MILOEK
Militärökonomische Forschung und Lehre
Research and Courses in Economics of Defense
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Online: * August 2012
Forthcoming: The New Institutional Economics
─ A Unifying Perspective I
─ A Unifying Perspective I
It took over 40 years to replace the neo-classical paradigm by the various approaches sharing the label “the new institutional economics“ (NIE). However, a perspective is still missing that clears up how these approaches like agency theory or the transaction cost approach are interrelated. The paper’s attempt to offer a corresponding view is founded on the following key thesis.
Economics never stopped to be a branch of ethics since the publication of “Wealth of Nations” by the Scottish moral philosopher Adam Smith in 1776. Actually, the economic issues raised by the NIE and its predecessors like Arthur C. Pigou or Friedrich A. v. Hayek are to be interpreted as violations to the social contract of a democratic society.
This contract is based on two principles: Equal rights ─ derived from the Kantian Categorical Imperative ─ and the approximate guarantee of individual existence. In order to minimize frictions between the various systems of a society ─ refer to Talcott Parsons ─ these principles must then also determine the economy design. The economy of a democratic society represents a Social Market Economy (SoME) because the two principles coin its following core features.
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Private property as a fundamental right. This feature always confronts the owner of a resource with three options: Either use the (modified) resource for himself, rent it to someone else or trade it away. Because of this motivation, voluntary contracts become the primary tool for resource allocation ─ be it, in particular, in the form of the more short-term oriented market mechanism or in the more long-term focused corporation. These mechanisms allow the members of a society to compete for scarce resources or introduce a stability to interpersonal relations beyond the level of blood bounds. Finally, private property also reduces the incentive to discriminate along the lines of race, religion etc.: Who wants to forfeit a bargain because of a feature irrelevant to the transaction conditions of a deal?
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In turn, competition not only minimizes the waste of costly resources, but makes it very likely that the resources are acquired by those actors with the highest valuation. Finally, it induces innovation, because, in particular, the losers of a contest for scarce resources must look for alternative ways to achieve their goals.
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The moral obligation to guarantee the individual’s existence by providing social aid for those individuals who are permanently not capable to become attractive actors in the environment of a market economy.
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First Version: October 2012
This Version: November 2012