Contributions to Political Economy - recent issues

Mathematical Needs and Economic Interpretations

Duran, M. A. — 2007-08-13

This paper discusses why the disconnection between formal structures and theoretical content in economic model building can lead to undesirable consequences. By contrast, linking formal and verbal contents by means of coherent and relevant interpretations is worth the effort: it is a relatively simple way of helping to improve mathematical economic theorization. By way of illustration, the interpretation that Arrow and Debreu put on the inclusion of free goods in their proof of existence of general equilibrium is also discussed.

A Methodological Note on Long-Period Positions

D'Orlando, F. — 2007-08-13

This brief paper seeks to overcome a number of methodological disagreements among economists who use the long-period method of analysis. In particular, it attempts to clarify the key distinctions between convergence and stability, convergence and gravitation and chronological and theoretical persistence. The conclusion is that the theoretical soundness of the long-period method depends on the convergence of actual magnitudes towards their long-period counterparts, an empirical issue to which theoretical considerations of stability are irrelevant.

Marx, Wages, and Cyclical Crises: A Critical Interpretation

Ramirez, M. D. — 2007-08-13

This paper examines certain theoretical questions and issues relating to Marx's conception of wages under competitive capitalism. First, it is shown that the distinction between labour and the value of labour power is critically important for understanding the source of profits in competitive capitalism. Second, the value of labour power cannot be reduced either to the classical school's bare minimum subsistence level, or a "physically" determined minimum. Next, the paper discusses Marx's neglected distinction between absolute and relative real wages. It is shown that the purely technical relationship between wages and labour productivity is captured by the notion of absolute real wages. Marx, however, considered relative real wages to hold the key to understanding how one class appropriated the surplus labour time of another. Finally, the paper traces the movement of absolute and relative real wages for the active part of the working class during the various phases of the industrial cycle. It is argued that Marx believed that the secular decline in the value of labour power reflecting rising social (labour) productivity would be accompanied by a relative deterioration in the social position of the members of the active working class, and an absolute immiseration of the three major components of the relatively growing industrial reserve army.

Reswitching of Techniques in an Intertemporal Equilibrium Model with Overlapping Generations

Fratini, S. M. — 2007-08-13

We study an overlapping generation model of Diamond's type. In contrast to Diamond, we do not assume that the technology can be represented by an aggregate neoclassical production function. Rather, we study the case in which (i) the technology consists of a finite number of constant coefficient productive activities, (ii) there are capital goods physically heterogeneous with respect to each other and to the economy's only consumption good and (iii) there are two alternative production methods for obtaining the consumption good. We explore the possible linkage between reswitching of techniques and the multiplicity of stationary state equilibria of the model.

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

Sinha, A. — 2007-08-13

In a recent paper Samuelson and Etula claim to have provided three examples of the presence of a constant returns to scale assumption in Sraffa's Production of Commodities. The present paper is a refutation of their interpretation of Sraffa's propositions. It shows that they mistakenly take Sraffa's logical propositions for empirical propositions. This article also provides evidence to refute Samuelson's hypothesis that Sraffa consistently confused the concept of Marshallian "constant cost" with the general equilibrium concept of "constant returns to scale". The paper also argues that Sraffa's prices are not necessarily "equilibrium" prices, and that it is not true that Sraffa maintained that changes in demand had no impact on prices; his position appears rather to be that the impact of demand on prices is unpredictable.

Joan Robinson and Maurice Dobb on Marx

Kerr, P. — 2007-08-13

This paper examines the formation of Joan Robinson's early views on Marx through a dialogue with Maurice Dobb and then the reception of these views at the time by Kalecki, Keynes and some prominent reviewers. It considers how her views were formed and developed in this dialogue and assesses how her position differed from those of others interested in Marx and working in Cambridge at the time, including Piero Sraffa. It concludes that, despite certain misreadings and limitations, Robinson's reading of Marx was not of inconsequence and that she was not unaware of the different approach she took to Marx.

Anglo-Saxon vs Continental Scholarship: On Critical Editions of Economic Classics

de Vivo, G. — 2007-08-13

The present paper discusses different editions of economic classics, in particular focusing on the recent edition of the economic works of François Quesnay, published by the Paris Institut National d'Études Démographiques. It is argued that its quality is well below the standards one is entitled to expect for the critical edition of one of the most important economists of all time.

Selected Economic Essays

Fausto, D. — 2007-08-13

Economists in Cambridge: a Study through their Correspondence, 1907 1946

Backhouse, R. E. — 2007-08-13

Old Age Income Support in the 21st Century: An International Perspective on Pension Systems and Reform

Barba, A. — 2007-08-13

ON INTEREST AND PROFIT: THOMAS TOOKE'S MAJOR LEGACY TO ECONOMICS

Smith, M. — 2006-08-14

This paper argues that Thomas Tooke's (1773–1858) most important legacy to economics is not his conception of "endogenous money", however important, but is instead his original proposition that the long-run "average" rate of interest entered into the normal cost of production and, therefore, the normal prices of commodities, reflecting the notion that the interest rate systematically governs the normal rate of profit. The paper shows that this conception of an "autonomous" rate of interest advanced by Tooke contributes to overcoming the long-run neutrality of monetary forces which has traditionally characterized economic theory within the framework of "modern" classical analysis.

THE MAN FROM THE MOON: SRAFFA'S UPSIDE-DOWN APPROACH TO THE THEORY OF VALUE

Gilibert, G. — 2006-08-14

By the end of 1927, Sraffa, not yet in his thirties, showed Keynes a system of three linear and homogeneous equations to determine prices in an economy without surplus. We now know that these "first equations" were to be the starting point for his future (1960) book. Considered as such, this elementary system can hardly be considered as particularly impressive. Indeed, it could be viewed as a rather trivial set of accounting identities. Keynes's reaction is therefore surprising: "It is very interesting and original—he wrote to his wife Lydia—but I wonder if his class will understand it when he lectures". In the present paper, it is suggested that Keynes's enthusiastic approval of the equations relied on their being the outcome of a totally new theoretical approach to the problem of value. With the aid of the Sraffa Papers, preserved in the Wren Library, this approach is shown to be a most unusual one, so unusual as to be hardly intelligible and acceptable even for the "advanced" students for which Sraffa's lectures were intended. Moreover, if we adopt this new approach, a remarkable consequence becomes evident. This is that the vexed question of variable or constant returns becomes irrelevant—as Sraffa always maintained.

The St[andard] Syst[em] provides tangible evidence of the rate of profits as a non-price phenomenon.

A Dividend could be declared before knowing what is the price of the company's product.

P. Sraffa, Slogans not used (D3/12/43)¹

FINANCE VS OWNERSHIP: MILL'S TWO ABSTINENCES AND THE LINK BETWEEN PROFIT AND INTEREST

Gootzeit, M. J. — 2006-08-14

The difference between profit and interest was never clarified by the early classicalists, but J. S. Mill provided a partial answer: It was based on his two concepts of "abstinence". Interest was the reward for anonymous or "contract" personal saving without ownership—savings' financial function—while profit was the reward for personal saving to increase ownership. Although he focused on abstinence in the Seniorian tradition, Mill emphasized personal, not business, saving, as did Senior. Furthermore, Mill's "abstinence theory of interest and profit" has never been taken seriously as a complete theory, as has Senior's. This was because of his "loanable" funds' theory of interest, which was taken up by later writers. It is shown that this theory predicted that net profits and interest would vary indirectly. It used the net profit to help determine the interest rate, so it perpetuated the confusion between these two rates.

GLOBAL FINANCE, INCOME DISTRIBUTION AND CAPITAL ACCUMULATION

Argitis, G., Pitelis, C. — 2006-08-14

The appreciation of the consequences of financial globalization is an important task for contemporary political economy. This paper maintains that industrial and macroeconomic instability faced by many developed and developing countries is likely to be attributed, to an extent, to changes in income distribution in favour of rentiers, financiers and other groups of financial capitalists. We elaborate on Marx's and Keynes's ideas and argue that a rise in rentiers' income might have been an obstacle to industry's investment decisions, and detrimental to capital accumulation. The econometric analysis conducted provides evidence in line with the paper's major hypothesis for the United States and the UK.

SOME CRITICAL COMMENTS ON DE VIVO'S INTERPRETATION OF SRAFFA'S PATH TO PRODUCTION OF COMMODITIES

Sinha, A. — 2006-08-14

A REJOINDER

De Vivo, G. — 2006-08-14

THE EBB AND FLOW OF FISCAL ACTIVISM

Barba, A. — 2006-08-14

During the last quarter of the 20th Century, the conventional wisdom prevailing in academic, political and financial circles was definitely against government deficits. At the turn of the century, however, a substantial recourse to deficit spending practices in the United States reopened the debate on the usefulness of countercyclical fiscal policies. This essay discusses the main contents of this debate, reviewing the contributions to various symposiums held at a number of U.S. Federal Reserve Banks. A comparison with the views on this issue prevailing in Europe is also provided.

Delle Lezioni di Commercio o sia di Economia Civile. Con Elementi del Commercio

Di Battista, F. — 2006-08-14

Beitrage zur okonomischen Dogmengeschichte

Heertje, A. — 2006-08-14

The Biographical Dictionary of British Economists

de Vivo, G. — 2006-08-14

The Wealth of Ideas: a History of Economic Thought

Aspromourgos, T. — 2006-08-14

ON GLOBALISATION AND GOVERNANCE; SOME ISSUES

Pitelis, C. N. — 2005-08-10

ECONOMIC GLOBALISATION: DIALECTICS, CONCEPTUALISATION AND CHOICE

Sugden, R., Wilson, J. R. — 2005-08-10

This paper provides an analytical foundation for use of the term ‘globalisation’ when examining processes of economic development. A meeting ground is suggested for those that argue in favour of globalisation and those that are often, but in our view inappropriately, labelled as ‘anti-globalisation’. We see economic globalisation as a process in which new technologies and a new geography imply the possibility of strategic decisions that result in alterations to the prospects for, and forms of, economic development. A spectrum of possibilities for different forms of globalisation is identified, focusing in particular on ‘elite globalisation’ and ‘democratic globalisation’.

GLOBALISATION AND CORPORATE POWER

Cowling, K., Tomlinson, P. R. — 2005-08-10

This paper seeks to establish a view of the world within which globalisation and corporate power interact and shape the nature of the modern market economy. Drawing upon a range of theory and evidence, we consider the implications of the growth of transnational firms and concentrated market structures within the advanced industrial countries. We see ourselves as offering a framework to which other results can be added and assessed in order to move to a more accurate analysis of some of the major forces acting upon the global economy: we are not seeking to be comprehensive, but to offer a serious appraisal of a range of literature that relates to establishing such a world view. Our interim conclusion is that the present globalisation process (and the ensuing concentration of corporate power) has not met the wider interests of the global community: indeed it has contributed to a series of ‘strategic failures’ throughout the world economy.

INTRA-INDUSTRY FOREIGN DIRECT INVESTMENT, UNEVEN DEVELOPMENT AND GLOBALISATION: THE LEGACY OF STEPHEN HYMER

Driffield, N., Love, J. H. — 2005-08-10

This paper revisits the issue of intra-industry foreign direct investment (FDI). This issue was considered in Stephen Hymer's early work, but was not subsequently developed, and was largely ignored in the literature for some time. Using the example of the UK, this paper traces the patterns of intra-industry FDI, both across countries and industries, for both the manufacturing and service sectors. Despite the undoubted increase in the integration of goods and factor markets since the time of Hymer's writing, the analysis presented here shows that the pattern has changed little in the last 40 years. The paper then goes on to discuss the motives for intra-industry FDI, relating it to technology flows and factor cost differentials. Finally, we present some analysis relating intra-industry FDI to uneven development, both between developed and developing countries, and between regions of a developed country. It is clear that intra-industry FDI is still very much a developed country phenomenon, as Hymer suggested, with both developing countries and poorer regions of developed countries unlikely to reap any of the benefits. In this context, one-way and two-way FDI must be seen as different phenomena within the debate on globalisation.

FDI, GROWTH AND THE ROLE OF GOVERNANCE: CHANGING THE RULES OF THE GAME

Kottaridi, C. — 2005-08-10

This paper synthesises theoretical predictions on economic globalisation with the International Business and Economics disciplines in order to provide new insights on the link between Foreign Direct Investment (FDI) and growth. We empirically investigate the impact of foreign investment on recipient EU economies for the last two decades, based on the correspondence principle between organisational hierarchical pyramids and the hierarchical structure of the global economy. Our results are supportive of a bi-polar EU where the higher value-added activities are concentrated in core countries. We claim that there is a need for re-evaluating existing governance so that peripheral economies can improve their domestic characteristics, e.g. by enlarging their human capital basis, and be able to attract and maintain FDI.

GLOBALISATION AND THE REGULATION OF FDI: NEW PROPOSALS FROM THE EUROPEAN COMMUNITY AND JAPAN

Singh, A. — 2005-08-10

The key analytical and policy question examined in this paper is whether multinational companies and their overseas investment need to be regulated at the national and/or at the international level, in order to address market failures, and to enhance their potential contribution to world welfare. The paper examines, from a developing country perspective, two kinds of regulatory regimes: first, the current regime and second, a new regime proposed by the European community and Japan at the WTO (ECJ) to institute fresh global rules of the game which will effectively allow multinationals unfettered freedom to invest where they like, whenever they like, how much and in what products. The central conclusions of the paper are, first, that ECJ, despite its important concession of confining itself to only one source of external finance namely FDI, is a flawed proposal from the perspective of both developing and developed countries. Its shortcomings are particularly serious with respect to developing countries as it essentially ignores the developmental dimension altogether. Secondly, it is emphasised that although the current post-Uruguay Round FDI regime is to be preferred in relation to the ECJ, the former has, nevertheless, severe deficits from a developmental perspective. Thirdly, the paper suggests that instead of laissez faire, globalisation and integration of the world economy is more likely to be promoted on a sustainable basis by suitable national and international regulation of MNC activities and the incentive structure facing their executives.

WHY WE MUST DEFUSE THE DEBT THREAT

Hertz, N. — 2005-08-10

Developing country debt is back in the news. Public figures such as Gordon Brown, and celebrities such as the rock star Bono are calling for it's cancellation. But what should a debt cancellation program look like? Upon what bases should countries be eligible for debt cancellation? How should the culpability of donors for the developing world debt crisis be addressed? How can debt savings be ring-fenced so that they reach the constituencies who most need them? And will the cancellation of debt on its own suffice? These are the questions Noreena Hertz addresses in this paper.

IS GLOBAL CAPITALISM MORALLY DEFENSIBLE?

Dunning, J. H. — 2005-08-10

This article first makes the case for responsible global capitalism, and the role of belief systems in advancing or inhibiting economic efficiency and socially acceptable behaviour. It then goes on to illustrate how the content and effectiveness of three contemporary elements of the global economy, viz, corporate social responsibility, the achievement of the millennium development goals and the opening up of centrally planned economies to market forces, are being, or might be, effected by the appropriate `bottom up' and `top down' incentive structures and enforcement mechanisms devised by the society of which they are part.