Including a Symposium on Albert O. Hirschman: Volume 34B

Albert Hirschman always distinguished himself by his unique approach in tackling economic problems, an approach that moved easily from literature and philosophy to political economy and social psychology, without ever losing sight of the real workings of social and political life.

The papers collected here stemmed from a desire to know more closely this rare economist who used the tools and features of one discipline to throw light upon those of another.

The methodological stance is the first element that emerges either explicitly or implicitly from this collection of papers: Hirschman’s suspicion of all-encompassing theories and their issue in encompassing plans – development plans in particular. His was a piecemeal approach targeting the scarcest of all factors, such as the ability to mobilize resources and to solve problems. This matched Hirschman’s own view that “petites idées,” to look at problems in the small, form the material for further observations and insights.

The second element that emerges from these papers is the richness of themes explored – from how to voice reasons for one’s disappointment and distrust to the role of countervailing passions in institutional development, from the “bias for hope” to the problem of inequality – but also the strong connections that exist among them. These connections revolve around the problem of economic change and its dynamics: how to explain it, how to promote it.

Yet, no matter which of Hirschman’s works we pick up for the first time or rediscover, we cannot avoid seeing that besides the scientist with his microscopic lenses, there is also the artist who looks at problems not for the final truth they might hide or the definite solution, but to make us aware of them, to open our eyes to curiosity and wonder. This is a difficult lesson, but not one Hirschman will let us forget.

This paper discusses the role of Albert O. Hirschman as a founder of development economics in the postwar years. Although Hirschman maintained a strong interest in development matters throughout his entire professional career, his major contributions to development economics took place between the mid-1950s and the late 1960s. The paper examines Hirschman’s innovative contributions to the new discipline. When, in the 1950s, development economics gravitated around the concept of “balanced growth,” Hirschman opened new vistas with a theory of “unbalanced growth.” In the early 1960s, Hirschman focused on reformist political approaches to development, against the opposed extremisms of reaction and revolution. Finally, in the late 1960s, Hirschman opened new perspectives on the importance of detailed analysis of development projects, against the theoretical drift of early development economics.

The discussion of Hirschman’s development career is also an opportunity to observe the gap between theoretical debates and development policies. Whereas development economists often clashed on theoretical issues, their views were remarkably closer on practical questions.

As a pioneer of development economics, Hirschman sought to establish it as a discipline theoretically distinct from mainstream economics. By the 1980s, this project had collapsed, and the development question was reabsorbed by the economic mainstream. This article, however, argues that current development debates remain deeply indebted to Hirschman’s contribution. His reformist vision, rejection of one-size-fits-all solutions, his insistence on the ineluctable role of uncertainty, and his search for country-specific, incremental, and evolutionary policies make his approach central to current development discourse.

This paper looks at the origins of Albert O. Hirschman’s distinctive approach to economic development. It argues that Hirschman’s style was the result of several, sequenced, influences. One was the impact of his brother-in-law, the Italian philosopher, Eugenio Colorni, who raised the curtain on a Renaissance approach to knowledge that privileged the importance of close observation. The second was an aversion to abstract theorizing, based in part on Hirschman’s distaste for what “theory” produced in the 1930s and 1940s. Finally, the paper suggests that the experience of looking at development experiences from the ground up while living and working on Colombia in the 1950s was pivotal. Thus, it was set of conceptual, political, and empirical influences that molded the classic work, The Strategy of Economic Development (1958).

As Hirschman wrote of himself in an essay of 1984, he was a dissenter. The paper focuses on three dimensions of this dissent. Dissent from orthodoxy, in the first place, even if his stance rarely assumed the feature of a frontal opposition. His distance from mainstream economics clearly emerges in the contrast between growth and development, here exemplified through a comparison of Solow’s and Hirschman’s conceptions. Second, dissent from heterodoxy: from Nurkse, Rosenstein Rodan and the balanced growth theory, but also a distance from the kind of economic theorizing recently exemplified by Krugman’s critical appraisal of Hirschman’s contribution. Third, a dissent from Hirschman himself. He developed a practice defined as “self-subversion” to convey the meaning of a self-critical dialogue with his own positions. In this context, two examples will be discussed, namely his critical reappraisal of the dependency theory, to which Hirschman as a young man contributed indirectly, and his after-thoughts on the choice between sequential or simultaneous strategies. Hirschman’s reflections on the last theme appear relevant to address the problems of current Eurozone crisis: its roots may be traced back to the faulty construction of the Monetary Union, which in turn largely stemmed from the misplaced confidence in the “automatism” of the sequence Monetary Union-Fiscal Union-Political Union.

The paper’s contention is that Hirschman’s “possibilism,” often mentioned, is not the result of a generic psychological propensity to optimism but stems from analytical observations and penetrating critical analysis of received ideas or categories, of other authors or of Hirschman himself.

In the 1950s, when development as a subject for study was as yet poorly defined, misunderstandings were not uncommon. The grounds were often methodological, but substantive analytical differences were also involved. I focus on an unusual context, the invitation given to one economist, Hollis B. Chenery, who promoted the neo-classical approach to growth, to review two works stemming from very different perspectives. One of these was The Design of Development by econometrician Jan Tinbergen; the other was The Strategy of Economic Development by the highly original thinker Albert O. Hirschman. Chenery found himself baffled by Hirschman’s stress on the capacity to make quick and strong decisions in favor of development, if backwardness was to be overcome. But he was equally drawn to Tinbergen’s advocacy of detailed development plans. I argue that Chenery was wrong on both counts. He failed to understand Hirschman’s argument, which admittedly was novel, and misperceived Tinbergen’s approach as of a piece with his own convictions. The episode is instructive chiefly in opening up to reconsideration the ideas and misperceptions of three pioneers of development economics.

This paper analyzes the standpoint of Albert O. Hirschman in the structuralist–monetarist debate that took place in Latin America during the 1950s and 1960s. It claims that Hirschman had many affinities with the structuralist approach, in virtue of his methodological stance and of his view of the role to be performed by economic advisers in foreign countries. Similar to the structuralists, Hirschman did not make the control of inflation a central tenet of his development theory; also like them, he dissented from the orthodox approach. However, Hirschman did not take a clear-cut side on the debate, choosing, instead, to act as a go-between.

In The Passions and the Interests, Hirschman explored a movement in 18th century thought whose aim was to shape human motivations by establishing the prominence of interests, particularly material interests, in order to diminish the negative effects of the passions in political life. If the pursuit of gain could replace the pursuit of glory, for example, commercial transactions might replace bloody wars as a means of resolving conflict. Hirschman finds this claim overly optimistic. And, in his view, in making their case, these thinkers oversimplified and impoverished our understanding of human psychology by reducing all motivation to interest – a problem that persists in contemporary social science. After exploring Hirschman’s account of 18th century thinkers, this paper attempts a discussion of a richer psychology identifying the variety of passions that motivate action toward different political goals; viz. status, justice, solidarity, and security. These political passions – including ambition, compassion, righteous indignation, loyalty, and fear – can have positive as well as negative political consequences.

In his essay Against Parsimony (1985), Hirschman argued in favor of “complicating” economic theory. This paper focuses on two of the economic phenomena that, according to Hirschman, are in need of greater complexity.

The first refers to the process of preference formation: a change in tastes that is preceded by the formation of meta-preferences is in fact, for Hirschman, a change in values. These autonomous, reflective kinds of changes, as opposed to non-reflective kinds, do not take place simply in response to price changes. Contrary to the standard economic assumption, de valoribus est disputandum.

The second phenomenon refers to the existence of non-instrumental actions. Striving for truth, love, beauty, justice, and liberty has non-calculable outcomes. According to instrumental reasoning such actions are “a mystery.” Moreover they are often painful to achieve. Why then are they pursued?

According to Hirschman, changes in choice behavior implying changes in values are the expression of a conflict between meta-preferences and preferences, and this, in its turn, is the result of disappointment. If disappointment is with private consumption, social and public commitments can provide alternative values; if, vice versa, disappointment is with public action, private concerns might provide the prevailing values. In discussing these points, I shall show that there are other sources of conflict, besides disappointment, that have both a cognitive and affective dimension and whose effects on preferences might result in altered choices.

Albert O. Hirschman famously wrote against parsimony. He wanted to complicate economics. The locus of these complications was often individual behavior. This paper makes three arguments about such complications. The first is that the growing experimental evidence on individual behavior broadly supports many of Hirschman’s proposed complications. In particular, there is evidence of preference change under “reflection.” Second, I argue that there is experimental evidence of both “good and bad” preference change in market society. The third is that the policy of “nudging” would not sit well with Hirschman. “Nudging” is a return to the “parsimonious” instinct in economics; and it misses the real implications for policy of the insights from behavioral economics, which, of course, are more complex.

The article reviews the contribution of Hirschman’s Exit, Voice and Loyalty (EVL) to research in political science. The argument is the framework of exit and voice offers greater understanding of a range trade-offs that exist in politics, in particular over collective action and citizen responses to dissatisfaction, which have implications for institutional design as well as for the functioning of democratic processes. The paper summarizes the EVL model and discusses how it may be elaborated. The main part of the article reviews applications to research literatures on political participation, responses to oppressive regimes, political party and interest group membership, and reports a number of formal treatments. The applications have been useful and illuminated a number of research problems, but overall they are modest in their impact in political science. The article suggests that the potential range of impacts could be much greater as EVL can show how individual choices are made in politics and are constrained by its institutions.

Hirschman has repeatedly stated that Voice is better than Exit as citizens or clients response to dissatisfaction with the service provided by organizations of various nature. He also maintained that all too often Exit was preferred to Voice and the negative result would be that services of worse quality will be supplied in the system as a whole.

Unfortunately, Hirschman never formalized his powerful categories and his fascinating ideas. The paper is an attempt to fill this gap; it also aims at showing how helpful Hirschaman’s approach can be in the endeavour to design efficient institutions.

This paper provides a definition of efficiency convenient for our purposes and presents a model where both Exit and Voice can be necessary in order to achieve efficient results, given that the decline of organizations can have several different originating factors. Then it identifies the analytical conditions under which Exit is spontaneously chosen by citizens or clients despite being less efficient than Voice. The paper shows that the use of Exit when Voice would be more efficient is not as general as Hirschman seemed to imply but it can arise under well-specified circumstances. In its final part, the paper suggests how institutions should be designed in order to prevent such inefficient results.

Robert Franklin Hoxie was of the first generation of University of Chicago economists, a figure of significance in his own time. He is often heralded as the first of the Institutional economists and the impetus behind the field of labor economics. Yet today, his contributions appear as mere footnotes in the history of economic thought, when mentioned at all, despite the fact that in his professional and popular writings he tackled some of the most pressing problems of the day. The topics upon which he focused included bimetallism, price theory, methodology, the economics profession, socialism, syndicalism, scientific management, and trade unionism, the last being the field with which he is most closely associated. His work attracted the notice of some of the most famous economists of his time, including Frank Fetter, J. Laurence Laughlin, Thorstein Veblen, and John R. Commons. For all the promise, his suicide at the age of 48 ended what could have been a storied career. This paper is an attempt to resurrect Hoxie through a review of his life and work, placing him within the social and intellectual milieux of his time.

The goal of this paper is to analyze the views of Frank Knight and Ludwig von Mises on the topic of uncertainty and how it influences the theory of individual decision-making and to trace out the implications of the same for the theories of entrepreneurship, equilibrium, and the firm. The paper adopts a historical approach in its analysis of the theory of uncertainty, with an extended discussion of the primary writings of Knight and Mises on this topic. It then uses the insights gleaned from this discussion in order to address issues and topics that have found a prominent place in the modern literature on entrepreneurship, equilibrium, and the firm that draws its inspiration from the Austrian School. The paper offers three main findings: in the realm of entrepreneurship it argues that there can be no theory of the entrepreneur without the concept of uncertainty provided by Knight and Mises, whereas with regard to the theory of equilibrium it focuses on highlighting the concept of an equilibrium with error prevalent in the Austrian tradition and on the implications that an explicit introduction of uncertainty has for the existence of a process of equilibration that pushes the economy toward a state of general equilibrium in real time. As regards the theory of the firm we find that a proper understanding of uncertainty ultimately reverses the direction of any causal explanation of economic organization, making the firm an outcome of dealing with uncertainty rather than a means to do so.

For nearly 80 years, the field of macroeconomics has largely been shaped by the aftermath of the Keynesian revolution. Many economists have argued that this revolution and the subsequent internal and external disputes it has sparked have had the unfortunate side effect of crowding out much of what was good in macro-level analysis before it, leading to the dissatisfactory state of macroeconomics we have today. In the search for alternative paths for macroeconomics, I focus on two separate but compatible traditions: monetary disequilibrium (MD) theory and the Austrian business cycle theory (ABCT). I argue that scholars in these traditions employed a far richer micro-theoretic explanation for the business cycle well before Keynes’s General Theory. Unfortunately, their ideas were not united in time to mount a sufficient counterattack to the Keynesian crusade. My goal is to unite the best elements of these two traditions by providing what I believe is the “missing link” that can help connect these alternative paths: free banking theory.

Marshall, Pigou, and Keynes on one side of the Atlantic, and Fisher on the other, had different approaches to the quantity theory of money. But they shared its basic framework, with the result that theoretical discussions did not prevent some degree of mutual support on policy proposals. If a divergence there was, at this stage, this pertained the feasibility of Fisher’s proposals, because Fisher’s enthusiasm for reform could find no match at Cambridge. This notwithstanding, and although in varying degrees, Marshall, Pigou, and Keynes were sympathetic with Fisher’s battle for “stable money.” Indeed, a fragment from the Keynes Papers shows that, at a very early stage of his career, Keynes paid great attention to Fisher’s empirical research on the relationship between “Appreciation and interest,” taking the relation between nominal and real rates of interest as a possible explanation of the trade cycle. For some time at least, this widened the common ground upon which Fisher’s proposals for “stable money” could find some support at Cambridge.