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on History and Philosophy of Economics |
| By: | William Lazonick (The Academic-industry Research Network) |
| Abstract: | Edith PenroseÕs 1959 book The Theory of the Growth of the Firm [TGF] provides intellectual foundations for a theory of innovative enterprise, which is essential to any attempt to explain productivity growth, employment opportunity, and income distribution. Properly understood, PenroseÕs theory of the firm is also an antidote to the deception that is foundational to neoclassical economics: The theory, taught by PhD economists to millions upon millions of college students for over seven decades, that the most unproductive firm is the foundation of the most efficient economy. The dissemination of this ``neoclassical fallacy`` to a mass audience of college students began with Paul A. SamuelsonÕs textbook, Economics: An Introductory Analysis, first published in 1948. Over the decades, the neoclassical fallacy has persisted through 18 revisions of Samuelson, Economics and in its countless ``economics principles`` clones. This essay challenges the intellectual hegemony of neoclassical economics by exposing the illogic of its foundational assumptions about how a modern economy functions and performs. The neoclassical fallacy gained popularity in the 1950s, during which decade Samuelson revised Economics three times. Meanwhile, Penrose derived the logic of organizational learning that she lays out in TGF from the facts of firm growth, absorbing what was known in the 1950s about the large corporations that had come to dominate the U.S. economy. Also, during that decade, the knowledge base on the growth of firms on which economists could subsequently draw was undergoing an intellectual revolution, led by the business historian, Alfred D. Chandler, Jr. He was engaged in the first stage of a career that would span more than a half century, during which Chandler documented and analyzed the centrality to U.S economic development of what he would come to call ``the managerial revolution in American business.`` In combination, the works of Penrose and Chandler form intellectual foundations for my own work on the Theory of Innovative EnterpriseÑan endeavor that has enabled me, as an economist, to recognize not only the profound importance of organizational learning for economic theory but also the illogic of the neoclassical theory of the firm for our understanding of the central institution of a modern economy, the business corporation. In this essay, I argue that the key characteristic of the innovative enterprise is fixed-cost investment in the productive capabilities of the companyÕs employees to engage in organizational learning. The purpose of this investment in organizational learning is to develop a higher-quality product than was previously available. When successful, the development of the higher-quality product enables the firm to capture a large extent of the market, transforming high fixed cost into low unit cost. The result is sustainable competitive advantage that enables the growth of the firm, contributing to the growth of the economy as a whole. I argue that to get beyond the neoclassical fallacy, economists have to stop relying on constrained-optimization methodology. Rather, they need to be trained in a ``historical transformation`` methodology that integrates history and theory. It is a methodology in which theory serves as both a distillation of what we have learned from the study of history and a guide to what we need to learn about reality as the ``present as history`` unfolds. |
| Keywords: | Theory of the firm, Penrosian learning, Chandlerian history, innovative enterprise, economic performance, Paul Samuelson, neoclassical fallacy, constrained optimization, historical transformation |
| JEL: | A2 B3 B4 D2 D4 D8 J3 L1 L2 M2 N8 O1 O3 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:thk:wpaper:111&r=all |
| By: | Etienne Farvaque (LEM - Lille économie management - LEM - UMR 9221 - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique); Frédéric Gannon (EDEHN - Equipe d'Economie Le Havre Normandie - ULH - Université Le Havre Normandie - NU - Normandie Université) |
| Abstract: | This paper uses network analysis to measure the positions and influences of two prominent academics, James M. Buchanan and Gordon Tullock, founders of public choice theory. First, we recount parallel accounts of their lives. Second, we provide a literature review and outline the standard centrality measures insisting on their relevance in assessing the two authors' roles in a given network. Third, we analyze their respective influences through the lens of network analysis by providing details on the publication records and, overall, co-authorship networks of the two scholars. We also explore their academic genealogy and show in particular that (i) Buchanan and Tullock's careers followed parallel paths and co-founded public choice theory and the journal of the same name, although the two had few common works; (ii) though being apparently very similar as to their centrality in the co-authoring network under scrutiny, their ego-networks were structured very differently, revealing diverse positions in the field and, thus, different influences on the discipline. |
| Keywords: | Buchanan,Tullock,Networks,Co-authorship,Dissertation students,Influence,Public Choice JEL Classification: A14,D85,I23 |
| Date: | 2020–02–11 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-02474745&r=all |
| By: | Sabiou M. Inoua (Economic Science Institute, Chapman University); Vernon L. Smith (Economic Science Institute, Chapman University) |
| Abstract: | This paper introduces and formalizes the classical view on supply and demand, which, we argue, has an integrity independent and distinct from the neoclassical theory. Demand and supply, before the marginal revolution, are defined not by an unobservable criterion such as a utility function, but by an observable monetary variable, the reservation price: the buyer’s (maximum) willingness to pay (WTP) value (a potential price) and the seller’s (minimum) willingness to accept (WTA) value (a potential price) at the marketplace. Market demand and supply are the cumulative distribution of the buyers’ and sellers’ reservation prices, respectively. This WTP WTA classical view of supply and demand formed the means whereby market participants were motivated in experimental economics although experimentalists (trained in neoclassical economics) were not cognizant of their link to the past. On this foundation was erected a vast literature on the rules of trading for a host of institutions, modern and ancient. This paper documents textually this reappraisal of classical economics and then formalizes it mathematically. A follow-up paper will articulate a theory of market price formation rooted in this classical view on supply and demand and in experimental findings on market behavior. |
| Keywords: | History of Economic Thought; Methodology of Economics; Microeconomic Theory; Experimental Economics |
| JEL: | B C D |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:20-11&r=all |
| By: | Maxim L. Pinkovskiy |
| Abstract: | My aim in the second post of this series on Thomas Piketty?s Capital in the Twenty-First Century is to talk about the economist?s research accomplishment in reconstructing capital-output ratios for developed countries from the Industrial Revolution to the present and using them to explain why wealth inequality will rise in developed countries. I will then provide a critical discussion of his interpretation of the history of capital in the developed world. Finally, I?ll end by discussing Piketty?s main policy proposal: the global tax on capital. |
| Keywords: | Piketty; depreciation; capital-output ratio |
| JEL: | E2 R3 N2 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:87046&r=all |
| By: | Robert J. Shiller (Cowles Foundation, Yale University) |
| Abstract: | The U.S. economic expansion since 2009 is the longest on record since 1854, according to the National Bureau of Economic Research Business Cycle Dating Committee. This paper seeks to understand this phenomenon better by looking at the time paths of popular narratives over this interval, of stories that people have been telling that offer clues into their economic behavior. Six constellations of narratives are studied, identiï¬ ed by keywords “Great Depression,†“secular stagnation,†“sustainability,†“housing bubble,†“strong economy,†and “save more.†|
| Keywords: | Economic fluctuations, Narratives, Stories, Great Depression, Secular stagnation, Sustainability, Housing bubble, Strong economy, Save more |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2223&r=all |
| By: | Rémy Guichardaz (BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique); Julien PÉnin (BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Although Schumpeter is widely acknowledged as a pioneer of the economic analysis of innovation and although the patent system occupies an important place today in this field of research, Schumpeter did not see patents as playing a key role for fostering innovation. He mentioned them only a couple of times, in passing, and never developed any scientific analysis of the patent system. In this paper, we propose an explanation of this blind spot based on three characteristics of Schumpeter's thought: first, entrepreneurs are largely motivated by non-monetary elements; second, they enjoy a first-mover advantage because imitation is difficult; third, Schumpeter viewed the innovation process as a relentless race in which firms are doomed to innovate in order to avoid disappearing. The Schumpeterian view of the economic process therefore largely reduces the economic importance of patents. |
| Keywords: | Patents,Schumpeter,innovation,incentives,creative destruction |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02437831&r=all |
| By: | John List |
| Abstract: | This review summarizes the historical place of the seminal contribution of Kahneman et al. (1990), from origins to theory to catalyst of an entire area of scholarship. This new literature has produced evidence both in concert with the original KKT conclusions as well as evidence refuting certain insights from KKT. The general theme of my summary is that even imperfect papers can have deep impact, both within and outside the academy; a lesson that today's critics should consider as young experimentalists continue to fight the tyranny of the top 5. |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:feb:natura:00687&r=all |
| By: | Yan Chen; Peter Cramton; John List; Axel Ockenfels |
| Abstract: | We review past research and discuss future directions on how the vibrant research areas of market design and behavioral economics have influenced and will continue to impact the science and practice of management in both the private and public sectors. Using examples from various auction markets, reputation and feedback systems in online markets, matching markets in education, and labor markets, we demonstrate that combining market design theory, behavioral insights, and experimental methods can lead to fruitful implementation of superior market designs in practice. |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:feb:artefa:00685&r=all |