Professor Peter J. Boettke Comparative Political Economy M 6:10-7:50

Fall 1995 G31.3001.04 Rm. 715, 269 Mercer

     Some of the most innovative work in the past three decades has been the area of reintegrating politics and economics. Historically our discipline was known as political economy. The last years of the nineteenth and early part of the twentieth century, however, saw politics and economics develop into separate disciplines. The term political economy became synonymous with Marxism. But since the 1960s, political economy has become increasingly identified with a non-Marxist style of thought. In particular, rational choice models of human agency tend to form the core of the intellectual enterprise of modern political economy. The meaning of rational choice, however, varies across certain subgroups -- some scholars employ a loose form of rational choice theory which is essentially the derivation of analytical propositions by examining the situational logic of instrumental rationality. Other scholars interpret rational choice in a very strict manner and attempt to model human agency in a mathematically rigorous manner. Both exercises share in common the basic program of explaining human decision making as the outcome of choices on the margin and the aspiration that this form of explanation strives for universality.

     With the rise of modern political economy, though, there has also emerged an increased recognition that institutions and history matter for the manner in which human agents make their rational choices. Again the way individual scholars interpret the significance of this recognition of institutions varies. Some emphasize the embeddedness of choice within institutions, while others treat institutions as constraints. Both sets of scholars, however, realize that the upshot of the recognition of history and institutions is that advances in our understanding of the world emerge from comparative institutional analysis and not from intellectual exercises that presume that choices are made within an institutionaless vacuum.

     The comparative institutional exercise we will focus on in this class is the examination between capitalism, socialism and democracy, and the transition issues that have been thrust forward as practical problems of public policy since 1989. The class will be divided into three parts: Part 1 will be an overview of New Institutional Political Economy (and will include an examination of the Austrian School of Economics, Information-Theoretic economics, the Transaction Cost School of Organization, the Property Rights Approach to economics and Public Choice theory); Part 2 will deal with the history of Soviet-type economic and political organizations (with a special focus on the former Soviet Union); and Part 3 will deal with transition questions in the realm of politics, economics and international relations (including the rise of ethnic nationalism).

     Students are required to purchase from the bookstore the following:

Boettke, Peter. Why Perestroika Failed: The Politics and Economics of Socialist Transformation (Routledge, 1993).

Buchanan, James. The Limits of Liberty (University of Chicago Press, 1975).

Jowitt, Ken. New World Disorder: The Leninist Extinction (University of California Press, 1992).

Stiglitz, Joseph. Whither Socialism? (MIT Press, 1994).

     In addition, the following books will be placed on reserve at the library:

Boettke, Peter. The Political Economy of Soviet Socialism: The Formative Years, 1918-1928 (Kluwer Academic Publishers, 1990).

Boettke, Peter, ed. The Collapse of Development Planning (New York University Press, 1994).

Coase, Ronald. The Firm, The Market, and the Law (University of Chicago Press, 1988).

Eggertsson, Thr inn. Economic Behavior and Institutions (Cambridge University Press, 1990).

Green, Donald and Shapiro, Ian. Pathologies of Rational Choice Theory (Yale University Press, 1994).

Hardin, Russell. One for All: The Logic of Group Conflict (Princeton University Press, 1995).

Hayek, F.A. Individualism and Economic Order (University of Chicago Press, 1948).

Hayek, F.A. The Road to Serfdom (University of Chicago Press, 1944).

Kaminski, Antoni Z. An Institutional Theory of Communist Regimes (Institute for Contemporary Studies, 1992).

Kornai, Janos. The Socialist System (Princeton University Press, 1992).

Lavoie, Don. Rivalry and Central Planning (Cambridge University Press, 1985).

Mises, L. Socialism: An Economic and Sociological Analysis (Liberty Classics, 1981[1922]).

Mises, L. Human Action: A Treatise on Economics (Henry Regnery, 1966).

North, Douglass. Institutions, Institutional Change, and Economic Performance (Cambridge University Press, 1990).

Olson, Mancur. The Rise and Decline of Nations (Yale University Press, 1982).

Schumpeter, Joseph. Capitalism, Socialism, & Democracy (Harper, 1942).

     Finally, relevant journal articles or chapters from books will also be placed on reserve at Bobst. Unlike many other areas of economic research, however, the area of comparative political economy remains a book culture as opposed to a journal oriented one. Familiarize yourself with the books in this area of research (e.g., The Cambridge University Press series on 'Political Economy of Institutions and Decisions'). Nevertheless, there are specialized journals in this field and you should be familiar with the work in these journals -- many of the relevant journals can be found within the course readings.

     Your grade for this course will be determined on the basis of three exams corresponding to the three sections that constitute the course lectures, and a term paper on a topic of your choice relating to the broad area of comparative political economy. These exams will be essay exams that will be handed-out in class and you will have one week to answer. The exams must be typed. The term paper can be theoretical, empirical or a historical case study as long as it relates to the issue of comparative institutional analysis and more specifically to the contrast and comparison of capitalism, socialism, and democracy. By the fourth week of the semester you must have presented me with a proposal for research --the proposal must contain a clear statement of the problem (or question) you want to solve (explore) and a sample bibilography of the relevant literature (no more than 4 double-spaced typed pages).

     The exams will count for 45% and the paper will count for 45% of your grade -- the remaining 10% of your grade will be based on class participation (including your presentation of the term paper to the class at the end of the semester).

     My office is located at Rm. 727, 269 Mercer Street, and my office phone number is 998-8959, email is Boettke@fasecon.econ.nyu.edu. Formal office hours for this class will be 5:00-6:00pm on Mondays, or by appointment. Students are encouraged to raise questions early and often about the reading material and lectures, and especially their semester research project. A topic for your paper needs to be selected as soon as possible in order to leave time for you to think through the problem adequately and collect the relevant data.

     Since this class is designed for graduate students intent on pursuing a research career, it is assumed that readings will be completed before class so that fruitful interaction on the lecture topic will occur. For each class session, in fact, I will assign students to prepare a short reader's report for the different readings -- these reports will be distributed amongst your peers. Students not willing to commit themselves to this project should drop the course. Reading assignments from the purchased books are required for all students.

     Introduction to the course

I. The Theory of Comparative Political Economy

Hayek, "Economics and Knowledge", "The Facts of the Social Sciences", "The Use of Knowledge in Society", and "The Meaning of Competition", in idem., Individualism and Economic Order.

Buchanan, Limits of Liberty, Chapters 1-2.

Coase, The Firm, The Market and the Law, Chapters 1, 2, & 5.

Mises, Human Action, pp. 1-142; 143-176; 206-219; 229-231.

Langlois, Richard. "Transaction-cost Economics in Real Time," Industrial and Corporate Change, Vol. 1 (1992).

Vanberg, Viktor. Rules & Choice in Economics (Routledge, 1994), Chapters 1-2.

Eggertsson, T. Economic Behavior and Institutions.

Ikeda, Sanford. "The Use of Knowledge in Government and Market," Advances in Austrian Economics, Vol. 2A (1995).

Buchanan, Limits of Liberty, Chapters 3-6.

Tulluck, Gordon. "Rent-Seeking," in Charles Rowley, ed., Property Rights and the Limits of Democracy (Edward Elgar, 1993).

Wagner, Richard. "Parchment, Guns and Constitutional Order", in Charles Rowley, ed., Property Rights and the Limits of Government.

Rowley, Charles. "Introduction", in Rowley, Charles, ed., Public Choice Theory, 3 volumes (Edward Elgar, 1993), Vol. 1, ix-xxix.

Olson, The Rise and Decline of Nations.

North, Institutions, Institutional Change, and Economic Performance.

Green and Shapiro, Pathologies of Rational Choice. [A recent critique of the application of economic models to study politics]

Stiglitz, Whither Socialism?, Chapters 1-9.

Hayek, "The Nature and History of the Problem", "The State of the Debate", "The Competitive 'Solution'", in idem., Individualism and Economic Order.

Kornai, The Socialist System, Chapters 5-6.

Boettke, Why Perestroika Failed, Chapters 1 & 3.

Lavoie, Rivalry and Central Planning.

Roemer, John. "An Anti-Hayekian Manifesto," New Left Review (May/June 1995).

Hand-out first exam

Boettke, The Political Economy of Soviet Socialism, Chapters 3-4.

Boettke, Why Perestroika Failed, Chapter 2.

Mises, Socialism, Chapters 1-2; 5-11.

Schumpeter, Capitalism, Socialism, & Democracy.

Walicki, Andrzej. Marxism and the Leap to the Kingdom of Freedom (Stanford University Press, 1995), Chapters 1-2; 4-5.

Malia, Martin. The Soviet Tragedy (Free Press, 1994), Chapters 1-5.

First exam due

Hayek, The Road to Serfdom, Chapter 10.

Boettke, Peter. "Hayek's The Road to Serfdom Revisited: Government Failure in the Argument Against Socialism," Eastern Economic Journal (Winter 1995).

Boettke, Why Perestroika Failed, Chapters 4-5.

Kaminski, A. An Institutional Theory of Communist Regimes.

Anderson, Gary and Boettke, Peter. "Soviet Venality: The USSR as a Rent-Seeking Society," Public Choice, forthcoming.

Boettke, Why Perestroika Failed, Chapter 5.

Jowitt, New World Disorder, Chapters 2-5.

Kaminski, Antoni. "Coercion, Corruption, and Reform: State and Society in the Soviet-Type Socialist Regime," Journal of Theoretical Politics, 1 (1989).

Naishul, V.A. The Supreme and Last Stage of Socialism (Centre for Research into Communist Regimes, 1991).

Anderson and Boettke. "Perestroika and Public Choice: The Economics of Autocratic Succession in a Rent-Seeking Society," Public Choice, 75 (February 1993): 101-118.

Boettke, Why Perestroika Failed, Chapter 6.

Boettke, "Credibility, Commitment, and Soviet Economic Reform," in Edward Lazear, ed., Economic Transition in Eastern Europe and Russia (Hoover Institution Press, 1995).

Jowitt, New World Disorder, Chapters 6-7.

Stiglitz, Whither Socialism?, Chapter 11.

Murrell, Peter, and Olson, Mancur. "The Devolution of Centrally Planned Economies," Journal of Comparative Economics, Vol. 15 (1991).

Hand-out second exam

Boettke, Why Perestroika Failed, Chapter 2.

Raico, Ralph. "The Theory of Economic Development and the 'European Miracle'", in Boettke, ed., The Collapse of Development Planning.

Kiser, Edgar and Barzel, Yoram. "Origins of Democracy in England," Rationality and Society, Vol. 3 (1991).

North, Douglass and Weingast, Barry. "Constitutions and Credible Commitments: The Evolution of Public Choice in 17th Century England," Journal of Economic History (December 1989).

Boettke, ed., The Collapse of Development Planning, Chapters 4-6, & 7-8.

Second exam due

Weingast, Barry. "The Economic Role of Political Institutions," Journal of Law, Economics and Organization, Vol. 11 (April 1995).

Weingast, Barry. "Constitutions as Governance Structures: The Political Foundations of Secure Markets," Journal of Institutional and Theoretical Economics, 149 (1993).

Stiglitz, Whither Socialism?, Chapters 10, 12, 13-15.

Wallich, Christine. Russia and the Challenge of Fiscal Federalism (World Bank, 1994).

Boettke, "The Reform Trap in Economics and Politics in the Former Communist Economies," Journal des Economistes et des Etudes Humaines, 5 (June/September 1994): 267-293.

Brenner, Reuven. "The Road from Serfdom: Enterepreneurship and Property Rights Before, During and After Communism," Advances in Austrian Economics, Vol. 1 (1994).

Boettke, Why Perestroika Failed, Chapter 7.

Offe, Claus. "Capitalism by Democratic Design? Democratic Theory Facing the Triple Transition in East Central Europe," Social Research, Vol. 58 (Winter 1991).

Boettke, "The Political Infrastructure of Economic Development," Human Systems Management, 13 (1994): 89-100.

Buchanan, Limits of Liberty, Chapters 5 & 9.

Olson, M. "Dictatorship, Democracy, and Development," American Political Science Review, Vol. 87, no. 3 (September 1993).

Hanke, Steve and Schuler, Kurt. "Financial Reform and Economic Development: A Currency Board System for Eastern Europe," in Boettke, ed., The Collapse of Development Planning.

Brenner, Reuven. Labyrinths of Prosperity: Economic Follies, Democratic Remedies (University of Michigan Press, 1994), Chapter 5.

Stiglitz, Whither Socialism?, Chapter 16.

Boycko, Maxim, Shleifer, Andrei, and Vishny, Robert. Privatizing Russia (MIT Press, 1995).

McFaul, Michael. "State Power, Institutional Change, and the Politics of Privatization in Russia," World Politics, 47 (January 1995).

Handelman, Stephen. Comrade Criminal (Yale University Press, 1995).

Michnik, Adam. "Nationalism," Social Research, Vol. 58 (Winter 1991).

Boettke, Why Perestroika Failed, Chapters 7-8.

Jowitt, New World Disorder, Chapters 8-9.

Tullock, Gordon. "'Sociological' Federalism as a Way of Reducing Ethnic and Religious Tension," in idem., The New Federalist (Vancouver: The Fraser Institute, 1994).

Hardin, One for All.

Bremmer, Ian. "Understanding Nationalism in the Post-Communist States," Hoover Institution on War, Revolution and Peace, Working Papers in International Studies, I-95-13.

Mises, Socialism, Chapters 12-14.

Mises, Ludwig. "Liberal Foreign Policy," in ibid., Liberalism: In the Classical Tradition (San Francisco: Coben Press, 1985[1927]).

Sachs, Jeffrey and Woo, Wing Thye. "Reform in China and Russia," Economic Policy, no. 18 (April 1994).

Qian, Yingyi and Weingast, Barry. "China's Transition to Markets: Market-Preserving Federalism, Chinese Style," Essays in Public Policy (Hoover Institution, 1995).

Montinola, Gabriella, Qian, Yingyi, and Weingast, Barry. "Federalism, Chinese Style: The Political Basis for Economic Success in China," World Politics (October 1995), forthcoming.

Boettke, ed., The Collapse of Development Planning, Chapters 9-10 [The Political Economy of the Asian Miracle].

Hand-out final exam