nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2015‒05‒22
nine papers chosen by
Erik Thomson
University of Manitoba

  1. Adam Smith's Concept of Labour: Value or Measure? By Adolfo Rodriguez
  2. Aristotle versus Marx: Modes of Use, Use Value or Useful Object? By Adolfo Rodriguez
  3. Hayek’s Scientism Essay and the social aspects of objectivity and the mind By Diogo de Melo Lourenço
  4. Do spinoff dynamics or agglomeration externalities drive industry clustering? A reappraisal of Steven Klepper’s work By Boschma, Ron
  5. Essentials of Constructive Heterodoxy: Financial Markets By Kakarot-Handtke, Egmont
  6. On the Equilibrium and Welfare Consequences of 'Keeping up with the Joneses' By Gavrel, Frédéric; Rebiere, Therese
  7. Understanding the Politics of Perikles Around 450 BC. The Benefits of an Economic Perspective By Lyttkens, Carl Hampus; Gerding, Henrik
  8. Embracing European Social Sciences in Early Modern Asia By Dong-No Kim
  9. "Financing the Capital Development of the Economy: A Keynes-Schumpeter-Minsky Synthesis" By Mariana Mazzucato; L. Randall Wray

  1. By: Adolfo Rodriguez (Universidad de Costa Rica)
    Abstract: The terms employed by Smith to refer to value and measure of value are used in his time with imprecision, which has led to different interpretations about his position on these issues. It is no coincidence that Smith is considered the father of the theory of labour value developed by David Ricardo and Karl Marx and simultaneously of the cost-of-production theory developed by John Stuart Mill and Alfred Marshall. This note reviews the criticisms made by Ricardo and Marx on Smith’s position about value and measure of value. According to these authors, Smith is not consistent in proposing that value of a commodity is defined or measured as the amount of labour necessary to produce it and simultaneously as the amount of labour that can be purchased by this commodity. After demonstrating that the interpretation made by Ricardo and Marx on Smith’s arguments is wrong and that the criticized inconsistency does not really exist, I will argue that Smith proposes a labour theory of value that substantially corresponds to the one developed later by Marx.
    Date: 2014–06
  2. By: Adolfo Rodriguez (Universidad de Costa Rica)
    Abstract: In the first three pages of his Capital, without any warning to the reader, Marx introduces a modification of the traditional meaning of the term “use value”. For Locke, Quesnay, and Smith, “use value” was the ability of a thing to satisfy human needs, for Marx it becomes the thing itself. This change of meaning has not been properly perceived, and many authors continue to attribute to Marx the same conception of use value than his predecessors have. When Marx translates some passages of Aristotle’s Politics from English to German, his translation surprisingly attributes the term “use value” to Aristotle; worse, Marx does not attribute to Aristotle the predominant meaning of this term but the new meaning adopted by him. This note offers a brief history of the term “use value”, summarizes the significant change of meaning introduced by Marx, conjectures about the possible motivations of Marx to act this way, and finally documents the amazing translation of Marx.
    Date: 2014–11
  3. By: Diogo de Melo Lourenço (FEP-UP)
    Abstract: In his Scientism and the Study of Society, Hayek wishes to show the errors to which the moral scientist is led by emulating the methods of the natural sciences. The present paper argues that Hayek’s argument relies on a differentiation between the natural sciences and what he calls “ordinary experience” that is based on an unacceptable appearance-reality distinction and an implausible ontology. An alternative justification for the differentiation is offered by appealing to the manifold goals and social contexts of inquiry. Also, according to Hayek, the moral scientist needs to understand agents’ attitudes, and such understanding is possible because there is a similarity between the mind of the moral scientist and that of the agent. This paper tries to elucidate what Hayek thinks such similarity to be and how it may lead to the understanding of others. It proposes two alternatives: first, understanding as the projection of mental categories from behavioral evidence, and second, by looking forward to Hayek’s The Sensory Order, understanding as a functional correspondence between structures in the central nervous system.
    Keywords: Hayek, Scientism, The Sensory Order, Attitudes
    JEL: B31 B41 B53
    Date: 2015–05
  4. By: Boschma, Ron (CIRCLE, Lund University and Regional research centre Utrecht (URU), Utrecht University)
    Abstract: Klepper’s theory of industry clustering based on organizational reproduction and inheritance through spinoffs challenged the Marshallian view on industry clustering. The paper provides an assessment of Klepper’s theoretical and empirical work on industry clustering. We explore how ‘new’ his spinoff theory on industry clustering was, and we investigate the impact of Klepper’s theory on the economic geography community. Klepper’s work has inspired especially recent literature on regional branching that argues that new industries grow out of and recombine capabilities from local related industries. Finally, the paper discusses what questions on industry location are still left open or in need of more evidence in the context of Klepper’s theory.
    Keywords: Klepper; spinoff dynamics; agglomeration economies; Marshall; industry cluster; evolutionary economic geography
    JEL: B15 B52 O18 R11
    Date: 2015–05–14
  5. By: Kakarot-Handtke, Egmont
    Abstract: What stands before all eyes as failed Orthodoxy is ultimately caused by the wrong answer to Mill's Starting Problem. It is now pretty obvious that one cannot put utility maximization, equilibrium, well-behaved production functions, ergodicity or any other physical or psychological or sociological or behavioral assumption into the premises. No way leads from such premises to the explanation of how the actual market economy works. The logical consequence is to discard them. Having first secured a superior formal starting point, the present paper addresses the question of how the various types of financial markets emerge from the elementary monetary circuit.
    Keywords: new framework of concepts; structure-centric; Law of Supply and Demand; Profit Law; IOU; complementarity of retained profit and saving; securities; bonds; common stock; mortgages; consumer financing
    JEL: B49 B59 E19 G00
    Date: 2015–05–17
  6. By: Gavrel, Frédéric (University of Caen); Rebiere, Therese (CNAM, Paris)
    Abstract: This paper provides an analysis of the social consequences of people seeking to keep up with the Joneses. All individuals attempt to reach a higher rank than the Joneses, including the Joneses themselves. This attitude gives rise to an equilibrium in which all individuals have equal utilities but unequal (gross) incomes. Due to a rat-race effect, individuals devote too much energy to climbing the social scale in this equilibrium. However, laissez-faire equilibrium is an equal-utility constrained social optimum. Unexpectedly, numerical simulations show that this theory could account for the observed distribution of intermediate wages.
    Keywords: Keeping up with the Joneses, social interactions, well-being, inequalities, efficiency
    JEL: D3 D6 D8 I3 Z1
    Date: 2015–05
  7. By: Lyttkens, Carl Hampus (Department of Economics, Lund University); Gerding, Henrik (Department of Classical Archaeology and Ancient History, Lund University)
    Abstract: Perikles is usually seen as a great statesman and clever leader of the Athenians. In the mid fifth century BC, he seems however to have been in serious political trouble and may well have been in danger of losing the struggle for power and of being ostracised. The fact that his incentives changed considerably at this point in time is ignored in traditional historical accounts. In contrast, we see the fierce competition as a motivation for several important policy measures introduced by Perikles at this particular time: the pay to jurors, the new law on citizenship (which has been a puzzle to many historians), and the building projects on the Acropolis and elsewhere. Compared to traditional analyses, an economic rational-actor approach thus provides a diachronic analytical benefit by focusing on the way incentives change over time and it provides a synchronic benefit by dealing with various decisions in a common framework.
    Keywords: economics; ancient history; Athens; Perikles; law on citizenship; Parthenon; payment to jurors
    JEL: B40 N43
    Date: 2015–04–28
  8. By: Dong-No Kim (Yonsei University)
    Abstract: This paper analyzes why and how European social sciences were introduced in East Asian countries, especially China, Japan and Korea, during the early modern period. In the second half of the nineteenth century, East Asian intellectuals were eager to introduce Western social sciences to help overcome a national crisis they faced. To the extent that the crisis originated from internal deteriorations and external threats, they needed to find ways to transform their traditional political, economic and social systems into modern ones. Based on a perspective of evolutionism quite prevalent among East Asian intellectuals at that time, they believed that the competition among the nation-states could be determined by the consequences of modernization efforts. Although the slogans they adopted were heterogeneous, like zhongtixiyong in China, wakonyousai in Japan, and tongdosoki in Korea, they commonly implemented various measures to modernize their systems with the belief that the success of European states could be attributed to the modern institutions and techniques. One very effective way of modernizing the traditional systems in East Asia was to learn from the historical experiences of European countries and to introduce Western social sciences. East Asian intellectuals regarded European social sciences as the black box in which they could find the key secrete of European success. In this sense, they tried to make their nations strong and wealthy by studying European politics and economics as presented in various social science textbooks. Modern state formations and capitalist economy were the two key concepts they maintained in the attempts to modernize their countries. For instance, just as Japanese economics were dominated by liberalist economics and neo-historicism, respectively imported from Britain and Germany, these two trends ended up strongly influencing Chinese and Korean intellectuals. European economics taught East Asian intellectuals various ways to transform their economic structure: the implementation of national census, the construction of social infrastructures, the establishment of business firms, and the promotion of foreign trades. All these measures encouraged the introduction of modern capitalist economy in this area.
    Keywords: European social sciences, East Asia, modernization
    JEL: B10 B15 Z13
  9. By: Mariana Mazzucato; L. Randall Wray
    Abstract: This paper discusses the role that finance plays in promoting the capital development of the economy, with particular emphasis on the current situation of the United States and the United Kingdom. We define both "finance" and "capital development" very broadly. We begin with the observation that the financial system evolved over the postwar period, from one in which closely regulated and chartered commercial banks were dominant to one in which financial markets dominate the system. Over this period, the financial system grew rapidly relative to the nonfinancial sector, rising from about 10 percent of value added and a 10 percent share of corporate profits to 20 percent of value added and 40 percent of corporate profits in the United States. To a large degree, this was because finance, instead of financing the capital development of the economy, was financing itself. At the same time, the capital development of the economy suffered perceptibly. If we apply a broad definition--to include technological advances, rising labor productivity, public and private infrastructure, innovations, and the advance of human knowledge--the rate of growth of capacity has slowed. The past quarter century witnessed the greatest explosion of financial innovation the world had ever seen. Financial fragility grew until the economy collapsed into the global financial crisis. At the same time, we saw that much (or even most) of the financial innovation was directed outside the sphere of production--to complex financial instruments related to securitized mortgages, to commodities futures, and to a range of other financial derivatives. Unlike J. A. Schumpeter, Hyman Minsky did not see the banker merely as the ephor of capitalism, but as its key source of instability. Furthermore, due to "financialisation of the real economy," the picture is not simply one of runaway finance and an investment-starved real economy, but one where the real economy itself has retreated from funding investment opportunities and is instead either hoarding cash or using corporate profits for speculative investments such as share buybacks. As we will argue, financialization is rooted in predation; in Matt Taibbi's famous phrase, Wall Street behaves like a giant, blood-sucking "vampire squid." In this paper we will investigate financial reforms as well as other government policy that is necessary to promote the capital development of the economy, paying particular attention to increasing funding of the innovation process. For that reason, we will look not only to Minsky's ideas on the financial system, but also to Schumpeter's views on financing innovation.
    Keywords: Banker as Ephor of Capitalism; Capital Development; Finance; Global Financial Crisis; Innovation; Minsky; Schumpeter
    JEL: B5 B51 B52 G G1 G2 H6 L5 N1 O1 O2 O3 O4 P1
    Date: 2015–05

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.