P DiMaggio, “Culture and Economy,” The Handbook of Economic Sociology 27 (1994).
"The purpose of this chapter is to review critically research on the relationship between culture and economy. Most of us are accustomed to the view, assimilated by social research and theory, that economic relations influence ideas, worldviews, and symbols. That the reverse is true, that aspects of culture shape economic institutions and affairs, is less well understood and therefore richer in implication for economic sociology and for interdisciplinary conversations. Therefore I emphasize the impact of culture on the economy and only secondarily consider economic effects on culture" (27).
DiMaggio argues crucially two things: that every economic process can be seen as having crucial cultural aspects and also that these economic processes, in part because of their irreducible cultural components, must be seen granularly and not approached globally or with universal characteristics.
Culture can have many effects on economics, from defining interests (either constituting them or regulating them) and position the norms of market interaction.
If culture is so important, why don't we see it in economic analysis? DiMaggio argues that, in part, it is a matter of parsimony: economic analysis relies on parsimonious models and culture does not lend itself to such accounts.
The chapter then goes on in great detail to outline different cultural aspects to economic life. I skimmed.
Monday, December 8, 2008
Swedberg: The New Battle of Methods
R Swedberg, The New battle of Methods. (Univ., Sociologiska institutionen, 1990).
"As the 'cold war' between economics and the other social sciences draws to a close, new scientific discoveries are being threatened by the single-minded vision of the economic imperialists" (33).
This article begins by wondering where the line will be drawn between the study of economics and other social science endeavors. "It is my contention that economic imperialism is threatening to set off a new 'battle of methods," and this is something that could have very negative consequences for economics..." (33). The author focuses on the Methodenstreit battle that came to represent early iterations of the tension between economics and other social sciences, specifically in battles between economists who argued for a more historical approach and those who worked with purely analytical approaches, most notably the marginal utility approach of Menger, etc. Webber is seen as bringing both camps together in a school of thought that brought both history and theory to bear on economic problems. This was called the socioeconomic school.
The author wonders if the rationalistic approaches of authors like Becker are not isolating economics once again. This isolation and attempt to explain everything using economic methodologies is referred to as "economic imperialism" by Swedberg (36).
"As the 'cold war' between economics and the other social sciences draws to a close, new scientific discoveries are being threatened by the single-minded vision of the economic imperialists" (33).
This article begins by wondering where the line will be drawn between the study of economics and other social science endeavors. "It is my contention that economic imperialism is threatening to set off a new 'battle of methods," and this is something that could have very negative consequences for economics..." (33). The author focuses on the Methodenstreit battle that came to represent early iterations of the tension between economics and other social sciences, specifically in battles between economists who argued for a more historical approach and those who worked with purely analytical approaches, most notably the marginal utility approach of Menger, etc. Webber is seen as bringing both camps together in a school of thought that brought both history and theory to bear on economic problems. This was called the socioeconomic school.
The author wonders if the rationalistic approaches of authors like Becker are not isolating economics once again. This isolation and attempt to explain everything using economic methodologies is referred to as "economic imperialism" by Swedberg (36).
Sunday, December 7, 2008
Spiro: The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets
DE Spiro, The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets (Cornell University Press, 1999).
"The successful resolution of the disequilibrium in global balance of payments caused by the oil price revolution was one of the most remarkable achievements of the postwar era. Nearly 500 billion petrodollars were recycled from oil producers with a capital surplus to countries with trade deficits. A major threat to the international economic system was overcome, and the stability of that system was preserved. This book asks how the challenge of recycling petrodollars was successfully resolved" (1).
In the 70s and early 80s, OPEC nations raked in much money through oil exports and did not balance this income with a similar level of imports. In other words, they ran a budget surplus based on export income. The global balance of payments, therefore, required that other nations run a net deficit in total trade.
"Recycling petrodollars was the process by which the oil exporters' surplus financed deficits elsewhere in the world. Recycling challenged cooperation among the advanced industrialized democracies and the stability of the international economic system in the distribution of trade deficits...and in the distribution of capital" (1-2).
The deficit requirement led to a situation where cooperation was potentially tenable. Nations may try to protect themselves from these spending pressures through protectionism, however, this was sure to fail if all nations participated. Then, if nations did decide to shoulder part of the deficit, competition could intensify between a variety of nations vying for petrodollar supports for their deficit spending.\
"For the sake of the stability of the international monetary system, only one nation could have assumed the role of providing a key currency for recycling. Without such leadership, there was a strong possibility of mutually destructive competition for capital. Yet this form of leadership also carried with it the potential for exorbitant privileges. If the United States competed for capital unilaterally, and then made other nations come to terms for access to that capital, the result would be predatory leadership that was not in anyone's interest except that of the United States" (4).
A variety of contending explanations are offered for petrodollar recycling:
Market Forces:
"Neoclassical economists believe that the price mechanism...comes about automatically when individuals are permitted free access to supply and demand...When free markets are allowed to develop, international cooperation and harmony are automatic" (6).
Institutions:
"The problem that liberal institutionalism addresses is the difficulty nation-states have in reaching cooperative agreements, even when they share interests in cooperation" (8).
Hegemony:
"According to structural realists, stability in the international political economy is provided when one nation serves as a leader or 'hegemon'" (9).
Ch 2: Defining the Principles of Allocation:
"This chapter explores the problem American policy makers perceived in petrodollar recycling, the threats of that problem to international cooperation, and the meaning of that threat to the shared concept of international legitimacy. I examine the agreed-upon and legitimate roles of authoritative leadership and of international markets in distributing balance-of-payments financing...What was considered legitimate, and what constituted illegitimate intervention in the system" (19).
"A necessary precondition of the smooth functioning of international financial markets is the provision (by a hegemonic power) of the three goals of an international monetary order: confidence, liquidity, and a balance-of-payments adjustment mechanism" (21).
"The successful resolution of the disequilibrium in global balance of payments caused by the oil price revolution was one of the most remarkable achievements of the postwar era. Nearly 500 billion petrodollars were recycled from oil producers with a capital surplus to countries with trade deficits. A major threat to the international economic system was overcome, and the stability of that system was preserved. This book asks how the challenge of recycling petrodollars was successfully resolved" (1).
In the 70s and early 80s, OPEC nations raked in much money through oil exports and did not balance this income with a similar level of imports. In other words, they ran a budget surplus based on export income. The global balance of payments, therefore, required that other nations run a net deficit in total trade.
"Recycling petrodollars was the process by which the oil exporters' surplus financed deficits elsewhere in the world. Recycling challenged cooperation among the advanced industrialized democracies and the stability of the international economic system in the distribution of trade deficits...and in the distribution of capital" (1-2).
The deficit requirement led to a situation where cooperation was potentially tenable. Nations may try to protect themselves from these spending pressures through protectionism, however, this was sure to fail if all nations participated. Then, if nations did decide to shoulder part of the deficit, competition could intensify between a variety of nations vying for petrodollar supports for their deficit spending.\
"For the sake of the stability of the international monetary system, only one nation could have assumed the role of providing a key currency for recycling. Without such leadership, there was a strong possibility of mutually destructive competition for capital. Yet this form of leadership also carried with it the potential for exorbitant privileges. If the United States competed for capital unilaterally, and then made other nations come to terms for access to that capital, the result would be predatory leadership that was not in anyone's interest except that of the United States" (4).
A variety of contending explanations are offered for petrodollar recycling:
Market Forces:
"Neoclassical economists believe that the price mechanism...comes about automatically when individuals are permitted free access to supply and demand...When free markets are allowed to develop, international cooperation and harmony are automatic" (6).
Institutions:
"The problem that liberal institutionalism addresses is the difficulty nation-states have in reaching cooperative agreements, even when they share interests in cooperation" (8).
Hegemony:
"According to structural realists, stability in the international political economy is provided when one nation serves as a leader or 'hegemon'" (9).
Ch 2: Defining the Principles of Allocation:
"This chapter explores the problem American policy makers perceived in petrodollar recycling, the threats of that problem to international cooperation, and the meaning of that threat to the shared concept of international legitimacy. I examine the agreed-upon and legitimate roles of authoritative leadership and of international markets in distributing balance-of-payments financing...What was considered legitimate, and what constituted illegitimate intervention in the system" (19).
"A necessary precondition of the smooth functioning of international financial markets is the provision (by a hegemonic power) of the three goals of an international monetary order: confidence, liquidity, and a balance-of-payments adjustment mechanism" (21).
Soros: The Capitalist Threat
G Soros, “The Capitalist Threat,” Atlantic Monthly 279, no. 2 (1997): 45-58.
"Although I have made a fortune in the financial markets, I now fear that the untrammeled intensification of laissez-faire capitalism and the spread of market values into all areas of life is endangering our open and democratic society. The main enemy of the open society, I believe, is no longer the communist but the capitalist threat" (45).
The problem with communism and Nazism is that they both purport to have handles on the ultimate truth of society and the world. This simply is not possible because our experimentation on the world is necessarily over determined: "We live in the same universe that we are trying to understand, and our perceptions can influence the events in which we participate" (46).
"Insofar as there is a dominant belief in our society today, it is a belief in the magic of the marketplace. The doctrine of lassiez-faire capitalism holds that the common good is best served by the uninhibited pursuit of self-interest" (48).
"Although laissez-faire doctrines do not contradict the principles of the open society the way Marxims-Leninism or Nazi ideals of radical purity did, all these doctrines have an important feature in common: they all try to justify their claim to truth with an appeal to science" (48).
"Economic theory has managed to create an artificial world in which the participants' preferences and the opportunities confronting participants are independent of each other, and prices tend toward an equilibrium that brings two forces into balance. But in financial markets prices are not merely the passive reflection of independently given demand and supply; they also play an active role in shaping those preferences and opportunities" (50).
"By taking the conditions of supply and demand as given and declaring government intervention the ultimate evil, laissez-faire ideology has effectively banished income or wealth redistribution. I can agree that all attempts at redistribution interfere with the efficiency of the market, but it does not follow that no attempt should be made. The laissez-faire argument relies on the same tacit appeal to perfection as does communism" (52).
"The time is ripe for developing a conceptual framework based on our fallibility. Where reason has failed, faillibility may yet succeed" (58).
"Although I have made a fortune in the financial markets, I now fear that the untrammeled intensification of laissez-faire capitalism and the spread of market values into all areas of life is endangering our open and democratic society. The main enemy of the open society, I believe, is no longer the communist but the capitalist threat" (45).
The problem with communism and Nazism is that they both purport to have handles on the ultimate truth of society and the world. This simply is not possible because our experimentation on the world is necessarily over determined: "We live in the same universe that we are trying to understand, and our perceptions can influence the events in which we participate" (46).
"Insofar as there is a dominant belief in our society today, it is a belief in the magic of the marketplace. The doctrine of lassiez-faire capitalism holds that the common good is best served by the uninhibited pursuit of self-interest" (48).
"Although laissez-faire doctrines do not contradict the principles of the open society the way Marxims-Leninism or Nazi ideals of radical purity did, all these doctrines have an important feature in common: they all try to justify their claim to truth with an appeal to science" (48).
"Economic theory has managed to create an artificial world in which the participants' preferences and the opportunities confronting participants are independent of each other, and prices tend toward an equilibrium that brings two forces into balance. But in financial markets prices are not merely the passive reflection of independently given demand and supply; they also play an active role in shaping those preferences and opportunities" (50).
"By taking the conditions of supply and demand as given and declaring government intervention the ultimate evil, laissez-faire ideology has effectively banished income or wealth redistribution. I can agree that all attempts at redistribution interfere with the efficiency of the market, but it does not follow that no attempt should be made. The laissez-faire argument relies on the same tacit appeal to perfection as does communism" (52).
"The time is ripe for developing a conceptual framework based on our fallibility. Where reason has failed, faillibility may yet succeed" (58).
Rosenberg: Can Economic Theory Explain Everything?
A Rosenberg, “Can Economic Theory Explain Everything?,” Philosophy of the Social Sciences 9, no. 4 (1979): 509-27.
The article begins by wondering why homo economicus has made a comeback. It argues that this concept was previously not taken as being very seriously descriptive, and that it was merely an analytical tool for getting the theory of neo-classical behavior off of the ground. People didn't actually believe that agents were utility maximizing calculators; nor did they understand the actions of firms to take on characteristics that were driven entirely by strictly defined maximizing behavior. Homo economicus was a helpful way to make lower level assumptions that were able to aggregate up to more macro level economic behavior.
Rosenberg highlights Becker's contribution to the increasing importance of homo economicus. Becker's approach assumes maximizing behavior, relatively efficient markets and static preferences across culture and class. This argument is elegant and constructed to be widely explanatory. Rosenberg goes through the assumptions of the theory with an eye towards picking apart its logic.
The article is an excellent dissection of Becker's work, and whether or not it represents a truly economic explanation of all human behavior through models of rationality, choice and preferences. The author is skeptical that it meets any of the above goals, though he also contends that it is a remarkably accomplished piece that might make the case for homo economicus and the pervasive explanatory power of economics more thoroughly than others.
The article begins by wondering why homo economicus has made a comeback. It argues that this concept was previously not taken as being very seriously descriptive, and that it was merely an analytical tool for getting the theory of neo-classical behavior off of the ground. People didn't actually believe that agents were utility maximizing calculators; nor did they understand the actions of firms to take on characteristics that were driven entirely by strictly defined maximizing behavior. Homo economicus was a helpful way to make lower level assumptions that were able to aggregate up to more macro level economic behavior.
Rosenberg highlights Becker's contribution to the increasing importance of homo economicus. Becker's approach assumes maximizing behavior, relatively efficient markets and static preferences across culture and class. This argument is elegant and constructed to be widely explanatory. Rosenberg goes through the assumptions of the theory with an eye towards picking apart its logic.
The article is an excellent dissection of Becker's work, and whether or not it represents a truly economic explanation of all human behavior through models of rationality, choice and preferences. The author is skeptical that it meets any of the above goals, though he also contends that it is a remarkably accomplished piece that might make the case for homo economicus and the pervasive explanatory power of economics more thoroughly than others.
Robinson and Gallagher: The Imperialism of Free Trade
R Robinson and J Gallagher, “The Imperialism of Free Trade,” Economic History Review 6, no. 1 (1953): 1-15.
The authors begin by arguing that standard definitions and explorations of imperialism and empire are lacking, as they focus solely on formal rule. "The conventional interpretation of nineteenth-century empire continues to rest upon study of the formal empire alone, which is rather like judging the size and character of icebergs solely from the parts above the water line" (1).
One argument put forth and reinforced through example is that both standard, 19th century accounts of imperialism as well as radical critiques of imperialism reinforced one another in understanding imperialism as formal rule as opposed to less formal economic control.
"To sum up: the conventional view of Victorian imperial history leaves us with a series of awkward questions. In the age of 'anti-imperialism' why are all colonies retained? Why were so many more obtained? Why were so many new spheres of influence set up? Or again, in the age of 'imperialism', as we shall see later, why was there such reluctance to annex further territory? Why did decentralization, begun under the impetus of anti-imperialism, continue? In the age of laissez-faire why was the Indian economy developed by the state? These paradoxes are too radical to explain as merely exceptions which prove the rule or by concluding that imperial policy was largely irrational and inconsistent...The contradictions, it may be suspected, arise not from the historical reality but from the historians' approach to it. A hypothesis which fits more of the facts might be that of a fundamental continuity in British expansion throughout the nineteenth century" (5).
"Therefore, the historian who is seeking to find the deepest meaning of the expansion at the end of the nineteenth century should look not at the mere pegging out of claims in African jungles and bush, but at the successful exploitation of the empire, both formal and informal, which was then coming to fruition in India, in Latin American, in Canada and elsewhere" (15).
The authors begin by arguing that standard definitions and explorations of imperialism and empire are lacking, as they focus solely on formal rule. "The conventional interpretation of nineteenth-century empire continues to rest upon study of the formal empire alone, which is rather like judging the size and character of icebergs solely from the parts above the water line" (1).
One argument put forth and reinforced through example is that both standard, 19th century accounts of imperialism as well as radical critiques of imperialism reinforced one another in understanding imperialism as formal rule as opposed to less formal economic control.
"To sum up: the conventional view of Victorian imperial history leaves us with a series of awkward questions. In the age of 'anti-imperialism' why are all colonies retained? Why were so many more obtained? Why were so many new spheres of influence set up? Or again, in the age of 'imperialism', as we shall see later, why was there such reluctance to annex further territory? Why did decentralization, begun under the impetus of anti-imperialism, continue? In the age of laissez-faire why was the Indian economy developed by the state? These paradoxes are too radical to explain as merely exceptions which prove the rule or by concluding that imperial policy was largely irrational and inconsistent...The contradictions, it may be suspected, arise not from the historical reality but from the historians' approach to it. A hypothesis which fits more of the facts might be that of a fundamental continuity in British expansion throughout the nineteenth century" (5).
"Therefore, the historian who is seeking to find the deepest meaning of the expansion at the end of the nineteenth century should look not at the mere pegging out of claims in African jungles and bush, but at the successful exploitation of the empire, both formal and informal, which was then coming to fruition in India, in Latin American, in Canada and elsewhere" (15).
North: Structure and Change in Economic History
DC North, Structure and change in economic history (Norton).
Preface:
"The objective of this book is to provide a new framework for analyzing the economic past. A new framework is needed because the analytical tools used by economic historians have failed to come to grips with the central issues in economic history: explaining the institutional structure which underlies and accounts for performance of an economic system, and explaining changes in that structure" (xi).
Early theory of the history of markets focused on the gains made from trade through specialization and a clear division of labor. However, the author argues that those who constructed these decisive models did not take into consideration the costs that are related to this specialization. "These transaction costs underlie the institutions determining the structure of political-economic systems" (xi).
Ch 1: The Issues
North begins by highlighting the assumptions and structure of a neoclassical model to exploring economic "performance" (4). The author outlines the assumptions of the model, that individuals make maximizing decisions that involve opportunity costs within a milieu of scarcity, and that this maximizing behavior involves motivation for increasing the capital stock, which is, according to North, "..a function of the stocks of physical capital, human capital, natural resources, technology and knowledge..." (4). "Under these conditions the growth of total output and the growth of output per capita will be determined by the fraction of income saved...and the rate of growth of population. If the fraction of income saved produces a growth of output just equal to the growth of the population then per capita income growth will be zero. On the other hand, a higher rate of saving than of population growth will produce a positive rate of per capital income growth" (5).
This model is just that, a representation of reality. "First of all, the model assumes an incentive structure that will allow individuals to capture the returns to society of investment at these margins, that is, private and social returns are equated. Second, it assumes no diminishing returns to the acquisition and application of new knowledge because of the ability at constant costs to increase the stock of natural resources. Third, it assumes that there is a positive return to savings; fourth, that the private and social costs of having children are equated; and finally, coincidence between people's choices and the desired results" (5). North goes through these assumptions and explains how they are limiting, and at most harmful and at least obfuscating (6).
"Laying bare the assumptions of the neoclassical model points the direction that I shall take in this book. Explaining economic performance in history requires a theory of demographic change, a theory of the growth in the stock of knowledge, and a theory of institutions in order to fill out the gaps in the neoclassical model briefly delineated above...The primary focus of the study is upon a theory of institutions. The building blocks of this theory are: 1. a theory of property rights that describes the individual and group incentives in teh system; 2. a theory of the state, since it is the state that specifies and enforces property rights; 3. a theory of ideology that explains how different perceptions of reality affect the reaction of individuals to the changing 'objective' situation" (7-8).
North claims that there is one more large problem that economic historians have to deal with: that of change in history, or structural change.
In the standard neoclassical model, change is considered within an ideal-type. North gives the example of a society with a fixed amount of land that experiences population growth. This will drive short term food prices up, rents from land up, and the purchasing power of wages down. North contends that this is all well and good, but another story will likely unfold if institutions are taken into account, specifically, he highlights two issues that an institutional account focuses on: the structure of the economic system as well as a more nuanced understanding of individual rationality. The remainder of the chapter compares different approaches to understanding collective action.
Ch 2: An Introduction to the Structure of Economies:
The chapter begins by exploring a brief history of thought vis-a-vis the relationship between resource availability and population growth. "...the argument of this book is straight forward. 1. There have been two major discontinuities in the population/resource rates in history; I shall call them the First and Second Economic Revolutions. 2. Between these two revolutions there have been periods of Malthusian population pressure which have been overcome sometimes by physiological and social responses, and sometimes by alterations in the efficiency of economic institutions which have altered the resource base" (16).
Preface:
"The objective of this book is to provide a new framework for analyzing the economic past. A new framework is needed because the analytical tools used by economic historians have failed to come to grips with the central issues in economic history: explaining the institutional structure which underlies and accounts for performance of an economic system, and explaining changes in that structure" (xi).
Early theory of the history of markets focused on the gains made from trade through specialization and a clear division of labor. However, the author argues that those who constructed these decisive models did not take into consideration the costs that are related to this specialization. "These transaction costs underlie the institutions determining the structure of political-economic systems" (xi).
Ch 1: The Issues
North begins by highlighting the assumptions and structure of a neoclassical model to exploring economic "performance" (4). The author outlines the assumptions of the model, that individuals make maximizing decisions that involve opportunity costs within a milieu of scarcity, and that this maximizing behavior involves motivation for increasing the capital stock, which is, according to North, "..a function of the stocks of physical capital, human capital, natural resources, technology and knowledge..." (4). "Under these conditions the growth of total output and the growth of output per capita will be determined by the fraction of income saved...and the rate of growth of population. If the fraction of income saved produces a growth of output just equal to the growth of the population then per capita income growth will be zero. On the other hand, a higher rate of saving than of population growth will produce a positive rate of per capital income growth" (5).
This model is just that, a representation of reality. "First of all, the model assumes an incentive structure that will allow individuals to capture the returns to society of investment at these margins, that is, private and social returns are equated. Second, it assumes no diminishing returns to the acquisition and application of new knowledge because of the ability at constant costs to increase the stock of natural resources. Third, it assumes that there is a positive return to savings; fourth, that the private and social costs of having children are equated; and finally, coincidence between people's choices and the desired results" (5). North goes through these assumptions and explains how they are limiting, and at most harmful and at least obfuscating (6).
"Laying bare the assumptions of the neoclassical model points the direction that I shall take in this book. Explaining economic performance in history requires a theory of demographic change, a theory of the growth in the stock of knowledge, and a theory of institutions in order to fill out the gaps in the neoclassical model briefly delineated above...The primary focus of the study is upon a theory of institutions. The building blocks of this theory are: 1. a theory of property rights that describes the individual and group incentives in teh system; 2. a theory of the state, since it is the state that specifies and enforces property rights; 3. a theory of ideology that explains how different perceptions of reality affect the reaction of individuals to the changing 'objective' situation" (7-8).
North claims that there is one more large problem that economic historians have to deal with: that of change in history, or structural change.
In the standard neoclassical model, change is considered within an ideal-type. North gives the example of a society with a fixed amount of land that experiences population growth. This will drive short term food prices up, rents from land up, and the purchasing power of wages down. North contends that this is all well and good, but another story will likely unfold if institutions are taken into account, specifically, he highlights two issues that an institutional account focuses on: the structure of the economic system as well as a more nuanced understanding of individual rationality. The remainder of the chapter compares different approaches to understanding collective action.
Ch 2: An Introduction to the Structure of Economies:
The chapter begins by exploring a brief history of thought vis-a-vis the relationship between resource availability and population growth. "...the argument of this book is straight forward. 1. There have been two major discontinuities in the population/resource rates in history; I shall call them the First and Second Economic Revolutions. 2. Between these two revolutions there have been periods of Malthusian population pressure which have been overcome sometimes by physiological and social responses, and sometimes by alterations in the efficiency of economic institutions which have altered the resource base" (16).
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