nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2014‒02‒15
ten papers chosen by
Erik Thomson
University of Manitoba

  1. Is There Room for 'Fear' as a Human Passion in the Work by Adam Smith? By Daniela Parisi
  2. Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It By Kakarot-Handtke, Egmont
  3. ‘Right Back Where We Started From’: from ‘the Classics’ to Keynes, and back again By Roy H Grieve
  4. Personnel Economics essay: Issues in Human Capital Theory, training and earnings of workers By Josheski, Dushko
  5. A note on empathy in games By Grohn, Jan; Huck, Steffen; Valasek, Justin Mattias
  6. Dynamics of Military Conflict: an Economics Perspective By Beckmann, Klaus; Reimer, Lennart
  7. Exchange in the Monetary Economy By Kakarot-Handtke, Egmont
  9. The Illusion of Consumer Sovereignity in Economic and Neoliberal Thought By Wolfgang Fellner; Clive L. Spash
  10. Reforming Finance; A Literature Review By Ton Notermans

  1. By: Daniela Parisi (Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore)
    Abstract: The sciences tell us that fears are physical feelings and mental emotions that play a key role in any society. Not many issues related to fear are explored by economists today. The aim of this paper is to go backwards through the history of economic thought, and examine if and how Adam Smith considered fear in his work: in effect, he devoted a great deal of attention to the concept of fear. This paper does not intend to cover the whole of the topic at hand as it would also be useful to investigate the connections between fear and all the other feelings that pervade Smith's thought.
    Keywords: Adam Smith, Human Passions, Fear, Sociology, Psychology, Neurosciences
    JEL: B12
    Date: 2014–01
  2. By: Kakarot-Handtke, Egmont
    Abstract: Krugman has recently revitalized IS-LM with a number of succinct analytical pieces on his blog. The reverberations were remarkable. Economists, however, are known often not grasp the full content of their own and, a fortiori, of others’ models. This happened to Keynes in the days of high theory and to Krugman in these days. Keynes applied a defect formalism, which is here replaced by objective-structural axioms. This yields the correct relationship between retained profit, saving, and investment which in turn makes it clear after the event that the IS-part of the IS-LM construct never could bear any substantive theoretical load.
    Keywords: new framework of concepts; structure-centric; axiom set; Hicks; Allais
    JEL: B59 E12 E13
    Date: 2014–02–11
  3. By: Roy H Grieve (Department of Economics, University of Strathclyde)
    Abstract: The purpose of this paper is to highlight the curiously circular course followed by mainstream macroeconomic thinking in recent times. Having broken from classical orthodoxy in the late 1930s via Keynes’s General Theory, over the last three or four decades the mainstream conventional wisdom, regressing rather than progressing, has now come to embrace a conception of the working of the macroeconomy which is again of a classical, essentially pre-Keynesian, character. At the core of the analysis presented in the typical contemporary macro textbook is the (neo)classical model of the labour market, which represents employment as determined (given conditions of productivity) by the terms of labour supply. While it is allowed that changes in aggregate demand may temporarily affect output and employment, the contention is that in due course employment will automatically return to its ‘natural’ (full employment) level. Unemployment is therefore identified as a merely frictional or voluntary phenomenon: involuntary unemployment - in other words persisting demand-deficient unemployment - is entirely absent from the picture. Variations in aggregate demand are understood to have a lasting impact only on the price level, not on output and employment. This in effect amounts to a return to a Pigouvian conception such as targeted by Keynes in the General Theory. We take the view that this reversion to ideas which should by now be obsolete reflects not the discovery of logical or empirical deficiencies in the Keynes analysis, but results rather from doctrinaire blindness and failure of scholarship on account of which essential features of the Keynes theory have been overlooked or misrepresented. There is an urgent need for a critical appraisal of the current conventional macroeconomic wisdom.
    Keywords: Keynes’s General Theory, ‘classical’ macroeconomics, involuntary unemployment, the AD/AS model
    JEL: B12 B22 E13
    Date: 2014–01
  4. By: Josheski, Dushko
    Abstract: In this paper the issues from the personnel economics has been investigated. The issues such as training of workers from Becker’s human capital theory and their association with the workers’ productivity. In the second part of the paper the issue of grooming has been investigated in relation with earnings for which there exist and it is presented empirical evidence. In the equation as regressors are also present Mincerian variables: age, marital status and others. Also the four puzzles in the empirical literature about the determinants of earnings has been investigated. And how the empirical literature helps in resolving them. --
    Keywords: Personnel economics,training,earnings,grooming
    JEL: M50 M52 M53
    Date: 2014–01–30
  5. By: Grohn, Jan; Huck, Steffen; Valasek, Justin Mattias
    Abstract: In this note we shall discuss a concept that - despite its prominence in both Hume (1739) and Smith (1759), its obvious relevance for social behavior, and its not so infrequent use in colloquial language - has never gained a foothold in economic theory: the concept of empathy. Specifically, we illustrate how some insights from the psychological literature on empathy can be incorporated into a standard utility framework, and demonstrate the potential interaction of beliefs and utility through the channel of empathy. -- In diesem Artikel diskutieren wir das Konzept der Empathie. Dieses konnte in der ökonomischen Theorie nie wirklich Fuß fassen, trotz seiner Bedeutung sowohl bei Hume (1739) als auch Smith (1759), seiner offensichtlichen Relevanz für soziales Verhalten und seines durchaus verbreiteten Gebrauchs in der Umgangssprache. Insbesondere zeigen wir, wie einige Erkenntnisse aus der psychologischen Literatur über Empathie in ein Standardkonzept von 'Nutzen' integriert werden können und demonstrieren die potenzielle Interaktion von Erwartungen und Nutzen über den Weg der Empathie.
    Keywords: Empathy,Belief Formation,Preferences
    JEL: D03 D83
    Date: 2014
  6. By: Beckmann, Klaus (Helmut Schmidt University, Hamburg); Reimer, Lennart (Helmut Schmidt University, Hamburg)
    Abstract: Using examples for each type of model, we consider dynamic games, differential games, and simulation as alternative ways of extending the standard static economic model of conflict to study patterns of conflict dynamics. It turns out that computational requirements and theoretical difficulties impose tight limits on what can be achieved using the first two approaches. In particular, we are unable to study dynamic military conflict as a series of ``battles'' that are resolved individually. A simulation study based on a new model of adaptive, boundedly rational decision making, however, is shown not to be subject to this limitation. Plausible patterns of conflict dynamics emerge, which we can link to both historical conflict and standard tenets of military theory.
    Keywords: conflict; dynamics; contest success functions; differential games; dynamic games; simulation; emergence of war
    JEL: C72 D74
    Date: 2014–01–30
  7. By: Kakarot-Handtke, Egmont
    Abstract: It is clear by now that pure exchange models are useless. For two reasons. First, because exchange is the other side of specialization in production, and, second, because a direct exchange of goods does not take place in the monetary economy. The decisive drawback of conventional exchange models, though, is that they cannot explain profit. Standard economics rests on behavioral assumptions that are expressed as axioms. The ultimate reason for the failure of conventional exchange theory is that human behavior and axiomatization are disjunct. Notable progress can be made by replacing the subjective-behavioral axioms by objective-structural axioms.
    Keywords: new framework of concepts; structure-centric; axiom set; consumption economy; specialization; exchange; profit
    JEL: B59 D46 D51
    Date: 2014–01–29
  8. By: Konstantin Yanovskiy (Gaidar Institute for Economic Policy); Sergey Shulgin (RANEPA)
    Abstract: In this paper we tested the hypothesis of the "political" basis for the "economic" rights. We constructed our own variables of political regimes' classification for years 1820-2000. We found significant positive interdependencies between the Democracy's indicators and Economic Growth. Protection of the Private property rights requires, first and foremost, due guaranties for the personal immunity as a key precondition. Power to arrest discretionary undermines any formal guaranties of private property, low taxation benefits etc. Personal immunity should be defended even for "unpleasant" person (say, H. Ford or W. Gates) or for the chieftains' challengers (to make "rights of the meanest … respectable to the greatest"). It means the free speech; religious freedom and other "political rights" should be respected. Democracy, as political competition system weakens governments' power to break personal freedoms and property rights.
    Keywords: : Rule of Law, Rule of Force, Personal Rights, Private Property Protection, Economic Growth
    JEL: P16 P50 N40 O43
    Date: 2013
  9. By: Wolfgang Fellner; Clive L. Spash
    Date: 2014
  10. By: Ton Notermans (Department of International Relations, Tallinn School of Economics and Business Administration, Tallinn University of Technology)
    Abstract: The almost consensual view on the global financial crisis is that it should be attributed to massive regulatory failure. Regulation is either argued to have failed in constraining an inherently instable financial system or to have provoked the crisis by means of inappropriate regulatory changes. Even though a core conclusion from the present crisis is that a microeconomic focus on financial stability does not suffice and will need to be complemented by macroprudential regulation, there is also widespread consensus that the crisis has demonstrated the need to strengthen the microprudential regulatory framework itself. This literature review focuses on the microeconomic aspects of financial regulation. It is built around three main questions: what exactly did the regulatory failure consists of? How was it possible for regulatory failure to emerge? What lessons have been drawn from the crisis? Not surprisingly, the consensus in the literature evaporates when looking for precise answers to these questions. The introductory section of the paper address two broader question; i.e. why financial firms should be subjected to tighter regulation than the rest of the economy and how financial instability may be defined and measured.
    Keywords: Banking Union, Corporate Governance, Credit Rating Agencies, Financial Sector Reform, Financial Stability, Household, Indebtedness, Microprudential Regulation, Shadow Banking, Sovereign Debt
    JEL: G01 G21 G24 G28 G32 G35
    Date: 2013–12–03

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