Neither Lausanne nor Cambridge: Pantaleoni and the missing boundary between economics and sociology

Abstract

By the turn of the twentieth century, Lausanne and Cambridge were the centres of diffusion of two rival versions of marginalism. This paper focuses on the position of Maffeo Pantaleoni, a leading figure of the late nineteenth century ‘renaissance’ of Italian political economy, with respect to the eminent representatives of the two schools: Pareto and Marshall. Pantaleoni's position is examined with reference to the two main bones of contention between Pareto and Marshall, namely general as opposed to partial equilibrium, and pure as opposed to mixed economics.     

Classical and Neoclassical harmonies and dissonances

Abstract

Proofs are given that only singularly can real 1750 – 2007 competitive price ratios be ‘natural', in the sense of being invariant under changes in demand tastes. Proofs are given that both 1750 – 1870 discrete technologies or 1890 – 2007 continuum technologies, with convexity properties sufficient for arbitrage-proof supply-demand equilibria, will be ‘intertemporally Pareto optimal', immune to leaving any deadweight (inefficient) losses on the table. Sraffa (1960), ignoring the vast post-1945 linear and non-linear programming mathematical literature of Danzig, Kuhn-Tucker-Bellman, von Neumann, Ramsey literature does not quite arrive at attainable distribution solutions. Where it tolerates increasing or decreasing returns to scale, there can be no competitive equilibria. When its matrix equations do obey first-degree-homogeneous functions, the book's stress on Basics or non-Basics is an irrelevancy leading to bizarre novel interpretations of Ricardo.

Old age overtakes us all. Alas, Sraffs's proposed critique of twentieth century political economy we will never be able to know.     

THE FOCAL POINT IN THE TRAVELLER'S DILEMMA: AN EXPERIMENTAL STUDY

This paper provides an experimental test of the traveller's dilemma. Our investigation aims to address the research hypothesis that introducing a reference point à la Schelling (set equal to the Pareto optimal solution) might drive people away from rationality even when the size of the penalty/reward is high. Experimental findings reported in this paper provide answers to this question showing that the reference point did not encourage coordination around the Pareto optimal choice.     

Externality Policy Reform: A General Equilibrium Analysis

We characterize Pareto‐improving and equilibrium‐preserving policy reforms in a second‐best (Diamond/Mirrlees) world with a consumption externality. A counterintuitive finding is that, starting from an initial equilibrium with no direct quantity control on the externality, it is possible that all Pareto‐improving and equilibrium‐preserving directions of change require an increase in a negative externality. We provide intuition for these results by establishing a nexus between Guesnerie's approach to designing (tax) policy reforms and the standard Kuhn–Tucker technique for identifying the manifold of feasible Pareto‐optimal states, given the instruments available to the policy maker.     

Budget Balancedness and Optimal Income Taxation

We make two contributions to the theory of optimal income taxation. First, assuming conditions sufficient for existence of a Pareto optimal income tax and public goods mechanism, we show that if agents' preferences satisfy an extended notion of single crossing called capacity constrained single crossing, then there exists a Pareto optimal income tax and public goods mechanism that is budget balancing. Second, we show that, even without capacity constrained single crossing, existence of a budget balancing Pareto optimal income tax and public goods mechanism is guaranteed if the set of agent types contains no atoms.     

A Measure Of The Trade‐Off Between Responsiveness and Nondictatorship for Arrovian Social Welfare Functions

If individuals are never indifferent between distinct alternatives then for any transitive‐valued social welfare function satisfying IIA, and any fraction t, either the set of pairs of alternatives that are socially ordered without consulting more than one individual's preferences comprises at least the fraction t of all pairs, or else the fraction of pairs that have their social ordering determined independently of everyone's s preferences exceeds, or is very close to, 1 ?t. The Pareto criterion is not imposed. (There is also a version of this result for the domain of preferences that admit indifference.)     

A GENERALIZED GIBRAT'S LAW*

Many economic and non‐economic variables such as income, wealth, firm size, or city size often distribute Pareto in the upper tail. It is well established that Gibrat's law can explain this phenomenon, but Gibrat's law often does not hold. This note characterizes a class of processes, one that includes Gibrat's law as a special case, that can explain Pareto distributions. Of particular importance is a parsimonious generalization of Gibrat's law that allows size to affect the variance of the growth process but not its mean. This note also shows that under plausible conditions Zipf's law is equivalent to Gibrat's law.     

Ethical Principles that Make the World and its Economy More Equal

Abstract

No doubt, the global economic (and political) structure is very unequal. The paper begins by demonstrating the various dimensions of this inequality as they relate to economic measures such as per capita GDP, degree of consumption and ownership, health measures, education, and power and influence in various global organizations such as the United Nations (UN), World Trade Organization (WTO), International Monetary Fund (IMF), and others. Next, the paper, supporting a more equal global economic and political structure, investigates the various instruments in welfare economies and ethics theory that can be utilized to justify a sort of distributional change that could lead to more global equality. Finding various economic and ethical instruments associated with utilitarianism, Pareto Optimality and the Hicks–Kaldor compensation test less than satisfactory in dealing with and advocating sufficient global distributional changes, we will investigate ethical principles developed by John Rawls in both his 1971 The Theory of Justice and his 1999 The Law of Peoples, Sen's capability approach, the debate between Rawls and Sen regarding their ethical principles, and whether or not those ethical principles can justify necessary global distributional changes. As we will argue, although the principles developed by Sen and Rawls can be utilized to justify global distributional changes to a degree, they cannot advocate a global difference principle that can justify sufficient global distributional changes. Attempt is made to develop a global difference principle that can justify and advocate more drastic distributional changes.     

Some Implications of Imperfect Competition For Recent Trade Theory*

This paper argues that in a general-equilibrium context, it is not sensible for oligopolistic (and mono-polistically competitive) firms to maximize profit, because the outcome would be sensitive to the choice of the numeraire. the natural objective of these firms would be to maximize the utility of the shareholders if the shareholders are identical. I show that even if each firm takes the representative individual's marginal utility of income as given, the outcome of the utility maximization objective is Pareto optimal, and in equilibrium, each firm equates price with marginal cost.     

Inflation: The Invisible Foot of Macroeconomics*

We take a simple, well-known macroeconomic model and treat it as a game between two players—the government and an all-embracing union. The payoffs have the form of a prisoner's dilemma. The equilibrium outcome produces unwanted inflation and is not Pareto optimal. This is despite the fact that all participants are assumed to have full information. This result is shown to be quite robust to the form of the model and is not affected if one of the players is forced to announce its strategy in advance. This we call the invisible foot of macroeconomics.     

Vilfredo Pareto's influence on the Italian tradition in public finance: A critical assessment of Mauro Fasiani's appraisal

Abstract

Even if Pareto never worked in public finance, he had some influence on the Italian public finance scholars. This paper aims to direct new light onto such a methodological influence. Firstly, it is pointed out that the Paretian idea of science deeply influenced the late scholars of the Italian tradition. Secondly, it is shown that Paretian sociology was less important than his economic methodology. Thirdly, it is argued that, in a generalized Paretian approach, most public policies may be studied under economic hypothesis; it remains true that, in the Paretian approach, public choices may be explained by sociological reasoning only.     

On the Transition from Long-period to Short-period Equilibria

The paper examines the contributions of Myrdal, Lindahl, Hicks and Hayek that initiated the transition from the traditional long-period method to the methods of 'intertemporal' and 'temporary equilibria' in neoclassical general equilibrium analyses. It is shown that in the early contributions the idea of a tendency towards a long-period position was not completely abandoned, and that the new 'dynamic' equilibrium concepts were conceived by some of their originators as useful analytical devices for studying transitions between long-period equilibria only.     

Notes on a Mischaracterization of the Classical Theory of Value

This paper discusses the widespread view that the classical determination of relative prices is closely connected to the study of the conditions allowing for the 'reproduction' of the economy. It is argued that this view obscures the generality of Sraffa's contribution and, furthermore, that it does not provide a solid criterion for distinguishing the classical from the marginalist approach to the theory of value.     

Rawls's influence and counter-influence on Sen: Post-welfarism and impartiality

Abstract

This article aims to clarify Sen's paradoxical relationship to Rawls's work in the face of some misconceptions. It is argued, first, that the dialogue between the authors did not start with Sen's 1980 article “Equality of What?”: Rather, this article represents the beginning of a transformation in Sen's position towards Rawls. Second, Sen's approach to justice is not a mere extension of Rawls's theory of justice as fairness: The departure relies less on a different metric of justice than on a divergent conception of impartiality, one which undermines the foundation of Rawls's theory of justice.     

From the laws of human nature to capital accumulation: James Mill's analysis of the states of society in the Elements of Political Economy

Abstract

James Mill's Elements of Political Economy is usually treated as a textbook of Ricardian political economy. Although this might be justified, there is a passage in this Ricardian textbook that is not Ricardian. The passage deals with Mill's analysis of the states of society, in which he underlines the laws of human nature conducive to capital accumulation. This paper investigates such states.     

Why Marx Neither Has Nor Needs a Commodity Theory of Money

This paper argues, contrary to the standard interpretation, that money in Marx's theory is tied neither to bullion nor to any commodity basis. It is rather the sole social form of value autonomous from use-value. This is demonstrated by reference to Marx's account of the social functions of money, and by showing that to subsume 'money' under 'commodity' commits a category mistake within Marx's system. My argument is conceptual rather than historical. It seeks to locate, not to deny, the role of 'gold' in Marx's monetary theory. It has relevance to contemporary debates about the need for some new 'gold-standard' to sustain the international monetary system.     

Financial Instability and the Credit Crunch of 1966

In an article in this journal, Edwin Dickens criticizes the financial instability hypothesis of Hyman Minsky. He contends that ''financial instability theorists'' explain the financial crisis in the US in 1966 as due to the forced sale of securities by commercial banks, but that the 1966 crisis was not due to such sales. Therefore, he says that Minsky's financial instability hypothesis is contradicted. In contrast, this article argues that the 1966 crisis was initiated by the sale of securities by banks, but that such a development was not due to increased financial fragility, and thus was not a necessary aspect of the financial instability hypothesis. While the specifics of the 1966 crisis are somewhat of an exception, the general pattern of financial crisis in the postwar period in the US is powerfully explained by Minsky's financial instability hypothesis.     

The Pareto-dominant strategy-proof and fair rule for problems with indivisible goods

We study the problem of allocating a set of indivisible goods among a set of agents when monetary transfers are not allowed. We consider two interesting cases of this problem: (1) the supply of each object is exactly one; and (2) the supply of an object may be greater than one. Our central requirements are strategy-proofness and ex post fairness. We propose a particular rule satisfying strategy-proofness and no-envy (as well as equal treatment of equals). For the first case, it Pareto dominates any other rule satisfying strategy-proofness and equal treatment of equals. For the second case, it Pareto dominates any other rule satisfying strategy-proofness and no-envy.     

Three Pillars of Conventional Wisdom

This paper considers three pillars of contemporary economic wisdom that form part of the so-called 'Washington consensus': that free markets work best; that price stability is a good thing; and that deregulated financial markets work best. We argue that these propositions apply in certain circumstances, but do not have general validity. After discussing the circumstances in which these propositions do not hold we suggest how the conventional policy wisdom should be revised.     

Pareto violations of parliamentary voting systems

It has been known for a long time that many binary voting rules can select a Pareto dominated outcome, that is an outcome such that there exists some other alternative which is preferred by every voter. In this paper, we show that some of these rules can select an outcome Pareto dominated in a much stronger sense. Furthermore, our main results are concerned with the evaluation of the likelihood of Pareto dominated outcomes under four social choice rules commonly used in Parliaments or in committees. Given a set of four alternatives and a set of n individuals, we assume anonymous profiles and using analytical methods we compute the proportion of profiles at which the Pareto criterion is violated. Our results show that one should not be especially worried about the existence of the possibility as such. We are grateful to two anonymous referees for very helpful remarks and suggestions.