nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2015‒03‒13
seventeen papers chosen by
Erik Thomson
University of Manitoba

  1. The institutions of Roman markets By Benito Arruñada
  2. Adam Smith, Watch Prices, and the Industrial Revolution By Morgan Kelly; Cormac Ó Gráda
  3. A Veblenian Articulation of the Monetary Theory of Production By Zdravka Todorova
  4. Keynes, the Pope and the IMF By Mark Hayes
  5. Frederic S. Lee’s Contributions to Heterodox Economics By Jo, Tae-Hee; Todorova, Zdravka
  6. Essentials of Constructive Heterodoxy: Profit By Kakarot-Handtke, Egmont
  7. George Orwell and the Incoherence of Democratic Socialism By Makovi, Michael
  8. Two Opposing Economic-Literary Critiques of Socialism: George Orwell Versus Eugen Richter and Henry Hazlitt By Makovi, Michael
  9. Dynamic Games under Bounded Rationality By Zhao, Guo
  10. Das zukünftige Verhältnis von Kapitalismus und Demokratie aus ökonomischer Sicht By Kirchgaessner, Gebhard
  11. An oddity property for cross-dual games By Christian Bidard
  12. Behavioral Economics: A Maverick Guide By Hugh Schwartz
  13. Bounded Rationality and Correlated Equilibria By Fabrizio Germano; Peio Zuazo-Garin
  14. Learning to Disagree in a Game of Experimentation By Alessandro Bonatti; Johannes Horner
  15. Doing good with other people’s money: an experiment on people's (un)willingness to grant others the freedom to choose By Fredrik Carlsson; Mitesh Kataria; Elina Lampi; Maria Vittoria Levati
  16. How Should One Measure Economic Insecurity? By Lars Osberg
  17. A bitter choice turned sweet: How acknowledging individuals' concern at having a low relative income serves to align utilitarianism and egalitarianism By Stark, Oded; Jakubek, Marcin; Martyna, Kobus

  1. By: Benito Arruñada
    Abstract: I analyze the basis of the market economy in classical Rome, from the perspective of personal-versus-impersonal exchange and focusing on the role of the state in providing market-enabling institutions. I start by reviewing the central conflict in all exchanges between those holding and those acquiring property rights, and how solving it requires reducing information asymmetry without endangering the security of property. Relying on a model of the social choice of institutions, I identify the demand and supply factors driving the institutional choices made by the Romans, and examine the economic circumstances that influenced these factors in the classical period of Roman law. Comparing the predictions of the model with the main solutions used by Roman law in the areas of property, business exchange and the enforcement of personal obligations allows me to propose alternative interpretations for some salient institutions that have been subject to controversy in the literature, and to conclude with an overall positive assessment of the market-enabling role of the Roman state.
    Keywords: property rights, enforcement, transaction costs, registries, Roman law, impersonal exchange, personal exchange, New Institutional Economics, Law and Economics.
    JEL: D1 D23 G38 K11 K12 K14 K22 K36 L22 N13 O
    Date: 2015–03
  2. By: Morgan Kelly (University College Dublin); Cormac Ó Gráda (University College Dublin)
    Abstract: Although largely absent from modern accounts of the Industrial Revolution, watches were the first mass produced consumer durable, and were Adam Smith’s pre-eminent example of technological progress. In fact, Smith makes the notable claim that watch prices may have fallen by up to 95 per cent over the preceding century; a claim that this paper attempts to evaluate. We look at changes in the reported value of over 3,200 stolen watches from records of criminal trials in the Old Bailey court in London from 1685 to 1810. Before allowing for quality improvements we find that the real price of watches in nearly all categories falls steadily by 1.3 per cent per year, equivalent to a fall of 75 per cent over a century, a rate considerably above the growth rate of average labour productivity in British industry in the early nineteenth century.
    Keywords: Watch prices, Adam Smith, Industrial Revolution
    JEL: N0
    Date: 2015–03–02
  3. By: Zdravka Todorova (Wright State University)
    Abstract: The artical presents a further articulation of the monetary theory of production inspired by the writings of Thorstein Veblen. Particularly I offer a formulation of the monetary theory of production as part of broader theorizing about social provisioning and the life process. This includes an analytical focus on non-commodities; an extension of the Veblenian dichotomy to non-market activities; discussion of Veblen's theory of social valuation in connection to monetary theory of production and class; delineation of as social process that constitute social provisioning and their commodity and non-commodity aspects. The goal is bridging the gap between monetary theory of production and analysis of 'the social'.
    Keywords: Monetary theory of production, Thorstein Veblen, capitalism, heterodox economics, social provisioning, class, political economy
    JEL: B15 B41 B52 B54 P16 Z13
    Date: 2015–03
  4. By: Mark Hayes (University of Durham)
    Abstract: This paper discusses Keynes’s surprisingly positive views on the medieval scholastic teaching on usury and draws upon his work to argue that the traditional view of usury (understood as the charging of rent for the use of money) as anti-social is well-founded. Keynes’s understanding of the nature of probability allows a clear distinction to be made between debt and equity finance which most economists dismiss. Rather than meriting remuneration, the demand for the security provided by money against an uncertain future imposes a social cost in one form or another. This proposition is illustrated with reference to the problems of the modern international financial and monetary system, specifically the role of deposit insurance and the obstacles to a renewed system of managed exchange rates, without which many regions appear doomed to enduring long-term austerity.
    Keywords: Interest, monetary system, commodity standard, deposit insurance
    JEL: E42 E52 G28
    Date: 2015–03
  5. By: Jo, Tae-Hee; Todorova, Zdravka
    Abstract: In this introduction we highlight Frederic Lee’s contributions to heterodox economics in terms of theory and community, which should be acknowledged and, more importantly, carried on by those who are concerned with the advancement of heterodox economics as an alternative critical theory to the status quo.
    Keywords: Frederic S. Lee, Heterodox Economics, Heterodox Microeconomics, Social Provisioning Process
    JEL: B0 B4 B5
    Date: 2015–02–24
  6. By: Kakarot-Handtke, Egmont
    Abstract: The goal of theoretical economics is to explain how the actual economy works. Since Adam Smith economists have consistently failed to clarify the nature and magnitude of overall profit. No economist, though, would deny that profit is an important phenomenon. Yet, obviously economists are still mired in utter confusion about the most fundamental concept of their discipline. Hence, in the strict sense, there is no valid economics. From all this follows for a methodologically ambitious Constructive Heterodoxy that the accustomed foundations of Orthodoxy have to be replaced. In technical terms this is what a paradigm shift is all about.
    Keywords: new framework of concepts; structure-centric; Structural Law of Supply and Demand; monetary profit; distributed profit; Law of Overall Profit; economic stability; positive feedback
    JEL: B59 E10
    Date: 2015–03–08
  7. By: Makovi, Michael
    Abstract: George Orwell's famous fictions, Animal Farm and Nineteen-Eighty Four were intended to advocate democratic socialism by portraying undemocratic forms of socialism as totalitarian. For Orwell, democracy was a political institution which would limit the abuse of power. But there are several problems with democratic socialism which ensure its failure. In Orwell's novel A Clergyman's Daughter, Orwell's views of economics and politics are inconsistent and conflicting in a way that ensures democratic socialism will not succeed on Orwell's terms. Democratic socialism in general is criticized according to F. A. Hayek's Road to Serfdom and John Jewkes's The New Ordeal by Planning, whose arguments differ crucially from those against market socialism by Andrei Shleifer and Robert W. Vishny. An economic analysis of the political institutions of democratic socialism shows that democratic socialism must necessarily fail for political (not economic) reasons even if nobody in authority has ill-intentions or abuses their power.
    Keywords: Orwell; Hayek; democratic socialism; market socialism; totalitarianism
    JEL: A12 B24 B25 B31 B51 B53 D70 I2 I20 J00 J20 J30 J47 P10 P20 P30 P50 Z11
    Date: 2015–02–27
  8. By: Makovi, Michael
    Abstract: Orwell's famous fictions, Animal Farm and Nineteen Eighty-Four criticized totalitarian forms of socialism from a Public Choice perspective, assuming that socialism would work as an economic system as long as the proper political institutions were in place to curb the potential for the abuse of power. This is contrasted with two novels by others who took the opposite approach: Richter's Pictures of the Socialistic Future and Hazlitt's Time Will Run Back. These two assumed that the political implementation of socialism would be perfect but that socialism would necessarily turn totalitarian because of the problem of economic calculation. These novels assumed away the Public Choice problem of institutions and the abuse of power and focused on the political implications of socialism as a purely economic system. Contrasting these two sets of novels shows how the Austrian and Public Choice schools criticize socialism in two entirely different ways.
    Keywords: Orwell; Richter; Hazlitt; democratic socialism; market socialism; totalitarianism
    JEL: A12 B24 B25 B31 B51 B53 D70 P11 P20 P30 Z11
    Date: 2015–02–27
  9. By: Zhao, Guo
    Abstract: I propose a dynamic game model that is consistent with the paradigm of bounded rationality. Its main advantages over the traditional approach based on perfect rationality are that: (1) the strategy space is a chain-complete partially ordered set; (2) the response function is certain order-preserving map on strategy space; (3) the evolution of economic system can be described by the Dynamical System defined by the response function under iteration; (4) the existence of pure-strategy Nash equilibria can be guaranteed by fixed point theorems for ordered structures, rather than topological structures. This preference-response framework liberates economics from the utility concept, and constitutes a marriage of normal-form and extensive-form games.
    Keywords: Dynamic Games,Bounded Rationality,Dynamical System, fixed point theorems,chain-complete partially ordered set,Coase theorem,impossibility theorem, Keynesian beauty contest,Bertrand Paradox, backward induction paradox
    JEL: C7 D5 D7
    Date: 2015–03–08
  10. By: Kirchgaessner, Gebhard
    Abstract: Whether democracy or capitalism should have normative priority depends on the philosophical point of view but also how both are defined. The more relevant perspective is, however, the positive one. Formally, politics dominate, but the economy often dominates de facto because political decisions against interests of powerful economic players might cause high societal costs. Since the downfall of the Iron Wall capitalism spread out much more than democracy. Future development might strongly depend on the development of the new authoritarian market economies: Can high growth continue while political rights are largely suppressed, or do they have to concede more and more to democratic rights in order to ensure further eco-nomic growth? One would like to see the latter one, but this is by no means sure.
    Keywords: Capitalism, Democracy, Economic Development, Market Economy
    JEL: H11 O10
    Date: 2015–02
  11. By: Christian Bidard
    Abstract: The parametric Lemke algorithm is used to show the existence of an odd number of solutions of a generalized bimatrix game in a certain domain. These solutions are classi?ed into two types according to the relative sign of two determinants. The British economist David Ricardo made an implicit use of that algorithm at the beginning of the nineteenth century.
    Keywords: Complementarity problems, Generalized bimatrix game, Oddity, Parametric Lemke algorithm, Ricardo.
    Date: 2015
  12. By: Hugh Schwartz (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: These are the notes from the first half of a course in behavioral economics offered in Uruguay in November 2014. This part of the course, entirely verbal, was aimed at outlining the essentials of behavioral economics. The principal assignments were from the second edition of Edward Cartwright’s Behavioral Economics. The second part of the course, taught by Dr. Martin Egozcue, is not included. It emphasized prospect theory, mental accounts and inter-temporal decision making, and featured substantial mathematical input.
    Keywords: behavioral economics, perception, heuristics, empirical verifications, prospect theory, visceral and emotional considerations
    JEL: C9 Y9 Z
    Date: 2014–12
  13. By: Fabrizio Germano; Peio Zuazo-Garin
    Abstract: We study an interactive framework that explicitly allows for non-rational behavior. We do not place any restrictions on how players can deviate from rational behavior. Instead we assume that there exists a lower bound p 2 [0; 1] such that all players play and are believed to play rationally with a probability p or more. This, together with the assumption of a common prior, leads to what we call the set of p-rational outcomes, which we define and characterize for arbitrary p 2 [0; 1]. We then show that this set varies continuously in p and converges to the set of correlated equilibria as p approaches 1, thus establishing robustness of the correlated equilibrium concept to relaxing rationality and common knowledge of rationality. The p-rational outcomes are easy to compute, also for games of incomplete information, and they can be applied to observed frequencies of play to compute a measure p that bounds from below the probability with which any given player is choosing actions consistent with payoff maximization and common knowledge of payoff maximization.
    Keywords: strategic interaction, correlated equilibrium, robustness to bounded rationality, approximate knowledge, incomplete information, measure of rationality, experiments
    JEL: C72 D82 D83
    Date: 2015–02
  14. By: Alessandro Bonatti; Johannes Horner (Cowles Foundation, Yale University)
    Abstract: We analyse strategic experimentation in which information arrives through fully revealing, publicly observable “breakdowns.” With hidden actions, there exists a unique equilibrium that involves randomization over stopping times. This randomization induces belief disagreement on the equilibrium path. When actions are observable, the equilibrium is pure, and welfare improves. We analyse the role of policy interventions such as subsidies for experimentation and risk-sharing agreements. We show that the optimal risk-sharing agreement restores the first-best outcome, independent of the monitoring structure.
    Keywords: Experimentation, Free-riding, Mixed strategies, Monitoring, Delay
    JEL: C73 D83 O33
    Date: 2015–03
  15. By: Fredrik Carlsson (Department of Economics, University of Gothenburg, Sweden); Mitesh Kataria (Department of Economics, University of Gothenburg, Sweden); Elina Lampi (Department of Economics, University of Gothenburg, Sweden); Maria Vittoria Levati (Department of Economics (University of Verona))
    Abstract: We augment a standard allocation experiment to investigate how preferences for an environmental project relate to the willingness to limit others' choices. We ask the allocator to choose his own donation level, a donation level for him and his group, and the minimum donation level for the group members (excluding the allocator). We find that donations dictated to the whole group are, on average, lower than individual donations and that this decrease is consistent with the expectations of what others would like to donate. Moreover, most allocators force the others to donate a positive, though low, amount. Thus, unlimited freedom of choice is rejected by the majority of the subjects.
    Keywords: Allocation decisions; Charitable giving; Social preferences; Freedom of choice
    JEL: C92 D64 D70
    Date: 2015–03
  16. By: Lars Osberg
    Abstract: People feel economically insecure when they perceive a significant hazard or danger looming in the future, which they are unable to insure against, avoid or ignore. While all OECD countries devote significant resources to mitigate economic insecurity, no consensus exists on the best way to measure it. The paper reviews the pros and cons of the main approaches proposed by the literature and identifies a number of criteria than an ideal measure of economic insecurity should satisfy. It advocates the construction of household level sub-indices for the hazards identified in the UN Universal Declaration of Human Rights (i.e. unemployment, illness, widowhood, disability and old age) and their aggregation to an over-all summary measure of economic insecurity, discussing what could be done with existing data and what additional information should be collected.
    Date: 2015–03–05
  17. By: Stark, Oded; Jakubek, Marcin; Martyna, Kobus
    Abstract: When individuals’ utility is a convex combination of their income and their concern at having a low relative income (the weights attached to income and to the concern at having a low relative income sum up to one), the maximization of aggregate utility yields an equal income distribution. This alignment of utilitarianism and egalitarianism is obtained for any number of individuals, and for general utility functions that are convex combinations of a power function of income and the concern at having a low relative income. The alignment can also hold when the weights sum up to a number different than one.
    Keywords: Utilitarianism, Egalitarianism, Social welfare maximization, Low relative income, Health Economics and Policy, Public Economics, H0, I0, I30, I31,
    Date: 2015–03

This nep-hpe issue is ©2015 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.