nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2021‒09‒20
thirteen papers chosen by
Erik Thomson
University of Manitoba

  2. William J. Baumol: Innovative Contributor to Entrepreneurship Economics By Henrekson, Magnus; Stenkula, Mikael
  3. How should we reconcile self-regarding and pro-social motivations? A renaissance of “Das Adam Smith Problem” By Gold, Natalie
  4. On the possibility of an anti-paternalist behavioural welfare economics By Thoma, Johanna
  5. James Buchanan: Clubs and Alternative Welfare Economics By Alain Marciano
  6. Expectations in past and modern economic theory By Richard Arena; Muriel Dal-Pont Legrand; Roger Guesnerie
  7. Narratives in economics By Michael Roos; Matthias Reccius
  8. Les Farinet, monnayeurs: liberté, vénalité, communauté By Jérôme Blanc
  9. The Neoclassical Theory of Aggregate Investment and its Criticisms By Daniele Girardi
  10. Surveillance capitalism – a new techno-economic paradigm? By Falch, Morten
  11. Artificial Intelligence in the Field of Economics By Steve J. Bickley; Ho Fai Chan; Benno Torgler
  12. Monetary Policy is not about Interest Rates; the Liquidity Effect and the Fisher Effect By Greenwood, John
  13. Reflecting on reflection: prospect theory, our behaviours, and our environment By Oliver, Adam

  1. By: Juan Acosta; Beatrice Cherrier (CNRS - Centre National de la Recherche Scientifique)
    Abstract: In this paper, we build on data on officials of the Federal Reserve System, oral history repositories, and hitherto underresearched archival sources to unpack the tortuous path toward crafting an institutional and intellectual space for postwar economic analysis within the Board of Governors of the Federal Reserve System. We show that growing attention to new macroeconomic research was a reaction to both mounting external criticisms against the Fed's decision-making process and the spread of new macroeconomic theories and econometric techniques. We argue that the rise of the number of PhD economists working at the Fed is a symptom rather than a cause of this transformation. Key to our story are a handful of economists from the Board of Governors' Division of Research and Statistics (DRS) who did not hold a PhD but envisioned their role as going beyond mere data accumulation and got involved in large-scale macroeconometric model building. We conclude that the divide between PhD and non-PhD economists may not be fully relevant to understand both the shift in the type of economics practiced at the Fed and the uses of this knowledge in the decision-making process. Equally important was the rift between different styles of economic analysis.
    Date: 2021
  2. By: Henrekson, Magnus (Research Institute of Industrial Economics (IFN)); Stenkula, Mikael (Research Institute of Industrial Economics (IFN))
    Abstract: William J. Baumol was one of the most prolific economists of his generation, analyzing a broad range of central economic issues addressing real problems of the world. In this essay, we present and critically evaluate Baumol’s research contributions in entrepreneurship economics and point to areas for future research. Baumol contributed an impressive number of important insights, increasing our understanding of entrepreneurship from both a macro and a micro perspective. He also devoted a large part of his writings to discussing public policy, linking his theoretical insights with policy issues in practice. His analyses are rooted in contemporary mainstream neoclassical economics, and one of his main objectives was to integrate the entrepreneur into this tradition. Today, Baumol is best known for his tripartite distinction between productive, unproductive, and destructive entrepreneurship and his associated idea that the institutional framework, “the rules of the game,” will determine how entrepreneurs allocate their time and effort across different—productive or unproductive—activities. An institutional environment that encourages productive entrepreneurship and spontaneous experimentation while disincentivizing unproductive activities becomes, through this insightful lens, the driving force of economic growth. As an economist, Baumol was knowledgeable and well acquainted with earlier scholars and their writings about entrepreneurship. Baumol’s writings were greatly inspired by Joseph Schumpeter’s views on entrepreneurship, and he made several attempts to formalize Schumpeter’s concept of the innovative entrepreneur. Baumol was in all senses an innovative contributor to entrepreneurship economics. His work has inspired the research community of entrepreneurship scholars, but like all great scientists, he also encountered criticism.
    Keywords: Entrepreneurship; Innovation; Institutions; Rent seeking
    JEL: B41 D02 J48 L26 L53 O31 Z10
    Date: 2021–09–10
  3. By: Gold, Natalie
    Abstract: “Das Adam Smith Problem” is the name given by eighteenth-century German scholars to the question of how to reconcile the role of self-interest in the Wealth of Nations with Smith’s advocacy of sympathy in Theory of Moral Sentiments. As the discipline of economics developed, it focused on the interaction of selfish agents, pursuing their private interests. However, behavioral economists have rediscovered the existence and importance of multiple motivations, and a new Das Adam Smith Problem has arisen, of how to accommodate self-regarding and pro-social motivations in a single system. This question is particularly important because of evidence of motivation crowding, where paying people can backfire, with payments achieving the opposite effects of those intended. Psychologists have proposed a mechanism for the crowding out of “intrinsic motivations” for doing a task, when payment is used to incentivize effort. However, they argue that pro-social motivations are different from these intrinsic motivations, implying that crowding out of pro-social motivations requires a different mechanism. In this essay I present an answer to the new Das Adam Smith problem, proposing a mechanism that can underpin the crowding out of both pro-social and intrinsic motivations, whereby motivations are prompted by frames and motivation crowding is underpinned by the crowding out of frames. I explore some of the implications of this mechanism for research and policy.
    Keywords: altruism; Das Adam Smith Problem; framing; institutions; markets; moral sentiments; motivation crowding; pro-sociality; self-interest; self-regard; trust
    JEL: J1
    Date: 2020–06–01
  4. By: Thoma, Johanna
    Abstract: Behavioural economics has taught us that human agents don’t always display consistent, context-independent and stable preferences in their choice behaviour. Can we nevertheless do welfare economics in a way that lives up to the anti-paternalist ideal most economists subscribe to? I here discuss Sugden’s powerful critique of most previous attempts at doing so, which he dubs the ‘New Consensus’, as appealing to problematic notions of latent preference and inner rational agency. I elaborate on a fundamental rethinking of the normative foundations of anti-paternalist welfare measurement that often remains implicit in the behavioural welfare economics literature Sugden discusses, but which is required to make these accounts minimally plausible. I argue that, if we go along with this rethinking, Bernheim and Rangel’s (2007, 2009) choice-theoretic framework withstands Sugden’s criticism. Sugden’s own, more radical proposal is thus under-motivated by his critique of the ‘New Consensus’.
    Keywords: behavioural economics; welfare economics; anti-paternalism; preference purification; choice
    JEL: N0
    Date: 2021–08–31
  5. By: Alain Marciano (MRE - Montpellier Recherche en Economie - UM - Université de Montpellier, UM - Université de Montpellier)
    Abstract: Buchanan did not write "An Economic Theory of Club" to complement Samuelson's analysis of public goods, but to develop a radically different, form of welfare economics – in which there is no social welfare function and individual utility functions cannot be "read" by external observers. It was the perspective Buchanan adopted to analyze the pricing of public goods and services, and from which he also envisaged clubs. The main feature Buchanan attributed to clubs was to implement a condition that made no sense in Samuelson's framework but that was crucial in Buchanan's and clubs made Samuelson's collective condition useless. Buchanan and Samuelson disagreed over the allocation of the costs of the public good on each individual. To Buchanan, it was by relying on individual's preferences. To Samuelson, by using a social welfare function. This has not much to do with the nature of the good, its "physical properties" to use Buchanan's words.
    Date: 2021–08–01
  6. By: Richard Arena (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015 - 2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur); Muriel Dal-Pont Legrand (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (... - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015 - 2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur); Roger Guesnerie (CdF (institution) - Collège de France)
    Date: 2021–04–01
  7. By: Michael Roos; Matthias Reccius
    Abstract: There is growing awareness within the economics profession of the important role narratives play in the economy. Even though empirical approaches that try to quantify economic narratives are getting increasingly popular, there is no theory or even a universally accepted definition of economic narratives underlying this research. First, we review and categorize the economic literature concerned with narratives and work out the different paradigms that are at play. Only a subset of the literature considers narratives to be active drivers of economic activity. In order to solidify the foundation of narrative economics, we propose a definition of collective economic narratives, isolating five important characteristics. We argue that, for a narrative to be economically relevant, it must be a sense-making story that emerges in a social context and suggests action to a social group. We also systematize how a collective economic narrative differs from a topic and from other kinds of narratives that are likely to have less impact on the economy. With regard to the popular use of topic modeling as an empirical strategy, we suggest that the complementary use of other canonical methods from the natural language processing toolkit and the development of new methods is inevitable to go beyond identifying topics and be able to move towards true empirical narrative economics.
    Date: 2021–09
  8. By: Jérôme Blanc (TRIANGLE - Triangle : action, discours, pensée politique et économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - IEP Lyon - Sciences Po Lyon - Institut d'études politiques de Lyon - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - CNRS - Centre National de la Recherche Scientifique)
    Abstract: On s'intéresse dans ce texte au trouble produit par le faux-monnayeur Farinet, non seulement sur l'authenticité de la monnaie, mais plus largement sur ce qu'elle est et ce qu'elle représente. Pour ce faire, on distingue la figure historique de Joseph-Samuel Farinet, qui émit des fausses pièces de vingt centimes dans les années 1870-80, et la figure littéraire de Maurice Farinet qui, sous le regard de son auteur Charles Ferdinand Ramuz aux prises avec les dérèglements monétaires du début des années 1930, émettait des pièces de vingt francs d'or plus pur que celui du gouvernement. Ce texte s'inscrit dans les réflexions sur les rapports entre économie et littérature avec la particularité d'une fiction fondée sur l'histoire mais qui en déborde. Il entend contribuer, par l'analyse de cette double figure contradictoire, aux conceptions institutionnalistes de la monnaie. C'est ainsi que Farinet permet de rendre compte à la fois du caractère vénal de l'activité de faux-monnayage, de la notion d'individu souverain, mais aussi des conditions de mise en circulation et d'usage de la monnaie en général où les rapports non marchands peuvent être déterminants.
    Keywords: communauté monétaire,souveraineté,fausse monnaie,Farinet
    Date: 2021
  9. By: Daniele Girardi (Department of Economics, University of Massachusetts Amherst (USA))
    Abstract: This paper surveys the neoclassical theory of aggregate investment and its criticisms. We identify four main strands in neoclassical investment theory: (i) the traditional Wicksellian model; (ii) the Fisherian ‘array-of-opportunities’ approach; (iii) the Jorgensonian model; (iv) the now prevailing adjustment cost models. We summarize each approach, discuss the main conceptual issues, and highlight similarities and differences between them. We also provide a systematic summary and discussion of the main criticisms that have been leveled at each of these models and highlight some unresolved theoretical issues.
    Keywords: investment, neoclassical theory, adjustment costs
    Date: 2021
  10. By: Falch, Morten
    Abstract: This paper look at surveillance capitalism as described in the book by Shoshana Zubof, and discuss whether surveillance capitalism represents a new stage of capitalist development. This is done by using the theory of techno-economic paradigms as a theoretical framework.
    Keywords: Surveillance Capitalism,Techno-economic paradigm,artificial intelligence,big data
    Date: 2021
  11. By: Steve J. Bickley; Ho Fai Chan; Benno Torgler
    Abstract: The history of AI in economics is long and winding, much the same as the evolving field of AI itself. Economists have engaged with AI since its beginnings, albeit in varying degrees and with changing focus across time and places. In this study, we have explored the diffusion of AI and different AI methods (e.g., machine learning, deep learning, neur al networks, expert systems, knowledge- based systems) through and within economic subfields, taking a scientometrics approach. In particular, we centre our accompanying discussion of AI in economics around the problems of economic calculation and social planning as proposed by Hayek. To map the history of AI within and between economic sub- fields, we construct two datasets containing bibliometrics information of economics papers based on search query results from the Scopus database and the EconPapers (and IDEAs/RePEc) repository. We present descriptive results that map the use and discussion of AI in economics over time, place, and subfield. In doing so, we also characterise the authors and affiliations of those engaging with AI in economics. Additionally, we find positive correlations between quality of institutional affiliation and engagement with or focus on AI in economics and negative correlations between the Human Development Index and share of learning-based AI papers.
    Keywords: Artificial Intelligence; Machine Learning; Economics; Scientometrics; Science of Science; Bibliometrics
    JEL: B40 N01 A14
    Date: 2021–09
  12. By: Greenwood, John (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)
    Abstract: The purpose of this paper is to clarify the relation between money and interest rates. In section 1, the author examines the empirical validity of Keynes’s claims for his liquidity preference theory by looking at the relation between changes in interest rates and changes in the quantity of money. In section 2, the author considers Irving Fisher’s findings. Fisher, whose studies had mostly preceded Keynes, had shown that over any longer-term horizon the relation between money and interest rates was exactly the reverse of Keynes’ hypothesis of short-term liquidity preference. A reconciliation is proposed that treats Keynes’ theory as a short-term, liquidity effect, and Fisher’s results, which incorporate the effect of inflation or inflation expectations, as the longer-term determinant of interest rates. In section 3, the author applies the resulting combined theory of the relation between money and interest rates to five case studies in recent decades: two from Japan, and one each from the Eurozone, the U.K. and the U.S. The conclusion is that interest rates are a highly misleading guide to the stance of monetary policy; it is invariably better to rely on the growth rate of a broad definition of money when assessing the stance of monetary policy
    Date: 2021–09
  13. By: Oliver, Adam
    Abstract: In a previously published article, I reported some tests of prospect theory’s reflection effect over outcomes defined by money and life years gained from treatment. Those results suggested qualified support for the reflection effect over money outcomes and strong support over longevity outcomes. This article reruns those tests while accounting for the intensity of individual risk attitudes, and, overall, show consistency with the reflection effect. However, I argue that these results do not necessarily offer support for the explanatory power of prospect theory. Rather, the results may be driven by evolved responses to circumstances that provoke perceptions of scarcity and abundance. Therefore, from an ecological perspective, behavioural patterns such as those that are consistent with the reflection effect, which, by extension, tend to be considered as erroneous or biased by most behavioural economists because they conflict with the postulates of rational choice theory, may not be unreasonable. Recognising as such is important when considering how behavioural insights ought to inform public policy design and implementation.
    Keywords: expected utility theory; prospect theory; reflection effect; risk intensity; risk sensitivity theory
    JEL: J1
    Date: 2021–09–13

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