The instability principle revisited: an essay in Harrodian dynamics

Abstract

Harrod's contribution to economic dynamics is very often reduced to the dynamic equation whose character is unstable. Growth theory and cycle theory based on Harrod's contributions aimed at reducing this instability. Following Harrod, who was strongly opposed to the ‘knife-edge’ interpretation, we define the warranted rate of growth as a ‘moving equilibrium’ and focus on its interaction with the effective rate of growth. Our simple Harrodian model generates various dynamics from stable path, to growth cycle and corridor of stability.     

‘Anecdotal myths’: Tinbergen's influence on Harrod's growth theory

Abstract

In the history of economic theory, Harrod's transition from the explanation of business cycles in An Essay on the Trade Cycle (1936) to his well‐known growth theory in ‘An essay in dynamic theory’ (1939) has always been surrounded by some degree of speculation. One of the topics in that area of speculation concerns the (degree of) influence exerted by Tinbergen on the development of Harrod's growth theory during the 1936–9 period.

This paper argues that Tinbergen's influence on Harrod's work mainly took place on formal, mathematical, grounds, leaving methodological matters untouched. This matter is of some importance in understanding the success of what was initially considered by others as a ‘dynamic’ extension of the Keynesian research programme and later evolved, through the work of Tinbergen and Solow, into a neoclassical growth theory.     

From profit margins to income distribution: Joan Robinson's odyssey from marginal productivity theory

The point of departure for this paper is a 1941 Note on profit margins co-authored by Joan Robinson and Nicholas Kaldor that remained unpublished until 2000. Robinson's reviews of Henry Clay's The Problem of Industrial Relationships, Bresciani Turroni's The Economics of Inflation, and Roy Harrod's Towards a Dynamic Economics, along with her 1965 Cambridge Inaugural Lecture, may be interpreted as analogous documents that develop her critique of neoclassical wage theory and identify the money wage as the economy's ‘key’ price. These publications were critical steps toward the wage mark-up hypothesis and Post-Keynesian support of incomes policy to contain inflation. Robinson's Harrod review anticipated her later ideas about economic growth. With Kalecki's notion of ‘the degree of monopoly’ and her own concept of neo-mercantilism (from the Inaugural Lecture), these themes are nascent in the Robinson–Kaldor Note on profit margins.     

Dutertenomics: Populism,Progress, and Prospects

In 2016, when Rodrigo Duterte was elected Philippine President the economy was growing robustly. Despite the record growth, his election is considered a populist revolt of the middle‐ and upper‐class Filipinos. Yet, his economic policies – from his initial 10‐point agenda to the laws he approved – are liberal. This paper distinguishes and relates Duterte's authoritarian‐populist political style (“Dutertismo”) and his economic agenda (“Dutertenomics”). The distinction follows from his lack of interest in economic affairs, which he delegated to his team of economic managers. This team ably pushes important economic reforms because of the president's style, which so far has earned him wide public approval. After slowing down during the first half of Duterte's term, growth has recently picked up. To keep the momentum and public attention off human rights violations, Duterte needs to accomplish his economic agenda by mid‐2022. Drawing on his powers and popularity, he may yet be able to elicit the full support of Congress.     

Endogenous human capital formation,distance to frontier and growth

We examine human capital's contribution to economy-wide technological progress through two channels – imitation and innovation – innovation being more skill-intensive than imitation. We develop a growth model based on the endogenous ability-driven skill acquisition decision of an individual. It is shown that skilled human capital is growth enhancing in the “imitation-innovation” regime and in the “innovation-only” regime whereas unskilled human capital is growth enhancing in the “imitation-only” regime. Steady state exists and, in the long run, the economy converges to the world technology frontier. In the diversified regime, technological progress raises the return to ability and generates an increase in wage inequality between and within groups – consistent with the pattern observed across countries.     

Marx's critique of “eternal” political economy: how Mill is alien to Marx's attacks

Marx deplored political economy's claims to establish “eternal” – or “natural” – laws. This paper seeks to defend John Stuart Mill from his critique. It argues that, contrary to what Marx alleged, these two economists have a great deal more in common on this topic than is frequently realised. Both on the theoretical level and on the political one, Mill's views about the relativity of capitalism seem very close to Marx's. This paper also suggests that Marx may have ignored Mill's insistence on the relativity of economic theories because it may have challenged his own “scientific socialism”.     

Say's involvement in the 1819 French edition of Ricardo's Principles and the issue of rent

This paper focuses on Say's contribution to the first French edition of Ricardo's Principles and on the analytical consequences of his involvement on the issue of rent. Part one investigates the “story” of this edition. It stresses Say's friendship with the translator, his involvement in this publication and his attitude toward Ricardo. Part two analyses how elements from Say's thought were introduced into Ricardo's theory of rent through this edition. These elements conveyed ideas which were definitely at odds with Ricardo's theory and misrepresented Ricardo's true concept of differential rent which was central to his theory.     

Adam Smith's Ethics and the “Noble Arts” 1

Adam Smith's character-based ethical system lays the foundation for his vision of the social and economic good. Within this system, the arts perform a critical role. Smith's essays “Of the Imitative Arts” and his Lectures on Rhetoric and Belles Lettres are useful companions to The Theory of Moral Sentiments in analyzing the mechanisms whereby literature and the arts excite moral development. The arts stretch the boundaries of imagination and perspective, stimulating self-awareness and self-reflective growth. When combined with rational thought, decision-making takes place through an internal dialogue in which this wider perspective weighs upon one's “impartial spectator” and becomes the background for action. According to this view, the arts provide positive externalities for society and should be encouraged through public policy. The arts promote a conversation that becomes part of the common goods of society, including that of science.     

The distance between Buchanan's “An Economic Theory of Clubs” and Tiebout's “A Pure Theory of Local Public Expenditures”. New insights based on an unpublished manuscript

This article introduces Buchanan's comment on Tiebout's “A Pure Theory of Local Public Expenditures”. It helps us to understand the nature of the relationship between Buchanan and Tiebout. Usually, it is claimed that Buchanan modelled Tiebout's insights, that there exists a Buchanan-Tiebout hypothesis, and that Buchanan in 1965 complemented what Tiebout had written in 1956. We show that Buchanan could not have written “An Economic Theory of Clubs” as a complement of “A Pure Theory of Local Public Expenditures”. He disagreed with Tiebout's ideas on mobility because he saw mobility as a cause of inefficiencies and not a cause of homogeneity in groups. This is what we show by putting Buchanan's comment on Tiebout into historical perspective. It appears that Buchanan interpreted Tiebout 1956 from the perspective of his works on fiscal federalism from the early 1950s. We show that there is a continuity between Buchanan's work from the early 1950s and his works in the early 1970s; and Buchanan's way of reading Tiebout is part of it. Hence, when he wrote “An Economic Theory of Clubs”, Buchanan was convinced that Tiebout was wrong and that he was offering an alternative framework for public economics.     

EVALUATING RATIONAL PARTISAN BUSINESS CYCLE THEORY: A RESPONSE*

In a recent article published in this journal Steven Sheffrin presented the results of two tests on the so called “Rational Partisan Theory”. Sheffrin concluded that the evidence provides “little support for a strict interpretation of the theory”. This note argues that, although interesting in itself, the tests performed by Sheffrin are not particularly informative about the empirical relevance of the Rational Partisan Theory. Also, this note reconciles Sheffrin's results on OECD economies with the literature, which, in general, has found rather supportive evidence for the Rational Partisan Theory.     

Harrod's dynamics and the theory of growth: the story of a mistaken attribution

Post-Keynesian growth theory is normally seen as originatingfrom Harrod's 1939 'Essay in Dynamic Theory'. Harrod, however,was trying to lay the foundations of a new approach to economicdynamics, and often complained of misinterpretation. In thispaper, the grounds of Harrod's argument are examined and comparedwith the 'textbook' interpretation. The latter is shown to beextremely reductive, as it ignores both Harrod's interest inthe trade cycle and his methodological criticism of the 'time-lagtheories of the cycle', and it also underrates the interestingimplications of his non-linear approach and the epistemic implicationsof the instability principle.     

Jan Tinbergen: A Quatitative Economist ∗

This paper sees a systematic unity between Smith's theological view and scientific study of society. Smith's theological outlook as to a benevolent deity is grasped as a metaphysical doctrine in his system of social science. It arises from the fact that while Smith's opinion concerning God's attributes is established, in the first instance, on the basis of his empirical study of nature, it also stands irrespective of other facts which are not in line with the patterns of order and design. Smith's metaphysical proposition as such is methodologically suggestive in that it proposes theoretical possibilities for progress and harmony and rules out the features of conflict at the analytic level. This implies a difficulty in subscribing to a conventional interpretation that introduces the “two Smiths's” view (the duality of his method and vision).     

Introduction: Reform in the Provision of Health Care

The term “sustainable consumption” is subject to many interpretations, from Agenda 21's hopeful assertion that governments should encourage less materialistic lifestyles based on new definitions of “wealth” and “prosperity”, to the view prevalent in international policy discourse that green and ethical consumerism will be sufficient to transform markets to produce continual and “clean” economic growth. These different perspectives are examined using a conceptual framework derived from Cultural Theory, to illustrate their fundamentally competing beliefs about the nature of the environment and society, and the meanings attached to consumption. Cultural Theory argues that societies should develop pluralistic policies to include all perspectives. Using this framework, the paper examines the UK strategy for sustainable consumption, and identifies a number of failings in current policy. These are that the UK strategy is strongly biased towards individualistic, market-based and neo-liberal policies, so it can only respond to a small part of the problem of unsustainable consumption. Policy recommendations include measures to strengthen the input from competing cultures, to realize the potential for more collective, egalitarian and significantly less materialistic consumption patterns.     

Professor Fisher and the quantity theory – a significant encounter

Abstract

Irving Fisher's encounter with the Quantity Theory of Money began in the 1890s, during the debate about bimetallism, and reached its high point in 1911 with the publication of The Purchasing Power of Money. His most important refinement of the theory, derived from his recognition of bank deposits as means of exchange, was to treat their out of equilibrium recursive interaction with inflation as integral to it. This treatment underlay both his 1920s work on the business cycle as a “dance of the dollar” and his advocacy of subjecting monetary policy to a legislated price stability rule, initially to be based on his “compensated dollar” scheme. Fisher's failure to recognise the onset of the Great Depression even as it was happening was directly related to his faith in the quantity theory's seeming implication that price level stability in and of itself guaranteed the continuation of prosperity, while his subsequent work on the debt deflation theory of great depressions initially failed to repair the damage that this failure did to his reputation, and to that of the quantity theory. In the 1930s Fisher nevertheless remained an active supporter of various schemes to reflate and then stabilise the price level. His subsequent influence on the quantity theory based Monetarist counter-revolution that began in the 1950s lay, directly, in its deployment of his analysis of expected inflation on nominal interest rates, and, indirectly, in its espousal of the case for subjecting monetary policy to a legislated rule.     

The value and security of money. Metallic and fiduciary media in Ferdinando Galiani's Della moneta

This paper proposes a new interpretative framework for Galiani's monetary theory. The main argument is that, by adopting “the methodology of successive approximations” (correctly attributed to him by Luigi Einaudi), Galiani investigated the theoretical foundations of the two archetypal moneys: metallic money and paper money. On these foundations, he developed the model of a complex monetary economy based on the coexistence of a metallic and a fiduciary circulation. The paper also illustrates how the experience of the “public banks” of Naples inspired his analysis, thus shedding new light on the theoretical and institutional richness of his monetary thought.     

Of clouds and clocks and Keynes: conceptions of reality and the growth of knowledge function of money ∗

In this paper, John Maynard Keynes' General theoryand the concept of money are given an evolutionary interpretation. This interpretation is based on Karl Popper's delightful essay ‘Of clouds and clocks: an approach to the problem of rationality and the freedom of man’. The essay presents two things: Popper's conception of indeterminism and his general theory of abstractions. Popper's general theory concerns the role of abstractions and rule-governed, hierarchical systems of abstractions in structuring an indeterministic and uncertain world. He applies his general theory to science.Popper maintains that science is an abstract, rule-governed, linguistic process that facilitates criticism as a way of learning about our world. Popper calls this the growth of knowledge function of science. Popper's general theory can be applied to Keynes' General theory. Following Popper, I argue for a conception of the economy as a rule-governed, monetary language of commerce that facilitates critically minded inquiry in the domain of ordinary economic transactions. A monetary system facilitates the growth of commonsense knowledge in the economy. I call this the growth of knowledge function of money. An awareness of indeterminism and a growth of knowledge like function of money seem to pervade Keynes' General theory.     

Three macroeconomic syntheses of vintage 1937: Hicks,Haberler, and Lundberg

Abstract

The 1920s and 1930s were years of intensive debate about economic dynamics and stabilisation policies. There was a large variety of explanations of cycles and depressions, and Keynes’ General Theory of Employment, Interest and Money (1936) was pitched against them. In 1937, followed three different attempts to provide synthetic expositions of macroeconomic theory that would deal with the Keynesian challenge: Hicks’ Mr. Keynes and the “Classics”, Haberler's Prosperity and Depression, and Lundberg's Studies in the Theory of Economic Expansion. This paper compares those 1937 syntheses and contrasts them with the “Neoclassical Synthesis” and the current “New Neoclassical Synthesis”.     

Will the MEGA2 edition be a watershed in interpreting Marx?

Abstract

The MEGA² edition is a watershed in interpreting important aspects of Marx’s oeuvre, but not all of them. It provides hints as to why Marx failed to complete his magnum opus, Capital, and informs about his doubts regarding the “law of motion” of capitalism centred on the “law of the falling tendency of the rate of profit” he was keen to establish.     

Calculation in kind and marketless socialism: On Otto Neurath's utopian economics

Abstract

Otto Neurath is notorious amongst economists for his plans for a socialist economy with calculation in kind in place of a market. This paper considers the common criticism of “utopianism” from an immanent point of view. To do so, it will first be established in what Neurath recognized a negative sense of utopianism that was opposed to his own self-confessed “scientific utopianism”. Then it will be considered in what respect, if any, Neurath's stance in the socialist calculation debate can be shown to be objectionably utopian in this sense by the counter-arguments put forward by Ludwig von Mises.     

Nicholas Georgescu-Roegen and degrowth

As a peculiar economist of the twentieth century, Nicholas Georgescu-Roegen gave birth to many controversies. Since the 1970s, in particular in the French language literature, Georgescu-Roegen's ecological claim has often been considered as a promotion of degrowth. In this paper, I challenge this usual interpretation. I conclude that Georgescu-Roegen might be a source of inspiration for degrowth defenders only in a very narrow sense. A cautious reading of his bioeconomic paradigm shows that Georgescu-Roegen's stance was different from the growth/degrowth debate, and might be more accurately linked with an “agrowth” option.