The case for increasing returns I: ‘The Hicksian Getaway’ and ‘The Hirshleifer Rescue’

Author(s): Frederic B. Jennings Jr. / Language(s): English Issue: 1/2015

The case for increasing returns is accepted by most heterodox economists. Yet allegiance to decreasing returns in orthodox circles still endures directly and in the form of substitution assumptions. In forty short years from 1928 to 1968, beliefs shifted from Pigou calling rising cost ‘inadmissible’ to Alchian deeming decreasing returns ‘a universally valid law’ until Kaldor revived the case for increasing returns in the 1970s. How did these shifts of view occur? After dapham opened the door and Pigou defined the orthodox stand, the 1930s debates swept through imperfect competition and many other issues into Keynesian disequilibrium theory. In 1939, ‘The Hicksian Getaway’ opened an Age of Denial leading to equilibrium theories based on substitution; then during the 1960s a second challenge to rising cost based on learning and technical change was defeated by ‘The Hirshleifer Bescue’ of decreasing returns and thus substitution in neoclassical theory. Why economists' substitution assumptions still hold sway is the focus of this study. First, the paper reviews ‘The Hicksian Getaway’ in its context and with respect to equilibrium models. Second, the paper analyzes and disproves ‘The Hirshleifer Bescue’ as an invalid argument based on a non-sequitur and thus simply asserted. Third, the case for increasing returns is developed into a theory of planning horizons supporting a generalized complementarity in economics. Some methodological implications are explored at the end.

The welfare costs of rent-seeking: a methodologically individualist and subjectivist revision

Author(s): Michael Makovi / Language(s): English Issue: 1/2015

Gordon Tullock is acknowledged for being the first to recognize the true costs of rent-seeking as including not only the Harberger triangle but also the Tullock rectangle. This rectangle does not constitute merely a lossless transfer of wealth, but it causes a misallocation of resources as rent-seekers invest resources in lobbying. However, a close reading of Tullock’s writings shows that his arguments are formulated in a holistic fashion, speaking of what is efficient or inefficient for society. Rent-seeking is inefficient because it reduces societal welfare. But according to a methodologically individualist and subjectivist economics, such a claim is invalid. We must distinguish between positive economic fact and normative moral philosophy. We call for a reconstruction of utility and welfare economics based on methodological individualism and subjectivism with implications for the theories of monopoly and competition: practices which Neoclassical perfect-competition theory considers to be evidence of rent-seeking should instead be deemed as indications of genuine competition Political economy should be concerned with ascertaining which institutions will best enable individuals to pursue their individually subjective ends – or else economists should be explicit about their normative preferences and political philosophies.

Economics of paternalism: the hidden costs of self-commanding strategies

Author(s): Christophe Salvat / Language(s): English Issue: 1/2015

The paper proposes an economic assessment of paternalism by comparing different alternative responses to dynamically inconsistent behaviors consecutive to hyperbolic discounting. Two main types of action are possible, self-commanding strategies and paternalism The first category includes personal rules and pre-commitment The second can be subcategorized between coercive and non-coercive forms of paternalism, which are respectively associated (although it is debatable) with legal paternalism and with ‘nudges’. Despite being self-inflicted, self-commanding strategies are actually not cost free and can result in a dramatic cutback of people’s freedom of choice. Likewise, legal paternalism can, on occasion, be less harmful than personal rules or pre-commitment; similarly, nudges can be more invasive and less effective than their proponents want us to believe. The aim of this paper is not to propose any standardized form of response to irrational behavior (whatever that may mean) but to argue, on the contrary, that every case should be individually appraised. Individual situations can be remedied by self-commanding strategies or by paternalistic policies, either in isolation or in combination.

A criterion for realism, with an application to behavioral economic models

Author(s): Gustavo Marques,Diego Weisman / Language(s): English Issue: 1/2015

Many economists working within the framework of behavioral economics (BE) label the conventional way of modeling as unrealistic, and consider their own approach as more realistic than the standard practice. However, a criterion for realism is lacking in behavioral economics literature. This paper offers a simple criterion for predicating realism to economic models, and provides an illustration of such criterion at work on a particular BE model.

Review of The Anthropocene and the Global Environmental Crisis: Rethinking modernity in a new epoch, edited by Clive Hamilton, Christophe Bonneuil and François Gemenne, Routledge, London, 2015

Author(s): Valentin Cojanu / Language(s): English Issue: 1/2015

From Common Meal via Acéphale to Unsacrificeable

Author(s): Bernard Harbaš / Language(s): English Issue: 15/2018

In this article, the author introduces several approaches to the concept of sacrifice. It begins with the classic sociological approach of Émile Durkheim who in sacrifice remarks forming, strengthening and maintaining of a community. In his anthropological conception, Georges Bataille demonstrates that the production and accumulation of wealth are wrong moral principles and suggests a new moral practice of giving oneself without asking anything in return, which represents the only way to realize a society of equals. Such a society, in which there would be no leader or a singular sovereignty, he calls Acéphale. For Jean-Luc Nancy, sacrifice is impossible. Starting from a standpoint that the Being is nothing and that there is nothing except this worldly plurality, Nancy considers sacrifice impossible since there is no higher principle for which the sacrifice would be performed. Beside the standpoints of the above-mentioned theoreticians, this article also offers a theory of discipline and sacrifice for achieving a socially expected perfect appearance. In all the mentioned theories, non-classic dimension of sacrifice is demonstrated. In them sacrifice is performed as activity for achieving social unity, greater equality, socially expected appearance and it is also presented as something impossible.

Incentives and reflective equilibrium in distributive justice debates

Author(s): Julian Lamont / Language(s): English Issue: 1/2008

For the last thirty years one of the dominant economic policies has been the cutting of the top marginal tax rates. While this policy has been partly motivated by the self-interest of high income earners, it also has had considerable theoretical support from a wide range of distributive justice theorists starting with John Rawls’ A Theory of Justice in 1971. Rawls argued that if the incentives created by inequality maximized the position of the least advantaged then they were morally justified. There have been many variants of this position since. The most common theme of them is that incentives to work harder and innovate, although creating inequality, are morally justified because of the greater good generated by the resultant increase in GDP. The main policy instrument available to governments to create such incentive has been the cutting of the top marginal income rates and this has been done systematically across all industrialized nations. The method of wide reflective equilibrium requires us to use the best consensus from economics in our reasoning about distributive justice. The systematic cutting of tax rates over thirty years has provided a reasonable experiment on the thesis that such cutting provides an overall increased labor supply and resultant increase in GDP. The suggestion of this paper is that a reasonable consensus can now be reached that, over the ranges of inequality and GDP that we have had over the last 50 years and are likely to have over the next 50 years, such incentives do not provide the claimed benefits. Hence, we are getting increased inequality for no compensating benefit.

The knowledge economy/society: the latest example of “Measurement without theory”?

Author(s): Paul Walker,Les Oxley,David Thorns,Hong Wang / Language(s): English Issue: 1/2008

The world has embraced a set of concepts (knowledge driven growth) which are seen as the ‘core of future growth and wellbeing’ without any commonly agreed notion of what they are, how they might be measured, and crucially therefore, how they actually do (or might) affect economic growth and social wellbeing. The theory of how the mechanism works lacks important detail.

„Social embeddedness”: how new economic sociology goes into the offensive and meets the own roots

Author(s): Dieter Bögenhold / Language(s): English Issue: 1/2008

The argument of social embeddedness has become one of the most celebrated metaphors in economic sociology. The attempt connected to that term is the elaboration of a solid basis for economic sociology as discipline within the concert of economics and further social sciences. The paper argues that the embeddedness argument is strategically on a necessary way to highlight the academic importance of institutional and sociological thought for debating phenomena of economic life since, as it is argued within the paper, such ambitions meet also very clearly with recent tendencies within economics which are commonly considered to be tendencies towards heterodox economics. Aim of the paper is to embed such discussion within a broader history of economic and sociological thought in order to demonstrate that recent developments meet with elements of discussion which were already used by classical authors at the beginning of the 20th century. In this respect a lot of the recent offensive of economic sociology meets with classical bases of its own academic development which seems to have become hidden or partly forgotten.

Not anything goes: a case for a restricted pluralism

Author(s): Gustavo Marques,Diego Weisman / Language(s): English Issue: 1/2008

The current discussion on theoretical and methodological pluralism is plagued with confusions and misunderstandings. Some problems arise because an appropriate framework for conducting a fruitful discussion about these issues is still lacking. Many other problems derive from the fact that a rational pluralist should be both tolerant with the many different points of view and able to discriminate among them. In the first and second sections we use some of Mäki’s ideas for developing a general framework for discussing pluralism and apply it to the ongoing debate on theoretical and methodological pluralism, showing its strong compromise with demarcationism. In the third section a looser framework for approaching pluralism is outlined, and a detailed discussion of Caldwell’s critical pluralism is conducted, pointing out its achievements and some of its shortcomings. The fourth section provides an outline of what a sound notion of restricted pluralism should encompass for avoiding “anything goes”.

Book review: Gilles Dostaler, Keynes and his battles, Edgar Elgar, Cheltenham, UK, Northampton, MA, USA, 2007, 384 pages

Author(s): Mircea Teodor Maniu / Language(s): English Issue: 1/2008

Book review: Cristina Neesham, Human and social progress: projects and perspectives, VDM Verlag, Saarbrücken, 2008, 220 pages

Author(s): James Moulder / Language(s): English Issue: 1/2008

Book review: Akop P. Nazaretyan, Anthropology of violence and culture of self-organization. Essays in evolutionary historical psychology, 2nd edition, Moscow, URSS, 2008, 256 pages (in Russian)

Author(s): Andrey Korotayev / Language(s): English Issue: 1/2008

Economic experiments versus physical science experiments: an ontology-based approach

Author(s): José Caamaño-Alegre,María Caamaño-Alegre / Language(s): English Issue: 2/2019

This article applies an ontology-based approach to economic experiments, emphasizing their differences with respect to physical science experiments. To contextualize our discussion, a conciliatory Weberian view of the similarities and differences between natural and social sciences is provided. After that, some ontological features of the social sciences’ domain are highlighted, together with their problematic effect on experimental economics. Specifically, we focus on human beings’ representational capacities and intentionality, their cultural and conventionally mediated forms of social interaction, and the holistic openness, instability and uncertainty of the social world. Finally, we emphasize the severe under-determination of theory by evidence affecting social science, as well as the related problems of empirical ambiguity, confirmatory biases and propensity to pseudoscientific practices in experimental economics.

Friedman’s instrumentalism in F53. A Weberian reading

Author(s): Peter Galbács / Language(s): English Issue: 2/2019

In this paper, Weber’s methodology of ideal types is applied as a framework to argue for the instrumentalist interpretation of Friedman’s methodology of positive economics. Weber’s ideal-typical methodology is characterized as a mix of descriptive inaccuracy and causal adequacy. Based on some recent structuralist results in the philosophy of science it is highlighted how intimately causal understanding and the properties of entities are related. The main contrast between Weber and Friedman consists in the emphases they placed on the causal properties of agents. It is argued that Friedman’s instrumentalism results from his neglect of entity properties for no causal understanding can be placed upon neglected characteristics. By identifying some channels through which methodological Weberianism could spread, the possibility of a real albeit indirect connection between Weber and Friedman is suggested, with Frank H. Knight as the most probable diffuser.

On Amartya Sen’s concept of sympathy

Author(s): Mark S. Peacock / Language(s): English Issue: 2/2019

This paper examines Amartya Sen’s concept of sympathy and the oversimplified, ambiguous and sometimes erroneous interpretations of this concept by Sen’s interpreters. In the first section, two types of sympathy can be found in Sen’s ‘Rational fools’ essay ‒ a contemplative and an active type of which the former has conceptual primacy. Following this, active sympathy is examined to ascertain what Sen means by ‘actions based on sympathy’ and why he deems these to be ‘egoistic’. Sen’s understanding of egoism means that sympathy is not straightforwardly assimilable to the orthodox theory of rational choice. The section after that analyses the place of altruism in Sen’s work and ascertains that altruism can be aligned both with sympathy and commitment, depending on the definition one uses. The final section compares sympathy and commitment and establishes that they are to be distinguished, not according to the welfare a person expects to obtain from making choices, but according to the reason which motivates that person to make a choice.

The Theory of Moral Sentiments and The Wealth of Nations. Ethics, jurisprudence and political economy throughout the intellectual history of Adam Smith

Author(s): Pilar Piqué / Language(s): English Issue: 2/2019

This paper aims to address two research questions that have not been sufficiently examined by specialized studies of the intellectual history of Adam Smith. The first question asks why Smith, after developing his theory of sympathy in the first editions of The Theory of Moral Sentiments, started working on a theory of jurisprudence and ended up writing The Wealth of Nations. The second question asks why Smith, after writing and republishing The Wealth of Nations, asserted that he could not complete his theory of jurisprudence and incorporated a new part dedicated to virtue ethics in the last edition of The Theory of Moral Sentiments in 1790. The paper shows that: 1) after developing his theory of sympathy in the first edition of The Theory of Moral Sentiments, Smith stated that a theory of jurisprudence was necessary to form rules of justice that guarantee social order, and in the search for that theory he ended up writing The Wealth of Nations; 2) in The Wealth of Nations, Adam Smith was devoted to studying the development of commerce in modern society and the conduct of the mercantile individual who pursued his own interest, and was incapable of elaborating on those general principles of justice that would ensure social harmony. Smith then delved into virtue ethics in order to recommend virtuous conduct that encourages mercantile individuals to become good citizens. The paper concludes by contending that economics would benefit from a better understanding of the relationship between political economy, jurisprudence and ethics in the work of Adam Smith. Specifically, economics would broaden in scope of study and contribute to larger debates about the past, present and future of modern civilization.

Review of Handbook on the History of Economic Analysis, edited by Gilbert Faccarello and Heinz D. Kurz, Edward Elgar Publishing, Northhampton, MA, 2018, 3 volumes, 1919 pp, Paperback, ISBN 978-1-78536-131-9

Author(s): Gabriel Mursa,Andreea Iacobuță / Language(s): English Issue: 2/2019

Review of Colin White, A History of the Global Economy. The Inevitable Accident, Edward Elgar Publishing, 2018, hb, ix+495 pages, ISBN 978-1-78897-197-3

Author(s): George ŞERBAN-OPRESCU / Language(s): English Issue: 2/2019

Review of Venkat Venkatasubramanian, How Much Inequality is Fair? Mathematical Principles of a Moral, Optimal, and Stable Capitalist Society, New York, Columbia University Press, 2017, xxi+279 pp., hb, ISBN 978-0-231-18072-6

Author(s): Valentin Cojanu / Language(s): English Issue: 2/2019