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1 Introduction Peter J. Boettke Prior t o th e twentiet h century , economi c developmen t wa s pri marily though t o f as a question o f the institutional infrastructur e of a society. Adam Smith' s An Inquiry into the Nature and Causes of the Wealth of Nations ([1776 ] 1976 ) se t th e genera l ton e fo r economic discours e o n th e determinant s o f prosperit y fo r abou t one hundre d years. 1 Smit h argue d tha t economi c developmen t was th e resul t o f expandin g th e divisio n o f labo r withi n society . This expansion was due to the adoption of certain political, legal, and economi c institution s an d practices . Private propert y rights , monetization, the elimination o f trade restrictions, etc., sustained specialized productio n an d exchange , an d a s suc h le d t o th e in creased substitution of market forces for centralized decision making withi n th e economi c affair s o f society. The divisio n o f labor , Smith pointe d out , wa s limite d b y th e exten t o f the market . Ex panding the market allowed individuals to capture the gains fro m specialized productio n an d exchange . In short, th e source of economic developmen t an d prosperit y wa s th e adoptio n o f institu tions an d policie s tha t approximate d th e syste m o f "natura l lib erty "—i.e., th e limite d government , night-watchma n stat e o f classical liberalism . As the fat e o f classica l liberalis m a s a politica l an d economi c doctrine wane d i n th e twentiet h century , th e focu s o f attentio n 1 2 Pete r J.Boettk e with regar d t o economic developmen t shifted . Question s o f institutional infrastructur e wer e replace d b y thos e dealin g wit h th e appropriate policy mix to be implemented b y the state to achieve economic development . Discretionar y plannin g replace d th e con cern with rules and institutions . Three development s i n though t an d histor y worke d t o under mine the emphasis on institutional infrastructure : (1 ) the formal ist and positivist revolutio n i n economics, (2) the Bolshevik Revolution an d th e rise of socialism, and (3 ) the Keynesia n revolutio n in macroeconomics . Eac h o f thes e thre e shifte d attentio n awa y from governance to government activism . The marginalist revolutio n i n the 1870 s was a great advance i n economic understanding . Unfortunately , th e forma l propertie s of the logi c o f choic e tende d t o distrac t theoretica l attentio n fro m the institutiona l contex t o f choice. The great advanc e o f margin alism was the development o f a universal theor y of human actio n to ai d ou r understandin g o f economic behavior . But , despit e th e formal similarit y of the choice problem across time and place, the fact remain s tha t th e institutiona l contex t o f choice change s th e margins o n whic h economi c decision s ar e based . Unfortunately , the preoccupation with equilibrium states that soon came to dominate economics after the 1930s completely eliminated institution s from mainstrea m economics . Wha t emerge d wa s a theor y o f choice within a vacuum. Oskar Lange, for example, argued that economics was a universal science , applying t o socialis t a s wel l a s capitalis t economies . One migh t no t disagre e wit h Lang e o n thi s point , bu t withi n Lange's comparative analysi s of capitalism an d socialism the for mal similarity of the choice problem was transformed int o a study of the static allocation problem. In fact, Lange explicitly assume d away the importance of institutions in economic interaction, and , thus, in the comparison between socialism and capitalism ([1939 ] 1970,61-62). Lange wa s no t alon e i s thi s assessment . A s brillian t a s the y...

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