Intersubjective probability and economics ∗

The aim of this article is to analyse the role of probability and uncertainty in economics. A distinction is made between interpretations of probability in which probability is regarded as objectivei.e., a property of the external world, and those in which probability is regarded as epistemologicali.e., as a measure of belief, or rational belief, or knowledge. A new epistemological interpretation, the intersubjective is introduced and then applied to three examples from economics. Two of these are micro - namely pricing under conditions of oligopoly, and collective wage bargaining. The third is macro - namely the question of levels of investment in the light of long-term expectation. To analyse these examples, the article introduces the concept of strategically relevant uncertaintyThe article concludes by arguing in general terms that the objective interpretation of probability is appropriate for the natural sciences, while the epistemological one is appropriate for economics.     

Hayek and the General Theory ∗

Abstract

Hayek did not review the General Theory, but he criticized it in Profits, Interest and Investment (1939 Hayek, F. A. 1939. “Profits, interest and investment”. In Profits, Interest and Investment, London: Routledge & Sons.  [Google Scholar]) and in part IV of The Pure Theory of Capital (1941 Hayek, F. A. 1941. The Pure Theory of Capital, Chicago: The University of Chicago Press.  [Google Scholar]). First, he showed that only exceptionally does greater consumption favour investment and employment. Second, he rejected Keynes's liquidity preference and maintained that only in an ‘extreme case’ might it be said that Keynes's theory of the rate of interest is valid. Although he correctly identified the gist of Keynes's theoretical innovation, his criticisms were already implicitly answered in the General Theory.     

Money creation and credit multipliers ∗

The standard objections against the quantity theory of money, based on the instability of the velocity of money, are insufficient to discard this long-held monetary theory. The principal criticism of the theory rests on the determination of the money supply. The supply of money is a dependent variable, not an independent one. The demand for credit determines the quantity of money, or at the very least bankers and borrowers share the responsibility. Causality is thus reversed. It is necessary to abandon the concept of money multipliers, which are relics of the quantity theory of money. Bankers can, if they so desirerespond without limitto demands for credit. They are not tied by a fixed amount of pre-existing assets. The goal of the article is to outline an explanation of these statements and provide a vision of monetary theory that is different from that usually taught.     

Regret theory and policy reform ∗

This paper offers an explanation of policy reforms undertaken in times of an economic crisis. Our explanation does not depend either on conflicts of interests between different socio-economic groups, or on the informational imperfection about the effectiveness of the current policy regime. The single decision maker in our model experiences regrets when the uncertain reform outcome is worse than the status quo. We show that an economic crisis which reduces the status-quo income makes the regret-experiencing decision maker more eager to undertake reforms in times of an economic crisis, despite the higher utility costs of adjustments.     

European economic integration and industrial policy ∗

This article argues that the theoretical framework that can be used to inform us of the industrial policy implications of European economic integration is very different from the neoliberalist perspective that has proved so popular in recent years. Here I argue the importance of adopting a proactive and selective industrial policy aimed at strategically important areas of the economy.     

Keynes,Sraffa and the labour market ∗

The paper argues that input–output analysis existed long before it received its name and Wassily Leontief made it popular as a tool of empirical analysis and a foundation of economic policy. It grew out of an attempt to ascertain the capacity of an economic system to reproduce itself and generate a surplus that can be used for various purposes. Primitive pronouncements are encountered in early civilizations, for example Mesopotamia, in terms of the ratio of the amount of grain produced and the amount of it used up, directly and indirectly. These ideas reappeared in a more sophisticated form at the time of the inception of systematic economic analysis in the 17th and 18th centuries in Europe and found a two-sector expression in François Quesnay's Tableau économique. The material input–output structure was then considered the core of the economic system that contained one of the keys to basically all other important economic phenomena and magnitudes. The way in which the potentialities embodied in the input–output structure, conceived as a system of production, have, or have not, been exploited over time define both the problems and perspectives of contemporary input–output analysis. Three aspects will be scrutinized more closely: the problem of value added, the treatment of fixed capital and the problem of technical change. Happily enough, while the problems are huge, the prospects are encouraging. There is no fear that input–output analysts will soon have to look for new fields of research because the old ones have been exhausted.     

Goals,rationality criteria and market functioning ∗

The behaviours of economic operators may be directed by goals and rationality criteria other than those postulated by neoclassical theory. Under certain conditions, the existence of deviant goals and rationality criteria, far from being eliminated by the process of ‘natural selection’, has a profound effect on market functioning. It alters the ‘natural selection’ criterion and thereby influences the market trajectory. It can also favour the development of specific mechanisms of co-ordination. Our hypothesis is illustrated by an analysis of the cultural markets.     

Consumer Debt and the Measurement of Poverty and Inequality in the US∗

This paper argues that interest on consumer debt must be taken into account when measuring poverty and inequality. These interest payments cannot be used to support household living standards. This makes middle- and low-income households worse off. Recent increases in consumer debt means that this deterioration in living standards is not captured by conventional government statistics. Using the Survey of Consumer Finances, we make estimates of poverty and inequality that take into account rising interest payments on consumer debt and discuss some of the implications of these estimates.     

Public pension policy and the equity–efficiency trade-off∗

This paper illustrates that the equity–efficiency trade-off between a redistributive, Beveridgean, pension system and an earnings-based, Bismarckian, scheme can collapse when accounting for labor supply effects on the extensive margins. I introduce a general equilibrium overlapping generations model with endogenous savings, human capital formation, and labor supply. The model is calibrated to an average OECD economy. The results suggest that allocating funds towards a Bismarckian pension system always reduces earnings inequality – and, in some cases, lifetime inequality – when compared with a Beveridgean scheme. However, the Bismarckian scheme crowds out more human capital in the economy following a higher steady-state interest rate.     

Firm creation,entry costs,and house-price volatility∗

Amid growing work on the link between firm creation and cyclical housing-market dynamics, we document a significant, positive, and robust cross-country relationship between the level of new firm creation and the cyclical volatility of house prices. Using a business-cycle model with endogenous firm entry, housing, and housing-finance constraints and shocks, we show that, via general equilibrium effects, greater average firm entry can be a powerful amplification mechanism of housing-finance shocks. These shocks and constraints play a key role in quantitatively rationalizing the link between firm creation and house-price volatility across countries.     

Shackle,nihilism, and the subject of economics ∗

Shackle's economic theories have frequently been labelled ‘nihilistic’, and thus of dubious interest to economists. An examination of this charge reveals it to be meaningless. Through focusing on Nietzsche’s diagnosis of nihilism, it is ossible to conclude that mainstream economics, through appealing to models and concepts explicitly acknowledged to be fictitious, itself denies reality and life, and is thus nihilistic. However, desite suggestions, Shackle is ultimately unable to overcome the nihilistic tenencies of mainstream economic theories. Shackle identifies the individual subject as the source of knowledge, yet identifies the subject as analogous to an object, hence replicating the cause of nihilism.     

Inflation pressure and price intervention: an ominous combination∗

Of the debate regarding the new round of surging inflation in China, structural opinion interprets inflation as a problem of structural price growth, mainly brought about by a price hike for selected commodities as a result of exogenous shocks from different sectors. In line with the explanation, various measures aiming to control prices have been implemented recently. On the basis of basic economic principles and empirical evidence drawn from four cases, this essay argues that price intervention policies are counter-productive in bringing inflation down.     

Financial repression and economic development: towards a post-Keynesian alternative ∗

The Shaw–McKinnon framework, the foundation of mainstream thinking on the role of financial markets and institutions in economic development and the basis for policy-making in many LDCs for the last 18 years, is shown to be flawed when viewed in a post-Keynesian perspective. Three interrelated aspects of post-Keynesian theory are used to challenge the financial liberalization models and to posit an alternative post-Keynesian perspective on the role of financial institutions and markets in economic development. These aspects are: (1) the finance-investment-saving-funding circuit; (2) the financial fragility hypothesis; and (3) the evolution of institutions and conventions in an uncertain world.     

Comparing alleged incommensurables: Institutional and Austrian economics as rivals and possible complements? ∗

The purpose of this article is to explore the changing relationship between Austrian and Institutional economics and the common ground that they appear increasingly to share. It is maintained that both parties have something to learn from each other - there are gains to be made from intellectual trade and inter-research tradition discourse. Neither Austrian economics nor institutional economics presently provides a sufficiently robust or sophisticated approach to individual and group problem-solving activity within institutional-knowledge constraints and historical time dynamics, yet they are both beginning to seriously grapple with such issues. The gulf between the Austrian and Institutional research traditions is narrowing given that there is some convergence toward a middle ground where it is recognized that individuals do not exist in a vacuum and that institutions both constrain and enable purposeful behaviour. Through increased interaction Austrians may learn to take ‘institutional’ frameworks even more seriously whilst Institutionalists may learn to be even more earnest in their treatment of ‘individual’ action within a historical time continuum.