nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2021‒11‒29
ten papers chosen by
Erik Thomson
University of Manitoba

  1. Rawls and the economists: the (im)possible dialogue. By Herrade Igersheim
  2. Entrepreneurs “from within”? Schumpeter and the challenge of endogenizing novelty. By Remy Guichardaz; Julien Pénin
  3. O.M.W. Sprague (the Man Who “Wrote the Book” on Financial Crises) meets the Great Depression By Hugh Rockoff
  4. Major Streams in the Economics of Inequality: A Qualitative and Quantitative Analysis of the Literature since 1950s By Lima, Pedro G.; Teixeira, Pedro N.; Silva, Sandra T.
  5. Exercising Economic Sovereignty in Today's Global Financial World: The Lessons from John Maynard Keynes By Biagio Bossone
  6. Surreal Decisions By Eddy Keming Chen; Daniel Rubio
  7. La théorie monétaire moderne et ses faiblesses By François Facchini
  8. A Social-Psychological Reconstruction of Amartya Sen's Measures of Inequality and Social Welfare By Stark, Oded; Budzinski, Wiktor
  9. Rethinking Flow and Control Legal Models By Jean-Sylvestre Bergé
  10. On Some Problems of Using the Human Development Index in Economic History By Nicola Amendola; Giacomo Gabbuti; Giovanni Vecchi

  1. By: Herrade Igersheim
    Abstract: Although falling within the scope of political and moral philosophy, it is well known that A Theory of Justice has also had a great impact on economists. As such, Rawls put great emphasis on his desire to combine economics and philosophy, and particularly to deal with rational choice theory, notably and famously claiming that “the theory of justice is a part, perhaps the most significant part, of the theory of rational choice” (1971, 15). After the publication of A Theory of Justice, aspects of it came in for criticism – often very vehement – by economists such as Arrow (1973), Musgrave (1974), Harsanyi (1975) and later by Sen (1980). Rawls’s immediate answers (1974a,b in particular) showed that he first wanted to maintain a dialogue with the economists, but the later evolutions of his works (1993, 2001) clearly demonstrated that he had removed himself from the economic realm, returning to his initial philosophical territory in order to overcome the internal inconsistencies of A Theory of Justice. In this paper, by focusing extensively on the letter exchanges between Rawls and the economists before and after the publication of A Theory of Justice, I attempt to shed light on other (complementary) elements which can explain Rawls’s retreat from the realm of economics, and his progressive disenchantment regarding the possibility of a dialogue on equal footing between economists and philosophers.
    Keywords: Rawls, Sen, social justice, rational choice.
    JEL: B21 B31 D63
    Date: 2021
  2. By: Remy Guichardaz; Julien Pénin
    Abstract: The development of a dynamic model of endogenous economic change was a major challenge for Schumpeter throughout his academic career. With regard to this life-long objective, this work provides an explanation of why it was impossible for Schumpeter to offer a convincing endogenous theory of the emergence of novelty. We show that Schumpeter’s view of the apparition of pure novelty is centered around an individual and elitist dimension of entrepreneurship and an energetic and vitalist axiom of social change, which is by nature hardly compatible with endogenous evolution. Furthermore, our revisiting of the last writings of Schumpeter shows that, when it comes to the issue of the emergence of pure novelty, the impossibility persisted until his death. Contrary to the claim of some commentators, even the old Schumpeter remained stuck into an individualistic, elitist and energetic view of the generation of pure novelty.
    Keywords: Schumpeter; entrepreneur; economic evolution; endogenous change; innovation.
    JEL: B15 O3
    Date: 2021
  3. By: Hugh Rockoff
    Abstract: When the Great Depression struck the United States, Oliver M.W. Sprague was America’s foremost expert on financial crises. His History of Crises under the National Banking System is a frequently cited classic. Had he diagnosed a banking panic and called for an aggressive response by the Federal Reserve, it might have made a difference; but he did not. Sprague’s misdiagnosis had, I argue, two causes. First, the crisis lacked the symptoms of a panic, such as high short-term interest rates in the New York money market, which Sprague had identified from his studies of previous crises. Second, Sprague’s macro-economic ideas led him to conclude that an expansionary monetary policy would be of little help once a depression was underway. Sprague’s main concern was that abandoning the gold standard would intensify the crisis, a concern that led him to resign his position as advisor to the U.S. Treasury to protest Roosevelt’s gold policy.
    JEL: B2 N12 N2
    Date: 2021–10
  4. By: Lima, Pedro G. (University of Porto); Teixeira, Pedro N. (University of Porto); Silva, Sandra T. (University of Porto)
    Abstract: Since the late twentieth century there has been a growing interest in academic and political circles on inequality. In this paper, we develop a systematic analysis of the literature on this topic published in economic journals since the 1950s. This is done through an innovative approach that presents (i) an identification and characterization of the main streams of research about Inequality since the 1950s; (ii) the development of a new method of analysis that combines (ii-a) a quantitative bibliometric analysis using the VOSviewer software, which maps them into different clusters, (ii-b) a qualitative analysis, where we determine the main streams of research, based, not only on the content of each reference, but also on the context where they are cited, and provide context to the development of each cluster by analysing the most important journals, authors, and institutions. The analysis leads to the identification of seven clusters, each of them with several streams of research. Each of the clusters is characterized according to several aspects such as the journals where the contributions were published, the alma matres and academic affiliations of the authors, and the countries in which those authors are based. The leading journals and the dominant academic institutions are the same as found in economics broadly considered, but they vary from cluster to cluster. Among the authors that have had major influence in the development of this field of economic research, stand out Anthony Atkinson, Simon Kuznets, Michael Kalecki, and Thomas Piketty.
    Keywords: inequality, distribution of income, wealth, bibliometrics, Kuznets, Atkinson, Piketty, Kalecki
    JEL: B2 D31 E24
    Date: 2021–10
  5. By: Biagio Bossone (World Bank (US))
    Abstract: In this article, I argue that current macroeconomic models (both orthodox and heterodox), centered as they are on local agents or agencies, do not recognize the role that "global investors" play in determining the space for effective macroeconomic policies. I therefore argue that these important players must be placed at the center of macroeconomic analysis if we are to understand how macroeconomic policies really work in the global financial environment. The article describes the key characteristics of global investors, analyzes their power to determine the value at which public sector liabilities (money and debt) are traded on international markets and how this power affects policy effectiveness. Consequently, no country is truly sovereign in a globalized world and the government of every country is subject to an intertemporal budget constraint (IBC), although, of course, not all countries are equal and not all IBCs are equally binding: the IBCs are flexible and endogenous to the decisions of global investors but in any case, unavoidable. I conclude the article by arguing that the policy choices of countries in today's globalized financial environment would benefit from revisiting some of John Maynard Keynes's teachings, considering his in-depth knowledge of global financial markets and how they affect economies. of the countries.
    Keywords: economic sovereignty; exchange rates; global financial markets; global investors; macroeconomic policies; money; policy credibility; policy space; public debt
    JEL: E60 F62 F65 G15
    Date: 2021–11
  6. By: Eddy Keming Chen; Daniel Rubio
    Abstract: Although expected utility theory has proven a fruitful and elegant theory in the finite realm, attempts to generalize it to infinite values have resulted in many paradoxes. In this paper, we argue that the use of John Conway's surreal numbers shall provide a firm mathematical foundation for transfinite decision theory. To that end, we prove a surreal representation theorem and show that our surreal decision theory respects dominance reasoning even in the case of infinite values. We then bring our theory to bear on one of the more venerable decision problems in the literature: Pascal's Wager. Analyzing the wager showcases our theory's virtues and advantages. To that end, we analyze two objections against the wager: Mixed Strategies and Many Gods. After formulating the two objections in the framework of surreal utilities and probabilities, our theory correctly predicts that (1) the pure Pascalian strategy beats all mixed strategies, and (2) what one should do in a Pascalian decision problem depends on what one's credence function is like. Our analysis therefore suggests that although Pascal's Wager is mathematically coherent, it does not deliver what it purports to, a rationally compelling argument that people should lead a religious life regardless of how confident they are in theism and its alternatives.
    Date: 2021–10
  7. By: François Facchini (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Stephanie Kelton a vulgarisé la Théorie Monétaire Moderne (TMM). À l'occasion de la traduction française de son ouvrage Le mythe du déficit, François Facchini revient sur cette doctrine et expose un certain nombre de critiques qui lui ont été adressées.
    Date: 2021–09–21
  8. By: Stark, Oded (University of Bonn); Budzinski, Wiktor (University of Warsaw)
    Abstract: The Gini coefficient features prominently in Amartya Sen's 1973 and 1997 seminal work on income inequality and social welfare. We construct the Gini coefficient from socialpsychological building blocks, reformulating it as a ratio between a measure of social stress and aggregate income. We determine when as a consequence of an income gain by an individual, an increase in the social stress measure dominates a concurrent increase in the aggregate income, such that the magnitude of the Gini coefficient increases. By integrating our approach to the construction of the Gini coefficient with Sen's social welfare function, we are able to endow the function with a social-psychological underpinning, showing that this function, too, is a composite of a measure of social stress and aggregate income. We reveal a dual role played by aggregate income as a booster of social welfare in Sen's social welfare function. Quite surprisingly, we find that a marginal increase of income for any individual, regardless of the position of the individual in the hierarchy of incomes, improves welfare as measured by Sen's social welfare function.
    Keywords: measuring inequality, a social-psychological approach to the construction of the Gini coefficient, properties of the reconstructed Gini coefficient, Sen’s social welfare function, Sen’s social welfare function as a composite of a measure of social stress and aggregate income
    JEL: C43 D01 D31 D63 I31 P46
    Date: 2021–10
  9. By: Jean-Sylvestre Bergé (Université Côte d'Azur, France; CNRS, GREDEG)
    Abstract: In his 1978 lecture at the Collège de France on the theme of "Security, territory and population", Michel Foucault established a link between "circulation", "security" and "space". He depicted the approach to circulation in the 17th and 18th centuries, based on legal tools such as international agreements and national or local regulations, as the expression of a desire to secure flows in the different spaces (maritime and terrestrial). The objective of this article, intended for an interdisciplinary readership, is to counter this analysis by arguing that, for a certain number of major forms of circulation (release of greenhouse gases, spread of products and organisms of all kinds, pandemics, dissemination of information, movement of persons, data, capital, waste, etc.), mankind is living with an illusion of control. The question is no longer who controls what, but rather who is suffering the loss of control? To answer this question, we must rethink our traditional models of circulation and control. All sorts of a priori approaches to circulation can be discussed (magical, liberal, social, ontological, fundamental, modal). As for control, we must recognise that it is perennially exercised in an environment full of holes.
    Date: 2021–11
  10. By: Nicola Amendola; Giacomo Gabbuti; Giovanni Vecchi
    Abstract: We argue against the use of composite indices, such as the Human Development Index (HDI), in economic history. We show that the HDI can be interpreted as a formal representation of the analyst's ethical system. We support our claim by introducing a new class of paternalistic social welfare functions (Graaff 1957, Mas-Colell, 1995) which encompasses all the HDI formulas put forth by the literature. The theoretical framework is illustrated by an empirical investigation of the long-run evolution of Italians' living standards and civic liberties. We conclude that any history based on composite indices is one where both data and history play a minor role, if any.
    Keywords: Human development index; economic wellbeing; composite indices; living standards; CES; social welfare functions; Italy.
    Date: 2021–11–18

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