nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2009‒07‒28
twenty papers chosen by
Erik Thomson
University of Manitoba

  1. Usury Redux: Notes on the Scholastic Theory of Usury by John T. Noonan By Joseph Burke
  3. Lucas, Keynes, and the Crisis By David Laidler
  4. On Money as an Institution By Nikolay Nenovsky
  5. Glück – die ökonomische Analyse By Bruno S. Frey; Alois Stutzer
  6. Guilbaud's Theorem : An early contribution to judgment aggregation By Daniel Eckert; Bernard Monjardet
  7. Improvements and Future Challenges for the Research Infrastructure in the Field “Experimental Economics” By Simon Gächter
  8. Financial and World Economic Crisis: What did Economists Contribute? By Gebhard Kirchgässner; Friedrich Schneider
  9. The Revenge of the Market on the Rentiers: Why neo-liberal Reports of the end of history turned out to be premature By Palma, J.G.
  10. Les libŽralismes Žconomiques et la crise By Michel, DE VROEY
  11. Are Happier People Better Citizens? By Cahit Guven
  12. The Relevance of Ragnar Nurkse and Classical Development Economics By Rainer Kattel; Jan A. Kregel; Erik S. Reinert
  13. Les fondements philosophiques du concept de probabilité By Xavier De Scheemaekere
  14. Random behavior and the as-if defense of rational choice theory in demand experiments By Ivan Moscati; Paola Tubaro
  15. A New Theory of Economic Systems and Its Application to Economic Policy Studies By Kleiner, George B.
  16. Role thinking: Standing in other people’s shoes to forecast decisions in conflicts By Green, Kesten C.; Armstrong, J. Scott
  17. A Treatise on Money – et teorihistorisk case studie By Finn Olesen
  18. Incorporating Fairness Motives into the Impulse Balance Equilibrium and Quantal Response Equilibrium Concepts: An Application to 2x2 Games By Alessandro Tavoni
  19. WHEN CONSENSUS CHOICE DOMINATES INDIVIDUALISM: Jensen's Inequality and Collective Decisions under Uncertainty By Charles F. Manski
  20. Economic Growth and the Role of Taxation – Theory By Gareth D. Myles

  1. By: Joseph Burke (Department of Economics, Ave Maria University)
    Abstract: I summarize the key points of the scholastic theory of usury following The Scholastic Theory of Usury by John T. Noonan. Usury is the sin of taking interest on a loan without a just title. According to Scholastic moral theology, interest on loans may be justified by the extrinsic titles to damnum emergens and lucrum cessans, i.e. for losses incurred or for profits lost. Implications of this teaching are discussed with regard to other contracts, such as partnerships, the census contract, bills of exchange and “dry exchange,” insurance contracts, and the so-called triple contract. Also discussed are the changes in the practices of confessors that occurred between 1822 and 1836.
    Keywords: usury, commutative justice, Catholicism
    JEL: B11 Z12
    Date: 2009–07
  2. By: Alain BERAUD (THEMA, Université de Cergy Pontoise)
    Abstract: Cet article étudie la crise qui, en 1825, tacha l’économie anglaise et les travaux que John Stuart Mill, Thomas Tooke et John Ramsay McCulloch consacrèrent à son analyse. Alors que McCulloch s’appuyait, pour comprendre, la crise sur la tradition ricardienne, Mill et Tooke s’en écartent et sans doute celui-là plus que celui-ci. McCulloch et Tooke soutiennent que l’organisation du système bancaire anglais a joué, sinon dans l’origine du moins dans le développement de la crise, un rôle remarquable. Mill, au contraire, pense que la crise est l’effet de spéculations hasardeuses et qu’elle se serait tout aussi bien développée dans un système où la monnaie aurait consisté en espèces. Il avance des idées qui seront reprises et développées par la Banking School.
    Keywords: Mill, Tooke, McCulloch, crise, spéculation, overtrading, Banking School.
    JEL: B12 B31 E42 N13
    Date: 2009
  3. By: David Laidler (University of Western Ontario)
    Abstract: This paper examines Robert E. Lucas's views on the relationship of macroeconomics to real world economic phenomena, and on Keynes's place in its history, suggesting that these stem from a particular and debatable understanding of how the subdiscipline has evolved. It considers some implications for today's awkward economic facts of aspects of Keynes' General Theory, not so much its speculations about the role of psychology and social conventions in the economic decisions of individual agents recently highlighted by Akerlof and Shiller (2009) however, as its insights into the influence of the monetary system on the coordination of these decisions, along lines later extended by Clower (1965) and Leijonhufvud (1968). It concludes that the questions about co-ordination that Keynes addressed, not to mention some of his answers, are well worth revisiting.
    Keywords: Crisis; Co-ordination; Clearing Markets; Auctioneer; Money; Financial Markets; Animal Spirits; Psychology; Keynes; Lucas
    JEL: B22 B31 E12 E13 E32
    Date: 2009
  4. By: Nikolay Nenovsky
    Abstract: In this paper I am going to explore some of the major theoretical concepts and ideas in Luca Fantacci’s work devoted to the history of money. As a historical check on Fantacci’s theory I will present various moments in Russian monetary history interpreted in the light of the ideas of the La moneta: storia di un’instituzione mancata. I will compare Fantacci’s theory of division between the unit of account and the medium of exchange with those of Walther Eucken and the Austrian School as well as of some other contemporary authors. A new institutional reading of the evolution of money “money as an institutional compound” is proposed.
    Keywords: institution, money, monetary history
    JEL: B52 E42 N10
    Date: 2009–07
  5. By: Bruno S. Frey; Alois Stutzer
    Abstract: In economics there is presently an almost revolutionary development. The direct measurement of subjective welfare challenges traditional economics, inspires it, and opens new avenues for scientific research. The approaches and possibilities of an economic analysis of happiness are shown and illustrated with two specific applications. The relationship between income and life satisfaction is strongly shaped by the aspiration level serving to evaluate life conditions. The aspiration levels are formed by social comparisons and adaptation processes. The Life Satisfaction Approach is a new method to capture the value of public goods. The short discussion of governmental „happiness policy“ from a constitutional viewpoint suggests a comparative institutional analysis of subjective well-being. The happiness revolution in economics is only at its beginning. More insights concerning institutions allowing people to pursue their own conception of a good life are to be expected.
    Keywords: Happiness; Life Satisfaction; Economics; Income; Terrorism
    JEL: A12 D31 H41
    Date: 2009–06
  6. By: Daniel Eckert (Institute of Public Economics - Universität of Graz); Bernard Monjardet (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: In a paper published in 1952, the French mathematician Georges-Théodule Guilbaud has generalized Arrow's impossibility result to the "logical problem of aggregation", thus anticipating the literature on abstract aggregation theory and judgment aggregation. We reconstruct the proof of Guilbaud's theorem, which is also of technical interest, because it can be seen as the first use of ultrafilters in social choice theory.
    Keywords: Arrow's theorem, aggregation rule, judgment aggregation, logical connexions, simple game, ultrafilter.
    Date: 2009–06
  7. By: Simon Gächter
    Abstract: Experimental economics is an established method of generating controlled and replicable empirical knowledge. It is complementary to other empirical methods in the social sciences. The research infrastructure for laboratory experiments is very good in Europe and also in Germany. One useful instrument would be to develop a short socio-economic questionnaire with questions already used in surveys that experimental economists could use to administer to their participants. The analyses of the selectivity of subject pools would then be an easy task. However, among experimental economists no standard exists yet, which limits the comparability of respective data sets. An effort shall be undertaken to “create” such a common questionnaire. The status quo with regard to data reporting is that no standard has emerged yet. There exists one data repository (in the United States) where data of experiments are collected and are freely available. Building up a data archive that integrates (merges) existing data is very laborious and requires substantial scientific inputs of interested researchers.
    Keywords: Experimental economics, data archives, selectivity of subject pools
    JEL: C81 C9
    Date: 2009
  8. By: Gebhard Kirchgässner; Friedrich Schneider
    Abstract: In this paper we deal with two questions, (i) what are the origins of the current financial crisis, and (ii) what did economists contribute, or why did economists fail to provide a convincing answer for the origins of the crisis, and possible solutions to overcome it? Apparently, the economics profession was unaware of the looming worldwide financial and economic crisis, and significantly underestimated its global dimensions and consequences. A first and prelimi-nary analysis is undertaken to explore reasons for these failures. We conclude by pointing to some consequences for economics as well as for economic policy.
    Keywords: Financial Crisis, Crisis Management, Failure of Economics, Failure of Economic Researchers, Origin of the Crisis.
    JEL: A11 B40 D72 D73 D8 K2
    Date: 2009–07
  9. By: Palma, J.G.
    Abstract: Starting from the perspective of heterodox Keynesian-Minskyian-Kindlebergian financial economics, this paper begins by highlighting a number of mechanisms that contributed to the current financial crisis. These include excess liquidity, income polarisation, conflicts between financial and productive capital, lack of appropriate regulation, asymmetric information, principal-agent dilemmas and bounded rationalities. However, the paper then proceeds to argue that perhaps more than ever the ‘macroeconomics’ that led to this crisis only makes analytical sense if examined within the framework of the political settlements and distributional outcomes in which it had operated. Taking the perspective of critical social theories the paper concludes that, ultimately, the current financial crisis is the outcome of something much more systemic, namely an attempt to use neo-liberalism (or, in US terms, neo-conservatism) as a new technology of power to help transform capitalism into a rentiers’ delight. In particular, into a system without much ‘compulsions’ on big business; i.e., one that imposes only minimal pressures on big agents to engage in competitive struggles in the real economy (while doing the opposite to workers and small firms). A key component in the effectiveness of this new technology of power was its ability to transform the state into a major facilitator of the ever-increasing rent-seeking practices of oligopolistic capital. The architects of this experiment include some capitalist groups (in particular rentiers from the financial sector as well as capitalists from the ‘mature’ and most polluting industries of the preceding techno-economic paradigm), some political groups, as well as intellectual networks with their allies—including many economists and the ‘new’ left. Although rentiers did succeed in their attempt to get rid of practically all fetters on their greed, in the end, the crisis materialised when markets took their inevitable revenge on the rentiers by calling their (blatant) bluff.
    Date: 2009–06–09
  10. By: Michel, DE VROEY (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: The emergence of the crisis has given a new impetus to the criticism of economic liberalism. My claim in this paper is that such criticisms will be to no avail as long as the idea of liberalism remains homogenous. It should rather be considered that several degrees of liberalism coexist, which I call full liberalism, mitigated liberalism and mitigated antiliberalism with additional subcategories for the first two categories. In the first part of the paper, I explain the salient traits of economic liberalism in general. Its justification by Adam Smith is discussed in part two. In part three, I show how the different forms of liberalism have emerged with the passing of time.
    Date: 2009–05
  11. By: Cahit Guven
    Abstract: This paper presents evidence on causal influence of happiness on social capital and trust using German Socio-Economic Panel. Exploiting the unexplained cross-sectional variation in individual happiness (residuals) in 1984 to eliminate the endogeneity problem, the paper nds that happier people trust others more, and importantly, help create more social capital. Specifically, they have a higher desire to vote, perform more volunteer work, and more frequently participate in public activities. They also have a higher respect for law and order, hold more association memberships, are more attached to their neighborhood, and extend more help to others. Residual happiness appears to be an indicator of optimism, and has an inverse U-shaped relationship with social capital measures. The findings also suggest that the relationship between happiness and social capital strengthened in the world in the last decade.
    Keywords: happiness, trust, social capital, optimism.
    JEL: Z13
    Date: 2009–04–14
  12. By: Rainer Kattel; Jan A. Kregel; Erik S. Reinert
    Abstract: In this essay we aim to show, first, how the classical development economics, that of Ragnar Nurkse's (1907-1957) generation, epitomized the best development practices of the past 500 years and crafted them into what Krugman rightly calls high development theory. It is not a coincidence that the post-World-War-II era, when Nurkse and others ruled the development mainstream, is one of exceptionally good performance for many poor countries. Second, we argue that the alleged death of the classical development economics and subsequent rise of the Washington Consensus has to do not so much with increasing modeling in economics, a way of research purposely discarded by many classical development thinkers, but much more with misunderstanding the reasons for East Asia's success and Latin America's demise; we show that the root cause of this misunderstanding - that goes in fact back to 'misreading' key passages in Adam Smith - is the role of technology, or of increasing returns activities, and of finance, in development. Third, we aim to indicate key areas of further research that the current development mainstream should pursue in order to re-learn how to create middle-income economies and middle-class jobs.
    Date: 2009–03
  13. By: Xavier De Scheemaekere (Centre Emile Bernheim, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels.)
    Abstract: La probabilité a un aspect à la fois mathématique et philosophique. Le contraste entre les deux est saisissant. Du point de vue mathématique, il existe un consensus presque complet sur la théorie des probabilités, c’est-à-dire, sur les axiomes et sur les théorèmes qui en découlent. Par contre, du point de vue philosophique, on recense actuellement quatre interprétations/théories majeures qui divergent fondamentalement sur la question du fondement du concept de probabilité : la théorie logique, la théorie subjective, la théorie fréquentielle et la théorie de la propension. Le but de ce travail est d’analyser en détail ces quatre théories : leurs origines, les enjeux qui s’en dégagent, et la manière dont elles se positionnent les unes par rapport aux autres. En outre, un accent particulier est mis sur le rôle et le statut de la théorie mathématique en regard des considérations philosophiques sur le fondement du concept de probabilité. En effet, la théorie mathématique constitue la toile de fond de tou s les débats actuels, sans pourtant jamais être véritablement considérée – d’un point de vue épistémologique, par exemple. Enfin, à travers l’analyse, philosophique, du concept de probabilité, c’est la question fondamentale de la différence entre le monde réel et le modèle scientifique de celui-ci qui est posée. En effet, l’équivocité de la probabilité, toujours partagée entre un concept abstrait (la probabilité a priori) et un phénomène empirique (la fréquence de répétition d’un événement), fait écho au problème de la relation entre la théorie et l’expérience.
    Keywords: Axiomatisation; Epistémologie; Philosophie des sciences; Probabilité.
    JEL: B49
    Date: 2009–06
  14. By: Ivan Moscati; Paola Tubaro
    Abstract: Rational choice theory (RCT) models decision makers as utility maximizers and is often defended via an as-if argument. According to this argument, although real individuals do not consciously maximize their utility function, their choices can be explained as if they were generated by utility maximization. An alternative model is random-choice, which assumes that decision makers pick up an element from a given set according to a uniform distribution on the set. In this paper we examine a series of experiments that compare RCT and the random-choice model as alternative explanations of consumer demand, and investigate how these experiments contribute to clarifying the actual scope of RCT and the shortcomings of the standard as-if defense of it.
    Date: 2009
  15. By: Kleiner, George B.
    Abstract: The basics of a new theory of economic systems are proposed in this article as a fundamental synthetic field of economics. This theory proposes to unify a description of economic phenomena usually studied by different areas of economics: economic agents, i.e., legal and physical entities, formal and informal institutions, economic processes, and projects. A basic classification of economic systems is developed, their key functions are defined, and the need for power parity of the basic types of economic systems is proved. The results obtained are used to classify the types of national economic policy and elaborate measures aimed at preventing crisis phenomena and building a well-balanced economy.
    Date: 2009–03
  16. By: Green, Kesten C.; Armstrong, J. Scott
    Abstract: Better forecasts of decisions in conflict situations, such as occur in business, politics, and war, can help protagonists achieve better outcomes. It is common advice to “stand in the other person’s shoes” when involved in a conflict, a procedure we refer to as “role thinking.” We tested this advice in order to assess the extent to which it can improve accuracy. Improvement in accuracy is important because prior research found that unaided judgment produced forecasts that were little better than guessing. We obtained 101 role-thinking forecasts from 27 Naval postgraduate students (experts) and 107 role-thinking forecasts from 103 second-year organizational behavior students (novices) of the decisions that would be made in nine diverse conflicts. The accuracy of the forecasts from the novices was 33% and of those from the experts 31%. The accuracy of the role-thinking forecasts was little different from chance, which was 28%. In contrast, when we asked groups of participants to each act as if they were in the shoes one of the protagonists, accuracy was 60%.
    Keywords: combining; group decision-making; simulated interaction; unaided judgment
    JEL: D81 C53 D7 Q34 F51 M51
    Date: 2009–05–30
  17. By: Finn Olesen (Department of Environmental and Business Economics, University of Southern Denmark)
    Abstract: På sin vis kan man betragte hele Keynes’ forfatterskab som en langstrakt kamp for at formulere et relevant alternativ til den herskende ortodoksi. Som bekendt kom dette gennembrud først i 1936 med udgivelsen af The General Theory. I nærværende papir skal der sættes fokus på et af bidragene i denne langstrakte frigørelsesproces. Det er således papirets hensigt at sætte fokus på A Treatise on Money i den hensigt at forsøge at belyse vigtigheden af dette værk i den ovennævnte intellektuelle frigørelsesproces. Konklusionen på gennemgangen er, at Keynes i Treatise ikke på en tilstrækkelig overbevisende måde fik besvaret de to helt centrale spørgsmål: 1) hvorfor kommer en makroøkonomi uden for den postulerede ligevægt? og 2) hvordan bevæger økonomien sig dynamisk i et uligevægtspræget forløb hen imod en ny ligevægt? Nogle mere til fredsstillende svar herpå måtte afvente fremkomsten af The General Theory. Jeg skal takke Henrik Preben Perregaard og Tommy S. Poulsen for kommen-tarer til en tidligere version af dette papir.
    Date: 2009–05
  18. By: Alessandro Tavoni (Advanced School of Economics in Venice)
    Abstract: Substantial evidence has accumulated in recent empirical works on the limited ability of the Nash equilibrium to rationalize observed behavior in many classes of games played by experimental subjects. This realization has led to several attempts aimed at finding tractable equilibrium concepts which perform better empirically; one such example is the impulse balance equilibrium (Selten, Chmura, 2008), which introduces a psychological reference point to which players compare the available payoff allocations. This paper is concerned with advancing two new, empirically sound, concepts: equity-driven impulse balance equilibrium (EIBE) and equity-driven quantal response equilibrium (EQRE): both introduce a distributive reference point to the corresponding established stationary concepts known as impulse balance equilibrium (IBE) and quantal response equilibrium (QRE). The explanatory power of the considered models leads to the following ranking, starting with the most successful in terms of fit to the experimental data: EQRE, IBE, EIBE, QRE and Nash equilibrium.
    Keywords: Fairness, Inequity aversion, Aspiration level, Impulse balance, Quantal Response, Behavioral economics, Experimental economics
    JEL: C72 C91 D01 D63
    Date: 2009–05
  19. By: Charles F. Manski
    Abstract: Research on collective provision of private goods has focused on distributional considerations. This paper studies a class of problems of decision under uncertainty in which the argument for collective choice emerges from the mathematics of aggregating individual payoffs. Consider decision making when each member of a population has the same objective function, which depends on an unknown state of nature. If agents knew the state of nature, they would make the same decision. However, they may have different beliefs or may use different decision criteria. Hence, they may choose different actions even though they share the same objective. Let the set of feasible actions be convex and the objective function be concave in actions, for all states of nature. Then Jensen's inequality implies that consensus choice of the mean privately-chosen action yields a larger aggregate payoff than does individualistic decision making, in all states of nature. If payoffs are transferable, the aggregate payoff from consensus choice may be allocated to Pareto dominate individualistic decision making, in all states of nature. I develop these ideas. I also use Jensen's inequality to show that a planner with the power to assign actions to the members of the population should not diversify. Finally, I give a version of the collective choice result that holds with consensus choice of the median rather than mean action.
    JEL: D7 D81 H42
    Date: 2009–07
  20. By: Gareth D. Myles
    Abstract: Economic growth is the basis of increased prosperity. This makes the attainment of growth a key objective for governments across the world. The rate of growth can be affected by policy choices through the effect that taxation has upon economic decisions and through productive public expenditures. This paper provides a self-contained introduction to the economic modelling of growth and reviews the theoretical evidence on the extent of the link between taxation and growth.<P>La croissance économique et le rôle de la fiscalité - Théorie<BR>La croissance économique est au fondement du progrès de la prospérité. Ceci fait de la croissance un objectif majeur pour les gouvernements du monde entier. Le taux de croissance peut être influencé par des choix de politique économique relatifs à la fiscalité, laquelle a un effet sur les décisions économiques des agents et est liée aux dépenses publiques productives. Cette étude fournit une introduction autonome à la modélisation économique de la croissance et résume les résultats empiriques traitant du lien entre la fiscalité et la croissance.
    Keywords: taxation, fiscalité, croissance économique, croissance, public policy, politique publique, economic growth
    JEL: H2 H3 O4
    Date: 2009–07–15

This nep-hpe issue is ©2009 by Erik Thomson. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.