What follows are some books that I’ve read this year and I thought worth recommending.
1. Bruce Caldwell, Hayek’s Challenge: An Intellectual Biography of F.A. Hayek (Chicago: University of Chicago Press, 2003).
I enjoyed this book, in large part because, while I’ve read plenty of Hayek, there’s still a lot of Hayek I have yet to touch. Caldwell gives an excellent overview of much of this work, and develops a common theme: how Hayek viewed economic science and human fallibility. The book, if I remember correctly, does not deeply discuss Hayek’s contributions to economic science, but what it does talk about is incredibly fascinating. Besides, there are a lot of insights that will influence you see economic science, at least if you’re not already intimately familiar with Hayek’s work outside of business cycle theory.
2. Jörg Guido Hülsmann, Mises: The Last Knight of Liberalism (Auburn: Mises Institute, 2007).
This is another biography of a major Austrian economist, but it’s not similar to Caldwell’s book. It’s a more comprehensive biography that focuses, for the most part, on Mises’ life. It also discusses Mises’ contributions to economics, methodology, political science, et cetera — it’s also ca. three times the length of Caldwell’s book. I think the book is less on the mark when it treads outside the immediate area of Mises, but it’s nevertheless a great contribution to history of thought. Obviously, if you don’t care much about Mises, the book may not be much of value to you. But, if you are interested in Mises, his work, and his life then this is a five star, out of five, book.
3. Ronald Coase, The Firm, the Market, and the Law (Chicago: University of Chicago Press, 1988).
I’m a big fan of Ronald Coase. Before reading this book — a collection of his major academic papers — I had read his “The Nature of the Firm” and “The Problem of Social Cost.” This book gave me an opportunity to re-read those two essays, as well as some of his other work. Coase is an incredible thinker. His research are in areas where, I think, there are increasing returns to research. But, his ideas are so subtle that many people missed them beforehand, and it was Ronald Coase who finally sparked interest in them. The main example are transaction costs, which permeate his writings, and which have influenced a large research program (not just on the firm and on the economics of law, but also on institutions, economic growth, et cetera). This book is definitely a must read for any young economist.
4. Daniel Kahneman, Thinking, Fast and Slow (New York: Farrar, Straus, and Giroux, 2011).
Unlike most of the books listed here, this is an economics book (although, Kahneman has contributed to economics, and many of these contributions are discussed in the book). This is a work in psychology, and it deals with how the human brain thinks. Are we rational, in the sense that we think through the details in every decision we make? No, we’re lazy, and for most decision-making we rely on heuristics that allow us to make quick decisions, which can be right many times, but also wrong on other occasions. We also suffer from various biases, are bad at statistics, and are mostly unaware of just how off the mark we can often be. Many have their reservations about “behavioral economics,” but I invite you to read the book (if you haven’t already). It is definitely one of the most interesting books (top three) I’ve read this year.
I put these two books together, because while they’re not entirely the same, they are very similar. Both look at pre-modern institutions. Leeson’s The Invisible Hook discusses pirates, specifically the various institutions that came to define the piracy of that age: democracy on their ships, why they carried pirate flags, their treatment of captives, et cetera. Allen takes the same route, but as a means of explaining a different set of institutions: those of pre-modern England (the aristocracy, the Royal Navy, the army, et cetera). I review The Institutional Revolution here. Both books are incredibly entertaining. They’re also on a subject that I think isn’t explored often enough: the application of institutional theory to economic history.
6. James Buchanan and Gordon Tullock, The Calculus of Consent (Indianapolis: Liberty Fund, ).
My cousin, an economics major at San Diego State, asked me, about two weeks ago, if he could borrow a book of mine. I recommended and gave him Buchanan and Tullock’s The Calculus of Consent. I don’t know who I’ve mentioned more on this blog over the past year: Coase or Buchanan. To say that The Calculus of Consent has influenced my way of thinking is an understatement. In fact, the final nail in the coffin of my advocacy of anarcho-capitalism was this very book. The book deals with the various costs that political institutions have to minimize, and how these develop to provide Pareto optimal improvements by decreasing the costs of and the costs to decision-making. Buchanan’s and Tullock’s book has also influenced my views on how political institutions can act as supplements to those of the market in resource allocation.
7. Israel Kirzner, Competition and Entrepreneurship (Indianapolis: Liberty Fund, 2013 ).
The most common answer to “how do markets coordinate” are prices. Basic allocational models show this logic. Agents allocate their budget in accordance with market prices, and optimal resource allocation requires optimal pricing. Kirzner’s story is a bit different. For Kirzner, the coordinator is the entrepreneur, since it’s only by entrepreneurial action that we can gradually come to learn what the optimal allocations are. Thus, he makes a distinction between the “Robbinsian maximizing” of the pure logic of choice and entrepreneurship. From this perspective, broader Austrian price theory stands in contrast to what you learn in a microeconomics course. What matters is entrepreneurship, and profit and loss (the ex post, rather than ex ante, role of prices) act as disciplining mechanisms for this process of discovery. This is another must read for any young economist.
8. Lincoln Paine, The Sea and Civilization (New York: Alfred A. Knopf, 2013).
This is not an economics book, and I actually just read it recently. It’s a history book that focuses on maritime history. While I’m not as interested in the military history it covers, it does provide a great deal of coverage on commercial maritime history. I think a book that deals specifically with pre-modern commercial maritime history (or applied economics) would be even more interesting, but in lieu of something like that I recommend Paine’s The Sea and Civilization. If nothing else, it’s very entertaining to read.
9. Gerald P. O’Driscroll and Mario J. Rizzo, The Economics of Time and Ignorance (London: Routledge, 1996 ).
This book is well known and is already widely recommended. While I want to avoid talking the book down, I don’t think it was up to the standards that were set by how the book was described to me. But, we have to consider the fact that a lot of the themes discussed by the authors are still vibrantly discussed in the current Austrian community. It is still a very good book, and I recommend it to anybody interested in Austrian economics. Some of the more unique topic it covers are the concept of pattern coordination, competition and discovery (related to Kirzner’s book), uncertainty, and it offers a theory of monopoly. This is a book that I will definately find myself re-reading either in this next year or the one after that. It’s packed with a lot of information, and it covers the Austrian research program up to 1985 (the book was also re-published in 1996).
What are some books I wished I would have gotten to? R.W. Clower (ed.), Monetary Theory; Israel Kirzner, Essays on Capital and Interest; Fred Foldvary, Public Goods and Private Communities; Oliver Williamson, The Economic Institutions of Capitalism; Donald Wittman, The Myth of Democratic Failure;…and dozens of others.