nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2010‒12‒04
nine papers chosen by
Erik Thomson
University of Manitoba

  1. The Coinages and Monetary Policies of Henry VIII (r. 1509-1547): Contrasts between Defensive and Aggressive Debasements By John H. Munro
  2. L. Walras and C. Menger: Two ways on the path of modern monetary theory By Andrés Alvarez; Vincent Bignon
  3. Theology, Economics, and Economic Development By Peter N. Ireland
  4. The Possibility of a Welfare Policy in a World of Emotion-Driven Individuals: A Humean Point of View By André Lapidus
  5. Unemployment as a Disequilibrium Phenomenon: the economics of Keynes and how to go ahead from Patinkin, Leijonhufvud and Hicks By Mario Amendola; Jean-Luc Gaffard
  6. When a precedent of donation favors defection in the Prisoner's dilemma By Garapin, A.; Llerena, D.; Hollard, M.
  7. An Incomplete Information Justification of Symmetric Equilibrium in Symmetric Games By Christoph Kuzmics; Brian W. Rogers
  8. Contestability and collateral in credit markets with adverse selection By Cesaroni, Giovanni
  9. Risk Aversion and the Value of Risk to Life. By Bommier, Antoine; Villeneuve, Bertrand

  1. By: John H. Munro
    Abstract: The renown or infamy of Henry VIII’s Great Debasement (1542 - 1553), which the government of his successor, Edward VI, continued for another six years after his death, has unfairly obscured his earlier and far more modest coinage changes and public-spirited monetary policies. Furthermore, despite the renown of and the ample literature devoted to the Great Debasement this unusual episode in early-modern monetary history still lacks a fully accurate exposition and explanation. For example, did it begin in 1542 or 1544? How did it work, and why and how did it prove to be successful or ‘profitable’. This study seeks to provide such an accurate exposition and explanation, and thus to provide a proper contrast with Henry VIII’s earlier coinage changes and monetary policies – while also providing a brief comparison with those of Edward IV, whose debasements of 1464-65 were the last undertaken before those of Henry VIII. The subject of coinage debasements remains an arcane subject, ill understood not only by students of European history but also by many of the historians and economists who have published on topics in monetary history. A major problem is that historians have not clearly asked one fundamental question: were debasements fundamentally aggressive or defensive in nature? The second question to be asked is the nature of the goals sought from debasement: were they fundamentally monetary or fiscal? The fiscal aspect of coinage debasements is derived from the fact that in pre-modern western Europe minting was a princely or government monopoly from which the prince or government derived a fee known as seigniorage. The central thesis of this study is that ‘aggressive’ coinage debasements were undertaken primarily as fiscal policies to increase mint profits: profits from an increased mint output and from a increased seigniorage rate. In most, of not all cases, the fiscal motive was to finance warfare, even if indirectly. As this study shows, aggressive coinage debasements worked best if the offending mint could lure coinage and bullion from not only domestic but also foreign sources. Since neighbouring lands were thus affected and afflicted by such coinage debasements, their rulers were so often forced to respond with retaliatory if purely defensive coinage debasements, to protect their own mints and also their domestic money supplies from the effects of Gresham’s Law. Indeed, some variant of Gresham’s Law can be found as an excuse for coinage debasements in western Europe, especially from the fourteenth to sixteenth centuries – so that it is often difficult to tell from an ordinance whether a debasement is aggressive or defensive. The other defensive aspect of such coinage debasement was the consequence of long-term ‘wear and tear’, ‘clipping’, ‘sweating’, counterfeiting, and other factors that over time diminished the mean precious metal contents of the circulating coinage. The result was that legal-tender coins lost their agio over bullion – an agio justified by circulating coins at ‘tale’, rather than measuring them, thus saving on transaction costs. The loss of that agio prevented bullion from being delivered to the mints; and the consequences were another variant of Gresham’s Law (as examined in this paper). In sum this paper explains why Henry VIII’s two related coinage debasements of August and November 1526 were purely defensive, and as such monetary policies, while the Great Debasement was an aggressive fiscal policy, and one highly effective in financing Henry VIII’s wars with France and Scotland. The Great Debasement was not, however, medieval England’s only aggressive debasement, for the same can be shown of Edward IV’s debasements of 1464-65. The proof for these assertions lies in the mint accounts and the evidence for the mintage fees: low with purely defensive debasements; high with aggressive debasements (a factor that would not have been true if aggressive debasements were monetary in their motivations). Finally, this study also presents proof that the extent of inflation during the Great Debasement (1542-1553) was less than that anticipated by monetary formulae, so that inflation did not nullify the merchants’ gains from spending debased coins (a reason some have cited to challenge the logic and utility of medieval coinage debasements).
    Keywords: coinage debasements, gold, silver, bullion, bullionist policies, mints, mint outputs, seigniorage, brassage, inflation, deflation, fiscal policies, warfare, taxation
    JEL: E E41 E42 E51 E52 E62 F33 H11 H27 N13 N23 N43
    Date: 2010–11–26
  2. By: Andrés Alvarez; Vincent Bignon
    Abstract: This paper shows that modern monetary theory can be better understood through the differences between Menger and Walras. Since the 1980s attempts to establish coherent microfoundations for monetary exchange have brought Menger's theory of the origin of money to the forefront and sent walrasian methods to the backstage. However, during the first decade of the XXIth century models inspired on mengerian monetary theory, mainly represented by the search monetary approach, are trying to reintroduce neowalrasian elements. This paper aims at clarifying the main theoretical implications of this movement, through an analysis of the Menger‐Walras divide on money. This divide allows us to show new proof of the deep theoretical differences among the so‐called marginalist authors and of the richness of this historical period as a source for modern economics.
    Date: 2010
  3. By: Peter N. Ireland (Boston College)
    Abstract: Although theologians and economists communicate their ideas to different professional audiences in different ways, we agree on many basic points. We agree, for instance, that all too often, a large gap appears between "what is" and "what should be." We agree, more specifically, that unregulated markets lead to undesirable and perhaps even disastrous environmental degradation. And we view with great suspicion government policies that redistribute wealth perversely, away from the needy and towards the affluent. But while economists share theologians' concerns about the problems that economic development brings, we can also point to benefits that come with rising income levels.
    Keywords: theology, economics, economic development
    JEL: A12 A13 O10 Q56
    Date: 2010–11–15
  4. By: André Lapidus (PHARE - Pôle d'Histoire de l'Analyse et des Représentations Economiques - CNRS : FRE2541 - Université Panthéon-Sorbonne - Paris I - Université de Paris X - Nanterre)
    Abstract: Based on Hume's major philosophical works and on some of his Essays, this paper discusses formally the feasibility, from a Humean point of view, of a welfare policy which would aim at promoting the highest individual happiness whereas individual decisions, like individual happiness, are determined not only by allocations of goods, but also by an emotional state. It is shown that both the intertemporal structure of the problem and the role that Hume granted to the ‘calm passion' allow solving the problem, at least in principle.
    Keywords: Hume;happiness;decision;pleasure;belief;emotion;violence of the passion;welfare policy
    Date: 2010
  5. By: Mario Amendola (Università di Roma La Sapienza); Jean-Luc Gaffard (Observatoire Français des Conjonctures Économiques)
    Abstract: Keynes' theory can be interpreted as dealing with unemployment as a disequilibrium phenomenon in an essentially dynamic context. In this perspective, it is much more important to explain why unemployment changes than to identify a presumed level of equilibrium for this variable. Patinkin, an artisan of the so-called neo-classical synthesis, had the same intuition when maintaining that price and wage flexibility is not a cure for unemployment, and hence there is no unemployment equilibrium. However, two essential aspects of a thorough sequential analysis are missing in both authors: co-ordination failures and time. Leijonhufvud takes co-ordination failures due to imperfect knowledge into account by focussing on financial markets incapable of providing for the consistency of long-term production and consumption plans. The time dimension in the real side of the economy is introduced by Hicks who maintains that productive capacity must be built up before being used, and hence, by fossilising past events, appears as a factor of propagation of disequilibria. Coupling this time dimension of production with the imperfect knowledge that engenders co-ordination issues allows building-up a true dynamic analysis, which appears as the prolongation or the complement of Keynes' analysis. Within such an analytical framework, it becomes evident, that a fall not only in money wages but also in real wages, far from re-establishing full employment, is a source of global instability and threats the viability of the economy. And above all, it becomes evident that understanding the role of money and financial behaviours is essential for explaining the ongoing crisis as the previous ones.
    Keywords: co-ordination, disequilibrium, money, production, time, unemployment, wage
    JEL: B22 E12 E24
    Date: 2010–10
  6. By: Garapin, A.; Llerena, D.; Hollard, M.
    Abstract: In this paper we examine the question of wether a collective activity can influence cooperation in a subsequent repeated one shot prisoner's dilemma (PD) game. We conduct two series of experiments. The first consists of control experiments in which 30 periods of a PD game are played, with a random re-matching of the pairs in every period. In a second series of experiments, subjects first play a donation game and then the PD game. In the donation game they collectively discuss the amount of a donation to a given charity, before putting the question to an individual and anonymous vote. Cooperation levels in the PD games preceded by the donation game are signficantly lower than those observed in the control experiment.
    JEL: C72 C91 C92
    Date: 2010
  7. By: Christoph Kuzmics; Brian W. Rogers
    Date: 2010–11–22
  8. By: Cesaroni, Giovanni
    Abstract: The work discusses a basic proposition in the theory of competition in markets with adverse selection (Bester, 1985). By working out the sequence of market transactions, we show that the effectiveness of collateral in avoiding equilibrium rationing depends on an assumption of uncontestability of the loan market. If contestability is restored to its proper place, the separation of borrower by means of sufficient collateral does not impede the emergence of credit rationing, which results from a coordination failure among risk-neutral banks. As a consequence, even in a risk-neutral environment with suitable endowments, the use of collateral in credit contracts could not be a socially efficient screening-device. Our conclusion on rationing does not stand in contrast with the general result of Gale (1996).
    Keywords: Adverse selection; Collateral; Rationing; Contestable markets;
    JEL: L10 D82 G21
    Date: 2010–10–11
  9. By: Bommier, Antoine; Villeneuve, Bertrand
    Abstract: The standard literature on the value of life relies on Yaari’s (1965) model, which includes an implicit assumption of risk neutrality with respect to life duration. To overpass this limitation, we extend the theory to a simple variety of nonadditively separable preferences. The enlargement we propose is relevant for the evaluation of life-saving programs: current practice, we estimate, puts too little weight on mortality risk reduction of the young. Our correction exceeds in magnitude that introduced by the switch from the notion of number of lives saved to the notion of years of life saved.
    Keywords: Life Insurance; Lifecycle Behavior; Cost-Benefit Analysis; Value of Statistical Life;
    JEL: D91 D81 D61 J17 I18
    Date: 2010

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