nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2011‒06‒25
seventeen papers chosen by
Erik Thomson
University of Manitoba

  1. Portrait of the Economist as a Young Man: Raúl Prebisch’s evolving views on the business cycle and money, 1919-1949 By Matías Vernengo
  2. Scarcity, self-interest and maximization from Islamic angle By Hasan, Zubair
  3. Trade, money, and the grievances of the commonwealth : economic debates in the English public sphere during the commercial crisis of the early 1620’s By Carlos Eduardo Suprinyak
  4. Applications of a constrained mechanics methodology in economics By Jitka Janov\'a
  5. Afraid of God or Afraid of Man: How religion shapes attitudes toward free riding and fraud By H'madoun M.
  6. GDP as a Measure of Economic Welfare By Moshe Syrquin
  7. Mutamenti strutturali: modelli, metodi e principi in una nuova prospettiva By Schilirò, Daniele
  8. Towards a Theory of Fair Interest Rates on Microcredit By Marek Hudon; Joakim Sandberg
  9. Signs of reality - reality of signs. Explorations of a pending revolution in political economy. By Hanappi, Hardy
  10. Belling the cat: Eli F. Heckscher on the gold standard as a discipline device By Fregert, Klas
  11. Properties of an economy without human beings By Kakarot-Handtke, Egmont
  12. Traditions of Renewal - How four traditions linking emotion and cognition in different ways allow for strategic renewal ahead of one’s time By Manuel Hensmans; George Yip; Gerry Johnson
  13. The Free-Trade Doctrine and Commercial Diplomacy of Condy Raguet By Stephen Meardon
  14. When do people cooperate? The neuroeconomics of prosocial decision making By Declerck C.H.; Boone Ch.; Emonds G.
  15. Irving Fisher and Price-Level Targeting in Austria: Was Silver the Answer? By Richard C.K. Burdekin; Kris James Mitchener; Marc D. Weidenmier
  16. Causal Structure and Hierarchies of Model By Kevin D. Hoover
  17. Ordering Ambiguous Acts By Ian Jewitt; Sujoy Mukerji

  1. By: Matías Vernengo
    Abstract: This paper provides a rejoinder to Colander, Holt and Rosser (2010) strategy to win friends and influence mainstream economics. It is suggested that their strategy is counter-productive, and while it might gain them friends, it will not lead to increased influence of heterodox ideas within what they term the cutting edge of the profession. It is argued that their failure to understand the nature of heterodoxy, and the reason for the eclecticism of the mainstream, associated to the rise of vulgar economics, undermines their arguments.
    Keywords: Methodology, Heterodox Economics JEL Codes: B49, B59
    Date: 2011
  2. By: Hasan, Zubair
    Abstract: This paper clarifies some misinterpretations of three foundational concepts in mainstream economics from Islamic viewpoint. These are scarcity of resources, pursuit of self-interest and maximizing behavior of economic agents. It argues that stocks of resources that God has provided are inexhaustible. But important is the availability of resources out of stocks to mankind. Availability is a function of human effort and the state of knowledge about resources over time and space. In that sense resources are scarce in relation to multiplicity of human wants for Islamic economics as well. Self-interest must be distinguished from selfishness. The motive operates on both ends of human existence: mundane and spiritual. Its pursuit does not preclude altruism from human life. Counter interests keep balance in society and promote civility. Islam recognizes the motive as valid. Maximization relates to quantifiable ex ante variables. Uncertainty of future outcomes of actions makes maximization a heuristic but useful analytical tool. The concept is value neutral. What is maximized, how and to what end alone give rise to moral issues. Modified in the light of Shari’ah requirements the three concepts can provide a firmer definition for Islamic economics centered on the notion of falah.
    Keywords: Scarcity; self-interest; opportunity cost; maximization; Islamic Economics; israf;; heuristics
    JEL: A22 B22 B13 B11
    Date: 2011–03–08
  3. By: Carlos Eduardo Suprinyak (Cedeplar-UFMG)
    Abstract: The turbulent, crisis-ridden first half of the 1620’s was a rich period for economic pamphleteering in England, as has been long recognized in the specialist literature. What is less commonly appreciated is that economic reasoning was not, at that time, exclusively confined to the musings of merchants who sought to influence the course of public policy according to their own practical wisdom or corporate interests. In fact, economic distress was then a central topic for public debate throughout English society at large; it figured prominently both in parliament and at court, thus mobilizing most of the kingdom’s economic and political groups. Using a wide array of primary sources – parliamentary debates, Privy Council records, papers and correspondence by public officials – this paper aims to uncover the place occupied by economic reasoning and discourse within the English public sphere during the early 17th century. When seen against this background, it becomes apparent that the pamphlet literature actually came about as a response to a debate which was already well under way – a rather late chapter of which was the famous controversy among Malynes, Misselden and Mun, played out simultaneously in the political arena and in London’s printing houses.
    Keywords: pre-classical economics; mercantilism; 17th century; Stuart England; Thomas Mun.
    JEL: B11 N24
    Date: 2011–06
  4. By: Jitka Janov\'a
    Abstract: The paper presents instructive interdisciplinary applications of constrained mechanics calculus in economics on a level appropriate for the undergraduate physics education. The aim of the paper is: 1. to meet the demand for illustrative examples suitable for presenting the background of the highly expanding research field of econophysics even on the undergraduate level and 2. to enable the students to understand deeper the principles and methods routinely used in mechanics by looking at the well known methodology from the different perspective of economics. Two constrained dynamic economic problems are presented using the economic terminology in an intuitive way. First, the Phillips model of business cycle is presented as a system of forced oscillations and the general problem of two interacting economies is solved by the nonholonomic dynamics approach. Second, the Cass-Koopmans-Ramsey model of economical growth is solved as a variational problem with a velocity dependent constraint using the vakonomic approach. The specifics of the solution interpretation in economics compared to mechanics is discussed in detail, a discussion of the nonholonomic and vakonomic approaches to constrained problems in mechanics and economics is provided and an economic interpretation of the Lagrange multipliers (possibly surprising for the students of physics) is carefully explained. The paper can be used by the undergraduate students of physics interested in interdisciplinary physics applications to get in touch with current scientific approach to economics based on a physical background or by university teachers as an attractive supplement to the classical mechanics lessons.
    Date: 2011–06
  5. By: H'madoun M.
    Abstract: In the Theory of Moral Sentiments, Adam Smith captured the key elements of a theory – later developed by many others – of why religion matters for behavior: self-interest, belief prevailing over belonging and a religion with an image of god as omnipotent, all-seeing and judging. The goal of this paper is to test this theory empirically by investigating how religion constrains people’s willingness to engage in free riding and fraud, i.e. cheating on taxes, falsely claiming government benefits, free riding on public transport and accepting a bribe. The most recent wave of the World Values Survey (2005-2008) is used to look into whether religion might be a factor shaping people’s attitudes toward free riding, and to what extent belief or participation make a difference. Results show that religion effectively exerts an influence mainly through belief in god. This effect was only found significant in those country groups that share an image of god as an active, punishing and judging being in contrast to an abstract and distant transcendental essence. This corresponds to previous literature where the conjecture is that fear of an all-seeing and punishing god alters the costs and benefits associated with fraudulent or immoral behavior making it less attractive.
    Date: 2011–06
  6. By: Moshe Syrquin
    Abstract: Ever since the early days of National Income accounting we can observe periodic surges of demands to fix the measurement of GDP to better reflect progress, welfare or even happiness. In recent years even Presidents and Prime Ministers in Europe have joined the chorus of the discontent. In this paper I argue that the critique is mostly misguided. Welfare measurement has not been the objective of the GDP accounts especially since the late 1940s when National Accounts became a vehicle for applying Keynesian economics for, primarily, short run stabilization. I also argue that the search for a unique index of welfare, well-being, or happiness is a chimera.
    Date: 2011–04
  7. By: Schilirò, Daniele
    Abstract: The study of structural changes is the theme of this work, where structural changes are correlated primarily with changes in the structure of production, which are caused by the evolution of technical progress and organizational changes in production. The analysis of models and theories of structural change carried out in this paper is twofold. On the one hand, it is possible to identify some basic principles that characterize these models, on the other hand, it should lead us to reconsider some important methodological issues in a new perspective, issues concerning the different methods of decomposition of the production systems, the problem of complexity and strategies to reduce this complexity. In the following pages, the investigation will be limited to the models of Leontief, von Neumann, Sraffa as these economists, similarly to classical economics, focused their study on the economic structure as a factor crucial to understanding the functioning of economic systems. The choice of models of Leontief, von Neumann and Sraffa is important, because they can identify the analytical principles and discuss some methodological issues, which are the basis of the analysis of structural change, with the aim of contributing to a new perspective and to further progress at epistemic level. This paper compares the Quesnay’s Tableau Economique, taken as a reference model, with the models of Leontief, von Neumann and Sraffa to capture the different characteristics of these models compared to the theoretical framework of Quesnay. The essay also seeks to identify within these models the main features on the analysis of structural change. It tries to indicate the possibility of a new and unified perspective on the methodological analysis of structural change but does notpretend to to offer a general theoretical model.
    Keywords: mutamenti strutturali; modelli multisettoriali; metodi di decomposizione; input-output; Tableau economique di Quesnay.
    JEL: L16 O41 B20 B11
    Date: 2011–06
  8. By: Marek Hudon; Joakim Sandberg
    Abstract: One of the most salient ethical debates concerning microcredit pertains to the unexpectedly high rates of interest charged on microloans. Microcredit is supposed to be to the advantage of borrowers in some of the poorest regions of the world, but at the same time commercial institutions need to cover their comparably high costs. This article seeks to find a theoretical basis for a more balanced way of setting prices on microcredit; i.e. a theory of fairness in interest rates. By drawing on both contemporary debates in the industry as well as more general philosophical ideas, the article discusses four main theoretical approaches. In the end the authors favour a combination of consequentialism and liberal egalitarianism which seems able to adequately balance the needs of the institutions with the needs of the clients. However it is also acknowledged that further research in the area is needed.
    Keywords: justice; microfinance; interest rate; usury
    JEL: L31 M54 O16 Q14
    Date: 2011–06
  9. By: Hanappi, Hardy
    Abstract: This paper explores the interaction between the world of information processes in human society and the non-information dynamics, which the latter set out to understand. This broad topic is approached with a focus on evolutionary political economy: It turns out that progress in this scientific discipline seems to depend crucially on a methodological revolution reframing this above mentioned interplay. The paper consists of three parts. After a brief introduction, which sketches the position of the argument in the current epistemological discourse, part 1 sets out to describe the basic methodological ingredients used by evolutionary political economy to describe the ‘reality’ of socioeconomic dynamics. Part 2 jumps to the world of languages used and proposes a rather radical break with the received apparatus of analytical mathematics used so successfully in sciences studying non-living phenomena. The development of procedural simulation languages should substitute inadequate mathematical formalizations, some examples are provided. Part 3 then returns to ‘reality’ dynamics, but now incorporates the interaction with the information sphere in a small algorithmic model. This model – like the introduction - again makes visible the relationships to earlier research in the field. Instead of a conclusion – several, hopefully innovative ideas are provided in passing, throughout the paper - an epilogue is provided, which tries to indicate the implications of this methodological paper for political practice in face of the current global crisis.
    Keywords: Scientific methods; evolutionary political economy; formal languages; ideology
    JEL: B51 B52 B4
    Date: 2011–05–28
  10. By: Fregert, Klas (Department of Economics, Lund University)
    Abstract: Unlike Knut Wicksell, Eli Heckscher did not believe the time had arrived for “managed money” to replace the gold standard after World War I. The war had shown that only a gold standard could bind the central bank to a time-consistent policy with reasonable price stability. Heckscher likened the problem of reinstating the gold standard to “Belling the cat” in Aesop’s fable. When the international gold standard crumbled in the Great Depression, he supported the Swedish price stabilization regime as a temporary system. Heckscher was an early discoverer of the time-consistency problem in monetary policy and hence stressed the importance of the institutional framework of monetary policy.
    Keywords: Heckscher; time-consistent policy; devaluation; deflation; gold standard
    JEL: B22 E31 E42
    Date: 2011–06–14
  11. By: Kakarot-Handtke, Egmont
    Abstract: Standard economics starts with behavioral axioms and arrives at conclusions about the equilibrium properties of the economy as a whole at point t. The present paper employs objective structural axioms and random changes in order to determine the conditions for market clearing and budget balancing in the pure consumption economy until the limit t→∞. From the conditions of stochastic supersymmetry six simple behavioral rules are derived that guarantee the desired outcome. These rules contrast with actual behavior and this explains why the plans and expectations of economic man are many times frustrated.
    Keywords: New framework of concepts; Structure-centric; Axiom set; Random consumption economy; Evolutionary properties; Benchmark process; Stochastic supersymmetry; Structural laissez-faire
    JEL: D50 E30 E40 E20
    Date: 2011–06–13
  12. By: Manuel Hensmans; George Yip; Gerry Johnson
    Abstract: In this paper we address an empirical and theoretical issue which is under researched. Does history, i.e. a company’s organizational traditions, hamper strategic renewal and cause drift, as the management literature suggests? Or can traditions help companies to systematically and successfully renew themselves? To empirically analyse this question we take issue with two empirical selection biases in the strategic management literature: most of the literature on managed strategic change discusses historical inertia and financial stress induced renewal processes. Instead, we argue for a focus on long-lived companies that continuously renewed themselves for a period of twenty years without the trigger of financial stress. We find that the secret of the success of these companies is that more than forty years ago they began to foster 4 traditions of renewal. The four traditions are continuity, anticipation, contestability and mobility. The traditions link different types of emotional action readiness to dominant and alternative logics and coalitions, allowing our sample companies to deal with the non-linearity of strategic renewal processes by being one step ahead of time as it were.
    Date: 2011–06
  13. By: Stephen Meardon (Department of Economics, Bowdoin College)
    Abstract: Condy Raguet (1784-1842) was the first Charg%E9 d'Affaires from the United States to Brazil and a conspicuous author of political economy from the 1820s to the early 1840s. He contributed to the era's free-trade doctrine as editor of influential periodicals, most notably The Banner of the Constitution. Before leading the free-trade cause, however, he was poised to negotiate a reciprocity treaty between the United States and Brazil, acting under the authority of Secretary of State and protectionist apostle Henry Clay. Raguet's career and ideas provide a window into the uncertain relationship of reciprocity to the cause of free trade.
    Keywords: Condy Raguet, Free Trade, Reciprocity, Trade Agreements, Brazil
    JEL: B31 F13 N41
    Date: 2011–05
  14. By: Declerck C.H.; Boone Ch.; Emonds G.
    Abstract: Understanding the roots of prosocial behavior is an interdisciplinary research endeavor that has generated an abundance of empirical data across many disciplines. This review integrates research findings from different fields into a theoretical framework that can account for when prosocial behavior is likely to occur. Specifically, we propose that the motivation to cooperate is generated by the reward system in the brain (extending from striatum to the ventromedial prefrontal cortex), and that it can be modulated by two neural networks: a cognitive control system (centered on the lateral prefrontal cortex) that processes extrinsic cooperative incentives, and/or a social cognition system (including the superior temporal sulcus, the anterior medial frontal cortex and the amygdala) that processes trust signals. The independent modulatory influence of incentives and trust on the decision to cooperate is substantiated by a growing body of neuroimaging data and reconciles the apparent paradox between economic versus social rationality in the literature, suggesting that we are in fact wired for both. Furthermore, the theoretical framework can account for substantial behavioral heterogeneity in prosocial behavior. Based on the existing data, we further postulate that self-regarding individuals (who are more likely to adopt an economically rational strategy) are more responsive to extrinsic cooperative incentives and therefore rely relatively more on cognitive control to make (un)cooperative decisions, whereas other-regarding individuals (who are more likely to adopt a socially rational strategy) are more sensitive to trust signals to avoid betrayal and recruit relatively more brain activity in the social cognition system.
    Date: 2011–06
  15. By: Richard C.K. Burdekin; Kris James Mitchener; Marc D. Weidenmier
    Abstract: The question of price level versus inflation targeting remains controversial. Disagreement concerns, not so much the desirability of price stability, but rather the means of achieving it. Irving Fisher argued for a commodity dollar standard where the purchasing power of money was fixed by indexing it to a basket of commodities. We show that movements in the price of silver closely track the movements in overall prices during the classical gold standard era. The one-to-one relationship between paper and silver bonds suggests that a simple “silver rule" could have sufficed to fix the purchasing power of money.
    JEL: E31 E4 E58 N1 N33
    Date: 2011–06
  16. By: Kevin D. Hoover
    Abstract: Economics places a high premium on completeness of explanation. Typical general-equilibrium accounts of economic phenomena are preferred to partial equilibrium accounts on the ground that important interactions are necessarily omitted in the latter. A similar preference for microfoundational explanations over macroeconomic explanations of aggregate phenomena is grounded in similar reasoning. Probabilistic accounts of causation frequently presume that greater detail is superior to less. Simpson’s paradox, for example, assumes that failure to account for distinctions within populations results in false conclusions. Strategies of causal refinement – e.g., distinguishing between direct and indirect causes – are similar. However, there are countervailing practices in economics. Representative-agent models aim to capture economic motivation but not to reduce the level of aggregation. Structural vector-autoregression models and dynamic stochastic general-equilibrium models with small numbers of variables are often practically preferred to ones with large numbers. The distinction between endogenous variables determined within a causal system and exogenous variables determined independently of the causal system suggests a partitioning of the world into distinct subsystems. This paper will explore this tension. I advocate a structural account of causation grounded in Herbert Simon’s "Causal Order and Identifiability" (1953), which defines cause with reference to complete systems. But any workable causal epistemology must deal with incomplete systems and piecemeal evidence. The main formal focus of the paper is to better understand the constraints that a structural account of causation places on the freedom to model complex or lower-order systems as simpler or higher-order systems. The main epistemological focus is to understand how and to what degree piecemeal evidence can be incorporated into a structural account.
    Keywords: structural account, causation, causal order, Nancy Cartwright, James Woodward, Herbert Simon, manipulability account, causal structure, identity, independence, modularity
    JEL: B40 B41 C10
    Date: 2011
  17. By: Ian Jewitt; Sujoy Mukerji
    Abstract: We investigate what it means for one actot be more ambiguous than another. The question is evidently analogous to asking what makes one prospect rikier than another, but beliefs are neither objective nor representatable by a unique probability. Our starting point is an abstract class of preferences constructed to be (strictly) partially ordered by a more ambiguity averse relation. We define two notions of more ambiguous with respect to such a class. A more ambiguous (I) act makes an ambiguity averse decision maker (DM) worse off but does not affect the welfare of an ambiguity neutral DM. A more ambiguous (II) act adversely affects a more ambiguity averse DM more, as measured by the compensation they require to switch acts. Unlike more ambiguous (I), more ambiguous (II) does not require indiffrence of ambiguity neutral elements to the acts being compared. SEcond, we implement the abstract definitions to characterize more ambiguous (I) and (II) for two explicit preference families: a-maxmin expected utility and smooth ambiguity. Our characterization show that (the outcome of) a more ambiguous act is less robust to a perturbation in probability distribution governing the states. Third, the characterizations also establish important connections between more ambiguous and more informative as defined on statistical experiments by Blackwell (1953) and others. Fourthly, we give applications to defining ambiguity "in the small" and to the comparative statics of more ambiguous in a standard portfolio problem and a consmption-saving problem.
    Keywords: Ambiguity, Uncertainty, Knightian uncertainty, Ambiguity aversion, Uncertainty aversion, Ellsberg paradox, Comparative statistics, Single-crossing, More ambiguous, Portfolio choice, More informative, Information, Garbling.
    JEL: C44 D80 D81 G11
    Date: 2011

This nep-hpe issue is ©2011 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.