A Research Annual: Volume 28 Part 1


Table of contents

(25 chapters)

China around 1900 was an enormous domain with approximately 400 million people, almost all of them desperately poor. Most were farmers, working intensively on small tracts of land using relatively primitive technology. It was in many respects a Malthusian economy, with high death and birth rates and many residents living close to the subsistence level.

In the US minimum wages were initially enacted by individual states, beginning with the Commonwealth of Massachusetts in 1912. These laws were modeled on legislation enacted over the previous two decades in Australia, New Zealand, and England (Fisher, 1926, chap. 8; Hammond, 1915, 1913; Hobson, 1915; Hart, 1994, chaps. 2 & 3; Morris, 1986). From 1912 to 1923, the legislatures of 16 states, Puerto Rico, and the District of Columbia passed minimum wage legislation, although not all of them were operational by the end of this period (Brandeis, 1935, p. 501; Clark, 1921; Millis & Montgomery, 1938, chap. 6; Morris, 1930, chap. 1).

The history of science prizes have been awarded to 12 individuals (8 individual authors and 2 sets of coauthors). The history of economics prizes have been awarded to 10 individual authors (no coauthored papers). Seven of the 10 economics prize winners are located in economics departments; the others are in history;4 business history (McCraw); and the history of political thought (Hont). Six of the 12 history of science prize winners are located in history of science programs;5 four more are in history departments;6 one is in a classics department;7 and one is in a geography department. Among the prize winners, then, the history of science is almost exclusively practiced by historians of science, whether they are in history of science departments or in history/classics departments, whereas the history of economics is primarily, but not exclusively, practiced by those in economics departments.8 Although departmental affiliations can be deceiving and ever-changing, clearly Schabas has not convinced historians of economics to abandon the discipline of economics.

Juglar's entry on “commercial crises” appeared in Maurice Block's Dictionnaire général de la politiqueavec la collaboration d’hommes d’État, de publicistes et d’écrivains de tous les pays.6 The dictionary went through two editions – in 1863 and 1873 (with a reprint of the second edition in 1884). One of the most remarkable features of these articles is that they sum up the 258 pages of the first edition of Juglar's Des crises commerciales in only 13 pages. Although they are not numerous, the changes that Juglar introduced in the second edition are important, as they testify to the work he did in that decade on banking and foreign exchanges.

The symptoms that precede crises are utterly undistinguishable from the signs of great prosperity; ventures and speculations of all sorts proliferate; the price of products, the value of land and houses rise; the demand for labor increases and wage rates augment, interest on the contrary diminishes. Add to that a gullible public – whose doubts vanish at the sight of the first successful undertaking – and a taste for gambling, which spreads as prices continue to rise and as the hope of becoming rich in a short time takes hold of people's imagination. Finally, increasing luxury leads to excess spending, fueled less by greater income than by the higher value of capital estimated at market prices.

As in diseases, a commercial crisis is a critical moment to go through. As soon as embarrassments arise, the question is whether one will resist or one will succumb. A crisis is the touchstone that allows us to gauge the soundness of commercial houses, the size of their commitments and of the resources they possess, in capital or in credit, to face up to them. Thanks to the crisis the market operates a sort of selection; the houses that have lost their balance collapse; the others resist. This is how crises indicate the firms that are dubious and those we can trust. Carried away as people were on the wings of credit, they now regain a foothold, although, alongside the businesses that are still afloat, a large number are now under water.

Business cycle theory is normally described as having evolved out of a previous tradition of writers focusing exclusively on crises. In this account, the turning point is seen as residing in Clément Juglar's contribution on commercial crises and their periodicity. It is well known that the champion of this view is Schumpeter, who propagated it on several occasions. The same author, however, pointed to a number of other writers who, before and at the same time as Juglar, stressed one or another of the aspects for which Juglar is credited primacy, including the recognition of periodicity and the identification of endogenous elements enabling the recognition of crises as a self-generating phenomenon. There is indeed a vast literature, both primary and secondary, relating to the debates on crises and fluctuations around the middle of the nineteenth century, from which it is apparent that Juglar's book Des Crises Commerciales et de leur Retour Périodique en France, en Angleterre et aux États-Unis (originally published in 1862 and very much revised and enlarged in 1889) did not come out of the blue but was one of the products of an intellectual climate inducing the thinking of crises not as unrelated events but as part of a more complex phenomenon consisting of recurring crises related to the development of the commercial world – an interpretation corroborated by the almost regular occurrence of crises at about 10-year intervals.

David Hume's image, as produced by his fellow Scot, Allan Ramsey, is printed large on the hardback cover of David Hume's political economy. This handsome portrait captures Hume's confidence and intelligence and displays, in its scarlet cloth, fine lace and elaborately worked, golden trim, Hume as a successful philosophe, a man of knowledge and also of commercial success (a success of considerable psychological importance for Hume, and a source of pride) founded upon the literary works on which his left arm rests. Indeed, without the significant reference to the books, this could as well be the portrait of a Scottish merchant or affluent banker, both types ranked among his Edinburgh friends. Hume with no University post and no inherited income worth speaking of made the most of the commercial possibilities open to authorship. This is a refined, even luxurious painting, and brings together in one enduring image, at least for those in the know, Hume's notion of “luxury” or of “Refinement in the Arts” and the idea of virtue in commercial society. This is a fitting cover for a work that places Hume's political economy firmly in the contexts of his notion of a science of human nature and of the role of virtue in commercial society.

The long delay between the publication of Bernt Stigum's magnum opus and this review owes not only in part to personal reasons of no interest to anyone but the reviewer, but also to the sheer heft and density of the book itself. It is a long (768 pages) and difficult book. In fact, it is really two books: the first is Stigum's treatise on the philosophy of econometrics and the second is an anthology of contributions, constituting 8 of its 27 chapters, from a distinguished group of 16 econometricians, including two Nobel Prize winners (Granger and McFadden). The anthology sits somewhat uneasily alongside the treatise. The inclusion criteria seem to be either that the topic is one that Stigum thought ought to be covered or one that illustrates his larger points. Yet, it is unclear that the contributors fully subscribe to Stigum's analysis or that their contributions do not rather obscure than clarify his own position. The work would have been stronger and more readable had Stigum chosen to publish the treatise and the anthology separately. Even broken up in this way, Stigum's own 329 page contribution would be a formidable and erudite work. Although it is rare enough to find a scholar who is comfortable in mixing such disparate thinkers as Aristotle, Carol Gilligan, and E.E. Evans-Pritchard in the same work, it is, I am sure, unprecedented when that work is principally concerned with econometrics.

Let me begin this essay with some propositions found in the preface to this study. “(A) dynamic of contradiction…stands at the heart of Marxist theory” (p. 8). And (quoting Engels) while “men make their own history…in that each person follows his own consciously desired end, and it is precisely the result of these many wills operating in different directions and of their manifold effect upon the world outside that constitute history.” “What driving forces in turn stand behind these motives? What are the historical causes which transform themselves into these motives in the minds of actors?” (p. 9). Hunt's study demonstrates that Engels was certainly a most contradictory figure, alternating and sometimes conjoining a life of womanizing and carousing to one of the serious and dedicated political work to one of the capitalist manager. As to the second issue, while Hunt shows the various influences that prompted Engels to move toward, indeed, facilitate the development of what is termed Marxism, the question of motivation that caused him to honor those influences is left unanswered. That is, while many were subject to the same influences, the same historical forces, why did Engels “allow” these forces to pull him in a particular direction?

Do not be deceived by the apparent thinness of this book. The mere 216 pages are dense, the subject is weighty, and the print a little small. In other words, even someone already familiar with the material at hand is going to have to slow down to take in everything that Frey has to offer here. Speaking of which – and before we get to the proper review – there is probably no one out there except for Frey who brings to the subject of economics and ethics the impressive historical breadth of this book. Beginning with the Puritans and continuing all the way through Michael Novak and Amartya Sen, America's Economic Moralists is a truly encyclopedic historical treatment of this crucial and often confusing topic.

As I suggested earlier, Stabile's “lessons” typically take the form of questions. For example, what is the conceptual basis for defining a minimum income sufficient to sustain a labor force (what Stabile dubs the argument from sustainability)? Is there an absolute standard based strictly on basic biological needs, as Rose Friedman argued (p. 53)? Or do the necessities of life also include “whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without,” as Adam Smith declared (quoted in Stabile, p. 17)? Introducing Amartya Sen's notion of capability broadens our scope even further, for now we are concerned about developing the traits, abilities, and opportunities that can make workers more productive, effective, and valuable citizens (a concern that Stabile finds implicitly in numerous authors, including Aristotle, Smith, Marshall, and Richard Ely).

Over the past decade or two, the Hayek Studies industry has been in a period of significant growth. A whole variety of books about Hayek, both his life and his thought, have appeared, with each trying to differentiate its product sufficiently to make a mark on both scholarship and sales. Into this fairly crowded marketplace comes a volume edited by two political scientists, neither of whom is known for contributions to the Hayek literature. The volume grew out of a lecture series at Utah State University, and the group of scholars that they assembled is notable as well for not being a cast of the “usual Hayekian suspects,” nor exclusively economists. In fact, there is only one economist contributing to the volume, with a couple of philosophers and one historian, and the rest being political scientists. In addition, all the essays address the concept of “spontaneous order,” which is central to Hayek's intellectual framework. More specifically, each essay approaches that topic in light of its relationship to “liberalism” and “conservatism.” The result is a largely excellent set of papers that offer critical and constructive explorations of the idea of spontaneous order and its place in Hayek's thought and in understanding the social world.

Like its predecessor – Firms, Governments and Economic Change (Yu, 2001) – this new book originates from Yu's dissatisfaction with the axiomatic optimization-and-equilibrium framework, which he sees as dominating the theory of industrial and economic organization as well as the theory and practice of business strategy. The most succinct statement of the framework that I think Yu takes issue with probably remains that of Vilfredo Pareto: “[A] full representation of the individual's preferences … is sufficient to determine economic equilibrium. The individual can disappear as long as he leaves us a photograph of his preferences” (Pareto, 1927, p. 170, my translation).2 But whereas in the previous book Yu mostly studied the role of governments vis-à-vis firms and innovation, in this new book Yu mostly studies the role of long run business planning vis-à-vis firms and innovation.

For the most part, the book presents a comparative assessment of Austrian economic theories with the predominant neo-classical economic theories. One fundamental theme is that Austrian economic theories are significantly better than that of neo-classical economics and the author provides a variety of reasons to support that conclusion. The author starts with a direct comparison of these two schools in chapter 1. The comparison of the neo-classical economic principles and methodology with Austrian thinking is done in a commendable manner and the summary table in chapter 1 is excellent.

In the title essay of the volume, Heyne wonders why ethicists get so bothered by economists who make claims like, “polluting activities ought to be shifted from developed to less developed countries.”1 And in a keen rhetorical move – one that Heyne employs throughout the volume – he shows how all of the usual answers to this question merely hide a deeper problem. Heyne suggests the real issue is that most ethicists assume “a social system that's completely known and completely controllable” (p. 5). Consequently, the problem most ethicists have with economics is that “economic analysis is rooted,” according to Heyne, “in the fact that economists specialize in the analysis of social systems that no one controls and that produce results that no one intended” (p. 5). Heyne sees that ethicists dogmatically hold to an ideal of the good in which people act so as to intend the good of others. Such a view demands that people act only in social systems where they personally know other people's needs or else that people are assumed to have a God-like omniscience that will allow them to know everyone's needs.

Three themes dominate Hunting Causes. The first is that cause is a plural concept. The methods and metaphysics of causation, Cartwright believes, are context dependent. Different causal accounts seem to be at odds with one another only because the same word means different things in different contexts. Every formal approach to causality uses a conceptual framework that is “thinner” than causal reality. She lists a bewildering variety of approaches to causation: probabilistic and Bayes-net accounts (of, for example, Patrick Suppes, Clive Granger, Wolfgang Spohn, Judea Pearl, and Clark Glymour), modularity accounts (Pearl, James Woodward, and Stephen LeRoy), invariance accounts (Woodward, David Hendry, and Kevin Hoover), natural experiments (Herbert Simon, James Hamilton, and Cartwright), causal process accounts (Wesley Salmon and Philip Dowe), efficacy accounts (Hoover), counterfactual accounts (David Lewis, Hendry, Paul Holland, and Donald Rubin), manipulationist accounts (Peter Menzies and Huw Price), and others. The lists of advocates of various accounts overlap. Nevertheless, she sometimes treats these accounts as if they were so different that it is not clear why they should be the subject of a single book. And she fails to explain what they have in common. If, as she apparently believes, they do not have a common essence, do they have a Wittgensteinian family resemblance? She fails to explore in any systematic way the complementarities among the different approaches – for example, between invariance accounts, Bayes-nets, and natural experiments – that frequently make their advocates allies rather than opponents.

The Hesitant Hand is a book about the struggle between market and state control of human behavior. Medema tells a convincing story of the evolution of the management of self-interest, which has fluctuated over time from more government control to less and back again. Adam Smith's lack of confidence in government and his explanation that the invisible hand of the market could harness self-interest led to the rejection of reliance on state regulation. The book's cover illustration is a human hand. I grant the obvious connection with the title of the book, but I would offer Fig. 1 as a picture that conveys the essence of the argument.

The first contribution to this section is by Richard Schmalensee titled “Thoughts on the Chicago school legacy in U.S. antitrust.” It appears the purpose of this essay is to set up a target for the rest of the contributors to shoot at – a target that is emphatically pro-Chicago. In his essay, Schmalensee reviews some of the aspects of U.S. antitrust policy that outraged Chicago school lawyers and economists in the 1970s. He takes a brief look at some of Chicago's subsequent victories that he claims are now generally accepted as positive changes. And finally, he argues that some of Chicago's lost battles also constitute positive aspects of its legacy. His discussion is focused on four broad issues: the objectives of antitrust, the past policy toward “no-fault” concentration, the treatment of productive efficiency, and the evaluation of non-standard business conduct (pp. 11–12).

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Research in the History of Economic Thought and Methodology
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Emerald Publishing Limited
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