nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2013‒11‒02
nineteen papers chosen by
Erik Thomson
University of Manitoba

  1. Did Keynes in the General Theory significantly misrepresent J S Mill? By Roy H Grieve
  2. In the Kingdom of Solovia: The Rise of Growth Economics at MIT, 1956-1970 By Mauro Boianovsky; Kevin D. Hoover
  3. Kantian Optimization: An Approach to Cooperative Behavior By John E. Roemer
  4. The Phillips Curve and the Tyranny of an Assumed Unique Macro Equilibrium By Richard G. Lipsey
  5. On the Existence of Mixed Strategy Nash equilibria By Pavlo Prokopovych; Nicholas C.Yannelis
  6. Equilibrium versus Process: A Confrontation between Mainstream and Austrian Ontology By Sandye Gloria-Palermo
  7. Mr. Keynes, the Classics and the new Keynesians: A suggested formalization. By Rodolphe Dos Santos Ferreira
  8. Weakly Continuous Security in Discontinuous and Nonquasiconcave Games: Existence and Characterization By Rabia Nessah
  9. Commitments, Intentions, Truth and Nash Equilibria By Schlag, Karl H.; Vida, Péter
  10. Group Conflicts. Where do we stand? By Kolmar, Martin
  11. An evolutionary view on social innovation and the process of economic change By Andreas Reinstaller
  12. Nominalism and Systemism: On the Non-Reductionist Nature of Methodological Individualism By Francesco Di Iorio
  13. Tit for Others' Tat Repeated Prisoner's Dilemma Experiments with Third-Party Monitoring and Indirect Punishment By Lisa Bruttel; Werner Güth
  14. Are Hermeneutics and the Austrian Approach Compatible? A Clarifying Analysis By Francesco Di Iorio
  15. MIT's Openness to Jewish Economists By E. Roy Weintraub
  16. Redemption and Depression By Kakarot-Handtke, Egmont
  17. Happy Peasants and Frustrated Achievers? Agency, Capabilities, and Subjective Well-Being By Carol Graham; Milena Nikolova
  18. Partnership and trust in gift-exchange games. By Benoît Chalvignac
  19. Justice Sociale: Hayek et Sen Face à Rawls. Une Proximité Méthodologique Inattendue By Claude Gamel

  1. By: Roy H Grieve (Department of Econimics, University of Strathclyde)
    Abstract: It has been alleged that J M Keynes, quoting in the General Theory a passage from J S Mill’s Principles, misunderstood the passage in question and was therefore wrong to cite Mill as an upholder of the ‘classical’ proposition that ‘supply creates its own demand’. We believe that, although Keynes was admittedly in error with respect to, so-to-say, the ‘letter’ of Mill’s exposition, he did not mislead readers as to the ‘substance’ of Mill’s conception. The purpose of this paper is to demonstrate that J S Mill did indeed stand for a ‘classical’ position, vulnerable to Keynes’s critique as developed in the General Theory. [This is a revised version of an earlier working paper: ‘Keynes, Mill and Say’s Law’, Strathclyde Papers in Economics, 2000/11]
    Keywords: Keynes and the 'classics'; John Stuart Mill; Say's Law
    JEL: B12 B22 B31 E32
    Date: 2013–10
  2. By: Mauro Boianovsky; Kevin D. Hoover
    Abstract: From its flow tide, fueled by the Cold War, to its ebbing with the anti-growth movement and the economic crises of the early 1970s, the “growthmen” of MIT stood at the center of the dominant field in macroeconomics. The history of MIT growth economics is traced from Solow’s seminal neoclassical growth model of 1956 through the stabilization of growth theory in the first graduate textbooks.
    Keywords: growth theory, development economics, MIT, Robert Solow, endogenous growth models, technical progress
    JEL: B2 B22 O4 O11 E12 E13
  3. By: John E. Roemer (Dept. of Political Science, Yale University)
    Abstract: Although evidence accrues in biology, anthropology and experimental economics that homo sapiens is a cooperative species, the reigning assumption in economic theory is that individuals optimize in an autarkic manner (as in Nash and Walrasian equilibrium). I here postulate a cooperative kind of optimizing behavior, called Kantian. It is shown that in simple economic models, when there are negative externalities (such as congestion effects from use of a commonly owned resource) or positive externalities (such as a social ethos reflected in individuals’ preferences), Kantian equilibria dominate Nash-Walras equilibria in terms of efficiency. While economists schooled in Nash equilibrium may view the Kantian behavior as utopian, there is some -- perhaps much -- evidence that it exists. If cultures evolve through group selection, the hypothesis that Kantian behavior is more prevalent than we may think is supported by the efficiency results here demonstrated.
    Keywords: Kantian equilibrium, Social ethos, Implementation
    JEL: D60 D62 D64 C70 H30
    Date: 2012–03
  4. By: Richard G. Lipsey (Simon Fraser University)
    Abstract: To make the argument that the behaviour of modern industrial economies since the 1990s is inconsistent with theories in which there is a unique ergodic macro equilibrium, the paper starts by reviewing both the early Keynesian theory in which there was no unique level of income to which the economy was inevitably drawn and the debate about the amount of demand pressure at which it was best of maintain the economy: high aggregate demand and some inflationary pressure or lower aggregate demand and a stable price level. It then covers the rise of the simple Phillips curve and its expectations-augmented version, which introduced into current macro theory a natural rate of unemployment (and its associated equilibrium level of national income). This rate was also a NAIRU, the only rate consistent with stable inflation. It is then argued that the current behaviour of many modern economies in which there is a credible policy to maintain a low and steady inflation rate is inconsistent with the existence of either a unique natural rate or a NAIRU but is consistent with evolutionary theory in which there is perpetual change driven by endogenous technological advance. Instead of a NAIRU evolutionary economies have a noninflationary band of unemployment (a NAIBU) indicating a range of unemployment and income over with the inflation rate is stable. The paper concludes with the observation that the great pre- Phillips curve debates of the 1950s that assumed that there was a range within which the economy could be run with varying pressures of demand, and varying amounts of unemployment and inflationary pressure, were not as silly as they were made to seem when both Keynesian and New Classical economists accepted the assumption of a perfectly
    Keywords: Natural rate of unemployment, NAIRU, NAIBU, inflation targeting, Phillips curve, evolutionary theory, equilibrium theory
    JEL: B22 E12 E31 E58 E61
    Date: 2013–10
  5. By: Pavlo Prokopovych (Kyiv School of Economics and Kyiv Economics Institute); Nicholas C.Yannelis (Department of Economics, Tippie College of Business, University of Iowa)
    Abstract: The focus of this paper is on developing geometric sufficient conditions for the existence of a mixed strategy Nash equilibrium for both diagonally transfer continuous and better-reply secure games. First, we show that employing the concept of diagonal transfer continuity in place of better-reply security might be advantageous when the existence of a mixed strategy Nash equilibrium is concerned. Then, we study equilibrium existence in better-reply secure games possessing a payoff secure mixed extension. With the aid of an example we show that such games need not have mixed strategy Nash equilibria. We provide some easily verifiable conditions for the mixed extension of a two-person game that is reciprocally upper semicontinuous and uniformly payoff secure to be better-reply secure.
    Keywords: Discontinuous game; Diagonally transfer continuous game; Better-reply secure game; Mixed strategy equilibrium; Transfer lower semicontinuity
    JEL: C65 C72
    Date: 2013–10
  6. By: Sandye Gloria-Palermo (GREDEG CNRS; University of Nice-Sophia Antipolis, France)
    Abstract: We confront mainstream and Austrian economics from a history of economic analysis point of view in order to identify the main reasons of their divergent interests on the concepts of, respectively, equilibrium and processes. The result of this confrontation attributes a decisive role to ontological considerations: mainstream central focus on equilibrium is the consequence of the adoption of specific mathematical tools. But the claim for a mathematical approach to economics is a doctrine that is independent from any study on the nature of the underlying economic system and real phenomena that are non-tractable are either reinterpreted in an amenable to reason form or are simply ignored. The choice of the tools determine the orthodox vision of the economic world as a closed system of interacting autonomous atoms. Austrians proceed exactly the other way round: ontological investigations are the starting point and as a consequence, they choose the relevant tools so to be coherent with their ontology where social reality is apprehended along an open processual view.
    Keywords: Mainstream, mathematical formalism, Austrian school, social ontology, mathematical constructivism
    JEL: B13 B53 C18
    Date: 2013–10
  7. By: Rodolphe Dos Santos Ferreira
    Abstract: The paper suggests a new Keynesian model of the General Theory. A reduced form entails a diagram with three curves relating employment and the real wage, which represent the two fundamental classical postulates and the principle of effective demand. This diagram illustrates better than IS-LM the generality of Keynes’s theory, clarifying the distinction of voluntary and involuntary unemployment. Other significant features are the role of the distribution of expected interest rates among heterogeneous agents, whether dispersed or concentrated, in shaping the LM curve, as well as the role of wage competitiveness constraints as a foundation of Keynes’s relative wage hypothesis.
    Keywords: Keynes’s model, involuntary unemployment, coordination failures, liquidity trap, relative wages.
    JEL: B22 E12
    Date: 2013
  8. By: Rabia Nessah (IESEG School of Management (LEM-CNRS))
    Keywords: Discontinuous games, nonquasiconcave games, pure strategy Nash equilibrium, weakly continuous security, pseudo upper semicontinuity, generalized payoff security, weakly reciprocal upper semicontinuity
    JEL: C72
    Date: 2013–06
  9. By: Schlag, Karl H.; Vida, Péter
    Abstract: Games with multiple Nash equilibria are believed to be easier to play if players can communicate. We present a simple model of communication in games and investigate the importance of when communication takes place. Sending a message before play captures talk about intentions, after play captures talk about past commitments. We focus on equilibria where messages are believed whenever possible. Applying our results to Aumann’s Stag Hunt game we find that communication is useless if talk is about commitments, while the efficient outcome is selected if talk is about intentions. This confirms intuition and empirical findings in the literature.
    Keywords: Pre-play communication; cheap talk; coordination.
    JEL: C72 D83
    Date: 2013–10–29
  10. By: Kolmar, Martin
    Abstract: This article summarizes the major findings from the economic and socio-biological theories of group conflicts and contrasts them with findings from sociology and social psychology, especially the relationship between group size and group success. The predictive power of some of the results of economic group-conflict models for behavior in laboratory experiments is relatively poor if one assumes that individuals are self-interested. One gets systematic overinvestment compared to the theoretical predictions, which points to the fact that other-regarding references may be an important explanatory variable. This conjecture is in line with findings in evolutionary biology, social psychology, and neuroscience that all point to a close link between the structure of individual preferences and group conflicts. In fact, the evidence suggests group conflicts were constitutive for the ability of individuals to cooperate, and that this willingness to cooperate evolved in the form of parochial altruism. Building on this idea, the last part of the essay builds a bridge between parochial altruism and social identities and traces the question how social identities are constructed and what this implies for the structure of group conflicts.
    Keywords: Group conflicts, Parochial altruism, Cooperation, Social identities
    JEL: D74 H41
    Date: 2013–10
  11. By: Andreas Reinstaller
    Abstract: The concepts social innovation and social entrepreneurship have gained considerable attention both in different fields of academic research and in the context of the development of economic and social policies. However, despite its wide-spread use there does not exist a unique or at least widely accepted agreement among scholars on its relevance and meaning. The principal aim of this paper is to work out a general framework for the analysis of social innovations borrowing key concepts from institutional economics, evolutionary (game) theory and the capabilities approach to welfare economics. Using these approaches we specify the elements that are core for the analysis of social innovation as well as secondary elements that are in the context of this concept and specific to particular manifestations of the phenomenon. While this attempt to clarify the concept of social innovation it is necessarily incomplete, we consider it to be a first necessary step to make them more operational for empirical research in social sciences but also for the design, implementation and assessment of policies to support social innovation. The final part of the paper discusses then how social innovation contributes to social and economic progress in general, and its potential contribution to industrial change more specifically.
    Keywords: Social innovation, instiutional change, economic development, industrial policy
    JEL: D02 O17 O43
    Date: 2013–10
  12. By: Francesco Di Iorio
    Abstract: This paper investigates the systemic nature of methodological individualism. According to widespread belief, the notion of autonomy of the actor that is defended by methodological individualism is mistaken because it is incompatible with the study of society in terms of its organized structure. We argue that this viewpoint must be rejected. In our opinion, it stems from confusion between ontological nominalism – the idea that superhuman collective entities do not exist – and reductionism. In contrast, we would argue that methodological individualism is a form of nominalist structuralism. Following Hayek, Popper and Boudon, we will maintain that methodological individualism is not incompatible with the reference to systemic and irreducible properties. As these authors stressed, the history of methodological individualism is full of examples of non-reductionist explanations that undermine the widespread theory of the equivalence between methodological individualism and reductionism. We will state, therefore, that the current debate about methodological individualism is often based on a caricature of the concept of methodological individualism that does not match its correct meaning. In addition, we will provide a criticism of the notion of “structural individualism” that is becoming increasingly popular among social scientists.
    Keywords: Methodological Individualism, Nomimalism, Structural Individualism, Hayek, Boudon
  13. By: Lisa Bruttel (University of Konstanz, Department of Economics); Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group)
    Abstract: Two pairs of two participants each interact repeatedly in two structurally independent but informationally linked Prisoner's Dilemma games. Neither pair receives feedback about past choices by their own partner but is fully informed about the choices by the other pair. Considering this as a four-person infinite horizon game allows for Folk-Theorem-like voluntary cooperation. We ask whether monitoring and indirect punishment with the help of others are comparable to direct monitoring and punishment in establishing and maintaining voluntary cooperation. The treatment effects we find are rather weak. Others' monitoring of own activities is only an insufficient substitute for direct observability.
    Keywords: prisoner's dilemma, monitoring, experiment
    JEL: C73 C91 D82 D84
    Date: 2013–10–18
  14. By: Francesco Di Iorio
    Abstract: This paper investigates the merging of the Austrian Approach and Hermeneutics under a new light. It defends a middle ground between the standpoint of the Austrian hermeneutists and that of their critics. The latter, especially Rothbard, considered hermeneutics to be incompatible with Austrian School because they confused hermeneutics with what Mises calls “polylogism”, i.e. with cognitive nihilism. Their view was incorrect, but their criticism of the Austrian hermeneutists was not completely unfounded. Austrian hermeneutists did not clearly separate what they called hermeneutics from the postmodernist epistemologies of authors such as Derrida, Kuhn, and Rorty. This article demonstrates that hermeneutics as intended by Gadamer, its greatest theorist, has nothing to do with postmodernism. It is a fallibilist theory of the objective truth in the sense of Popper. So it is compatible both with the Austrians’ antipolylogism and their methodological individualism.
    Keywords: Austrian School, Hermeneutics, Postmodernism, Gadamer, Popper
  15. By: E. Roy Weintraub
    Abstract: MIT emerged from “nowhere” in the 1930s to its place as one of the three or four most important sites for economic research by the mid-1950s. A conference held at Duke University in April 2013 examined how this occurred. In this paper the author argues that the immediate postwar period saw a collapse – in some places slower, in some places faster – of the barriers to the hiring of Jewish faculty in American colleges and universities. And more than any other elite private or public university, particularly Ivy League universities, MIT welcomed Jewish economists.
    Keywords: MIT, Jewish faculty, anti-Semitism, Samuelson
    JEL: B2 B22 O4 O11 E12 E13
  16. By: Kakarot-Handtke, Egmont
    Abstract: According to prevailing methodological criteria, standard economics is definitively refuted. Joan Robinson’s wake-up call “Scrap the lot and start again” has therefore lost nothing of its original freshness and urgency. Yet, how can the restart succeed? This inquiry builds on structural axioms. First, conceptual consistency is assured and the confusion about profit and income is dissolved. The question of interest is then how a recession or depression develops as the result of the normal functioning of the monetary economy. This involves the identification of positive feedback. A very effective mechanism consists of the circular interaction of profit and distributed profit.
    Keywords: new framework of concepts; structure-centric; axiom set; randomness; market clearing; budget balancing; consumption economy; investment economy; credit expansion
    JEL: B59 E32 E50
    Date: 2013–10–24
  17. By: Carol Graham (The Brookings Institution); Milena Nikolova (University of Maryland, College Park)
    Abstract: We explore the relationship between agency and hedonic and evaluative dimensions of well-being, using data from the Gallup World Poll. We posit that individuals emphasize one well-being dimension over the other, depending on their agency. We test four hypotheses including whether: (i) positive levels of well-being in one dimension coexist with negative ones in another; and (ii) individuals place a different value on agency depending on their positions in the well-being and income distributions. We find that: (i) agency is more important to the evaluative well-being of respondents with more means; (ii) negative levels of hedonic well-being coexist with positive levels of evaluative well-being as people acquire agency; and (iii) both income and agency are less important to well-being at highest levels of the well-being distribution. We hope to contribute insight into one of the most complex and important components of well-being, namely, people's capacity to pursue fulfilling lives.
    Keywords: agency, capabilities, subjective well-being
    JEL: I14 G18 O5
    Date: 2013–09
  18. By: Benoît Chalvignac
    Abstract: In this paper we extend the gift-exchange game setting to include a new experimental treatment where subjects are paired with the same partner for the whole game. We observe that the matching mode is more critical to cooperation levels than the contractual arrangement, and that trust-based contracts outperform incentive-based contracts when interaction is repeated within the same pair. In the partner setting, individual preferences seem only to be second-order determinants of cooperation levels and most subjects are highly responsive to others' cooperative choices. Our findings help explain the cooperation dynamics required for organizations to leverage their incentive structure and to endure.
    Keywords: Gift-exchange game; Trust; Cooperation; Informal organization.
    JEL: D2 D7 M2
    Date: 2013
  19. By: Claude Gamel (AMSE - Aix-Marseille School of Economics - Aix-Marseille Univ. - Centre national de la recherche scientifique (CNRS) - École des Hautes Études en Sciences Sociales [EHESS] - Ecole Centrale Marseille (ECM))
    Abstract: Par leur méthode d'approche de la justice sociale, Rawls, Hayek et Sen occupent chacun le sommet d'un triangle, où le " comparatisme " du dernier tient désormais à équidistance le " contractualisme " du premier et " l'évolutionnisme " du second (1). Lorsque la position du philosophe sert de point de repère, les deux économistes semblent toutefois développer des analyses curieusement assez proches : en dépit de conclusions fort éloignées (2), surgit une première convergence sur leur opposition de principe au contractualisme rawlsien (3). Plus fondamentalement, les démarches de Hayek et de Sen s'avèrent surtout comparables par leur pragmatisme (4). Que des résultats tout à fait opposés puissent être issus de méthodes aussi proches esquisse un paradoxe que de futures recherches devront encore étayer (5).
    Keywords: justice sociale; méthodes; contractualisme; évolutionnisme; comparatisme
    Date: 2013–10

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