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Paul Romer’s Nobel Lecture

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The tension between the restraining force of scarce resources and the positive force of discovery and innovation. [embedded content] Economics must shift the balance, I'd argue, from allocation to exchange, from maximization to choice, from equilibrium conditions to processes of adaptation and adjustment, from the constraints given by nature to the constraints we choose in terms of institutions that evolve, that we craft, that we adopt. This is not to deny the intellectual discipline provided by allocation, maximization, equilibrium, and constraints, but it is a question of foreground and background as my brilliant colleague Richard Wagner discusses in his book Mind, Society and Human Action (2010). Romer's work, I want to argue, can be a fresh gateway into this conversation for

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The tension between the restraining force of scarce resources and the positive force of discovery and innovation.

Economics must shift the balance, I'd argue, from allocation to exchange, from maximization to choice, from equilibrium conditions to processes of adaptation and adjustment, from the constraints given by nature to the constraints we choose in terms of institutions that evolve, that we craft, that we adopt. This is not to deny the intellectual discipline provided by allocation, maximization, equilibrium, and constraints, but it is a question of foreground and background as my brilliant colleague Richard Wagner discusses in his book Mind, Society and Human Action (2010).

Romer's work, I want to argue, can be a fresh gateway into this conversation for the new generation of economists -- a conversation that was forged in our discipline by Adam Smith, and by F. A. Hayek, by James Buchanan, by Elinor Ostrom -- all fellow Nobel Prize winners.  His work exhibits the tension, but his message about the possibility of progress is on the side of discovery and innovation.  David Warsh's Knowledge and the Wealth of Nations provides a great introduction to Romer's work and its emergence out of the allocation, maximization, equilibrium, and the constraints given by nature conversation, but he misses the stream of mainline economics from Adam Smith to F. A. Hayek that was conducting this very conversation as well, let alone how the economics of ideas could be productively married with the economic history work of Deirdre McCloskey and Joel Mokyr to explain the "Great Enrichment" and the "Enlightened Economy".  That GREAT FACT of human existence was a consequence of the positive force of discovery and innovation.

Anyway, Romer by stressing how ideas and in particular the combinatorial innovations in ideas demonstrates the powerful insights of Julian Simons on population and that people are the ultimate resource, and once again Hayek's brilliant insights in The Constitution of Liberty, and the chapter on the creative power of free civilization.

Don't misunderstand me, Romer doesn't make these connections.  But we can, and we should use this moment to stress the message.  As he says, there is a revolution in thinking associated with progress -- from what we have to who we are (sound familiar to any reader of McCloskey) -- and its all about finding rules that enable us to live better together, and allow us to enjoy the company of strangers.  So think about that for a minute and the Enlightenment project of liberalism -- from Smith's analytical egalitarianism as reflected in his street porter and philosopher example to Kant's "strangers nowhere in this world" to Hayek's generality of the rules and the "Great Society" to Buchanan's striving for a political order that exhibits" neither discrimination nor dominion" to Ostrom's emphasis on "constitutional craftsmanship", and "self-governing democratic societies".

As Romer says in his lecture --- the economics profession today is ready for the exploration of the "broader notions of progress, the broader side of human nature." 

Peter Boettke
Peter Joseph Boettke (January 3, 1960) is an American economist of the Austrian School. He is currently a University Professor of Economics and Philosophy at George Mason University; the BB&T Professor for the Study of Capitalism, Vice President for Research, and Director of the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at GMU.

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