nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2011‒06‒04
twenty-two papers chosen by
Erik Thomson
University of Manitoba

  1. The Algorithmic Revolution in the Social Sciences: Mathematical Economics, Game Theory and Statistical Inference By K. Vela Velupillai
  2. Computation in Economics By K. Vela Velupillai; Stefano Zambelli
  3. What is wrong with heterodox economics? Kalecki’s profit theory as an example By Kakarot-Handtke, Egmont
  4. Eudaimonia and the Economics of Happiness By Santiago Melo
  5. Economics, Control Theory, and the Phillips Machine By Brian Hayes
  6. From bounties on exportation to the natural and market price of labour: Smith versus Ricardo By Meacci, Ferdinando
  7. Communication, commitment, and deception in social dilemmas: experimental evidence By G. Camera; M. Casari; M. Bigoni
  8. Continuity, Discontinuity and Dynamics in Mathematics & Economics - Reconsidering Rosser's Visions By K. Vela Velupillai; Stefano Zambelli
  9. Beyond the DSGE straightjacket By Pesaran, M. H.; Smith, R. P.
  10. A organização e o novo conceito de capital no capitalismo dos profissionais By Pereira, Luiz Carlos Bresser
  11. The Time-to-Build Tradition in Business Cycle Modelling By N. Dharmaraj; K. Vela Velupillai
  12. Introduction to the Phillips Machine and the Analogue Computing Tradition in Economics By K. Vela Velupillai
  13. The Epistemology of Simulation, Computation and Dynamics in Economics Ennobling Synergies, Enfeebling 'Perfection' By K. Vela Velupillai; Stefano Zambelli
  14. Schumpeter and the essence of profit By Kakarot-Handtke, Egmont
  15. Business Cycles in the Phillips Machine By Allan McRobie
  16. How Shall We Prepare Students for Attacking New Scientific Problems with Computation? By Rosalind Reid
  17. Democracy and capitalist revolution By Pereira, Luiz Carlos Bresser
  18. Teaching Macroeconomics after the Crisis: A Survey among Undergraduate Instructors in Europe and the U.S. By Gärtner, Manfred; Griesbach, Björn; Jung, Florian
  19. Pricing, liquidity and the control of dynamic systems in finance and economics By Willis, Geoff
  20. Thirty Years of Heteroskedasticity-Robust Inference By James MacKinnon
  21. Law and Economy in Traditional China: A "Legal Origin" Perspective on the Great Divergence By Ma, Debin
  22. Cinco modelos de capitalismo By Pereira, Luiz Carlos Bresser

  1. By: K. Vela Velupillai
    Abstract: The digital and information technology revolutions are based on algorithmic mathematics in many of their alternative forms. Algorithmic mathematics per se is not necessarily underpinned by the digital or the discrete only; analogue traditions of algorithmic mathematics have a noble pedigree, even in economics. Constructive mathematics of any variety, computability theory and non-standard analysis are intrinsically algorithmic at their foundations. Economic theory, game theory and mathematical finance theory, at many of their frontiers, appear to have embraced the digital and information technology revolutions via strong adherences to experimental, behavioural and so-called computational aspects of their domains - without, however, adapting the mathematical formalisms of their theoretical structures. Recent advances in mathematical economics, game theory, probability theory and statistics suggest that an algorithmic revolution in the social sciences is in the making. In this paper I try to trace the origins of the emergence of this revolution and suggest, via examples in mathematical economics, game theory and the foundations of statistics, where the common elements are and how they may define new frontiers of research and visions. Essentially, the conclusion is that the algorithmic social sciences are unified by an underpinning in Diophantine Decision Problems as their paradigmatic framework
    Keywords: Algorithmic Economics, Algorithmic Game Theory, Algorithmic Statistics, Algorithmic Social Science
    Date: 2010
  2. By: K. Vela Velupillai; Stefano Zambelli
    Abstract: This is an attempt at a succinct survey, from methodological and epistemological perspectives, of the burgeoning, apparently unstructured, field of what is often – misleadingly – referred to as computational economics. We identify and characterise four frontier research fields, encompassing both micro and macro aspects of economic theory, where machine computation play crucial roles in formal modelling exercises: algorithmic behavioural economics, computable general equilibrium theory, agent based computational economics and computable economics. In some senses these four research frontiers raise, without resolving, many interesting methodological and epistemological issues in economic theorising in (alternative) mathematical modes
    Keywords: Classical Behavioural Economics, Computable General Equilibrium theory, Agent Based Economics, Computable Economics, Computability, Constructivity, Numerical Analysis
    Date: 2010
  3. By: Kakarot-Handtke, Egmont
    Abstract: Kalecki’s profit theory has always been popular among heterodox economist as an alternative approach to solve the paradox of monetary profits. In the present paper his formula ‘The workers spend what they get, the capitalists get what they spend’ is scrutinized for its logical and factual implications. The analysis shows that Kalecki’s alternative approach points in the right direction but unfortunately shares a crucial conceptual error with standard economics.
    Keywords: National income accounting; Zero profit economy; Distributed profit; Income definition; Master equation
    JEL: E12 E25 B22 B50 B41
    Date: 2011–05–18
  4. By: Santiago Melo
    Abstract: In this paper I discuss the major approaches to happiness in the economics of happiness: hedonism and life-satisfaction approaches. It is possible to identify a tension between two important principles in this literature: 1) individuals are the best judges of their own happiness, and 2) the purpose of economics should be the direct endorsement of happiness. I argue that hedonism conflicts with the first principle. In the case of life-satisfaction theories, the restricted approach conflicts with both principles while the unrestricted approach only with the second. I also argue that the field presents difficulties establishing happiness as a consistent normative concept. In order to show this, I return to the theories of Aristotle and Seneca because: 1) both the ancients and these economists consider happiness as the overarching good; 2) even though these economists recognize the importance of eudaimonistic theories, their interpretation and use has not been satisfactory; 3) the debate between Aristotle and Seneca has implications both on the quantitative character of happiness and on the role of public policy regarding its promotion. The main lesson of the ancients is methodological: what made the discussion so rich among them was their awareness that happiness was principally a normative concept whose content had to adjust in order to meet its normative demands; a point contemporary literature seems to have missed.
    Date: 2011–02–13
  5. By: Brian Hayes
    Abstract: Can the same mathematical control laws that smooth out oscillations in the flight of an airplane also moderate economic cycles of boom and bust? Attempts to bring together the intellectual traditions of control engineering and economics go back at least as far as the hydraulic analog computer of A. W. H. Phillips, circa 1950. Today, economic policymakers remain committed to the ideal of controlling business cycles; it remains an open question whether tools from control theory might help to refine their strategies.
    Date: 2011
  6. By: Meacci, Ferdinando
    Abstract: Schumpeter’s remarks on Ricardo’s criticisms of Smith’s system of thought (1954, p.472) can be further articulated by noting that while Ricardo’s most explicit and fundamental criticisms reach a climax in his chapter On Value, a number of explicit criticisms are concerned with apparently more specific or practical issues. One of these issues can be found in Chapter XXII, Bounties on Exportation, and Prohibitions of Importation of his Principles. This chapter provides a criticism of Chapter V, Of Bounties, Book IV of the Wealth of Nations and is intended to prove that “perhaps in no part of Adam Smith’s justly celebrated work, are his conclusions more liable to objection, than in the chapter on bounties” (1821, p.304). The historical relevance of Ricardo’s criticisms on this issue is confirmed in two opposite directions. One goes back to the years between the fist edition of the Wealth and that of Ricardo’s Principles. The other brings us forward to the years of Sraffa’s publication of Ricardo’s works and to the following revival of interest on Ricardo’s thought, either as such or as an alternative to Smith’s. Thus the issue has eventually fallen into the hands, or between the lines, of a growing number of authors who have dealt with Ricardo’s or Smith’s systems of thought in recent years. Among these recent authors are Peach (1993, 2008, 2009), S. Hollander (1973, 1979, 1980, 1982, 1987 [1992], 1992), O’Brien (1981 [2004]), O’Donnell (1990), West (1982), Gibbard (1994), Samuelson (1977, 1992), Elmslie (2004), Hueckel (2000a, 2000b, 2009) and others. The scope of this paper is narrower than that of the whole literature developed in the two periods above. It will not be confined, however, to the details of Ricardo’s criticisms of Smith’s argument but will reach for the analytical foundations both of these criticisms and of that argument. At this deeper level, the paper will be structured so as to provide, wherever possible, Smith’s virtual self-defence against Ricardo’s criticisms. Thus it will proceed by assessing, fist, whether or to what extent Smith and Ricardo are on this particular issue consistent “with themselves”, i.e. with the foundations (or other parts) of their different works; and, secondly, whether Ricardo’s criticisms are based on a misunderstanding of at least some of the foundations (or other parts) of his predecessor’s work. Smith’s virtual self-defence will be carried out by focusing on some diverging foundations of his system vis-à-vis Ricardo’s and, more particularly, on the temporary vs. permanent, money vs. real and market vs. natural price of labour (work to be done) as distinct from the temporary vs. permanent, money vs. real and market vs. natural price of commodities as products of labour (work done
    Keywords: Smith; Ricardo; Bounties; Money and real price; Natural and market wages
    JEL: B12 B31
    Date: 2011–05–03
  7. By: G. Camera; M. Casari; M. Bigoni
    Abstract: Social norms of cooperation are studied under several forms of communication. In an experiment, strangers could make public statements before playing a prisoner’s dilemma. The interaction was repeated indefinitely, which generated multiple equilibria. Communication could be used as a tool to either signal intentions to coordinate on Pareto-superior outcomes, to deceive others, or to credibly commit to actions. Some forms of communication did not promote the incidence of efficient Nash play, and sometimes reduced it. Surprisingly, cooperation suffered when subjects could publicly commit to actions.
    JEL: C70 C90 D80
    Date: 2011–05
  8. By: K. Vela Velupillai; Stefano Zambelli
    Abstract: Barkley Rosser has been a pioneer in arguing the case for the mathematics of discontinuity, broadly conceived, to be placed at the foundations of modelling economic dynamics. In this paper we reconsider this vision from the broad perspective of a variety of different kinds of mathematics and suggest a broadening of Rosser’s methodology to the study of economic dynamics
    Keywords: Continuity, Discontinuity, Economic Dynamics, Relaxation Oscillations
    JEL: B23 B31 B41 C02 C60
    Date: 2011
  9. By: Pesaran, M. H.; Smith, R. P.
    Abstract: Academic macroeconomics and the research department of central banks have come to be dominated by Dynamic, Stochastic, General Equilibrium (DSGE) models based on micro-foundations of optimising representative agents with rational expectations. We argue that the dominance of this particular sort of DSGE and the resistance of some in the profession to alternatives has become a straitjacket that restricts empirical and theoretical experimentation and inhibits innovation and that the profession should embrace a more flexible approach to macroeconometric modelling. We describe one possible approach.
    JEL: C1 E1
    Date: 2011–04–13
  10. By: Pereira, Luiz Carlos Bresser
    Abstract: Modern societies cannot anymore be just defined as classical or bourgeois capitalism. Since the emergence of a second relation of production and a third social class in capitalist societies, they are mixed societies where two forms of property – capital and organization – are present. That is why modern capitalism is not anymore classical or bourgeois capitalism, but a mixed form that we call professionals’ capitalism or knowledge capitalism or technobureaucratic. In this paper I define the new relation of production that we call “organization”. As to capital, I discuss the transformation of its definition as capitalism changed historically.
    Date: 2011–05–16
  11. By: N. Dharmaraj; K. Vela Velupillai
    Abstract: An important frontier of business cycle theorising is the 'time-to-build' tradition that lies at the heart of Real Business Cycle theory. Kydland and Prescott (1982) did not acknowledge the rich tradition of 'time-to-build' business cycle theorising - except in a passing, non-scholarly, non-specific, reference to Böhm-Bawerk's classic on Capital Theory (Böhm-Bawerk [1899]), which did not, in any case, address cycle theoretic issues. The notion of ‘time-to-build’ is intrinsic to any process oriented production theory which is incorporated in a macrodynamic model. We provide an overview of this tradition, focusing on some of the central business cycle classics, and suggest that the Neo-Austrian revival should be placed in this class of dynamic macroeconomics, albeit ‘traverse dynamics’ is itself to be considered as a fluctuating path from one equilibrium to another.
    Date: 2011
  12. By: K. Vela Velupillai
    Abstract: In this paper I try to argue for the desirability of analog computation in economics from a variety of perspectives, using the example of the Phillips Machine. Ultimately, a case is made for the underpinning of both analog and digital computing theory in constructive mathematics. Some conceptual confusion in the meaning of analog computing and its non-reliance on the theory of numerical analysis is also discussed.
    Date: 2010
  13. By: K. Vela Velupillai; Stefano Zambelli
    Abstract: Lehtinen and Kuorikoski ([73]) question, provocatively, whether, in the context of Computing the Perfect Model, economists avoid - even positively abhor - reliance on simulation. We disagree with the mildly qualified affirmative answer given by them, whilst agreeing with some of the issues they raise. However there are many economic theoretic, mathematical (primarily recursion theoretic and constructive) - and even some philosophical and epistemological - infelicities in their descriptions, definitions and analysis. These are pointed out, and corrected; for, if not, the issues they raise may be submerged and subverted by emphasis just on the unfortunate, but essential, errors and misrepresentations
    Keywords: Simulation, Computation, Computable, Analysis, Dynamics, Proof, Algorithm
    Date: 2010
  14. By: Kakarot-Handtke, Egmont
    Abstract: Schumpeter had a clear vision of the developing economy, but he did not formalize it. The quest for a germane formal basis is in the following guided by the general question: what is the minimum set of foundational propositions for a consistent reconstruction of the evolving money economy? We start with three structural axioms. The claim of generality entails that it should be possible to free Schumpeter’s approach from its irksomeWalrasian legacy and to give a consistent formal account of the elementary circular flow that served him as a backdrop for the analysis of the entrepreneur-driven market system.
    Keywords: New framework of concepts; Structure-centric; Axiom set; Profit; Money; Credit; Structural stress; Catching-up process; Monopoly
    JEL: E25 E30 E10 E40 B41
    Date: 2011–05–29
  15. By: Allan McRobie
    Abstract: Over the summer of 2003, the author undertook the refurbishment of the Cambridge Phillips Machine with help from technicians in the Cambridge University Engineering Dept and with advice from economists. The Machine now works and - moreover - is safe to work with. The Machine has since been used to give numerous working demonstrations to a wide variety of audiences from schoolchildren to distinguished economists. This paper describes some of the standard experiments that can be conducted on the Machine. Also described are more recent simulations which attempt to demonstrate the possibility of generating business cycles - of both linear and nonlinear Hicksian types - from the basic accelerator-multiplier system.
    Date: 2011
  16. By: Rosalind Reid
    Abstract: Computation is making its way into the mainstream of natural and social science research by fits and starts. “Computational science,” once a toolkit, is emerging as a fundamentally new approach to exploration and hypothesis formation as well as analysis. It is not yet clear, however, just how computation will make novel contributions and change the nature (not just the methodology) of science. Harvard is engaged in creating a program that may test new ideas about how scholars should be trained. The rising dominance of large computation means, for example, that scholars must work in large and interdisciplinary groups in the future. And to advance the field, they must learn what it means to make a scientific question computable.What preparation will enable them to create this new field? This article reports on discussions toward establishing a new curriculum at Harvard and observations of the experience of similar programs at Stanford.
    Date: 2011
  17. By: Pereira, Luiz Carlos Bresser
    Abstract: Democracy became the preferred and consolidated form of government only in the twentieth century. It is not sufficient to explain this change solely by reference to rational motives, nor by detecting processes and leadership. A historical approach is required. The new historical fact that led to the change of preference from aristocratic rule to democracy is the capitalist revolution, which changed the manner of appropriating the economic surplus from violence to the market. This is the first necessary condition for democracy. The disappearance of the fear of expropriation, the rise of middle classes and the pressures of the poor or of the workers are the second, third and fourth new historical facts that opened the way for the transition from the liberal to the liberal-democratic regime. After these four conditions were fulfilled, the elites ceased to fear that they would be expropriated if universal suffrage was granted. Eventually, after the transition, the democratic regime became the rational choice for all classes. The theory presented here does not predict transitions, since countries often turn democratic without fully realized historical conditions, but it predicts democratic consolidation, since no country that has completed its capitalist revolution falls back into authoritarianism.
    Date: 2011–05–16
  18. By: Gärtner, Manfred; Griesbach, Björn; Jung, Florian
    Abstract: An online survey among undergraduate macroeconomics instructors reveals that roughly half of them were scared when the crisis erupted and remain wary that more may be in the offing. As regards teaching, courses feature much the same lineups of models as they did before the crisis. A striking change concerns public debt dynamics, which receives much more emphasis. Regarding the finer fabric of undergraduate macro teaching, exciting things are going on. A host of topics related to financial markets has entered the curriculum, and there is more interest in economic history, the history of economic thought and case studies.
    Keywords: Financial crisis, teaching, undergraduate, macroeconomics.
    JEL: A22 E00
    Date: 2011–05
  19. By: Willis, Geoff
    Abstract: The paper discusses various practical consequences of treating economics and finance as an inherently dynamic and chaotic system. On the theoretical side this looks at the general applicability of the market-making pricing approach to economics in general. The paper also discuses the consequences of the endogenous creation of liquidity and the role of liquidity as a state variable. On the practical side, proposals are made for reducing chaotic behaviour in both housing markets and stock markets.
    Keywords: dynamic; chaotic; liquidity; market-microstructure; post-keynesian
    JEL: D53 G1 D40
    Date: 2011–05–26
  20. By: James MacKinnon (Queen's University)
    Abstract: White (1980) marked the beginning of a new era for inference in econometrics. It introduced the revolutionary idea of inference that is robust to heteroskedasticity of unknown form, an idea that was very soon extended to other forms of robust inference and also led to many new estimation methods. This paper discusses the development of heteroskedasticity-robust inference since 1980. There have been two principal lines of investigation. One approach has been to modify White's original estimator to improve its finite-sample properties, and the other has been to use bootstrap methods. The relation between these two approaches, and some ways in which they may be combined, are discussed. Finally, a simulation experiment compares various methods and shows how far heteroskedasticity-robust inference has come in just over thirty years.
    Keywords: wild bootstrap, HCCME, power, finite-sample
    JEL: C12 C15 C20
    Date: 2011–05
  21. By: Ma, Debin
    Abstract: This article offers a critical review of recent literature on Chinese legal tradition and argues that some subtle but fundamental differences between the Western and Chinese legal traditions are highly relevant to our explanation of the economic divergence in the modern era. This paper seeks to elucidate the fundamental feature of traditional Chinese legal system and the mechanism of dispute resolution within the framework of a disciplinary mode of administrative law within a bureaucratic hierarchy and intermediation within social-networks. By comparing the contrasting development of the legal professions in China and Western Europe, it reveals the importance of political institution, legal regime and the growth of jurisprudence that would ultimately affect property rights, contract enforcement and ultimately long-term growth trajectories.
    Keywords: adjudication; common law; disciplinary mode of justice; economic growth; great divergence; jurisprudence; law; rule of law
    JEL: N00 O10
    Date: 2011–05
  22. By: Pereira, Luiz Carlos Bresser
    Abstract: Besides analyzing capitalist societies historically and think them in terms of phases or stages, we may compare different models or varieties of capitalism. In this work I make a survey of the literature on this subject, distinguish the classification that have a production or business approach to the ones that use mainly a political criterion. And present my own view on the matter that views five forms of capitalism. Among the rich countries, I see the “liberal-democratic or Anglo-Saxon model, the social or European model, and endogenous social integration or Japanese model; among developing countries, I distinguish the Asian developmental model from the liberal-dependent model that characterizes most other developing countries including Brazil.
    Date: 2011–05–16

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