nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2021‒01‒11
twelve papers chosen by
Erik Thomson
University of Manitoba

  1. David Ricardo, the Stock Exchange, and the Battle of Waterloo: Samuelsonian legends lack historical evidence By PARYS, Wilfried
  2. The Homo Economicus Under Experimental Attack By Schlicht, Ekkehart
  3. Populism, Liberalism and the Quest for Meaning and Community By Karlson, Nils
  4. The Easterlin Paradox By Easterlin, Richard A.; O’Connor, Kelsey J.
  5. Reasoning In versus About Attitudes: How Attitude Formation is Beyond Logic By Franz Dietrich; Antonios Staras
  6. The Circular Economy: an Ancient Term that Became Polysemic By Isabel Mendes
  7. Some reflections on the state of development economics in Asia By Hal Hill; Sisira Jayasuriya
  8. Time and Causality in the Social Sciences By Mouchart, Michel; Orsi, Renzo; Russo, Federica; Wunsch, Guillaume
  9. The Expert and The Charlatan: an Experimental Study in Economic Advice By Aristotelis Boukouras; Theodore Alysandratos; Sotiris Georganas; Zacharias Maniadis
  10. Models of Imperfect Public Choice By André de Palma; Gordon M. Myers; Yorgos Y. Papageorgiou
  11. Le libéralisme social demeure-t-il une alternative? By Jean-Luc Gaffard
  12. Strategic Analysis of Auction Markets By Wilson, Robert B.

  1. By: PARYS, Wilfried
    Abstract: Samuelson and numerous other authors have presented colourful stories about how David Ricardo became the richest economist in history. The Samuelsonian legends suggest that Ricardo was an extreme risk-taker, especially in the period of the Battle of Waterloo (June 1815), that he used inside information and market manipulation, and that his decision to retire was caused by his big “Waterloo profits” in 1815. The often-quoted Ricardo obituary in The Sunday Times suggested that Ricardo upon this single occasion “netted upwards of a million sterling”. After consulting relevant archival material in the Bank of England, the Guildhall Library and the Metropolitan Archives in London, the Ricardo Papers and the Sraffa Papers in Cambridge, I conclude that many tales on Ricardo lack historical evidence. To develop my criticism of some widespread narratives, it is first necessary to describe the specific position of Ricardo in the world of finance, especially with respect to the typical characteristics of the Stock Exchange in London during Ricardo’s business career. Already in 1795, two years after starting his own business there, Ricardo could afford a wealthy lifestyle. The Stock Ledgers in the Bank of England show how Ricardo quickly became one of the top dealers on the Stock Exchange, where his unusually large number of transactions as a jobber created considerable total profits, generated by multiplying a small average profit per day by a few thousand working days in his business career. Ricardo also served on various committees of the Stock Exchange, trying to improve its moral principles, and defending the interests of its members. Several examples show that his own standards at the Stock Exchange were much more integer than average. From 1806 on, Ricardo could participate in biddings for the large Loans of the British government, which was possible only for a few financiers of excellent moral and financial standing. Ricardo acted as the financially most important partner in a consortium that included John Barnes and James Steers. Sraffa and others have signalled the existence of an open detective problem about the name of the unknown fourth member in this consortium. To solve this problem, I draw attention to the Minutes of the Stock Exchange, some genealogical sources, the diaries of Joseph Farington, and a neglected 1806 letter from John Barnes to potential subscribers of the 1806 Loan. This leads to overwhelming evidence that the unknown fourth man is Charles Steers, a brother of James Steers. Ricardo was a co-contractor for seven big British Loans (1807, 1811, 1812, June 1813, November 1813, 1814, 1815) and a small Irish Loan (1807). All these Loans started with a positive premium. Ricardo made some big gains from several Loans, especially from 1812 on, when the Loans were large and profitable for him and for a few other top financiers. On these occasions Ricardo’s small or medium rates of profits on a large investment generated large total profits. His correspondence shows that he often preferred to sell a large part of his Loan share rather quickly, and that he was “contented” with the results of his cautious strategy, even when he noticed more profitable prices one or two weeks after his sales. Samuelson’s story about the extreme difference between Ricardo’s and Malthus’s attitude to risk in 1815 is exaggerated. I also show that, contrary to Sraffa’s and Heertje’s information, the 1815 Loan was taken by only two consortia, not four. Contrary to Samuelson’s claims, it is evident that Ricardo possessed no early information about the defeat of Napoleon at Waterloo. Otherwise it is inexplicable that Ricardo sold part of his Omnium at 3 to 5 percent premium, just before the premium rose further when the official news from Waterloo reached London. There is no archival evidence for legends about Ricardo’s “million of Waterloo profits” in 1815 or for strikingly similar myths about Nathan Mayer Rothschild. Probably the year 1813 also deserves special attention. In 1813 Britain borrowed much more than ever, £49 million, spread over a Loan in June and one in November. Both these 1813 Loans reached much higher maximum premiums than the Waterloo Loan of 1815. The sum of the profits of the two 1813 Loans might have encouraged Ricardo to start making plans in 1813 for his retirement. His Waterloo gains were a substantial bonus, but without this bonus Ricardo would not have changed his retirement plans. In the Appendix of my paper I present various relevant statistical tables. They form an essential part of my study, because the exact data are often ignored or misrepresented. For example, many authors reproduce the same wrong numbers for the critical years 1814-1815-1816, often due to errors in the statistical tables of the standard works by Mitchell (1988) and by Homer & Sylla (2005). I claim that the origin of these errors can ultimately be traced back to deficient tables in the Nash edition of Fenn’s Compendium of 1883, and I try to provide more reliable financial data by using the main newspapers and magazines from the early 19th century.
    Keywords: David Ricardo, Paul Samuelson, Piero Sraffa, London Stock Exchange, British Loans
    JEL: B12 B31 N23
    Date: 2020–12
  2. By: Schlicht, Ekkehart
    Abstract: For non-economists, it is often difficult to understand why economists place so much emphasis on the self-interest motive. It is obvious that people act out of a variety of motives - gratitude, anger, social obligation and many, many other motives. There are several reasons why economists still put the self-interest motive in the foreground. Three points of view seem particularly important: - homo economicus as a useful approximation - homo economicus as an ideal type - homo oeconomicus as as-if construction These justifications for the self-interest or homo-economicus assumption are briefly characterized.. It is explained why these justifications cannot be empirically disproved. Only their relevance can be questioned. Subsequently, the evolutionary point of view that underlies the as-if defense of homo economicus is radicalized and it is argued that it is appropriate to approach norm formation theoretically and experimentally from a psychological point of view.
    Keywords: behavioral economics; rational choice; evolutionary economics; anomalies; bounded rationality; institutional economics; norm erosion
    JEL: D9 B13 B15 D01
    Date: 2020
  3. By: Karlson, Nils (The Ratio Institute)
    Abstract: Liberalism is losing ground, while populist or even authoritarian nationalist regimes are on the rise. This paper argues that the causes of the decline are, at least partly, endogenous, that a narrow focus on economic efficiency and the successful critique of socialism and the welfare state have created an idea vacuum that has opened up for these illiberal tendencies. The conclusion is that a central challenge for liberalism is to offer a comprehensive idea and narrative about meaning and community that is not socialistic, conservative or nationalistic, but distinctly liberal, to counter these developments.
    Keywords: populism; liberalism; community; meaning; welfare state
    JEL: B53 B55 D63 H11 I38
    Date: 2020–12–23
  4. By: Easterlin, Richard A.; O’Connor, Kelsey J.
    Abstract: The Easterlin Paradox states that at a point in time happiness varies directly with income, both among and within nations, but over time the long-term growth rates of happiness and income are not significantly related. The principal reason for the contradiction is social comparison. At a point in time those with higher income are happier because they are comparing their income to that of others who are less fortunate, and conversely for those with lower income. Over time, however, as incomes rise throughout the population, the incomes of one's comparison group rise along with one's own income and vitiates the otherwise positive effect of own-income growth on happiness. Critics of the Paradox mistakenly present the positive relation of happiness to income in cross-section data or in short-term time fluctuations as contradicting the nil relation of long-term trends.
    Keywords: Easterlin Paradox,economic growth,income,happiness,life satisfaction,subjective well-being,long-term,short-term,trends,fluctuations,transition countries,less developed countries,developed countries
    JEL: I31 D60 O10 O5
    Date: 2020
  5. By: Franz Dietrich (CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Antonios Staras
    Abstract: One reasons not just in beliefs, but also in intentions, preferences, and other attitudes. For instance, one forms preferences from preferences, or intentions from beliefs and preferences. Formal logic has proved useful for modelling reasoning in beliefs-the formation of beliefs from beliefs. Can logic also model reasoning in multiple attitudes? We identify principled obstacles. Logic can model reasoning about attitudes. But this models the discovery of attitudes of (usually) others, not the formation of one's own attitudes. Beliefs are special in that reasoning in beliefs can follow logical entailment between belief contents. This makes beliefs the privileged target of logic, when applying logic to psychology.
    Date: 2020–11–25
  6. By: Isabel Mendes
    Abstract: Today, Circular Economy (EC) is a popular concept in the business and financial world, among academics, politicians and decision-making bodies, and governmental and non-governmental institutions. Since 2003 has been intensely produced and published academic and non-academic literature. But despite this growing enthusiasm - and as far as we know so far - there are topics related to EC that remain under discussion, perhaps because they have not yet been the subject of sufficiently clarifying and multidisciplinary analysis. In this article, we intend to contribute to the clarification of some of these topics. The topics were chosen according to the questions that were installed in the author's mind of this article as she reviewed the literature on EC (the scientific areas in which the author is included are Environment and Natural Resources Economics and Ecological Economy). The topics under discussion are as follows: 1) Neoclassical economists also use the EC concept; will this be equal to the current concept of EC? 2) Some authors have argued that EC is an entirely new concept; however, the circular functioning of the economy was already described by economists in the 18th century. In the end, we want to demonstrate: 1) That EC is a polysemic term; that is, although the EC of neoclassical economists is different from the current EC, both share a common root: circularity; 2) The term EC is not new because its genesis lies in the 18th century; 3) the current concept of EC is also not new, because it has been described since the 1960s; 4) What is truly new in today's EC is the recognition and internalization of its principles by the business and governmental worlds. To achieve our objective, we were based on the critical analysis of the literature, supported by the theoretical body of conventional neoclassical economics (micro and macro); Ecological and Environmental Economy; and the History of Economic Thought.
    Keywords: circular economy; circular model of monetary flows; circular throughput model; linear throughput model. JEL Classification: A13, O11, O13, O41, O44, Q01, Q50, Q57.
    Date: 2020–10
  7. By: Hal Hill; Sisira Jayasuriya
    Abstract: This paper reviews some salient aspects of the state of development economics, from the early post-war pioneers through the major 1989 Survey by Nicholas Stern, to contemporary experiences and lessons. The latter is illustrated with references to five South and Southeast Asian countries. While the techniques of economic analysis have become ever more sophisticated and the data bases larger and richer, significant analytical puzzles remain. The central question of why some countries perform well and others indifferently is still imperfectly understood. Because many factors – economic, political, institutional, as well as random events – shape countries’ development trajectories, country economic forecasting over the medium to longer run continues to be as much art as science.
    Keywords: development economics, history of economic thinking, Asia, Philippines, Cambodia, Sri Lanka, Thailand, Singapore
    JEL: B20 N15 O53
    Date: 2020
  8. By: Mouchart, Michel (Université catholique de Louvain, LIDAM/ISBA, Belgium); Orsi, Renzo; Russo, Federica; Wunsch, Guillaume (Université catholique de Louvain)
    Abstract: This article deals with the role of time in causal models in the social sciences, in particular in structural causal modeling, in contrast to time-free models. The aim is to underline the importance of time-sensitive causal models. For this purpose, it also refers to the important discussion on time and causality in the philosophy of science, and examines how time is taken into account in demography and in economics as examples of social sciences. Temporal information is useful to the extent that it is placed in a correct causal structure, and thus further corroborating the causal mechanism or generative process explaining the phenomenon under consideration. Despite the fact that the causal ordering of variables is more relevant for explanatory purposes than the temporal order, the former should nevertheless take into account the time-patterns of causes and effects, as these are often episodes rather than single events. For this reason in particular, it is time to put time at the core of our causal models.
    Keywords: Time ; Causality ; Social Sciences ; Demography ; Economics ; Structural Modeling ; Causal Mechanism
    Date: 2020–01–01
  9. By: Aristotelis Boukouras; Theodore Alysandratos; Sotiris Georganas; Zacharias Maniadis
    Abstract: How do people choose what economic advice to heed? We develop a set of validated multiple-choice questions on economic policy problems, to examine empirically the persuasiveness of expert versus populist advice. We define populism as advice that conforms to commonly held beliefs, even when wrong. Two (computerised) advisers suggest answers to each question, and experimental participants are incentivised to choose the most accurate adviser. Do participants choose the high-accuracy adviser (`the Expert'), or the low-accuracy one (`the Charlatan'), whose answers are designed to be similar to the modal participant's priors? Our participants overwhelmingly choose the Charlatan, and this is only slowly and partially reversed with sequential feedback on the correct answer. We develop Bayesian models to determine optimal choice benchmarks, but find that behaviour is best explained by a naive choice model akin to reinforcement learning with high inertia
    Keywords: Democracy, Economic Literacy, Expert Advice, Populism
    JEL: C91 A11
    Date: 2020–07
  10. By: André de Palma; Gordon M. Myers; Yorgos Y. Papageorgiou
    Abstract: We model public choice in a number of cases where a government, since it cannot design an optimal policy as a whole, resorts to a sequential, myopic approach; and which is not free of error. We use this framework to explore governmental budgeting and welfare economics. We develop various examples that clarify how the introduction of such subjective and imperfect characteristics affect predictions concerning public choice. We then provide a model which integrates bounds errors and systematic (astray) errors. We argue that bounds errors and astray errors are inextricably intertwined - some level of bounded rationality is required for astray errors to emerge. We further extend this model to explore information lobbying and other types of external pressure; and we show that choosing leaders with high ability to choose, or with Madison's wisdom to discern, is important, especially in the case of policy decisions concerning dangerous products (e.g. assault rifles) and environments (e.g. Covid 19).
    Keywords: Behavioural Economics, Public Choice
    JEL: D90 H11
    Date: 2020–12
  11. By: Jean-Luc Gaffard (OFCE - Observatoire français des conjonctures économiques - Sciences Po - Sciences Po)
    Date: 2020–11–23
  12. By: Wilson, Robert B. (Stanford University)
    Abstract: Robert B. Wilson delivered his Prize Lecture on 7 December 2020. He was introduced by Professor Tore Ellingsen.
    Keywords: Auctions;
    JEL: D44
    Date: 2020–12–07

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