Table Of Contenti
Interdisciplinary Studies
of the Market Order
Economy, Polity, and Society
The foundations of political economy—from Adam Smith to the Austrian school of
economics, to contemporary research in public choice and institutional analysis—are
sturdy and well established, but far from calcified. On the contrary, the boundaries of the
research built on this foundation are ever expanding. One approach to political economy
that has gained considerable traction in recent years combines the insights and methods of
three distinct but related subfields within economics and political science: the Austrian,
Virginia and Bloomington schools of political economy. The vision of this book series is to
capitalize on the intellectual gains from the interactions between these approaches in order
to both feed the growing interest in this approach and advance social scientists’ understand-
ing of economy, polity, and society.
This series seeks to publish works that combine the Austrian school’s insights on
knowledge, the Virginia school’s insights into incentives in nonmarket contexts, and the
Bloomington school’s multiple-method, real-world approach to institutional design as a
powerful tool for understanding social behavior in a diversity of contexts.
Series Editors
Virgil Henry Storr, Research Associate Professor of Economics and Senior Fellow,
F. A. Hayek Program for Advanced Study in Philosophy, Politics and Economics,
George Mason University.
Jayme S. Lemke, Senior Research Fellow, the Mercatus Center, George Mason University.
Titles in the Series
Interdisciplinary Studies of the Market Order: New Applications of Market Process Theory,
edited by Peter J. Boettke, Christopher J. Coyne, and Virgil Henry Storr.
Knowledge and Incentives in Policy: Using Public Choice and Market Process Theory to
Analyze Public Policy Issues, edited by Stefanie Haeffele-Balch (forthcoming).
Interdisciplinary Studies
of the Market Order
New Applications of Market
Process Theory
Edited by
Peter J. Boettke, Christopher J. Coyne,
and Virgil Henry Storr
London • New York
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Selection and editorial matter © 2017 Peter J. Boettke, Christopher J.Coyne and Virgil
Henry Storr
Copyright in individual chapters is held by the respective chapter authors.
All rights reserved. No part of this book may be reproduced in any form or by any
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ISBN 978-1-78660-201-5 (pbk: alk. paper)
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Contents
Introduction: New Approaches to Market Process:
Interdisciplinary Studies of the Market Order vii
Peter J. Boettke, Christopher J. Coyne, and Virgil Henry Storr
PART I: EXPLORING AND EXTENDING THE THEORY
OF THE MARKET PROCESS 1
1 Plato’s Economic Genius 3
Nathan Sawatzky
2 Beyond the Efficiency of the Market: Adam Smith
on Sympathy and the Poor Law 39
Brianne Wolf
3 Why Be Robust? The Contribution of Market Process
Theory to the Robust Political Economy Research Program 63
Nick Cowen
4 Hayek’s Legacy for Environmental Political Economy 87
Dan C. Shahar
PART II: INTERDISCIPLINARY APPLICATIONS OF MARKET
PROCESS THEORY 111
5 The Origins of Entrepreneurship and the Market Process:
An Archaeological Assessment of Competitive Feasting,
Trade, and Social Cooperation 113
Crystal A. Dozier
v
vi Contents
6 The Political Economy: The Invocation of Liberal
Economics by the Catholic Press in the French
Right-to-Work Debates of 1848 139
Nicholas O’Neill
7 How the West Was Watered: Private Property
and Collective Action 161
Bryan Leonard
8 Adam Smith’s Principles of Taxation in the Early
American Republic 183
Frank Garmon Jr.
9 Narrating the Market Process: How Stories Can Promote
the Economic Way of Thinking 203
Jason Douglas
10 The Market Process in Health Care 221
Jerrod Anderson
11 This Is Your Entrepreneurial Alertness on Drugs:
Prohibition and the Market Process 241
Audrey Redford
Index 263
About the Authors 281
Introduction
New Approaches to Market Process:
Interdisciplinary Studies of the Market Order
Peter J. Boettke, Christopher J. Coyne, and
Virgil Henry Storr
The chapters in this volume explore and engage market process theory
from an interdisciplinary perspective. Market process theory explains the
sequence through which the knowledge and expectations of economic actors
lead toward coordination and cooperation. Our purpose in this introductory
chapter is twofold. First, we provide a general overview of market process
theory with the goal of providing context to the subsequent chapters. Second,
we provide an overview of each of the subsequent chapters. Each chapter
contains original research that explores or applies various aspects of market
process theory and, in doing so, demonstrates the continuing relevance of this
framework and approach within a wide variety of disciplines.
MARKET PROCESS THEORY: AN OVERVIEW
A market refers to interactions between buyers and sellers. These interactions
could take place in a physical marketplace (e.g., the local shopping plaza,
bazaar, or stock exchange) or in a conceptual marketplace (e.g. the domestic
market for automobiles or the global financial market). Potential buyers enter
the market hoping to acquire goods or services. Potential sellers enter the
market hoping to find buyers for the goods and services they can provide. If
a potential buyer and seller cannot come to terms (i.e., the seller wants more
than the buyer is willing to pay), then both parties may leave the market with-
out having traded; both parties may leave the market frustrated. However, if
a potential buyer and seller are able to agree on terms (i.e., on a particular
price for a particular quantity of a good or service), then a market exchange
takes place. If an exchange occurs, the buyer leaves the market with the good
or service he wanted having paid a price for that good or service that he was
vii
viii Introduction
willing to pay. The seller, likewise, leaves the market having obtained a price
that she was willing to accept for the good or service she was offering.
Market process theory is an attempt to understand how prices emerge
and how economic actors respond when prices change. It was most fully
developed by three economists—Ludwig von Mises (1920, 1949), F. A.
Hayek (1948), and Israel Kirzner (1973, 1992, 1997).1 Mises (1949, 257)
captured the essence of the theory when he wrote that “[t]he market is not a
place, a thing, or a collective entity. The market is a process, actuated by the
interplay of the actions of the various individuals cooperating under the divi-
sion of labor.” Similarly, Hayek (1948, 86–87) highlighted the important role
of the price system, noting,
It is more than a metaphor to describe the price system as a kind of machin-
ery for registering change, or a system of telecommunications which enables
individual producers to watch merely the movement of a few pointers, as an
engineer might watch the hands of a few dials, in order to adjust their activities
to changes of which they may never know more than is reflected in the price
movement.
Additionally, Kirzner (1973, 73) stressed the key role that entrepreneurship
plays in driving the market process, emphasizing that “[w]hat drives the
market process is entrepreneurial boldness and imagination; what constitutes
that process is the series of discoveries generated by that entrepreneurial
boldness and alertness.” It is this analytical focus on process that sets Mises,
Hayek, and Kirzner apart from their peers in economics.
Market process theory seeks to understand how the knowledge and
expectations of dispersed individuals are coordinated through an ongoing
process of mutual discovery and learning. This theory has five defining and
related characteristics: (1) markets depend on the existence of a particular set
of institutions, (2) the market process is a cultural process, (3) markets are
driven by entrepreneurial discovery in the face of sheer ignorance, (4) the
process of discovery takes place in an open-ended system and is therefore
ongoing, and (5) the market is a spontaneous order that emerges from the
interactions of individuals pursuing their own ends. We will consider each of
these characteristics in turn.
In order for markets to emerge and operate effectively, certain institutions
must exist (see Boettke and Coyne 2003, 2009). Perhaps the most important
institution is a regime of private property rights that delineate how resources
are owned or used. Property rights, although often formally codified, are
themselves emergent orders based on a complex, centuries-old set of moral
traditions and experiences that no one planned or can fully understand (see
Hayek 1973, 1983).
Introduction ix
Property rights are crucial for the market process because they allow eco-
nomic actors to engage in economic calculation, which refers to their ability
to determine which of a range of technologically feasible alternatives is the
most economically suitable to adopt (see Mises 1920; Vaughn 1980; Lavoie
1985; Boettke 1998).
Economic calculation operates as follows. Property rights over the
means of production allow for competition and exchange between market
participants. Because property owners will reap the economic benefits from
their activities, they have an incentive to pay as little as they can for the goods
and services they desire and to charge as much as they can for the goods and
services that they are able to supply. As such, they have an incentive to com-
pete with one another for the best deals.
Competition and exchange, in turn, lead to the emergence of market
prices. These market prices capture information regarding the relative
value of resources, which can then be used by economic actors to deter-
mine the expected value of alternative, technologically feasible uses
of those resources. These spontaneously generated market prices allow
economic actors to both evaluate past decisions and plan for the future
because they effectively communicate information and tacit knowledge
from throughout the economic system (see Hayek 1948, 77–91; Kirzner
1992, 139–51; Thomsen 1992). As Hayek writes, “In a system in which the
knowledge of relevant facts is dispersed among many people, prices can
act to co-ordinate the separate actions of different people in the same way
as subjective values help the individual co-ordinate the part of his plan”
(Hayek 1948, 85).
Changes in prices, thus, communicate that something about the world
has changed. A price increase means that a good or service has become
more scarce. If, for example, there is a natural disaster in a distant area that
adversely affects the availability of an economic resource, the price of that
resource will rise accordingly. Likewise, a decrease in the price means that
a good or service has become more readily abundant. For instance, the price
of a scarce resource like diamonds would fall if a new mine was discovered
that dramatically increased the availability of diamonds. Even if market
actors throughout the economic system have no idea about the fundamental
cause of the price change, they will respond to the price change when mak-
ing their plans. In this manner, market prices communicate local information
and knowledge to other market actors, allowing them to adjust their plans
accordingly.
Although market prices effectively communicate information, they do
not contain all relevant information and are, therefore, necessarily imperfect
knowledge surrogates (see Thomsen 1992). These imperfect prices are the
result of sheer ignorance and are central to the market process because they
