nep-his New Economics Papers
on Business, Economic and Financial History
Issue of 2019‒11‒18
24 papers chosen by

  1. The Efficient Market Hypothesis and Rational Expectations. How Did They Meet and Live (Happily?) Ever After By Thomas Delcey; Francesco Sergi
  2. R&D and the American Corporation before World War II By Richard N. Langlois
  3. The Profit Rate in Chile : 1900-2010 By Diego Polanco
  4. The Political Economy of Europe since 1945: A Kaleckian perspective By Joseph Halevi
  5. Comparative European Institutions and the Little Divergence, 1385-1800 By António Henriques; Nuno Palma
  6. Financial development and growth in European regions By Paola Rossi; Diego Scalise
  7. La inserción del ajo chino en el mercado mundial. Una primera aproximación, 1960-2014 By Francisco M. Parejo Moruno; Esteban Cruz Hidalgo; José F. Rangel Preciado
  8. From the EMS to the EMU and... to China By Joseph Halevi
  9. Mining pollution and infant health in modern Japan:from village/ town statistics of infant mortality By Keisuke Moriya; Kenichi Tomobe
  10. Natural Resources in the Theory of Production: The Georgescu-Roegen/Daly versus Solow/Stiglitz Controversy By Quentin Couix
  11. The long-term costs of government surveillance: Insights from stasi spying in East Germany By Lichter, Andreas; Löffler, Max; Siegloch, Sebastian
  12. Europe 1957 to 1979: From the Common Market to the European Monetary System By Joseph Halevi
  13. Relative Fairness and Quasifairness By McCain, Roger
  14. Resource-Led Growth – A Long-Term Perspective The Relevance of the 1870-1914 Experience for Today's Developing Economies By Findlay, Ronald; Lundahl, Mats
  15. Migrazioni, demografia e lavoro in un paese diviso By Asher Colombo; Gianpiero Dalla Zuanna
  16. Oil Prices and Consumption across Countries and U.S. States By Andrea De Michelis; Thiago Revil T. Ferreira; Matteo Iacoviello
  17. The fetters of inheritance? Equal partition and regional economic development By Huning, Thilo R.; Wahl, Fabian
  18. From GATT to WTO and Beyond By Shukla, S.P.
  19. Money and Monetary Stability in Europe, 1300-1914 By Kamil Kivanc Karaman; Sevket Pamuk; Secil Yildirim
  20. The vagaries of the sea: evidence on the real effects of money from maritime disasters in the Spanish Empire By Adam Brzezinski; Yao Chen; Nuno Palma; Felix Ward
  21. Trade and Catching Up to the Industrial Leader By Juan Carlos Conesa; Matthew J. Delventhal; Pau S. Pujolas; Gajendran Raveendranathan
  22. Friedrich Hayek and the Price System : a speech at "The Road to Serfdom at 75: The Future of Classical Liberalism and the Free Market" Ninth Annual Conference of the William F. Buckley, Jr., Program at Yale, New Haven, Connecticut, November 1, 2019. By Quarles, Randal K.
  23. On the Role of Finance in Sraffa’s System By Dvoskin, Ariel; Feldman, Germán David
  24. A Theory of Cultural Revivals By Murat Iyigun; Jared Rubin; Avner Seror

  1. By: Thomas Delcey (CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne); Francesco Sergi (UWE Bristol - University of the West of England [Bristol])
    Abstract: This article investigates the origins and early development of the association between the efficient market hypothesis and rational expectations. These two concepts are today distinctive theoretical benchmarks for mainstream approaches to, respectively, finance and macroeconomics. Moreover, scholars in each of these two fields tend to associate the two ideas as related equilibrium concepts; they also claim that the two have a common historical origin. Although some historical accounts have been provided about either the origins of rational expectations or of the efficient market hypothesis, very few historians have been investigating the history of the association between the two concepts (or, more generally, the history of the interactions between macroeconomics and finance). The contribution of this paper is precisely to fill this gap in the historical literature, while assessing and challenging self-produced narratives told by practitioners. We suggest that the two concepts were independently developed in the 1960s. Then, we illustrate how they were associated for the first time the early 1970s, within a debate about the term structure of the interest rates involving Sargent, Modigliani, Shiller, and Fama. Finally, we discuss some early controversies about the association, which nevertheless became, at the turn of the 1970s, a step-stone for both macroeconomics and finance.
    Keywords: Efficient market hypothesis,Fama (Eugene),Lucas (Robert E),history of finance,history of macroeconomics,rational expectations,Sargent (Thomas J)
    Date: 2019–07–17
  2. By: Richard N. Langlois (University of Connecticut)
    Abstract: This paper is an excerpt from a larger book project called The Corporation and the Twentieth Century, which chronicles and interprets the institutional and economic history – the life and times, if you will – of American business in the twentieth century. One integrating theme of the book is that the signal calamities of the Great Depression and World War II, as well as the policy responses to those calamities, are crucial in understanding the structure of American industry in the post-war world. This excerpt examines the role of research and development in the corporation before and during the Depression. It argues that, although corporate R&D labs did generate many important new technologies, innovations also flowed importantly from a large variety of other sources, both within the corporation (but outside of the research lab) and elsewhere in the economy. Even though corporate research did sometimes lead to new products for the corporation to exploit, a narrative in which internal R&D systematized innovation widely in the service of corporate diversification is on the whole a fable. Nonetheless, by destroying market-supporting institutions (including, importantly, sources of external finance) and by reducing the information content of price signals, the Depression did help solidify the nexus between R&D and the large corporation. Coupled with New Deal price and entry regulation in many sectors, and followed by the far greater extent of non-market controls during World War II, the Depression set the stage for the emergence of the large Chandlerian corporation of the post-war period.
    Keywords: Research and development; innovation; technological change; economic regulation; Great Depression; New Deal
    JEL: D23 L51 L52 L6 L9 N42 N62 N72 N82 O3 P12 P16
    Date: 2019–11
  3. By: Diego Polanco (Department of Economics, University of Massachusetts Amherst)
    Abstract: The interest of this paper is to discuss the main features that characterize the accumulation regimes that have taken place during the twentieth century in Chile. Understanding that a set of institutionalized compromises and political conflicts are inherent to any capitalist society, I rely on the body of literature of Marxist political economy, which focuses on the dynamics of profitability to describe its reproductive patterns. In light of this analysis, I argue that the main institutional transformations in Chilean history are better understood. I characterize long-waves of capitalist accumulation as accumulation regimes and identify three stages: early expansion, late expansion, and crisis. Using decomposition analysis, I identify recurrent patterns in each phase and also argue that the distributional conflict is historically contingent. Moreover, I implement a novel method proposed by Shaikh (2016) to identify the utilization rate, which allows me to discuss issues of aggregate demand in the decomposition analysis more accurately. Furthermore, I also discuss the relation of the process of urbanization with technical change relying on the Okishio-Marx debate. Finally, I argue that unlike previous accumulation regimes, the neoliberal period relies on reproductive patterns of profitability that makes it highly stable.
    Date: 2019
  4. By: Joseph Halevi (International University College of Turin)
    Abstract: This paper analyzes the early stages of the formation of the Common Market. The period covered runs from the end of WW2 to 1959, which is the year in which the European Payments Union ceased to operate. The essay begins by highlighting the differences between the prewar political economy of Europe and the new dimensions and institutions brought in by the United States after 1945. It focuses on the marginalization of Britain and on the relaunching of French great power ambitions and how the latter determined, in a very problematical way, the European complexion of France. Because of France '92s imperial aspirations, France, not West Germany, emerged as the politically crisis prone country of Europe acting as a factor of instability thereby jeopardizing the process of European integration, Among the large European nations, Germany and Italy appear, for opposite economic reasons, as the countries most focused on furthering integration. Germany expressed the strongest form of neomercantilism while Italy the weakest.
    Keywords: European Monetary System, Common Market, France, Germany, Italy, Netherlands, currency depreciation, European Monetary Union
    JEL: E02 F02 F5 N14 N24
    Date: 2019–07
  5. By: António Henriques (Universidade do Porto and CEPESE); Nuno Palma (Department of Economics, University of Manchester; Instituto de Ciências Sociais, Universidade de Lisboa; CEPR)
    Abstract: Why did the countries which first benefitted from access to the New World - Castile and Portugal - decline relative to their followers, especially England and the Netherlands? The dominant narrative is that worse initial institutions at the time of the opening of Atlantic trade explain Iberian divergence. In this paper, we build a new dataset which allows for a comparison of institutional quality over time. We consider the frequency and nature of parliamentary meetings, the frequency and intensity of extraordinary taxation and coin debasement, and real interest spreads for public debt. We and no evidence that the political institutions of Iberia were worse until at least the English Civil War.
    Keywords: Atlantic Traders, New Institutional Economics, The Little Divergence
    JEL: N13 N23 O10 P14 P16
    Date: 2019–11
  6. By: Paola Rossi (Banca d'Italia); Diego Scalise
    Abstract: In this paper we study the relationship between financial development and economic growth across European regions, exploiting the within-country variability of our data. First, we collect a number of indicators to capture the financial structure for each of the 110 EU27 regions. Then, the multiplicity of indicators (the number of bank branches, the presence of bank headquarters, the value added by the financial sector and the presence of a stock exchange) is decreased through a principal component analysis to show summary measures capturing the capillarity of bank branches and the agglomeration and complexity of the financial industry at large. In order to establish a causal nexus, we control for country fixed effects and we instrument financial variables. We use two instruments derived from the historical religious affiliations across European regions: the presence of Protestant communities in the 16th century (the Peace of Augsburg in 1555 allocated each region within the Holy Roman Empire to a different faith according the Prince’s religion) and the presence of Jewish communities in the 18th century. Our estimates point to a positive nexus between financial development and economic growth, showing that what matters most is the presence of a complex and diversified financial sector rather than the capillarity of bank branches.
    Keywords: growth, financial development, European Regions
    JEL: O16 E44 R11
    Date: 2019–11
  7. By: Francisco M. Parejo Moruno; Esteban Cruz Hidalgo; José F. Rangel Preciado
    Abstract: This work analyzes the world production and trade of garlic between 1960 and 2014 with the intention of describing the changes that have occurred in the international business of this commodity in recent decades. This analysis, although it is approached from the perspective of the business in Spain, and with a clearly long-term focus, places the world's supply in the Asian continent, concentrated around China, whose commercial opening since the end of the 20th century has caused growth exponential of international trade. The demand, although also located mostly in the Asian continent, has evolved towards greater geographical dispersion, in line with the greater presence in the import trade of Europe and some Asian and American economies. In this context, Spain has managed to maintain its share in the global garlic market, showing its competitive leadership in the business that currently positions it as the second export market in the world, only behind China.
    Keywords: garlic, agrifood trade, international trade, garlic industry, China
    JEL: Q1 F1
    Date: 2019–11
  8. By: Joseph Halevi (University College of Turin)
    Abstract: This essay deals with the EMS experience and its failure, with the Maastricht Treaty, and with the interregnum leading to the formation of the EMU in 1999. The paper highlights the position of German authorities, showing that they were quite lucid about the fundamental weaknesses inherent in a process that separated monetary from fiscal policies by giving priority to the centralization of the former. Instead of repeating the well known critiques leveled against the EMU '96 for which readers are referred to the unsurpassed treatment by Stiglitz, the essay highlights the splintering of Europe in the way in which it has unfolded during the 1990s and in the first decade of the present millennium. In particular the early economic and political origins of the terminal crisis of Italy are located between the late 1980s and the 1990s. France is shown to belong increasingly to the so-called European periphery by virtue of a weakening industrial structure and persistent balance of payments deficits. The paper argues that France regains its central role by political means and through its weight as an active nuclear military power centered on maintaining its imperial interests and posture especially in Africa. The first decade of the present millennium is portrayed as the period in which a distinct German economic area had been formed in the midst of Europe with a strong drive to the east with an increasingly powerful gravitational pull towards the People '92s Republic of China.
    Keywords: European Monetary System, Common Market, France, Germany, Italy, Netherlands, currency depreciation, European Monetary Union
    JEL: E02 F02 F5 N14 N24
    Date: 2019–09
  9. By: Keisuke Moriya (Graduate School of Economics, Hitotsubashi University,); Kenichi Tomobe (Graduate School of Economics, Hitotsubashi University,)
    Abstract: The purpose of the paper is to explain the relationship between infant mortality rate (IMR) and mining pollution. In Japan, the pollution became a problem in various places in the 1960 fs, but it had occurred since then. For example, around Ashio Copper Mine in Tochigi Prefecture, the mining pollution had been occurring since 1880 fs, and it had become a social problem in Japan. In our previous analysis, the IMR in Japan have declined irreversibly since 1920 fs because people got over the beriberi and syphilis, but in the specific area, such as mining area, the IMR remained still high rate in 1930 fs. So we will consider the relationship between the IMR and mining pollution.
    Keywords: infant mortality, mining pollution, environmental pollution
    JEL: N35 N55 Q53 J13
    Date: 2019–11
  10. By: Quentin Couix (UP1 UFR02 - Université Panthéon-Sorbonne - UFR d'Économie - UP1 - Université Panthéon-Sorbonne, CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne)
    Abstract: This paper provides a theoretical and methodological account of an important controversy between neoclassical resources economics and ecological economics, from the early 1970s to the end of the 1990s. It shows that the assumption of unbounded resources productivity in the work of Solow and Stiglitz, and the related concepts of substitution and technical progress, rest on a model-based methodology. On the other hand, Georgescu-Roegen's assumption of thermodynamic limits to production, later revived by Daly, comes from a methodology of interdisciplinary consistency. I conclude that neither side provided a definitive proof of its own claim because both face important conceptual issues.
    Keywords: Nicholas Georgescu-Roegen,Robert Solow,Joseph Stiglitz,natural resources,theory of production
    Date: 2019–10–24
  11. By: Lichter, Andreas; Löffler, Max; Siegloch, Sebastian
    Abstract: We investigate the long-run effects of government surveillance on civic capital and economic performance, studying the case of the Stasi in East Germany. Exploiting regional variation in the number of spies and administrative features of the system, we combine a border discontinuity design with an instrumental variables strategy to estimate the long-term, post-reunification effect of government surveillance. We find that a higher spying density led to persistently lower levels of interpersonal and institutional trust in post-reunification Germany. We also find substantial and long-lasting economic effects of Stasi surveillance, resulting in lower income, higher exposure to unemployment, and lower self-employment.
    Keywords: civic capital,government surveillance,trust,economic performance,East Germany
    JEL: H11 N34 N44 P20
    Date: 2019
  12. By: Joseph Halevi (International University College of Turin)
    Abstract: This essay deals with the contradictory dynamics that engulfed Europe from 1959 to 1979, the year of the launching of the European Monetary System. It focuses on how the macroeconomic framework of stop-go policies in the 1960s ended up privileging external \'96 intra-European - exports at the expense of domestic demand. The paper offers a very tentative explanation as to why stop-go policies, by weakening domestic demand, did not put an end to the to the \'91long boom\'92 earlier as they should have. The French crisis of 1968-69 leading to the demise of De Gaulle is discussed at length, as is the renewal of the German export drive in the wake of a nominal revaluation of the D-Mark in 1969. Finally, the revival of labor struggles in Italy in the same year is put in the context of the structural weaknesses of the Italian economy as analyzed by the late Marcello de Cecco. The conclusion is that European countries had neither the political culture nor the institutional mechanisms to coordinate mutually advantageous policies. Their so-called cooperation was an exercise in establishing hegemony while defending the interests specific to the dominant economic groups of each country. The essay then deals with the formation of the EMS as an expression of efforts to establish and enforce economic dominance.
    Keywords: European Monetary System, Common Market, France, Germany, Italy, Netherlands, currency depreciation, European Monetary Union
    JEL: E02 F02 F5 N14 N24
    Date: 2019–06
  13. By: McCain, Roger (Drexel University School of Economics)
    Abstract: Fairness has been an important topic of the philosophic literature in recent decades, with John Rawls' (1971 1993), ideas at the center. It is less well known that there is a literature on fairness (or equity) in neoclassical economics, which shows the influence, at least, of Rawls' difference principle, and that that literature has in turned influenced philosophical writing, principally through the work of Robert Dworkin (1981). Dworkin designates his view as "resource equalitarianism" and essentially adopts Varian's (1973) ideas from the neoclassical literature in order to define equal access to resources. In this paper, the first section will outline concepts of relative fairness and quasifairness in the comparison of social situations; the second will offer an argument for their representation of fairness based on an adaptation of the veil of ignorance, and the third will argue that relative quasifairness, in particular, addresses what has been an unsolved problem: intergenerational fairness.
    Keywords: fairness; efficiency; preference; overlapping generations
    JEL: D60
    Date: 2019–10–07
  14. By: Findlay, Ronald; Lundahl, Mats
    Abstract: Resource-Led Growth - A Long-Term Perspective surveys the 1870-1914 experience of growth in resource-rich economies: the so-called regions of recent settlement, some tropical countries and some mineral-based export economies. First, three contrasting stylized views of resource-led development are presented. Thereafter the picture of international trade in primary products and the migration of production factors between 1870 and 1914 is sketched. The third section presents some models that may be used to analyse trade and factor movements in the context of resource-rich (staples) economies and provides some details of the experience of fifteen countries: Canada, the United States, Australia and Argentina among the regions of recent settlement, Brazil, Costa Rica, Colombia, Ceylon, Malaya, Burma, Siam and the Gold Coast in the tropical group, and Bolivia, Chile and South Africa among the mineral exporters.The essay concludes that the economies surveyed differ in their experiences, with the regions of recent settlement doing relatively better than the rest, among other things because their relatively larger per capita natural endowments made for higher per capita incomes and larger internal markets conducive to industrialization. It is also argued that the relevance of the 1870-1914 experience for today's developing countries is limited, because the characteristics of the world economy during the former period differ substantially from those of today and because it may be comparatively speaking more difficult for resource-rich countries to industrialize today than under circumstances resembling those of the 1870-1914 period. This problem is further compounded by a series of faulty policy choices in the past.
    Keywords: International Development
  15. By: Asher Colombo; Gianpiero Dalla Zuanna (Università di Bologna; Università di Padova)
    Abstract: Today, in Spain, Portugal, Italy, Malta and Greece, the incidence of the foreign population is entirely comparable to that of the more traditional European reception countries. Only forty years ago, however, the foreign population in these five southern European countries was decidedly modest. The migration balance with foreign countries has become positive since the 1970s, inverting a secular trend. However, after the migration boom at the beginning of the 21st century, a sudden and sharp decline was observed in the following years of crisis. This paper has a dual purpose. First it describes seventy years of Italian migrations, from the 1950s to date, systematically distinguishing the Centre and North from southern Italy, and connects them with the migratory history of previous decades. We show how the ‘stop and go’ of migrations can be interpreted in the light of the pull factors determined by structural changes in demography and in the labour market. Secondly, it identifies the persistent and structural peculiarities that have shaped the foreign population in Italy, building a model very different from that of central and northern Europe.
    Keywords: immigrazione; demografia; mercato del lavoro; Italia; dualismo territoriale
    JEL: J61 N34
    Date: 2019–09
  16. By: Andrea De Michelis; Thiago Revil T. Ferreira; Matteo Iacoviello
    Abstract: We study the effects of oil prices on consumption across countries and U.S. states, by exploiting the time-series and cross-sectional variation in oil dependency of these economies. We build two large datasets: one with 55 countries over the years 1975-2018, and another with all U.S. states over the period 1989-2018. We then show that oil price declines generate positive effects on consumption in oil-importing economies, while depressing consumption in oil-exporting economies. We also document that oil price increases do more harm than the good afforded by oil price decreases both in the world and U.S. aggregates.
    Keywords: Oil prices ; Consumption ; Cross-country ; U.S. states ; Oil dependency
    JEL: Q43 E32 F40
    Date: 2019–11–07
  17. By: Huning, Thilo R.; Wahl, Fabian
    Abstract: How can agricultural inheritance traditions affect structural change and economic development in rural areas? The most prominent historical traditions are primogeniture, where the oldest son inherits the whole farm, and equal partition, where land is split and each heir inherits an equal share. In this paper, we provide a theoretical model that links these inheritance traditions to the local allocation of labor and capital and to municipal development. First, we show that among contemporary municipalities in West Germany, equal partition is significantly related to measures of economic development. Second, we conduct OLS and fuzzy spatial RDD estimates for Baden-Württemberg in the 1950s and today. We find that inheritance rules caused, in line with our theoretical predictions, higher incomes, population densities, and industrialization levels in areas with equal partition. Results suggest that more than a third of the overall inter-regional difference in average per capita income in present-day Baden Württemberg, or 597 Euro, can be explained by equal partition.
    Keywords: inheritance rules,sectoral change,regional economic development,Baden-Württemberg,spatial inequalities
    JEL: D02 D82 H11 H21 N93
    Date: 2019
  18. By: Shukla, S.P.
    Abstract: The object of this paper is to analyse the evolution of the international trading system from its inception as GATT in 1947 to its latest incarnation as WTO, comprising the complex array of agreements forming its substance and mandate. The study focuses on the adequacy or the inadequacy of the system as it evolved and functioned in an environment of changing international economic and political reality. The study also attempts to grapple with the more difficult question of looking at the future prospects of the system, the strains that it will need to face and the subsequent changes that are called for in its approach, content and functioning. The paper consists of six parts. The first parts deals with the birth and features of GATT. It views GATT in its historical context and refers to the demise of the Havana Charter, the attenuation of multilateralism and the emphasis on European consolidation in the context of the cold war. The second part provides a synopsis of GATT's functioning during the first three decades of its existence (1950-79). The third part deals with the period 1980 through 1994. The fourth part devotes itself to the analysis of the paradigm shift brought about by WTO. In this part, the new issues (TRIMS, TRIPS and services) as well as the old elements of the WTO system are analysed (agriculture, textiles and clothing and some systemic issues such as safeguard system, balance-of-payments rules and dispute settlement). The fifth part traces the journey of WTO from triumph (Marrakesh 1994) to fiasco (Seattle 1999). The last part of the Working Paper attempts to delineate what is to be done. The possibility of a degree of moderation, if not redress, to the on-going process of inequitable integration can emerge only if formal democratic representation, as mandated in the constitution of WTO, is strategically exercised by those majority members who bear the costs of integration.
    Keywords: International Development
  19. By: Kamil Kivanc Karaman; Sevket Pamuk; Secil Yildirim
    Date: 2018–05
  20. By: Adam Brzezinski (Department of Economics, University of Oxford); Yao Chen (Erasmus School of Economics, Erasmus University Rotterdam); Nuno Palma (Department of Economics, University of Manchester; Instituto de Ciências Sociais, Universidade de Lisboa; CEPR); Felix Ward (Erasmus School of Economics, Erasmus University Rotterdam)
    Abstract: We exploit a recurring natural experiment to identify the effects of money supply shocks: maritime disasters in the Spanish Empire (1531-1810) that resulted in the loss of substantial amounts of monetary silver. A one percentage point reduction in the money growth rate caused a 1.3% drop in real output that persisted for several years. The empirical evidence highlights nominal rigidities and credit frictions as the primary monetary transmission channels. Our model of the Spanish economy confirms that each of these two channels explain about half of the initial output response, with the credit channel accounting for much of its persistence.
    Keywords: Monetary Shocks, Natural Experiment, Nominal Rigidity, Financial Accelerator, DSGE, Minimum-Distance Estimation, Local Projection
    JEL: E43 E44 E52 N10 N13
    Date: 2019–11
  21. By: Juan Carlos Conesa; Matthew J. Delventhal; Pau S. Pujolas; Gajendran Raveendranathan
    Abstract: We study the impact of trade on a country catching up to the industrial leader.We calibrate our dynamic, two-country model to Spain and UK from 1850 to 2000, accounting for the inter-war trade collapse (IWTC) and the subsequent catch up by Spain. In our model, the effects of trade disruptions are stronger with more distance tothe leader and more openness. A collapse today (less distance, more openness) similarto the IWTC (more distance, less openness) decreases the capital stock thrice as much(12% instead of 4%). Importantly, traded varieties would fall today but increased dur-ing the IWTC
    Date: 2019
  22. By: Quarles, Randal K. (Board of Governors of the Federal Reserve System (U.S.))
    Date: 2019–11–01
  23. By: Dvoskin, Ariel (National University of San Martín); Feldman, Germán David (National University of San Martín)
    Abstract: We critically review the previous attempts to introduce money and finance into Sraffa’s price system, whose main difference is, we argue, their conception of the interest rate, either as an opportunity cost or as an effective cost of production. We examine the implications on three different grounds: (i) the formal consistency of the system; (ii) the possibilities to explicitly treat the financial industry as any other productive sector; and (iii) the validity of the so-called “monetary theory of distribution” (MTD). We then suggest a possible route, inspired by Schumpeter’s ideas on economic development, to introduce the banking sector through its role of granting credit to innovation. Unlike previous contributions, this reformulation allows us both to justify the basic nature of the financial sector and simultaneously preserve the validity of MTD.
    Keywords: Banking industry; Innovation; Monetary theory of distribution; Sraffa; Surplus approach.
    JEL: E11 E43 E52
    Date: 2019–10–16
  24. By: Murat Iyigun (University of Colorado, Boulder); Jared Rubin (Chapman University); Avner Seror (Aix-Marseille Univ, CNRS, EHESS, Ecole Centrale, AMSE, Marseille, France)
    Abstract: Why do some societies fail to adopt more efficient institutions? And why do such failures often coincide with cultural movements that glorify the past? We propose a model highlighting the interplay—or lack thereof—between institutional change and cultural beliefs. The main insight is that institutional change by itself will not lead to a more efficient economy unless culture evolves in tandem. This is because institutional change can be countered by changes in cultural values complementary to a more "traditional" economy. In our model, forward-looking elites, who benefit from a traditional, inefficient economy, may over-provide public goods that are complementary to the production of traditional goods. This encourages individuals to transmit cultural beliefs complementary to the provision of traditional goods. A horse race results between institutions, which evolve towards a more efficient (less traditional) economy, and cultural norms, which are pulled towards "tradition" by the elites. When culture wins the horse race, institutions respond by giving more political power to traditional elites—even if in doing so more efficient institutions are left behind. We call the interaction between these cultural and institutional dynamics a cultural revival.
    Keywords: institutions, cultural beliefs, cultural transmission, institutional change
    JEL: D02 N40 N70 O33 O38 O43 Z10
    Date: 2019–11

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