nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2018‒12‒03
twelve papers chosen by
Erik Thomson
University of Manitoba

  1. The economics of justice as fairness By Abatemarco, Antonio; Stroffolini, Francesca
  2. If I Don’t Trust Your Preferences, I Won’t Follow Mine: Preference Stability, Beliefs, and Strategic Choice By Irenaeus Wolff
  3. Introduction to Michel Husson's 'Value and price: a critique of neo-Ricardian claims' By Freeman, Alan
  4. The effect of relative concern on life satisfaction: Relative deprivation and loss aversion By Martín Leites; Xavier Ramos
  5. Ninety years of publications in Economic History: evidence from the top five field journals (1927-2017) By Martina Cioni; Govanni Federico; Michelangelo Vasta
  6. Economics of disagreement -- financial intuition for the R\'enyi divergence By Andrei N. Soklakov
  7. Analyse scientométrique de la crise économique By Abdelghani Maddi
  8. Frank H. Knight on Uncertainty and Profit Manager versus Entrepreneur By Yasuhiro Sakai
  9. Was war falsch am Merkantilismus? By Spahn, Peter
  10. Book review: till time's last sand: a history of the Bank of England, 1694-2013 by David Kynaston By Goodhart, Charles
  11. Effects of monetary policy decisions on professional forecasters’ expectations and expectations uncertainty By Oinonen, Sami; Paloviita, Maritta; Viren, Matti
  12. Lessons from the money mania for money creation By Guo, Yanling

  1. By: Abatemarco, Antonio; Stroffolini, Francesca
    Abstract: In this paper, the authors challenge the common interpretation of Rawls' Theory of Justice as Fairness by showing that this theory, as outlined in the restatement (Rawls, Justice as Fairness: a Restatement, 2001), goes well beyond the definition of a distributive value judgment, in such a way as to embrace efficiency issues as well. A simple model is discussed to support our interpretation of the difference principle, by which inequalities are shown to be permitted as far as they stimulate a greater effort in education in the population, and so economic growth. To their knowledge, this is the only possibility for the inequality to be "bought" by both the most-, and above all, the least-advantaged individual as suggested by the difference principle. Finally, by recalling the old tradition of "universal ex-post efficiency", the authors show that a unique optimal social contract does not exist behind the veil of ignorance; more precisely, the sole set of potentially Rawls-optimal social contracts can be identified a priori, and partial justice orderings derived accordingly.
    Keywords: justice,Rawls,inequality,social contract
    JEL: D63 D31 J31
    Date: 2018
  2. By: Irenaeus Wolff
    Abstract: In contrast to standard theory, experimental participants often do not best-respond to their stated beliefs. Potential reasons are inaccurate belief reports or unstable preferences. Focusing on games in which participants can observe the revealed preferences of their opponents, this paper points out an additional reason for the lack of belief-action consistency. Whether a participant’s best-response—or a Nash-equilibrium—predicts her behaviour depends heavily on the participant believing in others’ preference stability. Believing in others’ preference stability fosters predictability because it is associated with a lower variance in the participant’s belief about her opponents’ actions, and low-variance beliefs entail more best-responding.
    Keywords: Preference stability, best-response, Nash-equilibrium, rational beliefs, public good, social dilemma, conditional cooperation, social preferences.
    Date: 2018
  3. By: Freeman, Alan
    Abstract: This is a prepublication version of the published article of the same name and should be cited as "Freeman, A. 2018. Introduction to Michel Husson's 'Value and Price: a critique of neo-Ricardian Claims' Capital and Class Vol 42, Issue 3, 2018, pp 509-516" Michel Husson originally published this landmark article in French as Manuel Perez (1980). It thus offers a new generation of Marx scholars a resource which academic Marxism has rejected, except for a minority tradition in which this article played a foundational role: the opportunity to understand, and grapple with, Marx’s own economics. This introduction aims to explain, to such new readers, the key role which Husson’s article played in advancing our understanding of Marx’s theory of value. It appeared nine years after Paul Samuelson (1971) pronounced Marx’s value theory a failure, and three years after English Marxist Ian Steedman (1977) formally endorsed this verdict. Husson set out the first, and in many ways the most comprehensive concise rebuttal of these claims.
    Keywords: Value, Marx, TSSI
    JEL: B14 B24 C00
    Date: 2017–09–14
  4. By: Martín Leites (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Xavier Ramos (Universitat Autónoma de Barcelona)
    Abstract: Income comparisons are important for individual well-being. We examine the shape of the relationship between relative income and life satisfaction, and test empirically if the features of the value function of prospect theory carry on to experienced utility. We draw on a unique dataset for a middle-income country, that allows us to work with an endogenous reference income, which differs for individuals with the same observable characteristics, depending on the perception error about their relative position in the distribution. We find the value function for experienced utility to be concave for both positive and, at odds with prospect theory, also negative relative income. Loss aversion is only satisfied for incomes that are sufficiently distant from the reference income. Our heterogeneity analysis shows that the slope of the value function differs across individuals who care differently about income comparisons, people with different personality traits, or social beliefs.
    Keywords: Life satisfaction, relative income, loss aversion, prospect theory
    JEL: D6 I31
    Date: 2017–12
  5. By: Martina Cioni; Govanni Federico; Michelangelo Vasta
    Abstract: The growing appeal of the long run perspective among economists and the fiftieth anniversary of the of the publication of the Conrad and Meyer article (1958), which signed the Cliometric Revolution, have attracted a lot of interest on the origin and the development of Economic history. This paper explores the evolution of the field with a new articulated database of all the 6,516 articles published in five journals (Economic History Review, Journal of Economic History, Explorations in Economic History, European Review of Economic History and Cliometrica) from their establishment to 2017. We show that these journals are the most important in the field, with a wide influence also outside it. Our main results are that the Cliometric Revolution took quite a long time to fully display its effects, which became evident only in the 1990s, when personal computer and software packages became available. Finally, as for the last two decades, we find that the process of integration of economic history into economics is, so far, slower than previously suggested and limited to US. On the other hand, the most striking and neglected change is the overall success of Continental European scholars within the field. Are these changes the harbinger of a new divergence between the two shores of the Atlantic with the rise of a new paradigm based on the “Historical economics” approach? It is too early to tell.
    JEL: N01
    Date: 2018–11
  6. By: Andrei N. Soklakov
    Abstract: Lack of accurate intuition is often cited as a scientific challenge, especially when interpreting probabilistic and statistical research. A popular technique for developing statistical intuition involves imagining a game of chance with well-defined financial outcomes. In 1956 Kelly used this technique to propose an intuitive interpretation of relative entropy [1]. He considered a growth-optimizing investor in a game with mutually exclusive outcomes (a "horse race") and showed that the rate of return expected by such an investor is equal to the relative entropy which measures disagreement between the investor's believed probabilities and the official odds. Effectively, Kelly showed that a growth-optimizing investor would expect on average to convert 1 bit of additional information into a 100% return on investment. Notwithstanding the mathematics, this interpretation has been vigorously criticized by Samuelson as dangerous on the grounds that most people are not growth-optimizing [2,3]. Here we show that a deeper connection between information and expected returns is in fact true. Relative to the Kelly information benchmark, variation in people's risk aversion does indeed cause a drop in expected returns. However, the amount of the drop is also information-driven: it is proportional to the absolute difference between the relative entropy and its celebrated generalization -- the R\'enyi divergence [4]. Given the widespread use of the R\'enyi divergence in science and engineering, and because financial returns are much easier to imagine, we expect our intuition to be useful in a broad range of fields. Financial intuition might also be useful in its own right as an instrument for raising financial support and accelerating the adoption of sound scientific developments.
    Date: 2018–11
  7. By: Abdelghani Maddi (Centre d'Economie de l'Université de Paris Nord (CEPN))
    Abstract: En s’appuyant sur les techniques de cartographie, en se basant sur l’analyse textuelle et l’analyse des réseaux de citations nous avons analysé le développement de la thématique de la crise économique. L’objectif est de montrer dans un premier temps les courants de pensée et les auteurs influents. Dans un second temps comprendre son évolution à travers le temps. Pour ce faire, nous avons extrait de l’interface du WOS en ligne l’ensemble des publications contenant le mot « crisis » dans les catégories disciplinaires « economics » et « business & finance ». Notre requête renvoie plus de 24000 publications. Nos résultats nous ont permis de montrer les différents courants de pensée dominant l’analyse de la crise économique ainsi que les auteurs les plus influents. L’analyse textuelle des termes présents dans les titres, résumé et mots-clés montre des changements majeurs dans la façon dont les économistes traitent le sujet. Désormais, une bonne partie des publications traitant la thématique de la crise économique cherche non pas à traiter les conséquences ou à proposer des solutions, mais plutôt prévoir l’avènement des crises à travers l’analyse des différents risques qui conduiraient à une crise. Nous avons montré également que cette thématique est très fortement dominée par la finance tant au niveau microéconomique que macroéconomique.
    Keywords: crise économique, analyse textuelle, bibliométrie, citations, références bibliographiques
    JEL: C63 D83 G00 C00
    Date: 2018–11
  8. By: Yasuhiro Sakai (Faculty of Economics, Shiga University)
    Abstract: This chapter aims to carefully discuss how Frank H. Knight, the "Grand Old @Man" of Chicago, dealt with uncertainty and profit, with special reference to manager versus entrepreneur. Frankly speaking, Knight was a sort of man in paradox, having a dualistic view and adopting an eclectic approach. In order to shed a new light on his life and work, we first argue that there possibly exist some traces of the great Knight in the words and deeds of Martin Bronfenbrenner, once one of Knight's students at Chicago. Then we focus on the distinction between risk and uncertainty. According to Knight, non-measurable uncertainty must radically be different from measurable risk: only uncertainty, but not risk, enables the entrepreneur to acquire true profit as its reward. In contrast to the manager who are doing just routine jobs every day, the entrepreneur dares to engage in new venturous activities, thus playing the central figure of the capitalist system. We live in the new age of uncertainty. The second Knight is urgently needed.
    Keywords: Frank H. Knight, Martin Bronfenbrenner, risk, uncertainty, manager, entrepreneur, profit, capitalist system
    Date: 2018–10
  9. By: Spahn, Peter
    Abstract: Mercantilist theories and policies in early capitalism have been criticized for confusing microeconomic and macroeconomic sources of wealth, for misunderstanding the benefits of free trade, and for overrating the role of money. This paper aims to reconstruct the rationality of mercantilism as an efficient strategy of economic development. It presents a critical assessment of David Hume's specie flow mechanism that counts as a major rebuttal of mercantilism and collects insights of early writers into the working of a monetary economy.
    Keywords: trade war,trade surplus,specie flow mechanism,bank reserves,development
    JEL: B1 F4 N1
    Date: 2018
  10. By: Goodhart, Charles
    JEL: F3 G3
    Date: 2018–12–01
  11. By: Oinonen, Sami; Paloviita, Maritta; Viren, Matti
    Abstract: In this paper, we examine how professional forecasters’ expectations and expectation uncertainty have reacted to the ECB’s interest rate decisions and non-conventional monetary policy measures during the period 1999-2017. The analysis makes use of a conventional dif-in-dif type set up with different time series tools. The results indicate that expectations have been sensitive to policy actions, but all forecasters’ reactions do not seem to follow the basic predictions of a standard New Keynesian model. Also the relationship between inflation and output forecasts does not seem to follow a Phillips curve type relationship. Moreover, short- and long term reactions to policy are often weakly related and of different sign. Interestingly, subjective forecast uncertainty measures are very sensitive to policy measures. Thus, there seems to be much heterogeneity in forecasters’ reactions to most policy decisions. All uncertainty measures, including long-term inflation uncertainty, have increased over time. This has to be taken into account when considering the anchoring of inflation expectations to the inflation target.
    JEL: E32 G02
    Date: 2018–11–20
  12. By: Guo, Yanling
    Abstract: The first attempt in the human history to consciously create money ended in a collapse in 1720, well-known as the money mania. This unfortunate start raises doubt on money creation as a whole such that today there are still voices questioning created money even though it is now indispensible for the world economy. But this misfortune also has the bright side in that it delivers an extensive example of risks which created money has to consider. In this paper, I review the central facts from the money mania and highlight lessons we can still learn from it.
    Keywords: money mania,money creation,convertible money,non-convertible money,John Law,risk
    JEL: B19 E40 E59 N23
    Date: 2018

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