nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2023‒07‒24
eight papers chosen by
Erik Thomson
University of Manitoba

  1. A Journey into Harold Hotelling's Economics By Marion Gaspard; Antoine Missemer; Thomas Michael Mueller
  2. What Went So Wrong in Economics By Jennings, Frederic
  3. A critique of Friedrich Hayek’s argumentation in favor of a productivity theory of interest By Renaud Fillieule
  4. Hugo Grotius on Exchange and Price By André Lapidus
  5. Toward a “Prodigious Revival of French Economics”? Allais, Debreu, and the Dead Loss Controversy (1943–51) By Raphaël Fèvre; Thomas Michael Mueller
  6. Adam Smith's Case Against the British Empire By William Coleman
  7. "Lemons for machines" and "cabbages into the sea": international economic and commercial relations between Italy, Germany, and Great Britain at the dawn of the Second World War By Alice Martini
  8. Macro’s Missing Link: The Unbridged Gap between Monetarism and the Wicksell Connection By David Laidler

  1. By: Marion Gaspard (TRIANGLE - Triangle : action, discours, pensée politique et économique - ENS de Lyon - École normale supérieure de 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, UL2 - Université Lumière - Lyon 2); Antoine Missemer (CNRS - Centre National de la Recherche Scientifique, CIRED - Centre International de Recherche sur l'Environnement et le Développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École des Ponts ParisTech - Université Paris-Saclay - CNRS - Centre National de la Recherche Scientifique); Thomas Michael Mueller (UP8 - Université Paris 8 Vincennes-Saint-Denis)
    Abstract: Harold Hotelling (1895-1973) was an important contributor to twentieth-century American economics, as evidenced by the many seminal results he left behind: the 'Hotelling law, ' the 'Hotelling rule, ' the 'Hotelling lemma' and so on. The overall thrust of his research and his way of conceiving mathematical economics, however, have so far received little attention. Based on a detailed examination of Hotelling's work and several collections of unpublished archival material, this article provides a thorough analysis of Hotelling's contribution to economics, including his academic career, his view of the role of mathematics in science, and his attachment to policymaking. The results are as follows. A self-taught economist in the 1920s, Hotelling built a research program that, despite apparently being highly technical, was primarily conceived as applied science to solve concrete social and economic issues. Mathematics was, for him, a toolbox to clarify the set of hypotheses behind any reasoning and to compare typical situations abstracted from observed facts. Hotelling's economics was oriented by a Georgist agenda, which explains some of his favorite topics and helps to place his theoretical results in historical context. In the end, although his research was not exempt from criticism, Hotelling appears as an outstanding figure in the history of twentieth-century economics. When we recall that he trained the greatest, from Kenneth J. Arrow to William Vickrey, we have an even better understanding of the importance of his legacy in contemporary economic analysis.
    Keywords: spatial competition, welfare, natural resources, mathematical economics, history of economic thought
    Date: 2023
  2. By: Jennings, Frederic
    Abstract: Abstract What went so wrong in economics started in 1939 with ‘The Hicksian Getaway, ’ where – after over ten years of debate assuming increasing returns – Hicks asserted decreasing returns as the basis for his competitive frame, dismissing any “useful analysis” of increasing returns. After winning the 1972 Nobel Prize for his 1939 work, Hicks (1977, pp. v-vii) apologized for ‘The Hicksian Getaway, ’ calling it “nonsense” and “an indefensible trick that ruined the ‘dynamics’ of Value and Capital.” After a series of failed attempts to integrate time into production theory, in 1958 Armen Alchian proposed a method to do so with nine propositions showing the relation of time to cost, which Julius Margolis (1960) extended into a horizonal theory of price. Jack Hirshleifer (1962) saw Alchian’s (1958) frame as a threat to neoclassical theory, declaring his aim as “rescuing the orthodox cost function.” ‘The Hirshleifer Rescue’ of decreasing returns was seamlessly folded into economics as a ‘proof’ that decreasing returns was “a general and universally valid law” of economics, according to Alchian (1968). The present paper debunks ‘The Hirshleifer Rescue’ to show the case for decreasing returns and competition rests on unfounded assertion, especially for all long-run analyses. The paper explores the implications of an increasing returns economy of complementarity and abundance in networks, with a case for efficient cooperation. The claims in Nicholas Kaldor’s papers are thus extended into an integral theory of planning horizons, as a formalization of Herbert Simon’s notion of bounded rationality. An increasing returns economics is a horizonal economics.
    Keywords: Keywords: increasing and decreasing returns to scale, rising and falling costs, time, knowledge, planning horizons, John Hicks, Jack Hirshleifer, Armen Alchian, Herbert Simon, Nicholas Kaldor
    JEL: B2 B21 B3 B31 B4 B41 B5 B52 D4 D40 D46 D5 D6 D62 L0 P0 Z1
    Date: 2023–06–20
  3. By: Renaud Fillieule (CLERSÉ - Centre Lillois d’Études et de Recherches Sociologiques et Économiques - UMR 8019 - Université de Lille - CNRS - Centre National de la Recherche Scientifique)
    Abstract: First in his paper «Utility Analysis and Interest» (1936) and then in two chapters of 'The Pure Theory of Capital' (1941), Hayek develops a model of the interest rate that combines productivity and time-preference in a graphical framework inspired by Fisher (1930). Hayek claims that his model supports a productivity explanation of interest, in which time preference plays no role at all or only a minor role. We show in this paper that the arguments he puts forward in favor of a productivity explanation do not prove his point at all, and that his neglect of the role of time preference remains therefore unjustified. The consequences for his model of fully taking time preference into account are then investigated.
    Abstract: D'abord dans son article "Utility Analysis and Interest" (1936) puis dans deux chapitres de 'The Pure Theory of Capital' (1941), Hayek développe un modèle du taux d'intérêt qui combine productivité et préférence temporelle dans un cadre graphique inspiré de Fisher (1930). Hayek affirme que son modèle va dans le sens d'une explication de l'intérêt par la productivité, dans laquelle la préférence temporelle ne joue aucun rôle ou seulement un rôle mineur. Nous montrons dans cet article que les arguments qu'il avance en faveur d'une explication par la productivité ne prouvent pas du tout son point de vue et que son rejet du rôle de la préférence temporelle reste donc injustifié. Nous étudions ensuite les conséquences pour son modèle d'une prise en compte adéquate de la préférence temporelle.
    Date: 2022–01–01
  4. By: André Lapidus (PHARE - Philosophie, Histoire et Analyse des Représentations Économiques - UP1 - Université Paris 1 Panthéon-Sorbonne)
    Abstract: This paper explores the way Grotius, in the chapter on contracts of the book from De Jure Belli ac Pacis (1625) where the causes of the birth of war are discussed, elaborated an original understanding of exchange and price which occupies an interesting position between the scholastic analysis where price was compared to a norm of just price and the later articulation, in classical economic thought, betweentypicallynatural prices and market prices. With Grotius, the issue was no longer the morality or sinfulness of the transaction, and not yet its exclusive economic concern, but its lawfulness. Drawing on Roman law, his starting point was a critical construction of a typology of acts from which he derived a normative analysis of exchange, which combined three types of equality, relating to information, to the absence of coercion and, finally, to the thing exchanged itself. The realisation of this equality in exchange first makes it possible to identify the legally acceptable price associated with it, a common price understood in an equivalent way by a socially recognised need that measures it or by the labour and expenses of the merchants. This legal acceptance then extends to transaction prices that may deviate from the common price, either because of variations in the tastes of the parties and in the scarcity of the good, or because, in the absence of a common judge, under the law of nations, of the agreement of the seller and buyer through a bargaining process made it acceptable.
    Keywords: Grotius, Price, Exchange, Contract
    Date: 2023–06–01
  5. By: Raphaël Fèvre (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - COMUE UCA - COMUE Université Côte d'Azur (2015-2019) - CNRS - Centre National de la Recherche Scientifique - UCA - Université Côte d'Azur); Thomas Michael Mueller (LED - Laboratoire d'Economie Dionysien - UP8 - Université Paris 8 Vincennes-Saint-Denis)
    Abstract: This article aims to trace the hitherto little-known controversy involving Maurice Allais, François Divisia, Harold Hotelling, and Gérard Debreu in the immediate postwar years. The controversy turned on "dead loss, " a measure of the maximum value of available surplus serving as a gauge of economic efficiency and social welfare. The protagonists argued about how it should be expressed mathematically, the hypothesis underpinning it, and its general significance. The paper draws heavily on unpublished materials (letters and notes) to unfold the different stages of the dead loss controversy and shows that it was driven by an intricate interlacing of technical advances in welfare economics with Allais's personal ambition to spearhead the revival of French economics. Eventually, this controversy (and the tense exchange between Allais and Debreu that came with it) proved a remarkable—although tacit—driving force behind Debreu's contributions of the early 1950s.
    Keywords: Maurice Allais, Gérard Debreu, Deadweight loss, Theoretical practice, Welfare economics
    Date: 2023
  6. By: William Coleman
    Abstract: The paper articulates Adam Smith's case that the British Empire is inimical to Great Britain's interest. It is argued, contrary to Smith, that under the structure of global trade that prevailed prior to the Industrial Revolution, the mercantilist restrictions on trade and capital movement that characterised the British Empire increased Britain's national income. But it is also argued, in agreement with Smith, that the military costs of enforcing these restrictions outweighed any benefit. Smith's 'cost of enforcement case' against the Empire rightly resonated among liberal critiques of Empire in the century after Smith. His proposals for political union to succeed the Empire were distorted by Imperial Federationists in the early 20th c.
    Keywords: Adam Smith; British Empire; Mercantilism; Imperial Federation
    Date: 2023–07
  7. By: Alice Martini
    Abstract: The work offers a reassessment of some aspects of the economic and commercial relations between Italy, Germany, and Great Britain from the 1930s to 1940, using files from several archives of those states. Its purpose is to offer a reinterpretation that leads to a comprehensive understanding of the political and diplomatic dynamics that led to the creation of the Axis (1936), to that of the Pact of steel (1939), to the British decision not to "buy" Italian neutrality (1939-40) and to the entry of Italy into the Second World War (1940). The paper focuses also on the interactions between economic and commercial policies with international and foreign politics, allowing to shed new light on whether and to what extent the latter were influenced by the first ones and/or vice versa. The relation between economic and political elements was in fact tackled in two very different ways by Germany and Italy, on the one hand, and Great Britain, on the other. While London never 'downgraded' the economic aspects in the relations it built with Italy, the fascist regimes, even in the relations between themselves, could, in a specific moment, give full priority to politics, complying with their boasted-about beliefs.
    Keywords: Anglo-Italian-German relations, Economic war, Political-commercial relations, Maritime blockade
    JEL: N40 N44
    Date: 2023–06–01
  8. By: David Laidler (University of Western Ontario)
    Abstract: Modern mainstream macroeconomics treats the economy “as if†always in equilibrium. Two older traditions, Monetarism and the Wicksell Connections have always dissented, arguing that how agents gather information and apply it to the coordination of their activities are prior problems requiring attention before equilibrium can, or cannot, be assumed. They have developed the implications of this claim along different lines, however, with the former dealing with questions raised by the existence of monetary exchange in general and the latter concentrating in particular on inter-temporal issues. This gap has persisted since Wicksell opened it up, and has never been satisfactorily bridged: why?
    Keywords: Wicksell, monetarism, information, coordination, equilibrium
    JEL: B13 B22 D50 D80 E10
    Date: 2023

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