nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2016‒07‒09
nine papers chosen by
Erik Thomson
University of Manitoba

  1. A Confusion of Capital in the United States By O'Sullivan, Mary
  2. A note on construction of a composite index by optimization of Shapley value shares of the constituent variables By Mishra, SK
  3. Entertaining Malthus: Bread, Circuses and Economic Growth By Rohan Dutta; David K Levine; Nicholas W Papageorge; Lemin Wu
  4. The Nature of Money in Modern Economy – Implications and Consequences By Al-Jarhi, Mabid
  5. Capabilities and Skills By Heckman, James J.; Corbin, Chase O.
  6. Slower Economic Growth and Subjective Well-Being in the Canadian Context: A Discussion Paper By Mike Pennock
  7. Doing it when others do: a strategic model of procrastination By Claudia Cerrone
  8. Monetary Policy with 100 Percent Reserve Banking: An Exploration By Prescott, Edward C.; Wessel, Ryan

  1. By: O'Sullivan, Mary
    Abstract: Thomas Piketty’s book, Capital in the Twenty-First Century, reopens fundamental questions about the role and rewards of capital that economists have never resolved. It does so by exploring the history of capital and derives much of its credibility from the evidence it marshals in defence of its claims. In this paper, I evaluate the basis for Piketty’s arguments by considering them in light of the history of US capitalism. I argue that it is extremely difficult to make economic sense of Piketty’s historical analysis of capital in the US in the 19th and 20th centuries. That is true, only in part, due to the distinctive choices he makes, compared to mainstream economists, in defining and measuring capital. Much more problematic, in fact, are theoretical commitments he shares with them that preclude an understanding of capital’s historical role and rewards in the US economy. Based on a discussion of several important features of US economic history, I have argued that such an understanding demands an historical analysis of capital, both productive and financial capital, in relation to the evolving social organisation of capitalism in the US.
    Keywords: History of capital, Capitalism, Capital theory, Theory of distribution, Finance capital, Productive capital
    JEL: B00 D20 D21 D24 D33 D92 E13 N00 O00
    Date: 2016
  2. By: Mishra, SK
    Abstract: This paper proposes a method to construct composite index, which is a linear combination of several variables, by deriving weights on the criterion of Shapley value (from cooperative game theory) that a constituent variable has in making the composite index. In practice it is found oftentimes that the most common method of principal component analysis has a tendency to ignore (or poorly weigh) those constituent variables that do not have strong correlation with the sister variables. This elitist nature of PCA forces a compromise upon the analyst’s desire and need to incorporate those weakly correlated (but theoretically and practically important) variables into the composite index. In that case, one must construct a composite index that is more inclusive in nature. The Shapley value based composite index meets that requirement.
    Keywords: Shapley value, Composite index, Principal Component Analysis, Inclusive indices, Global optimization
    JEL: C43 C61 C63 C71
    Date: 2016–07–02
  3. By: Rohan Dutta; David K Levine; Nicholas W Papageorge; Lemin Wu
    Date: 2016–06–22
  4. By: Al-Jarhi, Mabid
    Abstract: Reforming the contemporary monetary and financial system has come under the limelight with the onset of the last international financial crisis. Zarlenga and Poteat focus on the elimination of credit money and the return of the exclusive right of issuing money to the government as a key to reforming the system. In this comment, I argue that they are right, but reform should be wider and more comprehensive. My arguments are inspired by Al-Jarhi’s model of an Islamic monetary system (1981)
    Keywords: money, definition of money, monetary reform, Chicago Plan, Islamic economics, monetary policy, interest rate, seigniorage, Friedman's rule, information asymmetry, classical loan contract, Islamic finance
    JEL: E0 E19 E40 E42 E50 E52
    Date: 2016–05–10
  5. By: Heckman, James J. (University of Chicago); Corbin, Chase O. (Center for the Economics of Human Development (CEHD))
    Abstract: This paper discusses the relevance of recent research on the economics of human development to the work of the Human Development and Capability Association. The recent economics of human development brings insights about the dynamics of skill accumulation to an otherwise static literature on capabilities. Skills embodied in agents empower people. Enhanced skills enhance opportunities and hence promote capabilities. We address measurement problems common to both the economics of human development and the capability approach. The economics of human development analyzes the dynamics of preference formation, but is silent about which preferences should be used to evaluate alternative policies. This is both a strength and a limitation of the approach.
    Keywords: skills, capabilities, freedom, technology of skill formation
    JEL: D63 D04 D31 I31
    Date: 2016–06
  6. By: Mike Pennock
    Abstract: Most mainstream forecasts for national economies expect that mature nations such as Canada will experience a few decades of slower economic growth, relative to past rates. This was reflected in the recent long-term forecast for the Canadian economy by the Centre for the Study of Living Standards. This transition is due to underlying demographic factors which are slowing labour force growth as well as slower rates of labour force productivity. Although there is a consensus among forecasters about the inevitability of slower growth there is less consensus about the magnitude of the change. This model suggests that countries such as Canada could enter into a prolonged period of slower growth without pronounced negative consequences for population well-being if other contributors to well-being are both protected and mobilized to offset the impacts of slower income growth. The most serious threat to wellbeing that is associated with the slow-growth scenario is an expected increase in income inequality and household debt. Canada may be particularly vulnerable to these effects because it is entering a slow growth era with relatively high levels of inequality and household debt, relative to most other mature nations.
    Keywords: Economic Growth, National Income, Household Income, Economic Development, Well-Being, Prosperity, Social Progress, Canada, Income Distribution, Income Inequality, Income Growth, Household Debt, Unemployment, Government Expenditures, 2008 Recession
    JEL: I31 O10 O15 O16 N32
    Date: 2016–07
  7. By: Claudia Cerrone (Max Planck Institute for Research on Collective Goods)
    Abstract: This paper develops a strategic model of procrastination in which present-biased agents prefer to do an onerous task in the company of someone else. This turns their decision of when to do the task into a procrastination game – a dynamic coordination game between present-biased players. The model characterises the conditions under which interaction mitigates or exacerbates procrastination. Surprisingly, a procrastinator matched with a worse procrastinator may do her task earlier than she otherwise would: she wants to avoid the increased temptation that her peer's company would generate. Procrastinators can thus use bad company as a commitment device to mitigate their self-control problem. Principals can reduce procrastination by matching procrastinators with each other, but the efficient matching may not be stable.
    JEL: C72 C73 D03 D91
    Date: 2016–06
  8. By: Prescott, Edward C. (Federal Reserve Bank of Minneapolis); Wessel, Ryan (Arizona State University)
    Abstract: We explore monetary policy in a world without fractional reserve banking. In our world, banks are purely transaction institutions. Money is a form of government debt that bears interest, which can be negative as well as positive. Services of money are a factor of production. We show that the national accounts must be revised in this world. Using our baseline economy, we determine a balanced growth path for a set of money interest rate policy regimes. Besides this interest rate, the only policy variable that differs across regimes is the labor income tax rate. Within this set of policy regimes, there is a balanced growth welfare-maximizing regime. We show that Friedman monetary satiation without deflation is possible in this world. We also examine a set of inflation rate targeting regimes. Here, the only other policy variable that differs across regimes is the inflation rate.
    Keywords: 100 percent reserve banking; Money in production function; Interest rate targeting; Inflation rate targeting; Friedman monetary satiation
    JEL: E00 E40 E50 E60
    Date: 2016–06–22
  9. By: Alessandro Dafano (Università degli studi Roma Tre)
    Abstract: The aim of this paper is to highlight the intellectual influence of Keynes in the building of Italian econometrics and how our scholars tried to find a way out from the stagflation occurred in Italy during the Seventies. We have chosen two case studies: the model designed by PROMETEIA, the think tank belonging to the University of Bologna, and DYANMOD, the main model of Confindustria (Confederation of Italian Industries). Although the Keynesian thought crucially influenced their structure and functioning, they managed to explain also the oil-shock-induced supply side effects, showing an unexpected degree of innovation within Keynesian thought. Furthermore, these models were conceived to join the larger Project LINK by Lawrence Klein, in order to connect the economies of many OECD countries. Given our microeconomic foundations, the main conclusions traced by these models were the focus on balance of payments equilibrium, capital accumulation and public finance constraints, thus asking for economic policies that could guarantee growth and disinflation.
    Keywords: econometrics, oil shock, Lawrence Klein, John Maynard Keynes, neoclassical synthesis, Nino Andreatta, Guido Carli.
    JEL: B23 B31 E12 E65
    Date: 2016

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