A brief history of cliometrics and the evolving view of the industrial revolution

Abstract

Over the past century and a half, economists have differed on methodology, interpretation, and explanation of the causes, consequences, and proper approach to understanding the historical period commonly referred to as the Industrial Revolution. The impact of the methodological debate over the role of theory and history in economics, and the growth of cliometrics on the ways in which we think about and analyze the Industrial Revolution have been primary factors in this debate. This article uses the rise of cliometrics as a lens through which to view the intellectual history of economists’ views of the Industrial Revolution. It is not in itself an attempt to explain the causes or consequences of the Industrial Revolution, but rather, an overview of the evolution of the approaches that economists have used to define what constituted the Industrial Revolution, when it occurred, and how to explain its causes and why it occurred when and where it did.     

What made Economists so Politically Influential? Governance-related Ideas and Institutional Entrepreneurship in the Economic Liberalisation of Israel and beyond

Liberal economists are known to be one of the driving forces behind economic liberalisation in various countries, but how did they become so politically influential? Constructivists generally suggest that during economic crises liberal economists persuaded decision-makers to adopt pro-market policy ideas as solutions for economic turbulence. While this answer is true, it is also only partial because it disregards the role played by governance-related ideas and institutional entrepreneurship in the political actions of liberal economists. I argue that ideas regarding decision-making mechanisms provided liberal economists with the basis for creatively exploiting pre-liberalisation institutions, such as central banks and central budget offices, through which these economists enhanced their long-term political influence. An in-depth examination of a paradigmatic case of economic liberalisation driven by liberal economists – Israel's Stabilisation Plan – exemplifies that argument. The existence of like-minded economists and similar pre-liberalisation policy-making institutions in many other countries hints that the Israeli experience is not unique.     

Economic emergence: An evolutionary economic perspective

The standard neoclassical approach to economic theorising excludes, by definition, economic emergence and the related phenomenon of entrepreneurship. We explore how the most economic of human behaviours, entrepreneurship, came to be largely excluded from mainstream economic theory. In contrast, we report that evolutionary economists have acknowledged the importance of understanding emergence and we explore the advances that have been made in this regard. We go on to argue that evolutionary economics can make further progress by taking a more ‘naturalistic’ approach to economic evolution. This requires that economic analysis be fully embedded in complex economic system theory and that associated understandings as to how humans react to states of uncertainty be explicitly dealt with. We argue that ‘knowledge,’ because of the existence of uncertainty is, to a large degree ‘conjectural’ and, thus, is closely linked to our emotional states. Our economic behaviour is also influenced by the reality that we, and the systems that we create, are dissipative structures. Thus, we introduce the notions of ‘energy gradients’ and ‘knowledge gradients’ as essential concepts in understanding economic emergence and resultant economic growth.     

Transnational Economists in the Eurozone Crisis: Professional Structures,Networks and Ideas

ABSTRACT

In recent years IPE and EU studies scholars have examined how actors in international organisations and EU institutions shape policy ideas. This article explores the professional structure of economists affiliated to two Brussels-based think tanks, Bruegel and CEPS, who, in the context of the Eurozone crisis, sought to contribute to the production of policy solutions to douse the flames of the crisis and put forward long term recommendations for the EMU’s stability. Through the analysis of more than 300 CVs and by drawing on network and sequence analysis, the article shows that in their search for solutions, Brussels-based think tanks bring together economists from different EU member states, whose authority draws on academic qualifications, experience, and seniority. They are ‘multiple insiders’ connected to a wide range of institutions and professional networks, who move back and forth between professional and organisational networks and serve as bridges between revisionist, orthodox, and mixed economic ideas.     

Contemporary Economic thought. The Contribution of Neo-Institutional Economics

This article examines the historical developments of the institutionalist theory of the business enterprise since the early 1900s in order to demonstrate its distinctive characteristics that are often overlooked or belittled by some institutional-evolutionary economists and most mainstream economists. I argue that the institutionalist theory is an evolving and emergent theory, which bears a reciprocal, evolutionary, and cumulative relationship between the business enterprise and society. The institutionalist theory is, therefore, suitable for the understanding of the real-world business enterprise as it can be modified and refined along with the evolution of capitalism. The article begins with a discussion of the present state of the institutionalist theory. The following section is devoted to the major contributions to the institutionalist theory situated in the evolution of U.S. capitalism. The penultimate section provides a critical discussion of new institutional and evolutionary approaches to the firm. The article concludes with a brief discussion as to what should be done for the further development of the institutionalist theory of the business enterprise.     

Shackle on Equilibrium: A Critique

This paper presents a critical evaluation of Shackle's views on economic method. Shackle's arguments against equilibrium analysis are shown to apply to orthodox theory, which has subjectivist foundations, but not to the objectivist classical approach associated with Sraffa. The long-period equilibrium method is indispensable to the analysis of how market societies function. Moreover, since the classical theory contains no trace of the factor substitution mechanisms that underpin neoclassical orthodoxy, its explanations of distribution, employment and outputs must take explicit account of institutions, power and ethical norms. Thus there is no conflict between social economics and the method of the classical economists and Sraffa. On the contrary, the classical approach provides a rigorous framework for the investigation of the very issues that are at the center of institutional and social economics.     

Countering the Power of Vested Interests: Advancing Rationality in Public Decision-Making

Seemingly Pareto-improving reforms face more opposition than they should. In earlier work, I presented an explanation: voters correctly saw reforms as part of a long-term dynamic game, and they correctly saw how the reform affected outcomes (e.g., by affecting beliefs or coalition formation). Recent advances in behavioral economics derived from insights from sociology emphasize preference endogeneity, noting that beliefs are affected by those of others with whom one identifies and need not be consistent with rationality, as conventionally defined. Thus, individuals may have beliefs about the economic system that differ from those of economists. People may support policies which economists’ analyses suggest are contrary to their interests because they believe these policies advance their interests. Based on previous analyses of the causes of these seeming perversities, I show how economists can modify policy proposals in ways that enhance likelihood of support, e.g., with contingent provisions which are operative in the states of the world that economists know (believe) are unlikely to occur, but which enhance the wellbeing of individuals with such beliefs in those states. Those selling products that are adverse to one’s health have learned how to persuade customers to buy them. Likewise, politicians who are selling policies that are adverse to society’s wellbeing have learned how to market their ideas. Economists will similarly have to learn how to persuade citizens of the desirability of the evidence- and theory-based policies that they advocate.     

Geopolitics and the Genealogy of Free Trade Zones in the Persian Gulf

Free trade zones have been championed by policy makers as important mechanisms for the “economic liberalisation” and “globalisation” of the Middle East. While a growing number of political economists have begun to investigate the performance of these projects, few have considered why states voluntarily limit their sovereign powers by establishing these liberalised territories. To address this question, this paper studies the Jebel Ali free trade zone in Dubai (UAE) and the Kish free trade zone in Iran, two of the earliest such projects in the region. Rather than being products of neoliberal ideology or pressure from advanced industrial economies, the essay argues that paradoxically these zones were developed by the Iranian state and Dubai emirate to project territorial sovereignty in turbulent geostrategic settings and moments as well as nodes to circulate rent to domestic and international members of ruling coalitions. The geostrategic and state-building logics informed when, where, and how these projects were developed. More generally, this analysis illustrates that the Middle East is neither absent from the process of globalisation, nor does it simply respond passively and reactively to this complex process. Free trade zones are an example of local strategies working in consort with international processes to fashion new forms of economic and political interconnectedness.     

Demonstrating group selection: A comment on Janet Landa’s ‘The bioeconomics of homogenous middleman groups as adaptive units’

Janet Landa provides an impressive historical tour of the development of her theory of homogeneous middlemen groups (HMGs), and how she arrived at the group selection approach. Despite her claim that the case studies she presents provide evidence for group selection in human societies, we argue that such a conclusion is premature. We suggest that an evolutionary explanation of HGMs will be strengthened by greater attention to the details of the selective process.     

Inside the Crystal Ball of Finance: Understanding Financial Economists' Attitudes to Market and Society

Market economists are thought to wield tremendous power—not only over financial markets but over governments that stray from the ‘market way’. Still, there is mystery about what economists think, and how they form their judgements. This article reports results from a survey of over 50 financial market economists from leading financial institutions in Australia conducted in December 2003 and January 2004. It provides insight into the opinions of economists who impact on markets and policy, especially through media commentary. The article identifies their economic and social views, comparing them with the Australian public. We then examine how professional views of economists differ from their personal views. Differences in professional and private views—especially over the role of government and labour markets—are an opportunity to ponder how judgements are formed and used. We offer tentative answers to the question: do these professionals—highly paid for their opinions—occasionally self‐censor?     

The unresolved problem of gratuitous credit in Austrian banking theory

Ludwig von Mises called gratuitous credit, the ability banks have to create new credit, the chief problem in a theory of banking. This paper traces how Mises and succeeding generations of Austrian-school economists have grappled with this problem, but have failed to find resolution. The result is that Austrian economists disagree on a variety of issues in banking and business cycle theory, such as whether there is an endogenous business cycle under free banking, or cycles only occur under central banking. Before a resolution can be attempted, current thinking must be clarified. This paper divides Austrian economists into five schools of thought. It points to a possible resolution in the economic development writings of Joseph Schumpeter.     

Vested Interests and the Common Man as Seen Through Monetary and Fiscal Policy: Flooding Wall Street or Main Street?

There are many angles through which a critical observer can analyze the divergent class interests in most aspects of macroeconomic management. We examine the insistence of financial authorities of all major economies on reviving economic activity through monetary — and not fiscal — policy as a particularly clear example of favoring vested interests over the interests of the common man. Nearly a century after Thorstein Veblen wrote on the subject, one can find many parallel elements to the political landscape of the times. Today, the common man is often expressed by the “99%,” and many accept that the dominant vested interest is that of global banks. Unlike in Veblen’s times, economists today have many historical experiments in economic management that they can consult. By employing logic, historical experience, and an understanding of our current global finance-led capitalism, we offer a preliminary institutionalist analysis of the mechanisms of current monetary policy that “flood” Wall Street, while leaving employment, production, and investment — Main Street — all but forgotten. We then explain how vested interests have abandoned fiscal policy and left a deflationary macroeconomic environment.     

Do economists have anything to contribute to the debate on urban sprawl? (and would anbody listen to them if they did?)

This essay explores reasons for the relative shortage of work by economists on the subject of urban sprawl. I argue that a correct economic understanding of the sprawl issue is difficult to communicate. Meanwhile, a simplified caricature of economic thinking on sprawl has emerged. It argues that decentralized, low-density development has been chosen by the “free market”, therefore the problem signified by the word sprawl does not exist. This argument, made in the name of economics but not always by economists, has served to polarize the detabe as much as to enlighten it. I propose an alternative understanding of the economics of sprawl that provides common ground for debate among economists, planners, and politicians. The author is associate director of the Center for Regional Economic Issues at Case Western Reserve University's Weatherhead School of Management. In a prior life, he studied cost-of-sprawl issues for the New Jersey Office of State Planning. Thanks go to Rachael Callanan for assistance on this paper.     

An experimental investigation of Hobbesian jungles

Hobbes's state of nature serves as the analytical starting point for much of what economists have written on anarchy and the formation of government. Unfortunately little historical evidence exists about how men behaved in a “state of nature”, if such a situation ever even existed. We conducted a laboratory experiment to create a Hobbesian state of nature and observe the level of economic efficiency subjects achieve. We also investigate Buchanan's conjecture that people would unanimously agree to a social contract against theft.     

经济学家、经济学与中国改革

本文回顾了中国经济学家伴随中国改革成长的历程 ,历数诸多为中国建立现代市场经济制度 ,进行过艰苦的理论和思想探索的经济学家 ;并通过具体实例说明经济学家通过对于现代经济科学认识的深化 ,在改革的重大关头和事件上所发挥的重要作用。中国改革的深入 ,对于经济科学的要求愈来愈高 ,经济学的新课题层出不穷。因此 ,本文提出亟需加快我国经济科学学科建设的若干建议。     

Analysis of Food Demand in Peru: Implications for Food–Feed Competition

In their policy proposals on how best to stimulate economic growth, economists have been increasingly emphasizing free markets. It is, however, possible that free-market-led economic growth can lead to increased income inequity which can further increase poverty. One of the more interesting but thus far insufficiently explored mechanisms for the latter is food–feed competition. Using Peruvian Living Standard Survey (PLSS) data for 1985–86 and 1990, the paper examines the demand patterns of households and concludes that the empirical evidence is in agreement with the hypotheses underlying the theory of food–feed competition.     

Reconciling psychology with economics: Obesity, behavioral biology, and rational overeating

The modern phenomenon of obesity is an archetypal example of a behavior whose explanation simultaneously falls within the purview of psychology, economics, and the biological sciences. While psychologists and advocates of public health have long viewed overeating as a weakness or disease in need of treatment, economists have pointed out that—like any other consumer behavior—choices about diet and exercise can be viewed from the perspective of rational decision theory, subject to the influence of variation in prices and income but not necessarily as a problem in need of a solution. Recent advances in our understanding of the physiological mechanisms by which genes influence behavior in modern socioeconomic environments have begun to point the way to a resolution to this debate. Drawing inspiration from the scientific literature on the neuroendocrinology of energy homeostasis, this paper reviews the empirical determinants of obesity in light of the biologist’s notion that humans and other animals evolved the ability to store body fat as an optimal response to the presence of starvation risk. This approach yields a powerful theoretical foundation, capturing such features of obesity as dynamic inconsistency, genetic variation, susceptibility to pharmaceutical intervention, and variation by season, socioeconomic status, and degree of financial security. It also provides a framework for reconciling the conflict between behavioral and neoclassical economics.     

Bodies of Knowledge in Reproduction: Epistemic Boundaries in the Political Economy of Fertility

Professionals compete and cooperate over how states should govern their population. Declining fertility rates in advanced economies have led to debates about how to enable those of reproductive age to have more children and to have them earlier. This springs from political and socio-economic concerns about fulfilling desired fertility rates, maintaining high levels of human capital, and supporting fiscal and pension systems. This article investigates professionals addressing declining fertility through assisted reproductive technologies (ART), including doctors, demographers and economists. These professional groups have their own bodies of knowledge on how they view fertility, fecundity and the role of women in social reproduction. They can also cooperate to create ‘issue linkages’ on ART across their professional ecologies. The article discusses how professionals apply their bodies of knowledge to the political economy of fertility. Professional bodies of knowledge directly inform how women and men are treated on fertility issues and the policy options available.     

THE CHARACTERIZATION OF GOODS AND SERVICES: AN ALTERNATIVE APPROACH

The definitions of goods and services have been debated among economists for more than two centuries. This article seeks to consider the definitions currently used from a critical perspective and to offer a new general definition of services that is compatible with the existence of several demand rationales.     

ON THE WELFARE PROPERTIES OF FRACTIONAL RESERVE BANKING

Monetary economists have long recognized a tension between the benefits of fractional reserve banking, such as the ability to undertake more profitable (long‐term) investment opportunities, and the difficulties associated with it, such as the risk of insolvency for each bank and the associated losses to bank liability holders. I show that a specific banking arrangement (a joint‐liability scheme) provides an effective mechanism for ensuring the ex post transfer of reserves from liquid banks to illiquid banks, so it is possible to select a socially efficient reserve ratio in the banking system that preserves the safety of bank liabilities as a store of value and maximizes the rate of return paid to bank liability holders.