for cigarettes. That he followed through illustrates entrepreneurial qualities. Entrepreneurial interventions are not accommodated in neoclassical optimising
models, nor are they common among central planners, despite feeble efforts by some social democrats to proselytise for ‘salaried entrepreneurs.’However, entrepreneurs are endemic in the real world. By removing entrepreneurs because of an inability to model them, the key difference between markets (with entrepreneurs who risk their own capital) and state functionaries (who spend compulsory taxation) is eliminated, along with our understanding of the real world. Klein rightly is suspicious of the neglect of the entrepreneurial role. He reports on what Mises, Hayek and Kirzner said about the entrepreneurial
function, together with a detailed critique of their conflicting nuances (p. 139-41; 81-118; 261-304). He dehomogenises Mises and Hayek and exalts Smith-Hayek over Mises-Rothbard, thereby challenging the Kirzner-Boettke wing of the Austrian project. He summarises an entrepreneur’s roles as: ‘discovering’ betterment opportunities; ‘creating’ new products or methods; improving products; ‘bearing’uncertainty; ‘owning’ capital; ‘owning or managing’business enterprise’; and ‘organizing’ through speech, rhetoric and persuasion (p. 142). Controversially, he introduces the alleged links of Smith’s use of the ‘invisible-
hand’ metaphor to an allegorical ‘Joy’, who is an invisible, ‘humanitarian’ and ‘liberal’, and who generates a dynamic, complex spontaneous order which, because it is generally decentralised and spontaneous, is ‘more pleasing than the order generated by the rather more controlled or centrally directed economic system’, which inevitably is coercive (p. 61-2; 221-3; 229-30). But much of Klein’s worthwhile critique is compromised by his allegorical fiction. He believes his allegory of the role of entrepreneurs in market economies supports what he claims isAdam Smith’s ‘presumption of liberty’. This argument extends his defence of the significance of Smith’s use of the invisible hand metaphor over which he and I have politely disagreed since 2009 (Klein 2009; Klein and Lucas 2011a,b; Kennedy 2009, 2011). Klein’s admirable attempt to reintroduce the absent entrepreneur to explain why
voluntary markets are more successful than compulsory state-managed interventions is welcome. However, his use of ‘Joy’ is unconvincing because allegories are only ‘extended’ metaphors (Smith 1762: 30) that have potential beauty, but also, along with ‘Metonymies, Similies…and Hyperbolls’, they have the grammatical limitations ‘equally applicable’ to ‘the justness and propriety of metaphors’ (Smith 1762: 30). Smith taught that metaphors ‘give due strength of expression to the object to be described’ and they do this in ‘a more striking and interesting manner’ (Smith 1762: 29). Smith, of course, became even more famous from the 1950s (Kennedy 2010), inside and outside the academy, for his misunderstood use of the popular eighteenth-century metaphor of the invisible hand (Harrison 2010).
