Sraffa and the Assumption of Constant Returns to Scale: A Critique of Samuelson and Etula

In a recent paper Samuelson and Etula claim to have providedthree examples of the presence of a constant returns to scaleassumption in Sraffa's Production of Commodities. The presentpaper is a refutation of their interpretation of Sraffa's propositions.It shows that they mistakenly take Sraffa's logical propositionsfor empirical propositions. This article also provides evidenceto refute Samuelson's hypothesis that Sraffa consistently confusedthe concept of Marshallian "constant cost" with the generalequilibrium concept of "constant returns to scale". The paperalso argues that Sraffa's prices are not necessarily "equilibrium"prices, and that it is not true that Sraffa maintained thatchanges in demand had no impact on prices; his position appearsrather to be that the impact of demand on prices is unpredictable.     

Marx's Theory of Ground Rent: A Critical Assessment

This critical essay provides the reader with an up-to-date assessmentof Marx's relatively neglected theory of absolute ground rentby bringing together in a coherent manner his scattered observationsand arguments contained primarily in Capital, Vol. III and Theoriesof Surplus Value, Vol. II. It also reviews the extant secondaryliterature which suggests that within Marx's theory of rentis an embryonic theory of monopoly from which scholars can drawimportant insights into the history of economic thought andthe workings of mature capitalism. The paper is organized asfollows. After an introductory section, Section II providesthe reader with an overview of Marx's theory of differentialrent and compares it to that of Ricardo, particularly Marx'sdiscussion of differential rent II and whether nature is productiveof exchange value. Section III discusses Marx's theory of absoluterent in light of recent criticisms by prominent scholars andsuggests that what determines whether rent is paid on the marginalland is not technical backwardness or lower productivity oflabor per se, but a social relation, viz., the monopoly createdby the private ownership of land. The last section summarizesthe main arguments and suggests some avenues for future research.     

Harmonisation of Old-age Security Within the European Union

Not sufficiently harmonised national pension systems withinthe European Union distort the allocation of labour and endangerredistributive activities. This paper identifies the most decentralisedlevel of harmonisation which guarantees efficient allocationand enables redistribution. For this, we build on theoreticalresults from the literature to evaluate the realised distributionof the legal power between the European Union and the MemberStates and the resulting level of harmonisation. We find thatharmonisation is sub-optimally low. Binding rules guaranteedby the European Union are needed implying that the Member Stateshave to concede more fundamental responsibilities to the EuropeanUnion. (JEL F22, H55, K33, N34)     

The stock market and investment: another look at the micro-foundations of q theory

This paper introduces a novel distinction between real q andfinancial q. The paper examines three versions of financialq developed by Brainard and Tobin, Minsky and Hayashi, respectively.These theories differ regarding the nature of stock market pricedetermination and their use of marginal productivity theory.It is shown that non-profit maximising behaviour by managersdoes not invalidate q theory. It is also shown that if managersand shareholders have different profit expectations, this leadsto an equilibrium value of q that differs from unity. Lastly,the implicit claims in q theory regarding the efficient roleof stock markets as regulators of capital accumulation are shownto depend on assumptions about stockholder behaviour.     

EU Enlargement, Migration and the New Constitution

The paper deals with the effects of migration resulting fromEU Eastern enlargement on the welfare states of Western Europe.Although migration is good in principle, as it yields gainsfrom trade and specialization for all countries involved, itdoes so only if it meets with flexible labour markets and ifit is not artificially induced by gifts of the welfare state.This is not the present state of affairs in Western Europe.In addition to measures that make labour markets more flexible,the introduction of delayed integration of working migrantsand the home country principle for nonworking migrants is arational reaction of the state. The proposed new EU constitution,which contains far-reaching rules for a European social union,should be amended accordingly. (JEL E2, F2, H0, J3, J6)     

National Labor Market Institutions and the EU Integration Process

This paper outlines theoretical insights regarding the motivationand effects of labor market institutions, and reviews empiricalstudies of relevant evidence from European and other countries'historical experience. Institutional interference with laissezfaire labor market outcomes has both economic and distributionalimplications, which depend on the structure of markets and onthe details of policy implementation. The resulting conceptualframework is brought to bear on a discussion of possible reformsof European labor markets in the context of the Economic andMonetary Union process. (JEL F02, J00)     

Lessons of the 1999 Abolition of Intra-EU Duty Free Sales for the New EU Member States

The abolition of intra-EU duty free was critically discussedand accompanied by a vigorous and well-financed lobbying campaignby the duty free industry. The opponents of this resolutionargued that such a tax-free sales sector created jobs and hardlyreduced the value added and excise tax revenue of individualcountries. In their opinion, the duty free trade not only contributedto the reduction of the travel fare but also could be characterisedas a supplement to the normal retail trade for some products.The challenges for some specific industries led by the abolitionof duty free shopping appear to be considerable in the short-term.However, theoretical and empirical examinations made in thisstudy suggest: (a) intra-EU duty free shopping disturbs theallocation neutrality guaranteed in the single market, (b) macroeconomicsignificance of duty free shopping is rather negligible, and(c) some background studies made for the lobbyists exaggeratethe negative impacts of eliminating intra-EU duty free shopping.These three important arguments, which can also be applied tothe new EU Member States, justify the abolition of intra-EUduty free shopping. (JEL F10; F15; F18; E62; P20)     

Educating Europe: Should Public Education be Financed with Graduate Taxes or Income-contingent Loans?

The mobility of labor reduces national incentives to investin internationally applicable education. The European Unioncould overcome this by allowing member states to institute graduatetaxes or income-contingent loans, collected also from migrants.Graduate taxes or income-contingent loans result in higher welfarethan financing education with employment-based taxes. (JEL H24,H52, I28, F22)     

The breakdown of the IS–LM synthesis: implications for post-Keynesian economic theory

The monetarist and the new classical economics attack routed the IS–LM version of Keynesian theory and the large scale econometric models from the centre of macroeconomic research. However monetarism and the new classical economics were more successful as a critique of the IS–LM orthodoxy than as a basis for fruitful research and policy analysis.

Post-Keynesian economists also attack the IS–LM orthodoxy, mainly because it misspecified ‘… the economic society in which we actually live’. Post-Keynesians that emphasized financial and labour markets argued that properties of the real world economy made instability normal results ofmarket interactions.

The vacuum in main line theory that developed as the shortcomings of monetarism became evident led to a revival of interest in basic Keynesian propositions. This has spawned what is now labeled a new Keynesian economics. New Keynesian economists conform to the modeling standards set by the new classical rational expectations school but claim to get Keynesian results. To a degree these results are compatible with propositions of post-Keynesian economics.

It is suggested that a convergence between the new and the post-Keynesian economics can be expected, and the result is likely to be fruitful.     

Automatic Fiscal Stabilisers in EMU: A Conflict between Efficiency and Stabilisation?

It is often claimed that tax and welfare reforms that aim atenhancing efficiency may come at the cost of cyclical stabilisation.Reducing the generosity of welfare systems and lowering taxesmay boost efficiency and output, and improve market adjustmentto shocks. But, by reducing the size of automatic stabilisers,it may also imply less cyclical smoothing. This would be unwelcomein EMU given the loss of national monetary autonomy and thewell-known pitfalls of active fiscal management. This paperargues that the alleged trade-off between efficiency/flexibilityand stabilisation may not exist. We show that, if the initiallevel of the tax burden is high, reducing it may lead to higheroutput stabilisation in the event of a supply shock and higherinflation stabilisation in the event of a demand shock. Simulationsshow that European countries - especially small ones - mighthave a tax burden close to or even higher than the thresholdlevel. (JEL E52, E61, F42)     

Welfare Migration: Is the Net Fiscal Burden a Good Measure of its Economic Impact on the Welfare of the Native-Born Population?

Migration of young workers (as distinct from retirees), evenwhen driven in by the generosity of the welfare state, slowsdown the trend of increasing dependency ratio. But, even thoughlow-skill migration improves the dependency ratio, it neverthelessburdens the welfare state. Recent studies by Smith and Edmonston(1977), and Sinn et al. (2003) comprehensively estimate thefiscal burden that low-skill migration imposes on the fiscalsystem. However an important message of this paper is that inan infinite-horizon set-up, one cannot fully grasp the implicationsof migration for the welfare state, just by looking at the netfiscal burden that migrants impose on the fiscal system. Inan infinite-horizon, overlapping generations economy, this netburden, could change to net gain to the native born population.(JEL F22, H3, J10)     

Some problems with the conception of the human subject in critical realism

The human subject plays a central role in the theory of socialreality developed by Tony Lawson in his book Economics and Reality.This theory relies on an account of human cognitive functioningthat distinguishes discursive from tacit knowledge. The presentpaper argues that Lawson's discussion of tacit knowledge inEconomics and Reality is underdeveloped in that it leaves unexploredthe notion of internalised knowledge. John Searle's work onmind, intentionality and the Background is reviewed and proposedas a solution to this problem.     

Accounting for Stability

There is no consensus about the causes of the reduction in businesscycle volatility seen in many major economies over the lastdecade. Using stylised models of the economies of the US, Euroarea, UK and Japan, we argue that economic stability has beenfostered by improved monetary policy and by associated changesin the behaviour of inflation, which has itself led to a reductionin the volatility of economic shocks. Our projections suggestthat a number of major economies could continue to enjoy anunusual degree of stability, granted average luck and currentinstitutions. (JEL E3, E52, F01)     

Institutions for Fiscal Stability

This paper reviews the controversy over Europe's Stability andGrowth Pact and offers a proposal for its reform. It arguesthat Europe would be best served by focusing on the fundamentalcauses of unsustainable debts — public enterprises thatare too big to fail, unfunded public pension schemes that aretoo big to ignore, inefficient and costly labor market and socialwelfare problems, and budget making institutions that createcommon pool and free-rider problems — rather than on arbitrarynumerical indicators like whether the budget deficit is aboveor below 3 percent of GDP. It proposes defining an index ofinstitutional reform with, say, a point each for reform of budgetmaking arrangements, reform of public pension schemes, and reformof labor markets and unemployment insurance. Countries receivingthree points would be exempt from the Pact's numerical guidelines,since there is no reason to think that they will be prone tochronic deficits. The others, whose weak institutions renderthem susceptible to chronic deficits, would in contrast stillbe subject to its warnings, sanctions and fines.(JEL E0, F4)     

Hicks on monetary theory and history: money as endogenous money

Hicks was never tired of saying that monetary theory is in history.What he meant was that monetary theory is intrinsically relatedto real events, and more importantly that monetary issues needto be analysed in a dynamic sequential context in which timeplays an essential part. He went on developing a particularsequential analysis: the study of what happens within a singleperiod (‘single-period theory’) and the study ofthe linkages between a succession of those periods (‘continuationtheory’). It is suggested that this distinction providesa useful lesson for modern endogenous money theorists.     

Europe on the Road to Doha: Towards a New Global Trade Round?

This paper reviews progress towards a new trade agreement underthe Doha Development Agenda. A hitherto-unnoticed empiricalregularity suggests that post-Cancun pessimism may be unwarranted.Some of the key contentious issues are examined, including agriculturaland manufacturing trade barriers, competition policy and intellectualproperty rights. A potential sticking point is whether the USwill accept a quasijudicial role for the WTO and constraintson anti-dumping policy. European governments need to decidehow badly they want to complete a new trade agreement, and shouldstart preparing their constituents for compromise if an agreementis to be reached. (JEL F13)     

Hotelling's competition with general customer distributions

Hotelling and his critics assumed uniformly distributed demand. In this note the solution is characterized for any distribution F and some propositions follow. For any F an equilibrium does not exist if the duopolists are located too closely together, but another distribution can be always found for which an equilibrium does exist. When we observe duopolies in equilibrium with closer and closer proximity we can expect the density in the area of contention to go up and prices and profits to go down. Hotelling's known suggestion that any duopolist has an advantage to move his location towards the other, and thus creating a tendency for the differentiation to diminish, holds whenever an equilibrium exists.