Forum for Social Economics, 42/4 (2013)
Following are the contents (with abstracts) of the latest issue of Forum for Social Economics (42/4, 2013), including a special open-access section on Vernon Smith's paper about Adam Smith (see here for more).
Spotlight Article (OPEN ACCESS)
Adam Smith: From Propriety and Sentiments to Property and Wealth, Vernon L. Smith
“Why return to Adam Smith?” Because we learn that he had fresh-for-today insights, derived from a modeling perspective that was never part of economic analysis. Smith wrote two classics: The Theory of Moral Sentiments (1759; hereafter Sentiments); and An Inquiry into the Nature and Causes of the Wealth of Nations (1776; hereafter Wealth). In Sentiments it is argued that human sociability in close-knit groups is governed by the “propriety and fitness” of conduct based on sympathy. This non-utilitarian model provides new insights into the results of 2-person experimental “trust” and other games that defied the predictions of traditional game theory in the 1980s and 90s, and offers testable new predictions. Moreover, Smith shows how the civil order of “property” grew naturally out of the rules of propriety. Property together with what I call Smith's Discovery Axiom then enabled his break-through in Wealth that defined the liberal intellectual and practical foundation of two centuries of Western economic growth.
Comments (OPEN ACCESS)
Sentiments and Motivations in Adam Smith and Vernon Smith, Jonathan B. Wight
Vernon Smith (VS) discovered Adam Smith (AS) late in his professional career, and has adopted ideas from The Theory of Moral Sentiments to explain findings in experimental economics. Most important is the theorized link between moral sentiments and the evolution of property rights and law as foundations for commerce. VS's encounter with AS, while not new, provides a compelling look at the modern laboratory of social science through the lens of the Enlightenment, and cannot easily be encapsulated within a utilitarian framework. This paper provides an overview and commentary on VS's approach.
From Propriety to Property, or is it the Other Way Round?, Paolo Ramazzotti
If we acknowledge that Adam Smith's two major works are related, we will be better equipped to appreciate the features of the economy we live in. The shift from a close-knit community to a more extensive range of economic relations, however, involves qualitative changes that question Vernon Smith's linear causation from propriety to property and human betterment.
Vernon Smith's Explanation of Moral Sentiments, B. Jane Clary
This paper argues that while Vernon Smith is correct in his analysis that Adam Smith's theory of human nature, as expressed in The Theory of Moral Sentiments, provides a much more accurate model of behavior than does that of utility maximization, Vernon Smith's analysis can be much enriched by including a more complete explanation of Adam Smith's model of human behavior to include an analysis of prudence, justice, beneficence, and self-command.
Methodenstreit 2013? Historical Perspective on the Contemporary Debate Over How to Reform Economics, Peter M. Spiegler & William Milberg
The general failure of economists to predict the financial crash of 2008 has given rise to a wide-ranging debate over the need for methodological reform. But has this debate been adequate to the task at hand? We introduce a framework for classifying methodological debates according to their scope. The scope of debate is especially important in a time of economic crisis, when it is unclear what kind of disciplinary reforms are needed. We find that the current debate is confined largely to the methodological level, taking the incumbent ontology and epistemology as given. We contrast the current debate with two other moments of internal questioning in economics—the Methodenstreit of the 1880s and Keynes' innovations of the 1930s. These were more fundamental, ontological debates, and the contrast with the current debate indicates that reform in economics is likely to be minimal and slow in the wake of the crisis.
Ethical systems are embedded in paradigms. The call for an ethical approach to economics must ultimately address the nature and critique of the existing paradigm, rather than focus simply on individual behavior or policy prescriptions. The existing paradigm has its own ethical norms and foundations, even if not widely understood or acknowledged. The norms and paradigm must shift together as part of the same process of critique.
Citizens and policymakers in many nations are becoming increasingly concerned about large budget deficits and mounting long-term fiscal policy challenges. At the same time, slow economic growth in the United States and Europe is causing some people to demand more government spending (and lower taxes) and others to question the efficacy of fiscal policy. Against that backdrop, institutional economists are exhibiting renewed interest in the field of public finance. This article responds by outlining four core concepts of institutionalist public finance: problem solving, institutional analysis, strategic choice, and stakeholder engagement. What distinguishes the perspective of institutionalism from that of neoclassical economics, today’s dominant economic paradigm, is described in the course of the discussion. The core concepts of institutionalist public finance offer a coherent approach to the study of fiscal policy questions. Those concepts were first fashioned decades ago, but remain relevant: institutionalism continues to provide a solid basis for constructive analyses of fiscal challenges.
My meeting and subsequent long association with my mentor and friend, Milton Friedman, some of his contributions to economics, public policy, and the Chicago School, are described. The meeting with Friedman was due to a late night passenger in my Checker cab, Abram Lincoln Harris, Jr, a prominent economist whom, I was told, was a founder of the Association of Social Economics that cosponsored the seminar where this paper was presented. I had studied under Abba Lerner at Roosevelt University. Lerner was instrumental in bringing Keynesian economics to the United States. Due to the intervention of Harris and Friedman I was able to study under outstanding economists at the University of Chicago without paying tuition. Descriptions of Friedman's views, including his negative income tax that led to the passage of the largest means-tested anti-poverty program in the United States and some of his other views on the efficient market and rational expectations theories are described. His belief in the benefits of capitalism and freedom will survive this financial crisis under conditions I describe.