nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2010‒09‒18
seventeen papers chosen by
Erik Thomson
University of Manitoba

  1. The Monetary Economy and the Economic Crisis By David Laidler
  2. The Idea of Economics in a University By Gabriel Martinez
  3. The Bulgarian Economic Thought since 1989: A Personal View By Nikolay Nenovsky
  4. Capitalism: A System of Conspiracy By Das, Subhendu
  5. A short review on the ‘Phiri Water Rights’ By Sahoo, Ganeswar
  6. A Theory of Firm Decline By Gian Luca Clementi; Thomas F. Cooley; Sonia B. Di Giannatale
  7. Anticipations of the Crisis: On the Similarities Between Post Keynesian Economics and Regulation Theory By Mark Setterfield
  8. The Law of Reflux By Sproul, Michael
  9. Social movements and the crisis of neoliberalism in Malaysia and Thailand By Khoo, Boo Teik
  10. Coherent Patterns in Nuclei and in Financial Markets By S. Drozdz; J. Kwapien; J. Speth
  11. Are large complex economic systems unstable ? By Sitabhra Sinha
  12. The Big Mac Index Two Decades On An Evaluation Of Burgernomics By Kenneth W Clements; Yihui Lan; Shi Pei Seah
  13. Thinking in Chinese vs. Thinking in English: Social Preference and Risk Attitudes of Multicultural Minds By Li King King
  14. Yegor Gaidar: Pragmatic Economist or (and) Romantic Revolutionary By Gennadi Kazakevitch
  15. Explaining Randomized Evaluation Techniques Using Classroom Games By Subha Mani; Utteeyo Dasgupta
  16. A Benefit from the Division of Labor that Adam Smith Missed By Wenli Cheng
  17. The emergence of reciprocally beneficial cooperation By Sergio Beraldo; Robert Sugden

  1. By: David Laidler (University of Western Ontario)
    Abstract: The monetary economy has properties that cannot be analyzed using the tools of today's dynamic general equilibrium analysis. Keynes's economics, far from being an aberration in the otherwise orderly evolution of modern macroeconomics from Adam Smith's ideas about the "invisible hand", was a major contribution to an ongoing tradition in monetary theory in whose creation Smith himself had played a part. Retrospective consideration of this tradition suggests that the property of the monetary economy critical to the generation of economic crises and the stagnation that follows them is its capacity to permit trading at "false" prices, a phenomenon ruled out by assumption in dynamic general equilibrium models. Not only Keynes's explanation of depression but also Hayek and Robertson's analysis of the role of unsustainable forced saving in the boom can be thought of as relying on this factor.
    Keywords: crises; money; monetary economy; general equilibrium; cycles; sticky prices; flexible prices; false prices; rate of interest; forced saving; Keynesian economics; Monetarism; New Keynesian economics
    JEL: B12 B22 E12 E13 E32 E40
    Date: 2010
  2. By: Gabriel Martinez (Department of Economics, Ave Maria University)
    Abstract: Relying on John Henry Newman’s Idea of a University, this paper explores the relation between economics and other disciplines. Newman had high regard for disciplinary specialization, which he thought would teach students and scholars how to think and would keep them intellectually honest. At the same time, he insisted that the learning and exploring of a science had to take place within a university, that is, with proper regard to the science’s place among other disciplines. This paper contributes to the debate on the proper way to do economics by applying to it Newman’s ideas, arguing that it is at its best when faithful to its own character, as long as it seeks out the contributions and the corrections of other disciplines. Indeed, because economics focuses on order, principle, and method, and because it provides a “connected view or grasp of things,” it can contribute to the cultivation of the philosophical habit of mind.
    Keywords: Newman, philosophy of economics
    JEL: A11 A12
    Date: 2010–09
  3. By: Nikolay Nenovsky
    Abstract: The objectives of this paper could be brought to three. First, a methodological one, to explain how economic knowledge disseminates and what its channels are, as well as the basic transmission mechanisms of economic theory in Bulgaria after the disintegration of the socialist bloc. Second, a purely informational objective, to present the major topics and issues studied over the period 1989-2009, and, of course, the economists working on them. And a third and parallel task to interpret theoretically the development of the Bulgarian economic thought during that period, its character and specificities.
    Keywords: economic thought, economic knowledge, post-communist economy, Bulgaria
    JEL: B20 B41 P20 P50
    Date: 2010–09
  4. By: Das, Subhendu
    Abstract: There are some myths about American capitalism. Some of them are (1) Capitalism made America the richest nation, (2) Capitalism is based on self interest, and (3) America has democracy. We show that the survival of capitalism is based on several powerful conspiracy theories. We briefly describe these conspiracies. Our analysis is based on the following principles: (a) Laws of conservation, (b) System theoretic concepts, and (c) The global space time (GST) environment. Using these principles we show that the above myths are conspiracies. In the process we show that these conspiracies will destroy all human values. The Americans already have the lowest moral values in the world.
    Keywords: Macro economics; Space time; Conspiracy; laws of conservation; system theory
    JEL: P0 C0 P10
    Date: 2010–09–08
  5. By: Sahoo, Ganeswar
    Abstract: Nothing is free in this free world. As public good is concerned, water is often termed as a ‘common good’ instead of a public good. In economics, water is an economic good and not a free good. To a layman, water is his/her basic human right and it cannot be deprived at any cost. This paper reviews some debates regarding rights to water in Phiri in the post-apartheid South Africa. In this brief review, I find on one side, the international trends towards cost-recovery and commercialization of water through privatization, or corporatization, or governmental policy, and other hand, the struggles of poor households to this social injustice. The main debate heads towards two synonymous words ‘sustainable development’ (social welfare without negative impact on future generations) and ‘social justice’ (social welfare at current age). The main theme of this water battle is the installation of prepaid water meters that lead to the constitutional challenge of the basic human right of the masses.
    Keywords: Phiri; water rights
    JEL: Z10
    Date: 2010–11
  6. By: Gian Luca Clementi; Thomas F. Cooley; Sonia B. Di Giannatale
    Date: 2010–09–03
  7. By: Mark Setterfield (Department of Economics, Trinity College)
    Abstract: The purpose of this paper is to explore the similarities between Post Keynesian Economics (PKE) and Regulation Theory (RT). It is argued that, despite important differences between these traditions, the analytical contents of PKE and RT display broad similarities with respect to their treatments of the income-generating process, the crisis-prone nature of capitalism, and the institutional contingency of capitalist growth and development. This thesis is then exemplified and substantiated with reference to the 2007—2009 financial crisis and “Great Recession”. Specifically, it is shown that important strands of both PKE and RT characterize and were successful in anticipating the crisis as the result of the exhaustion of a financialized growth process.
    Keywords: Post Keynesian Economics, Regulation Theory, Great Recession, financial crisis
    JEL: B50 E11 E12 E21 E24
    Date: 2010–09
  8. By: Sproul, Michael
    Abstract: The law of reflux is explained using an example of backed money. In the example, government-issued money is backed by the government’s assets (mainly taxes receivable) while bank-issued money is backed by the bank’s assets. The value of both kinds of money is determined by the amount of backing held per unit of money issued. The example shows that reflux maintains money’s value, not by assuring that excessive issues of money reflux to their issuers, but by providing people with access to the assets backing their money. Conventional metallic convertibility is only one channel of many through which money can reflux to its issuer. The suspension of metallic convertibility still leaves many other open channels of reflux, but can create the illusion that money is unbacked fiat money that was somehow forced into circulation. Backed money will hold its value as long as its issuer remains solvent. One way for an issuer to stay solvent is to issue money in exchange for short-term real bills of adequate value, but as long as the bills are of adequate value, it is largely unnecessary for the bills to be real or short-term.
    Keywords: reflux real bills doctrine backing theory
    JEL: E50
    Date: 2010–08–31
  9. By: Khoo, Boo Teik
    Abstract: Of the Southeast Asian countries most badly affected by the 1997 financial crisis, Malaysia and Thailand remain the most unsettled by its political fallout. Their present political situations are not akin to 'politics as usual'. Instead, they capture the unpredicted outcomes of post-crisis struggles to reorganize structures of economic and political power. Comparing the situations in Malaysia and Thailand, this paper focuses on their differing state and civil society engagements with neoliberalism. It is suggested that the post-crisis contestations, sometimes tied to pre-crisis conflicts in political economy, left something of a stalemate: neither neoliberalism nor the social movements satisfactorily fulfilled their agendas in either country.
    Keywords: Southeast Asia, Malaysia, Thailand, Social movements, Economic policy, Financial crises, Neoliberalism, East Asian financial crisis
    Date: 2010–06
  10. By: S. Drozdz; J. Kwapien; J. Speth
    Abstract: In the area of traditional physics the atomic nucleus belongs to the most complex systems. It involves essentially all elements that characterize complexity including the most distinctive one whose essence is a permanent coexistence of coherent patterns and of randomness. From a more interdisciplinary perspective, these are the financial markets that represent an extreme complexity. Here, based on the matrix formalism, we set some parallels between several characteristics of complexity in the above two systems. We, in particular, refer to the concept - historically originating from nuclear physics considerations - of the random matrix theory and demonstrate its utility in quantifying characteristics of the coexistence of chaos and collectivity also for the financial markets. In this later case we show examples that illustrate mapping of the matrix formulation into the concepts originating from the graph theory. Finally, attention is drawn to some novel aspects of the financial coherence which opens room for speculation if analogous effects can be detected in the atomic nuclei or in other strongly interacting Fermi systems.
    Date: 2010–09
  11. By: Sitabhra Sinha
    Abstract: Although classical economic theory is based on the concept of stable equilibrium, real economic systems appear to be always out of equilibrium. Indeed, they share many of the dynamical features of other complex systems, e.g., ecological food-webs. We focus on the relation between increasing complexity of the economic network and its stability with respect to small perturbations in the dynamical variables associated with the constituent nodes. Inherent delays and multiple time-scales suggest that economic systems will be more likely to exhibit instabilities as their complexity is increased even though the speed at which transactions are conducted has increased many-fold through technological developments. Analogous to the birth of nonlinear dynamics from Poincare's work on the question of whether the solar system is stable, we suggest that similar theoretical developments may arise from efforts by econophysicists to understand the mechanisms by which instabilities arise in the economy.
    Date: 2010–09
  12. By: Kenneth W Clements (UWA Business School, The University of Western Australia); Yihui Lan (UWA Business School, The University of Western Australia); Shi Pei Seah (UWA Business School, The University of Western Australia)
    Abstract: The Big Mac Index, introduced by The Economist magazine more than two decades ago, claims to provide the “true value” of a large number of currencies. This paper assesses the economic value of this index. We show that (i) the index suffers from a substantial bias; (ii) once the bias is allowed for, the index tracks exchange rates reasonably well over the medium to longer term in accordance with relative purchasing power parity theory; (iii) the index is at least as good as the industry standard, the random walk model, in predicting future currency values for all but shortterm horizons; and (iv) future nominal exchange rates are more responsive than prices to currency mispricing. While not perfect, at a cost of less than $US10 per year, the index seems to provide good value for money.
    Date: 2010
  13. By: Li King King (Strategic Interaction Group, Max Planck Institute of Economics, Jena)
    Abstract: This paper investigates whether language priming activates different cultural identities and norms associated with the language communicated; bilingual subjects are given Chinese instructions in the Chinese treatment and English instructions in the English treatment. The main findings are: (1) in social preference games involving strategic interactions, e.g., the trust game, subjects in the Chinese treatment are more trusting and trustworthy than in the English treatment. However, (2) in individual choice games about social preference, such as the dictator game, while there is no treatment difference, subjects exhibit in-group favoritism only in the Chinese treatment. Further, (3) subjects in the Chinese treatment expect others to be more risk seeking, and prefer to pick Chinese lucky numbers in a lottery game. These findings support the hypothesis that languages are associated with cultural frames and that communicating in a particular language increases the cognitive accessibility of norms associated with that language.
    Keywords: Identity, cross-cultural differences, language, bilingual, biculture, social preference, risk attitudes
    JEL: C91 D81 Z10
    Date: 2010–09–13
  14. By: Gennadi Kazakevitch
    Abstract: The article reflects upon the legacy of Yegor Gaidar (19 March 1956 – 16 December 2009), Russian economist – academic and political leader, the key figure of the initial stage of postcommunist transformation in Russia in early 1990s.
    Date: 2010–05
  15. By: Subha Mani (Fordham University, Department of Economics); Utteeyo Dasgupta (Franklin and Marshall College, Department of Economics)
    Abstract: Over the last decade, randomized evaluations have taken the field of development economics by storm. Despite the availability of strong review pieces in the topic, there is no pedagogical paper on randomized evaluation. This paper bridges the gap by introducing three interactive classroom games to communicate the concepts of Average Treatment Effect (ATE), Intent–to-Treat Effect (ITT), Sub-group Average Treatment Effect (SATE), and Externality Effect (EE). The classroom games are easy to implement and provide students an opportunity to participate in a simple randomized trial of their own.
    Keywords: program evaluation, classroom experiment, pedagogy, economic development
    JEL: A22 C70
    Date: 2010
  16. By: Wenli Cheng
    Abstract: This paper argues that there is an important benefit from the division of labor that Adam Smith failed to mention, that is, the division of labor shortens the time required for capital formation and makes continuous roundabout production possible. The paper presents a simple general equilibrium model to demonstrate this benefit, which is referred to as the “value of time” benefit of the division of labor.
    Keywords: the division of labor, time structure of production, capital formation, transaction costs
    JEL: D92 O10
    Date: 2010–05
  17. By: Sergio Beraldo; Robert Sugden
    Abstract: This paper offers a new and robust model of the emergence and persistence of cooperation. In the model, interactions are anonymous, the population is well-mixed, and the evolutionary process selects strategies according to material payoffs. The cooperation problem is modelled as a game similar to Prisoner’s Dilemma, but there is an outside option of nonparticipation and the payoff to mutual cooperation is stochastic; with positive probability, this payoff exceeds that from cheating against a cooperator. Under mild conditions, mutually beneficial cooperation occurs in equilibrium. This is possible because the non-participation option holds down the equilibrium frequency of cheating.
    Keywords: Cooperation; voluntary participation; random payoffs.
    JEL: C73
    Date: 2010–07

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