Thursday, 28 December 2017

"The Second World Wars" with Victor Davis Hanson

These videos come from Uncommon Knowledge with Peter Robinson at the Hoover Institution. Robinson interviews Victor Davis Hanson about Hanson's new book, "The Second World Wars".
How were the Axis powers able to instigate the most lethal conflict in human history? Find out in this two part episode of Uncommon Knowledge as military historian, editor of Strategika, and Martin and Illie Anderson Senior Fellow, Victor Davis Hanson, joins Peter Robinson to discuss his latest book, The Second World Wars.

Victor Davis Hanson explains how World War II initially began in 1939 as a multitude of isolated border blitzkriegs that Germany continued to win. In 1941, everything changed when Germany invaded their ally, the Soviet Union, and brought Japan into the war. He argues that because of the disparate nature of World War II, it’s much harder to think about as a monolithic conflict.

World War II was the deadliest conflict in human history with approximately sixty million people killed. Victor Davis Hanson argues that World War II and the many lives lost was preventable, but due to a series of missteps by the Allied forces, Germany believed they were stronger and their enemies weaker than the reality. He argues “it took Soviet collusion, American indifference or isolation, and British or French appeasement in 30s” to convince Germany that they had the military capabilities to invade western Europe. In the aftermath of World War I, the allies believed the cost of the Great War had been too high, while Germany bragged about their defeat as no enemy soldiers had set foot on German soil. Great Britain and France both chose appeasement over deterrence, which encouraged rather than deterred Hitler and Germany from moving forward with their plans.

Could the Axis powers have won? What are the counterfactuals for World War II?

Victor Davis Hanson explains the counterfactuals of World War II, the “what-ifs” that easily could have changed the outcome of the war. If Hitler had not attacked Russia or the Japanese had not attacked Pearl Harbor, the USSR would have never turned on Germany and the United States would have never entered the war. Hanson argues that the leaders of the Axis powers overreached in their strategies, which ultimately caused their downfall. Hanson also explores the counterfactual surrounding the American commanders and the “what-ifs” that could have prevented American success in the war.

Victor Davis Hanson also reflects on his own family history and connections to World War II and how it shaped him as both a person and a scholar in his life today. He talks about his motivations to write his latest book, The Second World Wars, and how his family history and the current political climate inspired him to write it.

Wednesday, 27 December 2017

Hal Varian interview

Hal Varian is interviewed by James Pethokoukis of the AEI. Varian is, of course, well known by all economics students due to his undergraduate and graduate microeconomics textbooks. Varian is now Google's chief economist. He is professor emeritus at the University of California, Berkeley.

Monday, 25 December 2017

Fighting talk

A new working paper from M E Brady will not go down well with everyone.

"G. L. S. Shackle Was J. M. Keynes's Rival and Opponent: He Was an Austrian and Never a Keynesian of Any Type"

Michael Emmett Brady, California State University - Department of Operations Management

Shackle was a tireless opponent of both Keynes and the Keynesian revolution. He was a 100% Austrian subjectivist. He never was a disciple of Keynes at any time in his life. Shackle was successful in a tricky sleight of hand and legerdemain due to the support of Joan Robinson and Paul Davidson, neither of whom had any idea of the concept of the weight of the evidence from the A Treatise on Probability that was the foundation for Keynes’s uncertainty analysis in both the A Treatise on Probability and General Theory.

Shackle successfully substituted his rival and directly conflicting definition (See for example, pages 162-164 of Epistemics and Economics) of uncertainty, which meant total and complete ignorance. Shackle’s concept of total and complete ignorance goes under the synonyms irreducible uncertainty, fundamental uncertainty, unquantifiable uncertainty, utter uncertainty and radical uncertainty. None of Shackle’s analysis holds except in the special, but important, case of investment in long lived, physical durable capital or producer goods that are subject to innovation, technological change and advance, and obsolescence over time. Keynes’s treatment in the A Treatise on Probability and General Theory is superior to Shackle’s, so there is no need for any consideration of Shackle’s convoluted approach based on possibilities (not probabilities), imagination and the entrepreneur’s private dreams.

Keynes was the first to put forth an original IS-LP (LM) model in October, 1933. This model appeared in the 1934 draft copy of the GT. This original model is very inferior to the final model constructed in chapters 10, 11, 12, 13, 14, and 15 of the GT. It was presented in its entirety in chapter 21 in sections IV, V and VI and briefly in Section IV of chapter 15. The investment multiplier and marginal propensity to consume are both missing. Keynes had not yet integrated Y, Aggregate realized or actual Income, into the LP equation because he had not yet formulated his D-Z model, which allowed him to present an elasticity analysis in Section VI of chapter 21.

There is no Shackleian interpretation of the GT. There is a deliberate, Shackleian misinterpretation of the 1937 QJE article, in which Shackle tries to sabotage the Keynesian revolution by attempting to claim that Keynes was really an Austrian Subjectivist like Shackle.

Fitzgibbons was not able to come to the correct conclusion regarding Shackle simply because his belief in a Shackleian interpretation of Keynes makes no sense because Keynes had always rejected Austrian Subjectivism.

King’s 2002 “history” is a version of Shackle’s claim that Keynes was an Austrian Subjectivist. King’s “History” is completely contradicted by the 1937-38 Keynes-Townshend correspondence, where Keynes agrees with Townshend’s tentative conclusion that the Theory of Liquidity Preference, as presented in the General Theory, is based on Keynes’s TP concepts of weight of the evidence and non numerical probabilities, which are interval valued probabilities that can be indeterminate or imprecise. The Keynes-Townshend correspondence represents a complete rejection of Shackle’s and Joan Robinson’s claims about radical uncertainty being the foundation of the GT.

The Uncertainty fraud is the foundation upon which Post Keynesianism and Institutional economics is founded. This foundation is composed of the myths made up by Joan Robinson and GLS Shackle about Keynes and the GT. These myths were then passed on to hundreds of thousands of readers by way of Paul Davidson during the 37 years, from 1978-2014, that he was the editor of the Journal of Post Keynesian Economics.

Sunday, 24 December 2017

A review of the year from the IEA

A round-up of 2017, featuring the IEA's Director General Mark Littlewood and Communications Director Stephanie Lis.

Interviewed by the IEA's News Editor Kate Andrews, the three discuss the state of the Brexit negotiations, the problems in Parliament, Donald Trump's America, and predictions for 2018.

Wednesday, 20 December 2017

The most valuable companies of all-time

Not sure I totally believe the calculations that underlie the figure but it does still give an indication of just how large companies like Dutch East India Company (known in Dutch as the VOC, or Verenigde Oost-Indische Compagnie) were. Makes me wonder how the English East India Company would look in comparison.

For more information see here.

Courtesy of: Visual Capitalist

Tuesday, 19 December 2017

Brink Lindsey and Steven Teles on the "Captured Economy"

Brink Lindsey of the Niskanen Center and Steven Teles of the Niskanen Center and Johns Hopkins University talk with EconTalk host Russ Roberts about their book, The Captured Economy. Lindsey and Teles argue that inequality has been worsened by special interests who steer policy to benefit themselves. They also argue that the influence of the politically powerful has lowered the overall growth of the American economy.

A direct link to the audio is available here.

Thursday, 7 December 2017

Potatoes reduced the number of civil wars!

Three cheers for the stud!

The Long-run Effects of Agricultural Productivity on Conflict, 1400-1900
Murat Iyigun, Nathan Nunn, Nancy Qian
NBER Working Paper No. 24066
Issued in November 2017
NBER Program(s):DEV, POL
This paper provides evidence of the long-run effects of a permanent increase in agricultural productivity on conflict. We construct a newly digitized and geo-referenced dataset of battles in Europe, the Near East and North Africa covering the period between 1400 and 1900 CE. For variation in permanent improvements in agricultural productivity, we exploit the introduction of potatoes from the Americas to the Old World after the Columbian Exchange. We find that the introduction of potatoes permanently reduced conflict for roughly two centuries. The results are driven by a reduction in civil conflicts.
Yet another reason to love potatoes. They not only taste good, they do good.

An overview of "A brief prehistory of the theory of the firm"

As the manuscript for "a brief prehistory of the theory of the firm" has been delivered to the publisher its worth giving a short over view of what is covered in the book and why.

Firms play a critical role in the modern economy and society. With regard to the size of the contribution made by firms to economic activity McMillan (2002: 168-9) explains that for the US economy more than 70 percent of all transactions take place within firms leaving less than a third taking place via markets. In a mid-20th century report for the Social Science Research Council in the US economist H. R. Bowen identified the firm as one of the most significant institutions in our society, “[t]he business enterprise is one of the most pervasive and influential institutions of our society, and one in which innumerable important decisions and responses are made. These decisions and responses, in small and large enterprises, are links in the chain of factors determining the range of products available to consumers, the level of national income, the degree of economic security, the rate and direction of economic progress, and the distribution of income. These decisions and responses also significantly influence the character of human relations in industry, the quality of the lives of those who work in industry, and even the power structure of our society” (Bowen 1955: 1). More recently, at the beginning of the 21st century, journalists John Micklethwait and Adrian Wooldridge went so far as to argue that “[t]he most important organization in the world is the company: the basis of the prosperity of the West and the best hope for the future of the rest of the world” (Micklethwait and Wooldridge 2003: xv).

Given the significance of firms to today’s economy it would seem plausible to expect that one component of a proper understanding of how an economy functions would be a sophisticated theoretical understanding of the nature, structure and scope of firms. And yet up until very recent times the theory of the firm has largely been neglected as a field of interest in the study of economics. According to Oliver Hart
“[...] the theory of the firm is one of the less developed and agreed upon areas of economics” (Hart 2011: 102).
Birger Wernerfelt argues similarly insofar as he contends that a
“[...] foundational debate, over what exactly a “firm” is, has been raging in economics. Although two Nobel prizes ii have been awarded for answers to this question, the only agreed-upon proposition is that we, as of 2016, do not have a commonly accepted theory of the firm” (Wernerfelt 2016: 3)
This distinct lack of interest in the theory of the firm has in the recent past extended from theoretical economists to historians of economic thought. Fleckner (2016: 5, footnote 2) comments,
“[p]robably the best evidence of the traditional disinterest in the theory of the firm is the fact that the firm has no prominent place, if it is broached at all, in books on the history of economic thought. Two examples: In Sandmo 2011, a new and very readable book, none of the almost 500 pages are devoted to the theory of the firm (the selection of topics is explained on pp.vii, 23, 112); in Heilbroner 1999, one of the best-selling books in economics of all time, firms are mentioned more frequently, especially those whose shares are publicly traded, but there is no discussion of the issues that are typically associated with the theory of the firm (which, given the broad scope of the book, is not meant to be a criticism; neither Heilbroner nor Sandmo would have been well advised to focus on the firm)”.
Backhouse (2002), another well regarded introduction to the history of economic thought, does better in terms of coverage of the theory of the firm than either Sandmo (2011) or Heilbroner (1999) insofar as Backhouse devotes, roughly, one page out of 369 to the history of the post-1970 developments in the theory of the firm.

That the theory of the firm receives little, if any, treatment in recent history of economics texts is one motivation for this book. Here we wish to offer an introductory investigation into the history of the mainstream iv approach to the theory of the firm or production up until the 1970s. This pre-1970 literature is what is referred to here as the ‘prehistory’ of the theory of the firm. It was only starting in the 1970s that the theory of the firm proper came into being with the work of authors such as Armen Alchian, Robert Crawford, Harold Demsetz, Michael Jensen, Benjamin Klein, William Meckling and Oliver Williamson. These authors started the development of the transaction cost based and contract based theories of the firm. Approaches to the firm such as these were inspired, mainly, by the works of Ronald Coase. Before this time what we had was at best a discussion of the theory of micro-level production, and this only developed around 1930. Up until 1930s the most economics had to offer were theories which were predominantly theories of macro-level production. Before the 1970s the development of the theory of the firm was largely a story of neglect and disinterest.

The discussion in the pages that follow concentrates on the mainstream of economic thought and thus ignores the heterodox approaches to the firm. Concentrating on the mainstream in an introductory discussion is reasonable since it is these theories that students are most likely to meet during their initial studies. Also such an emphasis may do little damage to the story of the development of the theory of the firm since there is a close relationship between the advancement of the theory of the firm and the general economic mainstream. Foss and Klein (2006) claim that
“[...] the evolution of the theory of the firm has never taken place far away from the economic mainstream. On the contrary, it has in fact been much driven by advances in the mainstream, and the relatively limited borrowing from other disciplines that has taken place has usually been strongly adapted to conform to central mainstream tenets” (Foss and Klein 2006: 3).
What we hope to offer here is a concise, readable introduction to the ‘prehistory’ of the firm which is aimed at undergraduates and beginning graduate students. The book has been written in a manner which is, hopefully, understandable to students, with the little mathematics used explained in enough detail that undergraduates can follow it. As background, some knowledge of the basics of the contemporary theory of the firm would be useful. See Walker (2015) and Walker (2016: chapters 3 and 4) for introductions to this literature. The book is designed to give readers an understanding of how the mainstream theories they are taught developed and why the theories are the way they are. This is an understanding that most students, and many of their lecturers, do not have since it is not conveyed via the textbook presentations of the standard models of the firm. These models are presented devoid of all context, there are no consideration given to their development or past and current criticisms of or controversies surrounding the models being discussed. The material on the periods before the neoclassical era is almost never presented. The book may also prove to be of interest to economists working in the history of economic thought and given that most economists are not well acquainted with the history of their subject it could, in addition, be of interest to those working in areas such as the theory of the firm, organisational economics and industrial organisation.

An analysis of the past of the theory of the firm helps cultivate an understanding of the historical developments that have resulted in the contemporary theories. This inquiry helps to add depth to our knowledge of the ideas that are commonly employed today but whose origins lie in past debates to do with production and the firm. It also allows us to see how and why changes in thinking about these issues took place. Such a background will help readers understand why the developments after 1970, when they do finally meet them, are so important and why the modern discussion of the theory of the firm is so different from the past.

As just mentioned the mainstream theory of the firm did not exist, in any meaningful way, until around 1970. It was only then that the current theory of the firm literature began to emerge, based largely upon the work of Ronald Coase and to a lesser degree Frank Knight. It was work by Armen Alchian, Robert Crawford, Harold Demsetz, Michael Jensen, Benjamin Klein, William Meckling and Oliver Williamson, among others, that drove the upswing in interest in the firm among mainstream economists Before then there was no great interest shown in the firm as a significant economic institution by any school of economic thought. For more than two thousand years tools (eg the division of labour) were available that could have given rise to a theory of the firm but none appeared. During this time the best that occurred were discussions of micro-level production, and that only after 1930, while before then the deliberations that did transpire, limited though they were, were more focused on macro-level or aggregate production.

To begin our survey of the development of the theory of production and/or the theory of the firm we briefly look at the history of thought on the division of labour. As has been made clear by work beginning in the twentieth century the division of labour can act as a catalyst for a theory of the firm, but it took more than two thousand years - starting with the ancient Greeks and Chinese - for it to act as such. Until Alfred Marshall at the end of the nineteenth century many authors, including Adam Smith, wrote on the division of labour without applying it to the theory of micro-level production or the firm.

Following on from this discussion we will next consider approaches to production and the firm proposed in the pre-classical, classical and neoclassical periods other than those derived from the division of labour. It will be argued that before the later neoclassical economists no group of writers developed a theory of micro-level production and only Alfred Marshall wrote explicitly on the theory of the firm. Before the neoclassicals the best available theory was one of macro or aggregate production.

As has already been explained the theory of production/the theory of the firm was ignored for a long time in economics. Five, interrelated, explanations for this fact have been put forward. First, the (large/integrated) firm was until very recently just not that important to the economy and thus was ignored by early economic writers. Second, many economists did not see economic theory as being relevant to business or saw the internal workings of the firm to be outside the competence of economists. Thirdly, the development of a theory of the firm was limited by the lack of tools to deal with the task. Fourthly, for much of the development of economic analysis there was a normative/macro origination to economics which could result in a lack of interest in the theory of micro level production and the firm. Lastly, the rise of formalism within economics resulted in the firm being deemphasised.

An extensive bibliography is provided to help guide any readers interested in considering topics raised in the discussion in greater depth.

  • Backhouse, Roger E. (2002). The Ordinary Business of Life: A History of Economics from the Ancient World to the Twenty-First Century, Princeton, NJ: Princeton University Press.
  • Bowen, Howard R. (1955). The Business Enterprise as a Subject for Research: Prepared for the Committee on Business Enterprise Research, Social Science Research Council, Pamphlet No. 11, New York: Social Science Research Council.
  • Fleckner, Andreas Martin (2016). ‘Adam Smith on the Joint Stock Company’, Working Paper of the Max Planck Institute for Tax Law and Public Finance No. 2016-1, 1 January.
  • Foss, Nicolai J. and Peter G. Klein (2006). ‘The Emergence of the Modern Theory of the Firm’, Center for Strategic Management and Globalization, Copenhagen Business School, SMG Working Paper 1/2006, January.
  • Hart, Oliver D. (2011). ‘Thinking about the Firm: A Review of Daniel Spulber’s The Theory of the Firm’, Journal of Economic Literature, 49(1) March: 101-13.
  • Heilbroner, Robert L. (1999). The Worldly Philosophers–The Lives, Times, and Ideas of the Great Economic Thinkers, 7th edn., New York: Simon & Schuster.
  • McMillan, John (2002). Reinventing the Bazaar: A Natural history of Markets, New York: W.W. Norton and Company.
  • Micklethwait, John and Adrian Wooldridge (2003). The Company: A Short History of a Revolutionary Idea, New York: The Modern Library.
  • Sandmo, Agnar (2011). Economics Evolving–A History of Economic Thought, Princeton: Princeton University Press.
  • Walker, Paul (2015). ‘Contracts, Entrepreneurs, Market Creation and Judgement: The Contemporary Mainstream Theory of the Firm in Perspective’, Journal of Economic Surveys, 29(2) April: 317-38.
  • Walker, Paul (2016). The Theory of the Firm: An overview of the economic mainstream, London: Routledge.
  • Wernerfelt, Birger (2016). Adaptation, Specialization, and the Theory of the Firm: Foundations of the Resource-Based View, Cambridge: Cambridge University Press.

Doug Irwin on the history of US trade policy

From David Beckworth’s podcast series, Macro Musings comes this audio of an interview with Doug Irwin on the history of US trade policy.
Douglas Irwin is a professor of economics at Dartmouth College and a leading expert on trade economics. He joins David Beckworth to discuss his new book, Clashing over Commerce: A History of US Trade Policy, which examines the history of American trade policy from the late 1700s to the present. Doug explains how US attitudes toward trade evolved over time and how free trade became the postwar consensus. Specifically, Doug argues that the history of US trade policy has been guided by the “three R’s: revenue, restriction, and reciprocity.” Finally, David and Doug discuss some of Doug’s work on the gold standard and the Great Depression.

Saturday, 2 December 2017

What is a Marxist Libertarian?

Yes that is a serious question.

Brendan O’Neill (Editor of Spiked Online) joins Dave to discuss why he defines himself as a ‘Marxist Libertarian,’ his views on the pursuit of happiness, self censorship in the U.S., the issue with Bill of Rights only existing in writing and not in the hearts of Americans, the debate surrounding tearing down monuments, and more.

Tyler Cowen interviews Douglas Irwin

From Conversations with Tyler comes this interview between Tyler Cowen and Douglas Irwin about trade policy. Well worth the hour it takes to lesson to.

Tyler thinks Douglas Irwin has just released the best history of American trade policy ever written. So for this conversation Tyler went easy on Doug, asking softball questions like: Have tariffs ever driven growth? What trade exceptions should there be for national security, or cultural reasons? In an era of low tariffs, what margins matter most for trade liberalization? Do investor arbitration panels override national sovereignty? And, what’s the connection between free trade and world peace?

They also discuss the revolution as America’s Brexit, why NAFTA is an ‘effing great’ trade agreement, Jagdish Bhagwati’s key influence on Doug, the protectionist bent of the Boston Tea Party, the future of the WTO, Trump, China, the Chicago School, and what’s rotten in the state of New Hampshire.