Neoclassical economists think the economy is freestanding and ignore institutions!

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1991 was awarded to Ronald H. Coase:

for his discovery and clarification of the significance of transaction costs and property rights for the institutional structure and functioning of the economy

The Royal Swedish Academy of Sciences has decided to award The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2009 to

Elinor Ostrom “for her analysis of economic governance, especially the commons” and Oliver E. Williamson “for his analysis of economic governance, especially the boundaries of the firm”

The Royal Swedish Academy of Sciences has decided to award the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel for 1993 jointly to Robert W. Fogel and Douglass C. North

for having renewed research in economic history by applying economic theory and quantitative methods in order to explain economic and institutional change.

The Royal Swedish Academy of Sciences has decided to award the1986 Alfred Nobel Memorial Prize in Economic Sciences to Professor James McGill Buchanan for

his development of the contractual and constitutional bases for the theory of economic and political decision-making.

What did Robert Fogel and John Rawls learn from getting chickenpox and pneumonia as a child?

Robert Fogel was a Nobel Prize winning economist. His first career was as a full-time communist party organiser in the late 1940s and early 1950s.

John Rawls was much more famous as a political philosopher who developed the difference principle.

John Rawls.jpg

Rawls suggested that behind a view of ignorance concerning where we would end up in life and in terms of luck and talents, we would all agree that social and economic inequalities must satisfy two conditions:

(a) they are to be attached to positions and offices open to all under conditions of fair equality of opportunity; and

(b) they are to be to the greatest benefit of the least advantaged members of society.

Rawls was attuned to the importance of incentives in a just and prosperous society. If unequal incomes are allowed, this might turn out to be to the advantage of everyone because everyone could be wealthier than in a more equal society. Rawls excluded envy from considerations behind the veil of ignorance.

Robert Fogel had an interesting life that contrasts with that of John Rawls:

  • Rawls was sick as a small child with diphtheria and then pneumonia.
  • In each case, a brother caught the disease from him and died.
  • Rawls spent his life wrestling with the arbitrary nature of good fortune and bad luck.

Robert Fogel contracted chickenpox as a small boy in 1932.

The city health department quarantined his family’s apartment within 2 hours for the next few weeks. His father was out of the house at the time so he could leave groceries at the door but not enter.

In the early 1950s, Fogel’s son contracted chickenpox:

  • He contacted the family doctor full of fear based on his own childhood.
  • The doctor was calm and routinely said it was a mild year for chickenpox.
  • His son was back in school within a few days.

Fogel made a second career studying the economics of physiology and how much healthier and long-lived people have become because of the industrial revolution.

Rawls made no similar contribution to remedying the blights of his childhood, explaining what institutions made them a relic of recent 20th century history.

Innovation and entrepreneurship produced major improvements in overall well-being, with disproportionate advances for the poor. No egalitarian theory of society can deliver on the promise to level differences in income and wealth without seriously compromising overall levels of social welfare, and in particular of the poor.

Rawls was a profound thinker and open to different interpretations. It is hard to disagree with his ideas of equal liberty, equal opportunity, and such inequalities that are to everyone’s advantage!? Robert Nozick had to box real clever to get passed Rawls. That topic is for another post about the rags to riches story of J. K. Rowling.

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