Institutions, Native American toll collectors, and what this all has to do with interdependence
Interdependence. It's a long word to type twenty times a day, but I end up getting close to that number more often than not. Why is that? Why, as an economist, do I write more about interdependence than I do about supply or demand or even markets?
Some of this has to do with the kind of work I do. As an academic, I am privileged to get to spend much of my time asking and writing about thought provoking questions or issues of my choosing (within certain constraints, of course). This has led me to work on a project that involves reading a lot about the foundations of the field, which are rooted in many types of social theory including what we would think of as sociology and philosophy today. A bigger part of this, however, has to do with the way I think about economics in general. To me, economics is a social science first, inextricable from the realities of human interaction and organization. This interaction, or human interdependence, is the basic starting unit of any analysis I do in my head or on paper. Without human conflict, cooperation, etc., there is no reason to study economics (or at least, it would no longer be interesting). It would follow that understanding and modeling interdependence is incredibly important to me and to my work as an economist.
I have always thought about economics in this way, but never with these particular words. In the past, I have been intrigued by the idea of the individual as the basic starting point for analysis, rationalizing that nothing happens in the world without an individual first acting. Then I took Dave Schweikhardt's Institutional and Behavioral Economics class as a grad student at MSU. As a student of Dave's (who co-taught Institutional and Behavioral Economics with Al Schmid here at MSU in the later years of Al's career), I was encouraged to think of the transaction as the basic unit of analysis (this draws from earlier work by John R. Commons). In my mind, my "individual action" and Dave's transaction seemed pretty similar, though maybe still imprecise. It is only after taking multiple courses and reading both of Schmid's books (Property, Power, and Public Choice (1987), and Conflict and Cooperation (2008)), that I began to latch on to this idea of Interdependence as the key starting point for analysis, particularly impact analysis. It all started with his first lecture on "Cowboys and Indians", which I've copied here to the best of my knowledge. [Update: Eric Scorsone and I found Al's course packet from his Economics of Public Choice course that he taught at MSU in 1974. It provides an earlier conception of the lecture I received from Dave in 2016, but is still more complete than the version I have in my notes from the later course. The lecture below is taken directly from the first chapter of that manuscript.].
The Interdependence Between Native American Toll Collectors and Cattle Drivers...
Dave's lecture started with a painting, which he set at the front of the room and had us look at in silence for several minutes before launching into lecture. The painting, Toll Collector, is by Charles Russel, an American artist of the Old American West. The following transcript gives an idea of the lecture that followed...
The cowboy painter, Charles Russel, has portrayed a dramatic interaction between cowboy and Indian during a trail drive through Indian territory. The cowboys are bringing the cattle from the western ranches across the prairies to the rail heads for shipment to the population enters of the East. The Indian is seen signaling to the trail boss as other Indians are cutting out a cow from the herd which will be taken back to the tribe for food. The physical movement of the cow from the herd to the Indian village is visual to any observer. But, what is going on in the minds of the participants? Is it theft? Is it the result of submission after an armed conflict or threat thereof? Is it an act of love and charity on the part of the cowboy? Does the cow represent the payment of a tax to a sovereign with the Indian as tax collector? Or, has the trade been consummated where the Indian has agreed to allow passage and use of this land in return for a negotiated rental payment?
Observation of the physical movement from one hand to another tells us something about the intangible relationships between the parties that exist as images of the mind which are hard to show on a painted canvas. These images are important if they have something to do with probable repetition of the movement, production of the beef, care of the range grass, and of course, the relative wealth over time of the parties. This humble case is representative and points the way to the subject [of this class, and later books]. It is an inquiry into the relationship between ordered, intangible human relationships, which shall be called institutions, and the performance of the economy.
This is an inquiry into the legal foundations of any economy. What is it in the rules of the game that shapes what any decision maker, whether private individual or government official, takes into account? What determines whether a consequence of action, whether seen as cost or benefit, is considered in a choice to produce or consume, invest or save? If this question can be answered, we shall understand how law (formal and informal) influences the performance and output of an economy in terms of the amount and kind of wealth and its distribution.
When we note that we have a problem such as dirty air, inflation, poverty, unemployment, or noisy neighbors, we search for how a change in the rules would change behavior. A range of institutional alternatives comes to mind. A common pair of alternatives is market vs non-market decision systems. If markets are present in the problem area being considered, we could ask why they have failed to get the result wanted. Can we change the rules and get more competition? Can we do something to lower the cost of obtaining information and finding interested buyers (or sellers)? Are people perhaps confused over who owns the resources in questions? Do we have to redistribute ownership among different individuals? Or perhaps there is no way to alter the rules within the market to yield the desired performance. Shall we consider a non-market decision system where group choices are explicitly made rather than independent individual choices? What are the voting rules for group choice? What are the political boundaries and level of government involved? If the good or service is provided by government agency, what is its jurisdiction and does more than one agency operate in a given field (i.e. is there competition)? How will the good be financed and cost shared among taxpayers? Or, shall we turn to regulation and prohibition and criminal sanction to alter behavior? These are just a few of the wide range of institutional alternatives available to shape the performance of the economy. Can we predict the result of each?
Al goes on to write about the irony of our public policy cycles, that seem to constantly oscillate between "market" vs "government" solutions. If we don't like the results of one institutional system, someone will suggest we try a completely different system, often to continued dissatisfaction. And repeat.
... One gets the feeling that with respect to institutional choice we are chasing our tails. We go through cycles of reform with great promise of new results only to find failure and some new round of reformers advocating return to where we started. Of course, this could be the result of a change in the balance of power and different groups who benefit from different rules simply come to power and change the rules to their benefit, and when they are defeated, the rules are changed back. But, this author observes that even the winners cannot always find the institution that really serves their interests. They can choose any rule they want, but they are not sure what the result will be....the purpose [of this class] is to provide a theory and conceptualization that can guide empirical study of the link between the rules of the game and the performance of the economy-- amount, kind, and distribution of welfare....
Schmid doesn't say it explicitly here, but in his later works (most notably the two mentioned above), he attributes much of this 'tail chasing' to the unaddressed issue of human interdependence at the root of a particular situation. We are never satisfied with our decision because our decision never solves the core problem. Or, some of us are satisfied, because it worked out ok for us, but others are still unhappy because, again, we have not addressed the key issue of interdependence. In the situation given in the painting above, both the cattle driver and the native have staked a claim on that land, formally or not. The interdependence is even starker here because even if the US government at the time recognizes the cowboys right to pass through the territory with his cattle, the tribe does not act as party to those wishes. Regardless, the cattle still need to be moved, and some sort of conflict between the two parties is inevitable. In this painting, the issue seems resolved with trade. At this point, its tempting to brush off our palms and call it a day-- after all, the parties negotiated and everyone's better off for it, right? Unfortunately, we assume too much. To restate part of Al's lecture:
what is going on in the minds of the participants? Is it theft? Is it the result of submission after an armed conflict or threat thereof? Is it an act of love and charity on the part of the cowboy? Does the cow represent the payment of a tax to a sovereign with the Indian as tax collector? Or, has the trade been consummated where the Indian has agreed to allow passage and use of this land in return for a negotiated rental payment?
Indeed, in many similar situations between farmers, cattle drivers, etc. and the tribes of the west, such seemingly peaceful trade was not the outcome of interdependence. Rights are rarely clearly defined, and depending on the parties' understanding of their rights, or their feelings regarding them, interdependence could play out any number of ways. As an economist, when we're asked to help design programs or give any kind of policy advice or to conduct impact analyses, we must be aware of whose interests count. To do this, we must be painfully aware of the interdependent parties.
...In other words, if the cowboy of our Russell painting wants to get more beef to market, how shall the rules be written? Or conversely, if the Indian wants more to eat, what rule decision system or institution would put more in their pots? The purpose is not to argue for the interests of either cowboy or Indian. It is to inform their choices by predicting the substantive consequences of institutional alternatives.
Dave's 2016 lecture more strongly emphasized the reality of unavoidable interdependence on any kind of rule change. What is the consequence for the other involved/interdependent parties of a rule change in the cowboy's favor? In the Native's? Where does this interdependence come from? What is the characteristic(s) of the good in question that led to this interdependence in the first place? What even is the good in question? And how can we shape institutions to better tackle interdependence brought about either by the inherent characteristics of the goods themselves or by the existing institutions already in place that we frequently (and unfortunately) accept as the status quo?
Dave was very careful to emphasize that a change in institutions means a change in rights, duties, etc., for parties involved. Some will gain or strengthen existing rights, others will lose them, or experience a change they may or may not want. This change results in a shift in interdependence between parties, which again creates a new kind of friction.
So, again, why do I spend so much time thinking and writing about human interdependence while tackling economic issues? I do so because economic issues are institutional issues, which may be formally legal or informal, but are always inextricable from human interdependence, and all of the messy, tricky, confusing, and frustrating pieces that come with it. If we are to predict the effects of different rules, we must first understand the character of human interaction involved in a particular problem.
Some of this has to do with the kind of work I do. As an academic, I am privileged to get to spend much of my time asking and writing about thought provoking questions or issues of my choosing (within certain constraints, of course). This has led me to work on a project that involves reading a lot about the foundations of the field, which are rooted in many types of social theory including what we would think of as sociology and philosophy today. A bigger part of this, however, has to do with the way I think about economics in general. To me, economics is a social science first, inextricable from the realities of human interaction and organization. This interaction, or human interdependence, is the basic starting unit of any analysis I do in my head or on paper. Without human conflict, cooperation, etc., there is no reason to study economics (or at least, it would no longer be interesting). It would follow that understanding and modeling interdependence is incredibly important to me and to my work as an economist.
I have always thought about economics in this way, but never with these particular words. In the past, I have been intrigued by the idea of the individual as the basic starting point for analysis, rationalizing that nothing happens in the world without an individual first acting. Then I took Dave Schweikhardt's Institutional and Behavioral Economics class as a grad student at MSU. As a student of Dave's (who co-taught Institutional and Behavioral Economics with Al Schmid here at MSU in the later years of Al's career), I was encouraged to think of the transaction as the basic unit of analysis (this draws from earlier work by John R. Commons). In my mind, my "individual action" and Dave's transaction seemed pretty similar, though maybe still imprecise. It is only after taking multiple courses and reading both of Schmid's books (Property, Power, and Public Choice (1987), and Conflict and Cooperation (2008)), that I began to latch on to this idea of Interdependence as the key starting point for analysis, particularly impact analysis. It all started with his first lecture on "Cowboys and Indians", which I've copied here to the best of my knowledge. [Update: Eric Scorsone and I found Al's course packet from his Economics of Public Choice course that he taught at MSU in 1974. It provides an earlier conception of the lecture I received from Dave in 2016, but is still more complete than the version I have in my notes from the later course. The lecture below is taken directly from the first chapter of that manuscript.].
The Interdependence Between Native American Toll Collectors and Cattle Drivers...
Dave's lecture started with a painting, which he set at the front of the room and had us look at in silence for several minutes before launching into lecture. The painting, Toll Collector, is by Charles Russel, an American artist of the Old American West. The following transcript gives an idea of the lecture that followed...
A GENERAL PARADIGM OF INSTITUTIONS AND PERFORMANCE
by A. Allan Schmid (and later lectured on by Dave Schweikhardt.)The cowboy painter, Charles Russel, has portrayed a dramatic interaction between cowboy and Indian during a trail drive through Indian territory. The cowboys are bringing the cattle from the western ranches across the prairies to the rail heads for shipment to the population enters of the East. The Indian is seen signaling to the trail boss as other Indians are cutting out a cow from the herd which will be taken back to the tribe for food. The physical movement of the cow from the herd to the Indian village is visual to any observer. But, what is going on in the minds of the participants? Is it theft? Is it the result of submission after an armed conflict or threat thereof? Is it an act of love and charity on the part of the cowboy? Does the cow represent the payment of a tax to a sovereign with the Indian as tax collector? Or, has the trade been consummated where the Indian has agreed to allow passage and use of this land in return for a negotiated rental payment?
Observation of the physical movement from one hand to another tells us something about the intangible relationships between the parties that exist as images of the mind which are hard to show on a painted canvas. These images are important if they have something to do with probable repetition of the movement, production of the beef, care of the range grass, and of course, the relative wealth over time of the parties. This humble case is representative and points the way to the subject [of this class, and later books]. It is an inquiry into the relationship between ordered, intangible human relationships, which shall be called institutions, and the performance of the economy.
This is an inquiry into the legal foundations of any economy. What is it in the rules of the game that shapes what any decision maker, whether private individual or government official, takes into account? What determines whether a consequence of action, whether seen as cost or benefit, is considered in a choice to produce or consume, invest or save? If this question can be answered, we shall understand how law (formal and informal) influences the performance and output of an economy in terms of the amount and kind of wealth and its distribution.
When we note that we have a problem such as dirty air, inflation, poverty, unemployment, or noisy neighbors, we search for how a change in the rules would change behavior. A range of institutional alternatives comes to mind. A common pair of alternatives is market vs non-market decision systems. If markets are present in the problem area being considered, we could ask why they have failed to get the result wanted. Can we change the rules and get more competition? Can we do something to lower the cost of obtaining information and finding interested buyers (or sellers)? Are people perhaps confused over who owns the resources in questions? Do we have to redistribute ownership among different individuals? Or perhaps there is no way to alter the rules within the market to yield the desired performance. Shall we consider a non-market decision system where group choices are explicitly made rather than independent individual choices? What are the voting rules for group choice? What are the political boundaries and level of government involved? If the good or service is provided by government agency, what is its jurisdiction and does more than one agency operate in a given field (i.e. is there competition)? How will the good be financed and cost shared among taxpayers? Or, shall we turn to regulation and prohibition and criminal sanction to alter behavior? These are just a few of the wide range of institutional alternatives available to shape the performance of the economy. Can we predict the result of each?
Al goes on to write about the irony of our public policy cycles, that seem to constantly oscillate between "market" vs "government" solutions. If we don't like the results of one institutional system, someone will suggest we try a completely different system, often to continued dissatisfaction. And repeat.
... One gets the feeling that with respect to institutional choice we are chasing our tails. We go through cycles of reform with great promise of new results only to find failure and some new round of reformers advocating return to where we started. Of course, this could be the result of a change in the balance of power and different groups who benefit from different rules simply come to power and change the rules to their benefit, and when they are defeated, the rules are changed back. But, this author observes that even the winners cannot always find the institution that really serves their interests. They can choose any rule they want, but they are not sure what the result will be....the purpose [of this class] is to provide a theory and conceptualization that can guide empirical study of the link between the rules of the game and the performance of the economy-- amount, kind, and distribution of welfare....
Schmid doesn't say it explicitly here, but in his later works (most notably the two mentioned above), he attributes much of this 'tail chasing' to the unaddressed issue of human interdependence at the root of a particular situation. We are never satisfied with our decision because our decision never solves the core problem. Or, some of us are satisfied, because it worked out ok for us, but others are still unhappy because, again, we have not addressed the key issue of interdependence. In the situation given in the painting above, both the cattle driver and the native have staked a claim on that land, formally or not. The interdependence is even starker here because even if the US government at the time recognizes the cowboys right to pass through the territory with his cattle, the tribe does not act as party to those wishes. Regardless, the cattle still need to be moved, and some sort of conflict between the two parties is inevitable. In this painting, the issue seems resolved with trade. At this point, its tempting to brush off our palms and call it a day-- after all, the parties negotiated and everyone's better off for it, right? Unfortunately, we assume too much. To restate part of Al's lecture:
what is going on in the minds of the participants? Is it theft? Is it the result of submission after an armed conflict or threat thereof? Is it an act of love and charity on the part of the cowboy? Does the cow represent the payment of a tax to a sovereign with the Indian as tax collector? Or, has the trade been consummated where the Indian has agreed to allow passage and use of this land in return for a negotiated rental payment?
Indeed, in many similar situations between farmers, cattle drivers, etc. and the tribes of the west, such seemingly peaceful trade was not the outcome of interdependence. Rights are rarely clearly defined, and depending on the parties' understanding of their rights, or their feelings regarding them, interdependence could play out any number of ways. As an economist, when we're asked to help design programs or give any kind of policy advice or to conduct impact analyses, we must be aware of whose interests count. To do this, we must be painfully aware of the interdependent parties.
...In other words, if the cowboy of our Russell painting wants to get more beef to market, how shall the rules be written? Or conversely, if the Indian wants more to eat, what rule decision system or institution would put more in their pots? The purpose is not to argue for the interests of either cowboy or Indian. It is to inform their choices by predicting the substantive consequences of institutional alternatives.
Dave's 2016 lecture more strongly emphasized the reality of unavoidable interdependence on any kind of rule change. What is the consequence for the other involved/interdependent parties of a rule change in the cowboy's favor? In the Native's? Where does this interdependence come from? What is the characteristic(s) of the good in question that led to this interdependence in the first place? What even is the good in question? And how can we shape institutions to better tackle interdependence brought about either by the inherent characteristics of the goods themselves or by the existing institutions already in place that we frequently (and unfortunately) accept as the status quo?
Dave was very careful to emphasize that a change in institutions means a change in rights, duties, etc., for parties involved. Some will gain or strengthen existing rights, others will lose them, or experience a change they may or may not want. This change results in a shift in interdependence between parties, which again creates a new kind of friction.
So, again, why do I spend so much time thinking and writing about human interdependence while tackling economic issues? I do so because economic issues are institutional issues, which may be formally legal or informal, but are always inextricable from human interdependence, and all of the messy, tricky, confusing, and frustrating pieces that come with it. If we are to predict the effects of different rules, we must first understand the character of human interaction involved in a particular problem.
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