nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2014‒12‒03
seventeen papers chosen by
Erik Thomson
University of Manitoba

  1. Ricardo the ‘Logician’ versus Tooke the ‘Empiricist’: on their different vital contributions to classical economics By Smith, Matthew
  2. Keynes, King's and Endowment Asset Management By David Chambers; Elroy Dimson; Justin Foo
  3. Gary Becker's Contributions in Health Economics By Soares, Rodrigo R.
  4. In Praise of Frank Ramsey's Contribution to the Theory of Taxation By Joseph E. Stiglitz
  5. Coarse correlated equilibria in an abatement game By Herve Moulin; Indrajit Ray; Sonali Sen Gupta
  6. The Evolution of Social Norms By H Peyton Young
  7. Giving a Second Chance to a Disadvantaged Player Resolves the Prisoner’s Dilemma By Nakajima, Tetsuya
  8. Building sustainability through greater happiness By Stefano Bartolini
  9. On the Ricardian Invariable Measure of Value: The General Possibility of the Standard Commodity By Kurose, Kazuhiro; Yoshihara, Naoki
  10. The Cambridge History of "Capitalism" By Peter Temin
  11. Federal Reserve Policy and Bretton Woods By Michael D. Bordo; Owen F. Humpage
  12. Nine views of the Phillips curve: Eight authentic and one inauthentic By James Forder
  13. The Price of Stability: The balance sheet policy of the Banque de France and the Gold Standard (1880-1914) By Guillaume Bazot; Michael D. Bordo; Eric Monnet
  14. Contractual Freedom and the Evolution of Corporate Control in Britain, 1862 to 1929 By Timothy W. Guinnane; Ron Harris; Naomi R. Lamoreaux
  15. Theocracy and Resilience Against Economic Sanctions By A. Naghavi; G. Pignataro
  16. Non-Legal-Tender Paper Money: The Structure and Performance of Maryland's Bills of Credit, 1767-1775 By Jim Celia; Farley Grubb
  17. Love Thy Neighbor: Religion and Prosocial Behavior By Heineck, Guido

  1. By: Smith, Matthew
    Abstract: David Ricardo (1772-1823) and Thomas Tooke (1774-1858) were contemporaries in the ‘golden era’ of English classical economics, along with Malthus, Torrens and McCulloch. The central figure in that era was undoubtedly Ricardo with his vital contributions to the ‘core’ analysis of value and distribution. By contrast, Tooke’s vital contributions were mainly to the empirical analysis of prices as well as to the theory of money and prices, the latter made well after Ricardo’s premature death in 1823. Whereas Ricardo can be characterized as the ‘Logician’, the supreme deductive thinker among classical economists; Tooke can be characterized as the ‘Empiricist’, the supreme inductive thinker among classical contemporaries. The purpose of this paper is to explore the relationship between these two economists with their very different approaches to economics and to compare their different but vital contributions to the development of classical economics. We first consider and show the path-making nature of Ricardo’s contribution to the development of the ‘core’ theory of value and distribution. The paper then considers Tooke’s banking school monetary theory, showing it to represent an outright rejection of Ricardo’s well established monetary theory. It is argued that Tooke’s monetary theory provides a more valuable and lasting contribution than Ricardo’s quantity theory of money to the modern development of classical economics. In the brief conclusion we reconcile the different contributions of these two economists to modern classical economics.
    Date: 2014–10
  2. By: David Chambers; Elroy Dimson; Justin Foo
    Abstract: Founded in 1441, King's College was one of Cambridge University's wealthiest Colleges, endowed with a vast agricultural portfolio. John Maynard Keynes was appointed bursar just after WWI and initiated a major reallocation to equities, an innovation at least as radical as the late 20th century commitment to illiquid assets by Harvard and Yale. Keynes initially pursued a market-timing approach to investment with mixed success and failed to anticipate the 1929 market crash. Thereafter, his switch to a patient buy-and-hold strategy allowed him to maintain his commitment to equities in the subsequent market slump, reflecting the natural advantages that accrue to long horizon investors. Keynes' innovations in endowment asset management, implemented over a dynamic period of capital market development and economic turbulence remain of great relevance to modern investors emerging from the Great Recession.
    JEL: B26 G11 G14 G23
    Date: 2014–09
  3. By: Soares, Rodrigo R. (Sao Paulo School of Economics)
    Abstract: This short essay reviews Gary Becker's contributions and influence in health economics. It was originally prepared for the collection of short papers in honor of Gary Becker that is scheduled to appear in the inaugural issue of the Journal of Demographic Economics.
    Keywords: Gary Becker, health, human capital
    JEL: I1 J1
    Date: 2014–10
  4. By: Joseph E. Stiglitz
    Abstract: Frank Ramsey's classic paper "A contribution to the theory of taxation" gave rise to the modern theory of optimal taxation. This paper traces the literature that grew out of Ramsey's 1927 paper and assesses which of its key insights has proven robust. Though the path breaking work of Peter Diamond and James Mirrlees showed that Ramsey's results could be generalized in some important ways, other work showed that the domain of applicability of Ramsey's original insights may be more limited: changes in assumptions about the set of feasible taxes (not allowing certain taxes, or allowing a progressive income tax or non-linear commodity taxes), and in particular about the taxation of pure rents, incorporating more explicitly distributional considerations, and/or recognizing the important ways in which our economy differs from the competitive model underlying Ramsey's analysis all change the optimal structure of commodity taxation in important ways.
    JEL: E62 H2 H21
    Date: 2014–09
  5. By: Herve Moulin; Indrajit Ray; Sonali Sen Gupta
    Abstract: We consider the well-analyzed abatement game (Barrett 1994) and prove that correlation among the players (nations) can strictly improve upon the Nash equilibrium payoffs. As these games are potential games, correlated equilibrium — CE — (Aumann 1974, 1987) cannot improve upon Nash; however we prove that coarse correlated equilibria — CCE — (Moulin and Vial 1978) may do so. We compute the largest feasible total utility and hence the efficiency gain in any CCE in those games: it is achieved by a lottery over only two pure strategy profiles.
    Keywords: Abatement game, Coarse correlated equilibrium, Efficiency gain
    JEL: C72 Q52
    Date: 2014
  6. By: H Peyton Young
    Abstract: Social norms are patterns of behavior that are self-enforcing at the group level: everyone wants to conform when they expect everyone else to conform.  There are multiple mechanisms that sustain social norms, including a desire to coordinate, fear of being sanctioned, signaling membership in the group, or simply following the lead of others.  This article shows how stochastic evolutionary game theory can be used to study the dynamics of norms.  We illustrate with a variety of examples drawn from economics, sociology, demography, and political science.  These include bargaining norms, norms governing the terms of contracts, norms of retirement, duelling, footbinding, medical treatment, and the use of contraceptives.  These cases highlight the challenges of applying the theory to empirical cases.  They also show that the modern theory of norm dynamics yields insights and predictions that go beyond conventional equilibrium analysis.
    Keywords: evolutionary game theory, equilibrium selection, stochastic stability
    JEL: C73 A12 O10
    Date: 2014–10–06
  7. By: Nakajima, Tetsuya
    Abstract: This note examines how the second chance, when provided to a disadvantaged player, can resolve the prisoner’s dilemma.
    Keywords: Prisoner’s dilemma, Noncooperative game, Second chance
    JEL: C70 C72 C73
    Date: 2014–10–31
  8. By: Stefano Bartolini
    Abstract: The current unsustainable growth of the world economy is largely a consequence of the crisis of social capital experienced by much of the world's population. Declining social capital leads the economies to excessive growth, because people seek economic affluence as compensation for the emotional distress and loss of resources caused by scarce social and affective relationships. To slow down economic growth requires an increase in social capital that is a fundamental contributor to happiness. From a wide range of possible approaches to increasing present happiness, this article suggests policies that would shift the economy to a more sustainable path. It focuses on a more politically sustainable set of proposals for a green ‘new deal’ than some of those currently under discussion.
    Keywords: Common good; environmentalism; ecologism; economic growth; green economy; happiness; negative endogenous growth; private affluence; social capital; social stress; well-being.
    JEL: A13 D63 D90 E20 F01 I31 O10 O40
    Date: 2014–11
  9. By: Kurose, Kazuhiro (Graduate School of Economics and Management, Tohoku University); Yoshihara, Naoki (The Institute of Economic Research, Hitotsubashi University)
    Abstract: The purpose of this paper is to examine the critical arguments made by Burmeister, Samuelson, and others, with respect to Sraffa (1960). In his arguments about the standard commodity, Sraffa assumed that a change in income distribution has no effect on the output level and choice of techniques, while those critics argue that interdependence among changes in income distribution, output level, and choice of techniques should be taken into consideration in the arguments on the invariable measure of value and the linearity of income distribution. Given this debate, the paper considers general economies with non-increasing returns to scale, where such interdependence is a universal feature, in which a generalisation of the standard commodity is defined. Moreover, it is shown that the generalised standard commodity can serve as an invariable measure of value even in those general economies. Finally, the paper also characterises the necessary and sufficient condition under which the linear functional relation of income distribution is obtained in those economies.
    Keywords: Ricardo’s invariable measure of value, Sraffa’s standard commodity, Linear relation of income distribution
    JEL: B51 D30 D51
    Date: 2014
  10. By: Peter Temin
    Abstract: This review essay of the two-volume Cambridge History of Capitalism (2014), edited by Larry Neal and Jeffrey G. Williamson, is divided into three parts. First, I describe three chapters from the second volume that I recommend for all economists to add depth to their understanding of the world economy today. Robert C. Allen analyzes the world distribution of income; Randall Morck and Bernard Yeung discuss the history of business groups; and Peter Lindert surveys private and public programs to help the poor. In each case, they analyze historical backgrounds that illuminate current issues. Second, I criticize the definition of capitalism used in these volumes as too expansive to be useful. I argue that this definition mars the essays in first volume by stimulating a fruitless search for capitalism in the millennium before the Industrial Revolution. Third, I describe the essays in this reference work starting from the most recent and ending with those about antiquity.
    JEL: N14 O57 P12
    Date: 2014–11
  11. By: Michael D. Bordo; Owen F. Humpage
    Abstract: During the Bretton Woods era, balance-of-payments developments, gold losses, and exchange-rate concerns had little influence on Federal Reserve monetary policy, even after 1958 when such issues became critical. The Federal Reserve could largely disregard international considerations because the U.S. Treasury instituted a number of stopgap devices—the gold pool, the general agreement to borrow, capital restraints, sterilized foreign-exchange operations—to shore up the dollar and Bretton Woods. These, however, gave Federal Reserve policymakers the latitude to focus on the domestic objectives and shifted responsibility for international developments to the Treasury. Removing the pressure of international considerations from Federal Reserve policy decisions made it easier for the Federal Reserve to pursue the inflationary policies of the late 1960s and 1970s that ultimate destroyed Bretton Woods. In the end, the Treasury’s stopgap devices, which were intended to support Bretton Woods, contributed to its demise.
    JEL: E5 N1
    Date: 2014–11
  12. By: James Forder
    Abstract: There is a widely believed but entirely mythical story to the effect that the discovery of 'the Phillips curve' was, in the 1960s and perhaps later, an inspiration to inflationist policy.  The point that this is a myth is argued in Forder, Macroeconomics and the Phillips curve myth, OUP 2014.  One aspect of the explanation of how that myth came to be widely believed is considered in this paper.  It is noted that the expression 'Phillips curve' was applied in a number of quite distinct and inconsistent ways, and as a result there was, by about 1980, an enormous confusion as to what that label meant.  This confusion, as well as the multiplicity of possible meanings, it is suggested, made the acceptance of the myth much easier, and is therefore part, although only part, of the story of its acceptance.
    Keywords: Phillips curve, expectations, Phillips curve myth
    JEL: B22 B29
    Date: 2014–09–18
  13. By: Guillaume Bazot; Michael D. Bordo; Eric Monnet
    Abstract: Under the classical gold standard (1880-1914), the Bank of France maintained a stable discount rate while the Bank of England changed its rate very frequently. Why did the policies of these central banks, the two pillars of the gold standard, differ so much? How did the Bank of France manage to keep a stable rate and continuously violate the "rules of the game"? This paper tackles these questions and shows that the domestic asset portfolio of the Bank of France played a crucial role in smoothing international shocks and in maintaining the stability of the discount rate. This policy provides a striking example of a central bank that uses its balance sheet to block the interest rate channel and protect the domestic economy from international constraints (Mundell's trilemma).
    JEL: E42 E43 E50 E58 N13 N23
    Date: 2014–10
  14. By: Timothy W. Guinnane; Ron Harris; Naomi R. Lamoreaux
    Abstract: British general incorporation law granted companies an extraordinary degree of contractual freedom to craft their own governance rules. In this paper we study the uses to which this flexibility was put by examining the articles of association written by three samples of companies from the late nineteenth and early twentieth centuries. We find that incorporators consistently wrote rules that shifted power from shareholders to directors, that the extent of this shift became greater over time, and that Parliament made little effort to restrain it. Although large firms were less likely to enact the most extreme provisions, such as entrenching specific directors for life, they too wrote articles that gave managers essentially unchecked power. These findings have implications for the literature on corporate control, for the "law-and-finance" argument that the common law was more conducive to financial development than the code-based systems of civil law countries, and for the debate on entrepreneurial failure in Britain during the late nineteenth and early twentieth centuries.
    JEL: G3 K22 N23 N24 N43 N44
    Date: 2014–09
  15. By: A. Naghavi; G. Pignataro
    Abstract: This paper provides a simply theory to explain the impact of sanctions on a regime's policies and behavior. Sanctions are generally put to strip the target country from its available rents and weaken the government's stance against growing discontent in the population. We show however that sanctions may give legitimacy to an incumbent government by influencing the optimal level of religious ideology provided by the state and further stabilizing its grip to power and rents. While in a good state of nature sanctions build resilience as long as religious ideology among the population is strong, at bad times they compel the target country to move towards ideological moderation. In a world of asymmetric information, the target country always finds it optimal to send an accurate signal in order to successfully convince the imposing side to lift sanctions and reach a win-win outcome.
    JEL: H10 Z12 P48 D74 D83
    Date: 2014–11
  16. By: Jim Celia; Farley Grubb
    Abstract: Maryland's non-legal-tender paper money emissions between 1765 and 1775 are reconstructed to determine the quantities outstanding and their redemption dates, providing a substantial correction to the literature. Over 80 percent of this paper money's current market value was expected real asset present value and under 20 percent was liquidity premium. It was primarily a real barter asset and not a fiat currency. The liquidity premium was positively related to the amount of paper money per capita in circulation. This paper money traded below face value only due to time-discounting and not depreciation. Past scholars have simply confused time-discounting with depreciation.
    JEL: E31 E42 E51 N11 N21 N41
    Date: 2014–09
  17. By: Heineck, Guido (University of Bamberg)
    Abstract: There is a long tradition in psychology, the social sciences and, more recently though, economics to hypothesize that religion enhances prosocial behavior. Evidence from both survey and experimental data however yield mixed results and there is barely any evidence for Germany. This study adds to this literature by exploring data from the German Socio-Economic Panel (SOEP), which provides both attitudinal (importance of helping others, of being socially active) and behavioral components of prosociality (volunteering, charitable giving and blood donations). Results from analyses that avoid issues of reverse causality suggest mainly for moderate, positive effects of individuals' religious involvement as measured by church affiliation and church attendance. Despite the historic divide in religion, results in West and East Germany do not differ substantially.
    Keywords: religion, prosocial behavior, Germany
    JEL: D64 Z12 Z13
    Date: 2014–09

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