nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2009‒10‒24
sixteen papers chosen by
Erik Thomson
University of Manitoba

  1. What Was “It” that Robbins Was Defining? By David COlander
  2. “What is so Austrian about Austrian Economics?” By David Colander
  3. How Economists Got It Wrong: A Nuanced Account By David Colander
  4. Capitalist Dynamics: A Technical Note By Erik S. Reinert
  5. How Did Macro Theory Get So Far off Track, and what Can Heterodox Macroeconomists Do to Get it Back On Track? By David Colander
  6. Iktisat Deneysel Bir Bilim Olmaya mi Basliyor? (Is Economics Becoming an Experimental Science?) By Zafer Akin; Baris Urhan
  7. Economists, Incentives, Judgment, and the European CVAR Approach to Macroeconometrics By David Colander
  8. How Do Median Graduate Economic Programs Differ from Top-ranked Programs? By David Colander; Tiziana Dominguez; Gail Hoyt; KimMarie McGoldrick
  9. Two lemmas that changed general equilibrium theory. By Monique Florenzano
  10. General equilibrium and fixed point theory : a partial survey. By Hichem Ben-El-Mechaiekh; Philippe Bich; Monique Florenzano
  11. Fundamental Uncertainty, Portfolio Choice, and Liquidity Preference Theory By Markus Pasche
  12. The history of transaction cost economics and its recent developments By Lukasz, Hardt
  13. Growth, Quality, Happiness, and the Poor By McCloskey, Deirdre
  14. The Specificity of Manufacturing in Marx’s Economic Thought By Tregenna, F.
  15. A comparative analysis of different business ethics in the perspective of the Common Good By Cristina Montesi
  16. Consumption, Social Capital, and the ‘Industrious Revolution’ in Early Modern Germany By Ogilvie, S.

  1. By: David COlander
    Abstract: This paper argues that Robbins’ famous definition of economics was of “economic science” which he saw as only a narrow branch of the field of economics. The field of economics included both economic science—which his definition dealt with, and political economy--which his essay did not deal with. His prescriptive message was that policy belonged in the “political economy” branch of economics. He believed that while the science of economics should avoid value judgments as much as possible, the political economy (applied policy) branch of economics should, and must, include value judgments. That prescriptive message has been lost.
    Keywords: : definition of economics, political economy, science of economics, Robbins, value judgments
    Date: 2009
  2. By: David Colander
    Abstract: Modern mainstream economics is a plurocracy in which there is no orthodoxy of ideas, only an orthodoxy of method. Given the training it provides its students, mainstream economic’s natural domain is science. With the mainstream’s acceptance of complexity views of the economy, Austrian economist’s views can now get a hearing within the mainstream. Thus, within the science of economics, there is no need for a separate Austrian economics. However, there is a need for Austrian economics in political economy, that branch of economics that takes the insights of science and relates them to policy. The paper urges Austrian economics to embrace political economy as its domain, and to position its work as within political economy.
    Date: 2009–10
  3. By: David Colander
    Abstract: This paper considers how economists failed society by not preparing society to expect and plan for a possible financial crisis. It argues that the story told by Paul Krugman in his recent NYT Magazine article was too black and white in that it made it look as if Classical economists who were blinded by the beauty of mathematics, are to blame and that Keynesian economics is the path of the future. This paper takes issue with both those claims. It reviews the evolution of economic thinking from Classical to modern times, and shows the Keynesian/Classical terminology misses many of the nuances of policy discussions. It suggests that the solution for the macroeconomics profession isn’t the solution that Krugman suggests it is—to re-embrace Keynes. The solution is to re-embrace the broader Classical economic tradition, and to recognize that Keynes was an important part of that Classical tradition.
    Keywords: Keynes, Classical, Krugman, macroeconomics, crisis, depression
    Date: 2009–09
  4. By: Erik S. Reinert
    Abstract: Carl Menger, the founder of the Austrian School of Economics, had the ambition that economics should be a .map of the forces at workÿ. Standard textbook economics (.neo-classical economicsÿ) takes as its starting point a metaphor of .equilibriumÿ based on the state of the physics profession in the 1880s. This force towards equilibrium is, however, only one of many forces at work. The most fundamental feature of capitalism is change, and this change is only poorly reflected in standard economics. Financial crises are just one of the many things that happen in real life, but cannot happen in standard textbook economics. From the standpoint of Joseph Alois Schumpeter (1883-1950), Austrian economist and Harvard economics professor who spent much time at Harvard Business School, .equilibriumÿ is the opposite of economic development. Equilibrium theory therefore fails to reflect many of the mechanisms of industrial and economic dynamics that create economic welfare. This note attempts to outline some of these forces.
    Date: 2009–08
  5. By: David Colander
    Abstract: This paper argues that the ideas that win out in economics are not necessarily those that a representative researcher would choose, but are rather the emergent result of the competition of ideas in which system replicator dynamics dominate. This means that those ideas that fit the analytic technology available to researchers at the time dominate, while “better” ideas that do not offer advancement to researchers lose out. This paper spells out that view. It differentiates a consumer’s understanding of theory from a producer’s understanding of theory, and argues that a consumer’s understanding of theory is often better suited to applied policy than is a producer’s understanding of theory. Because the replicator dynamics of the economics profession does not reward people for acquiring a consumer’s understanding of theory, that understanding is often neglected. Heterodox economists often have a better consumer’s understanding of theory than do mainstream economists but because they do not prepare students to be successful in economic institutional environment, their views do not receive the hearing they should in the profession. The paper offers a number of suggestions for heterodox European macro economists for competing and shaping the economic institutional environment.
    Date: 2009–11
  6. By: Zafer Akin; Baris Urhan
    Date: 2009–10
  7. By: David Colander
    Abstract: This paper argues that the DSGE approach to macroeconometrics is the dominant approach because it meets the institutional needs of the replicator dynamics of the profession, not because it is necessarily the best way to do macroeconometrics. It further argues that this “DSGE-theory first” approach is inconsistent with the historical approach that economists have advocated in the past and that the alternative European CVAR approach is much more consistent with economist’s historically used methodology, correctly understood. However, because the European CVAR approach requires explicit researcher judgment, it does not do well in the replicator dynamics of the profession. The paper concludes with the suggestion that there should be an increase in dialog between the two approaches.
    Keywords: methodology, macroeconometrics, general to specific, DSGE, VAR, judgment, incentives
    JEL: C10 A1
    Date: 2009–12
  8. By: David Colander; Tiziana Dominguez; Gail Hoyt; KimMarie McGoldrick
    Abstract: This paper reports the results of a survey of median economics graduate programs and compares it with the results of a survey of top economics graduate programs done by Colander. Overall it finds that while there are some differences in the programs, there are large areas of similarity. Some of the particular finding are that there are more US respondents in median programs than in top programs, median students have more interest in econometrics, history of thought and economic literature than do students at top programs, although after the fifth year, their interest in any field drops significantly. It also finds that students at top schools are much more likely to be involved in writing scholarly papers, and that students at top schools give far less emphasis to excellence in mathematics as a path to the fast track than do students at median schools.
    Date: 2009
  9. By: Monique Florenzano (Centre d'Economie de la Sorbonne)
    Abstract: This paper is published in Games and Economic Behavior, Vol 66, issue 2, Juillet 2009, pp. 603-605, Special Section in Honor of David Gale.
    Keywords: Fixed points, equilibrium, excess demand correspondence, Gale-Nikaido-Debreu lemma, simultaneous optimization approach, Michael selection theorems.
    Date: 2009–08
  10. By: Hichem Ben-El-Mechaiekh (Brock University - Department of Mathematics); Philippe Bich (Centre d'Economie de la Sorbonne); Monique Florenzano (Centre d'Economie de la Sorbonne)
    Abstract: Focusing mainly on equilibrium existence results, this paper emphasizes the role of fixed point theorems in the development of general equilibrium theory, as well for its standard definition as for some of its extensions.
    Keywords: Fixed point, equilibrium, quasiequilibrium, abstract economy, Clarke's normal cone, financial equilibrium, Grassmanian manifold, degree theory.
    Date: 2009–08
  11. By: Markus Pasche (Friedrich Schiller University Jena, School of Economics and Business Administration)
    Abstract: One of Keynes' core issues in his liquidity preference theory is how fundamental uncertainty affects the propensity to hold money as a liquid asset. The paper critically assesses various formal representations of fundamental uncertainty and provides an argument for a more boundedly rational approach to portfolio choice between liquidity and risky assets. The choice is made on the basis of individual beliefs which are subject to mental representations of the underlying economic structure. Self-consciousness arises when the agent is aware of the fact that beliefs are dispersed among agents due to the absence of a "true" model. Responding to this fact by increasing liquidity preference is rationalized by the higher ex post performance of choice. Moreover, we analyze the case that the portfolio is partially financed by debt. It is explored how fundamental uncertainty affects the volume of the portfolio and hence money and credit demand as well as the probability of debt failures.
    Keywords: liquidity preference, portfolio choice, self-con?dence, self-consciousness, fundamental uncertainty, bounded rationality, Keynes, Knight
    JEL: G11 D81 E41 B31
    Date: 2009–10–15
  12. By: Lukasz, Hardt
    Abstract: The emergence of transaction cost economics (TCE) in the early 1970s with Oliver Williamson’s successful reconciliation of the so called neoclassical approach with Herbert Simon’s organizational theory can be considered an important part of the first cognitive turn in economics. The development of TCE until the late 1980s was particularly marked by treating the firm as an avoider of negative frictions, i.e., of transaction costs. However, since the 1990s TCE has been enriched by various approaches stressing the role of the firm in creating positive value, e.g., the literature on modularity. Hence, a second cognitive turn has taken place: the firm is no longer only seen as an avoider of negative costs but also as a creator of positive knowledge.
    Keywords: transaction cost economics; Oliver Williamson; theory of the firm; modularity literature; cognitive turn
    JEL: D21 D23 B21 B31
    Date: 2009
  13. By: McCloskey, Deirdre
    Abstract: Real national income per head in Britain rose by a factor of about 16 from the 18th century to the present. Other cases, such as that of the U.S. or Korea, have been even more startling, historically speaking. Like the realization in astronomy during the 1920s that most of the “nebulae” detected by telescopes are in fact other galaxies unspeakably far from ours, the Great Fact of economic growth, discovered by historians and economists in the 1950s and elaborated since then, changes everything. And 16, if one follows William Nordhaus’ persuasive arguments about quality improvements in (say) lighting, is a very low lower bound: the true factor is roughly 100. As Maxine Berg has argued, changing quality of products was as important as changes in process. But the gain is not to be measured by pot-of-pleasure “happiness studies.” These are questionable on technical grounds, but especially on the grounds that they do not measure human fulfillment. They ignore the humanities, pretending to scientific precision. It makes more sense to stay with things we economists can actually measure, such as the rise of human scope indicated by the factor of 16 or Nordhaus’ factor of 100, or by what Sen and Nussbaum call “capabilities.” Of course, what we really care about are the scope or capabilities of the poor. These have enormously expanded under “capitalism”---though a better word is simply “innovation,” arising from bourgeois dignity and liberty. It is the Bourgeois Deal: let me alertly seek profit, and I will make you rich.”
    Keywords: growth; quality; happiness; poor; bourgeois; industrial revolution
    JEL: N0 N13
    Date: 2009–06–07
  14. By: Tregenna, F.
    Abstract: The manufacturing sector has traditionally been regarded, particularly in development economics and in the Kaldorian literature, as having a ‘special role’ as an engine of growth. This article examines Marx’s approach to manufacturing, and the extent to which manufacturing could be considered to have a special place in Marx’s economic thinking, especially in relation to accumulation and growth. It is demonstrated that the precursors of a number of the important ideas in non-Marxian heterodox economics concerning the special properties of manufacturing may actually be found in Marx’s texts. The important ‘progressive’ features of manufacturing identified by Marx include: division of labour; socialisation of labour; mechanisation; increasing returns to scale; learning-by-doing; technological advancement; and overall, superior potential for cumulative productivity increases. But in a difference with Kaldorian-type approaches, for Marx these properties are not only sector-based. We thus suggest an interpretation of Marx as having a twodimensional conceptualisation of activity-specificity, with sectoral and ‘technologicalorganisational’ dimensions.
    Keywords: Marx, Kaldor, manufacturing, growth, cumulative causation
    JEL: B14 B24 B31 B51 L60 O14
    Date: 2009–10–12
  15. By: Cristina Montesi
    Abstract: The paper concerns the connection between different tipologies of business ethics (kantian, utilitarian, aristotelic) and the alternative vision of economic development, company’s organizational and managerial context together with interest in Common Good more or less associated to profit to which they have given rise. In this comparison virtue ethics stands out for its capacity of creating, specially through the business virtue of generosity, social capital so precious to economic development at every level, for its capability of increasing people’s well-being, and for its capacity to make the production of relational goods (among which Common Good), on which people’s happiness depends, easier. Gift’s paradigm recovery can also be helpful to prevent other financial and economic crisis like the actual one which has had, like less striking but deepest cause, the triumph of avarice’s vice on the virtues of giving (generosity and justice).
    Keywords: Business Ethics, Gift’s Economy, Generosity, Charity, Mercy, Social Capital, Relational Goods, Common Good
    JEL: Z13
    Date: 2009–10–15
  16. By: Ogilvie, S.
    Abstract: This paper uses evidence from German-speaking central Europe to address open questions about the Consumer and Industrious Revolutions. Did they happen outside the early-developing, North Atlantic economies? Were they shaped by the “social capital” of traditional institutions? How were they affected by social constraints on women? It finds that people in central Europe did desire to increase market work and consumption. But elites used the “social capital” of traditional institutions to oppose new work and consumption practices, especially by women, migrants, and the poor. Although they seldom blocked new practices wholly, they delayed them, limited them socially, and increased their costs.
    Keywords: economic history; consumption; social capital; institutions; guilds; communities; labour; discrimination; gender; Germany
    JEL: N0 N33 N43 N63 N73 N93 J13 J22 J31 J4 J7 O15 O17
    Date: 2009–10–15

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