Focus on Economic Theory Keynes on the "Nature of Economic Thinking": The Principle of Non-Neutrality of Choice and the Principle of Non-Neutrality of Money

In the last two decades there has been a flourishing of writings on the methodological approach of Keynes. Whereas broad interpretations of Keynes's work may have a role to play for future economics the main argument of this paper is to propose a return to the theoretical foundations of a truly Keynesian economics. In the main economic writings of Keynes it is possible to discern a body of beliefs, which is (a) consistent in its own terms and (b) susceptible of being used in the explanation of different realities. That body of beliefs is grounded on (1) the principle of non-neutrality of choice and (2) the principle of non-neutrality of money. Both principles were essential parts of the core of Keynes's A Treatise on Money (1930) and The General Theory (1936), and should be used as foundation for future development of Keynesian economics at the methodological as well as at the theoretical level.     

Microeconomics After Keynes: Post Keynesian Economics and Public Policy

Post Keynesian economics has mainly focused on macroeconomic issues and ignored microeconomic policy issues. This paper begins to remedy this gap. It outlines the main principles of the Post Keynesian approach, distinguishes them from neoclassical economics, explains how these principles can be applied to microeconomic issues, and then draws out some policy implications that differ markedly from neoclassical theory on the issues of health care and productivity growth.     

The New Keynesian Model and the Euro Area Business Cycle*

This paper describes a New Keynesian model incorporating transactions‐facilitating money and a time‐to‐build constraint into endogenous capital accumulation. The calibrated New Keynesian model performs almost as well as the estimated vector autoregressive model in replicating Euro area cyclical correlations between key variables such as output and inflation, although it fares less well in predicting the procyclical dynamics of nominal interest rates. The presence of a time‐to‐build requirement in the model helps to improve its fit to Euro area data, whereas the role of transactions‐facilitating money is much less important. Impulse–response functions and a decomposition of variance complete the analysis.     

Economic Sociology

A bstract . Economic sociology covers the gray area between the disciplines of economics and sociology brings scholars from both disciplines together to communicate over topics of interest. This communication provides debate that stimulates and strengthens social theory , which in turn, allows for better policy recommendations. A major area for concern in the development of economic sociology has been the presence of economic imperialism combined with economic bubris , the effects of which could suffocate economic sociology. These phenomena arc examined along with the trends over the past twenty years in the development of economic sociology and the relative impact that "economic sociologists" from both disciplines are having on their respective fields. Observing these trends will allow for an analysis of the developments in economic sociology and a assessment of where It is going in the future.     

Pareto, Parsons, and the Boundary Between Economics and Sociology

A bstract .   Recent discussions of the separation bUniversity of Bremenetween economics and sociology in the United States highlight the way Talcott Parsons used Vilfredo Pareto's Trattato di Sociologia Generale to propose that economics study logical actions and sociology study nonlogical actions. This article argues instead that in Pareto's treatise: (1) sociology is a synthetic discipline concerned with the study of human society in general; (2) human behavior is nearly always logical from a subjective point of view; and (3) sociology studies both logical and nonlogical behavior judged from an objective viewpoint. Thus, Pareto is an important intellectual ancestor for economic sociology.     

Economic Sociology in Retrospect and Prospect

A bstract Theory and research in the field of economic sociology have seen steady advancements in recent years. Economic sociology has become a legitimate branch of sociology as well as of economics. Nonetheless, the treatment of economic sociology in both modern economics and sociology leaves much to be desired. Various formal-terminological confusions and theoretical-substantive misconceptions are still present in the field. The present article advances some proposals for remedying this situation. In particular, it provides clarifications of and amendments to the current treatment of issues, such as the relationship between economics and sociology, the character of economic sociology, its links to economic theory, socio-economics, and rational choice theory, as well as the question of the old versus the new economic sociology. Special emphasis is placed on the relationships between economic sociology and rational choice theory, given the latter's claims to universality. It is hoped that the article will thereby redress certain inconsistencies found in some previous treatments of economic sociology as well as stimulate further refinements.     

Max Weber as an Economist and as a Sociologist

A bstract In this article I first give a picture of Weber as an economist, mainly by focussing on a text which he distributed to his students when he taught economics in the 1890s. From this text it is, for example, clear that Weber was positive to the use of marginal utility theory in theoretical economics, but also felt that this approach was insufficient, by itself, to analyze empirical phenomena. I then outline Weber's work in economic sociology, relying primarily on Economy and Society and its central Chapter 2 ("Sociological Categories of Economic Action"). The differences between the approaches of economic theory and economic sociology, as seen by Weber, are summarized, and an account is given of some of Weber's most suggestive concepts in economic sociology. In the concluding section the question is raised as to when the analyst, according to Weber, should use economic sociology rather than economic theory, and vice versa. Weber's ideas about a broad economic science–what he termed Sozialökonomik or social economics–are also presented.     

Futures Finally Refute Keynes

Keynesian economists , such as Lord Kaldor, have argued that the development of futures markets, exchanges based on anticipated prices deflect investment from the capital markets and stunt economic growth. Robert Miller, a Consultant to the London International Financial Futures Exchange, argues that Professor Ludwig Lachmann discovered a fundamental flaw in Keynesian economics which has been confirmed by the development of trading in financial futures.     

No End to the Consensus in Macroeconomic Theory? A Methodological Inquiry

After the acrimonious debates between the New Classical and New Keynesian economists in the 1980s and 1990s, a consensus developed, namely, the New Neoclassical Synthesis. However, the 2007 credit crunch exposed the severe limitations of this approach. This article presents a methodological analysis of the New Neoclassical Synthesis and how the paradigmatic heuristic of the representative agent, namely, market clearing subject to sticky prices, excluded the Keynesian notion of involuntary unemployment arising from lack of effective demand. It shows these models may be modified to produce Keynesian results, but are ruled out of consideration by proponents of the New Neoclassical approach by weak incommensurability. It concludes that because of this the New Neoclassical Synthesis, in spite of its failure to explain the sub‐prime crisis, is likely to resist successfully the resurgence in Keynesian economics.     

Forward to Basics in Economics

For nearly half a century since Keynes's supposed rebuttal of classical economics, economists and politicians have been pre-occupied with 'demand side' efforts to maintain full employment and output by spending more than they can raise in taxes. The evident failure of 'demand side' economics has at last reached the Keynesian economists. Some are beginning to reject 'demand side' economics as inadequate and to argue for the return of 'supply and demand'.     

Economics, Sociology, and the "Professional Complex"

A bstract .   This article discusses the relationship between economics and sociology in the context of Parsons's analytical theory of action and systems and his criticisms of orthodox and institutional economics. The article also addresses his view of the importance of the professions to an understanding of the nature of advanced capitalism. The professions are discussed as both an illustration of his theoretical argument and a substantive problem that stimulated the development of his theory. The "professional complex" is an emergent phenomenon in capitalism that modifies its operation and points to the complexity of systems of social action that require to be analyzed without being reduced to one of their elements. This reductionism is evident in orthodox economic theory and also in the more sociologically-oriented approach of institutional economics. Parsons argues that each is a form of what, following Whitehead, he calls the "fallacy of misplaced concreteness." Although Parsons offers a significant critique of dominant approaches in economics, major flaws within his own theory create the appearance that he has simply carried over the deficiencies of orthodox theory into his own general statement of theory. These flaws contribute to major misunderstandings of Parsons's project and, therefore, indicate continuing problems in the relation between economics and sociology.     

A Socio-Dynamic Understanding of Markets

A bstract    Economic sociology furthers a healthy alternative to price-theory–oriented economics as it sets out to remedy the invisibility of the market within the latter. There is, however, no doubt that such a market-oriented sociology is still in its infancy, given among other issues its inability to shoulder market change. The void thus recognized opens up the potential for a market idea with both social and dynamic properties. There is good reason to believe that such an endeavor would benefit from the constructive blending of economic sociology and Austrian economics. This paper argues that such a "socio-Austrian" connection is in the position to enrich the socioeconomic discourse in general and its market conception in particular.     

The Changing Relationship Between Economic Sociology and Institutional Economics

A bstract In his early work. Talcott Parsons severely criticized Old Institutional Economists like Thorstein Veblen and Clarence Ayres. Parsons'main objection was that institutional economics had a misconceived view on the scope of economics: institutions, being the embodiment of values, were the proper subject of sociology rather than economics. By arguing for a clear-cut division of labor between economics and sociology. Parsons legitimated the divide between the two disciplines that came into being in the years to follow. Recently however, the relationship between economic-sociology and institutional economics has changed dramatically. New Economic Sociology (advocated by scholars like Mark Granovetter and Richard Swedberig) rejects the division of labor proposed by Parsons. By-providing substitutes rather than just complements to economics, it tries to counter economic imperialism. This creates significant similarities between New Economic Sociology, Old Institutional Economics and the recent return of institutionalism in economic theory. However, the quest for a division of labor between economics and sociology remains unfinished.     

Further examination of the velocity-money growth variability debate: Evidence from Japan using an error-correction model

The claim that volatility of money leads people to increase their demand for money is tested using recently developed cointegration techniques and error-correction modeling. This approach offers an alternative to the standard Granger-causality test for establishing the long-run relation of velocity and money growth variability. In this paper, we employ these procedures on quarterly data from Japan over the 1973:1–1992:1 flexible exchange rate period. Our findings are supportive of the Friedman hypothesis for both the short and long runs. These results are important empirical additions to the new classical theory of economics which suggests that unanticipated movements in the money supply are non-neutral.     

Max Weber

A bstract .   This paper argues that Weber's outline and research program is only of limited relevance for present-day economic sociology and heterodox economics because Weber had a rather narrow and static understanding of rationality and the economy. Uncertainty, both as a basic fact of economic life and in the interpretation of what rational action means in specific contexts, is missing in his approach. After a short discussion of the secondary literature on Weber's methodology, the paper focuses on the most important writings of Weber on methods and economics (e.g., his outline and some parts of Economy and Society ). The result of our investigation is that Weber shared a rather narrow, neoclassical understanding of the Austrian variant of economics. His important construction of goal-oriented behavior as the major methodological advice to analyze human action presupposes the idealized assumptions of perfect knowledge. His understanding of the market exchange process, price setting, and the functioning of full competition are rather conventional and elementary. Weber's genius did not materialize in the field of economics, but in his sociology of religion and law and in his sociology of domination.     

ASSESSING THE REGIONAL ECONOMIC IMPACTS OF DEFENSE ACTIVITIES: A SURVEY OF METHODS

Defense activities exercised in a specific region may alter the region's economic performance. An accurate assessment of the potential economic impacts of defense activities is a valuable undertaking to enable regional planners to prepare for changes. The variety in the methods (among others, input–output models, economic base models, Keynesian regional multipliers, fixed‐effects estimators, and case‐study approaches) inspired by geography, sociology, and political science can pose a dilemma. We detail the historical and theoretical background of each method, as well as select exemplary cases where these methods were applied. By examining old and “new” methods, we aim to construct a typology that could be valuable to all stakeholders. In this sense, defense economics can also contribute to the allied social sciences by outlining evaluation methods that may be applicable to other fields.     

Endogenizing the provision of money: Costs of commodity and fiat monies in relation to the value of trade

We consider the problem of including the costs and value of the institutions that define money and support trade, within the framework of economic optimization. We compare monetary systems mediated by durable commodity monies, versus pure fiat monies, in order to understand the separation and eventual independence of the institutionally-created value of money from the values of underlying traded goods. We treat the emergence of monetary function as a problem in mechanism design, modeled by minimal strategic market games that overcome a generalized Jevons failure when agents must commit ahead of time to specialist resource production. We consider in particular the problem of defining closures with respect to both money flows and labor-allocation and trading decisions, and show that minimal models require many of the fundamental institutions of banking and contract enforcement found in real economies, in order to define a self-policing system. We define costs, value, and the efficiencies of the institutions that support trade in terms of a natural money-metric welfare function, and compare the characteristics of commodity and fiat monies by these measures. Through careful treatment of the stock/flow distinction in repeated-game settings, we find that commodity money, even when its value derives heavily from its institutional role, remains defined by its flow characteristics, in contrast to fiat money, for which the control function is defined inherently in terms of stock variables. Our notation is somewhat nonconventional for economics but to do justice to econo-physics concepts such as scaling and dimensional analysis and to stress the distinction between stocks and flows, we believe this notation is justified. We provide a full listing of notation in Appendix A.     

Economic Sociology Reformulated

A bstract Previous theoretical and empirical research on economic sociology leaves much to be desired in terms of consistently defining the agenda and objectives of the discipline As a result, economic sociology often appears to lack a clearly defined mission and purpose This is epitomized by various failures to establish adequate epistemological relations of the proper realm of economic sociology with those of economics and sociology, and especially with the domain of rational choice theory This failure is compounded by a misplaced distinction between the subject matter of economic sociology and that of sociological economics, or socioeconomics And some recent works in the discipline (including the ambitious Handbook of Economic Sociology ) have not helped to remedy this situation In this paper, we try to address this situation by suggesting some reformulations of the subject matter of economic sociology in relation to those of related disciplines In addition, we attempt to redefine the field of the sociology of the market which is seen as the focal specialty of economic sociology     

Parsonian Economic Sociology

A bstract .   This article focuses on Parsonian economic sociology and its actual or potential bridges and contributions to contemporary economics. These bridges are methodological or epistemological and theoretical or substantive ones. A relevant instance of the methodological bridges is socioeconomic holism, epitomized in the systems approach to economy and society. An important case of the theoretical bridges is sociological institutionalism. The holistic systems approach is a pertinent methodological bridge in that it treats the economy as an integral element of society as a larger system, and consequently treats economics as part of the complex of social sciences. Sociological institutionalism is an important theoretical bridge to (especially institutional) economics by virtue of its emphasis on social institutions and their economic significance. Some other methodological and theoretical bridges of Parsonian economic sociology to contemporary economics are also identified and discussed.