Laws in Economics

One of the explanations for the Great Crisis of 2007-2008 was that financial authorities should have issued stricter regulations to prevent the housing bubble. However, according to Alan Greenspan, President of the Federal Reserve System (FED) from 1987 to 2006, this is to judge with hindsight. No one can guess when a “bubble” begins, nor when it ends; they happen because of the “irrational exuberance” in investors’ behavior, which causes boom and bust cycles. Regulators are not in a better situation (...) for assessing risks, though: since market participants supposedly know their own risks better than the regulator (a kind of informational asymmetry), an intervention (except to ensure law-enforcement) would imply unjustified paternalism. However, a regulator does not have to be conceived as a paternalistic authority. We sketch an objection to Greenspan's argument, arguing that crises don’t require a defective reasoning such as the “irrational exuberance” – our usual bounded rationality might be enough to provide the kind of “self-fulfilling prophecy” observed in the rise and fall of bubble assets value. Given the possibility of grave externalities, authorities are justified in adopting measures to ensure investors behave in a prudent way, even if they supposedly know better their own risks. (shrink)

In markets globalization and increasing competition context, governments of the world’s leading countries are forced to use complex organizational and economic instruments to support the countries’ economy. One of such instruments is creation of Free Economic Zones (FEZ) with favorable conditions for doing business. Over the last decade activation process of Free Economic Zones mechanism disposal for the economy of a particular country development has been possible to observe. If in 1995 there were approximately 500 zones in the world, now (...) there are more than 4,300 zones in more than 130 countries which employ more than 68 thousand workers. In addition, global practice has shown that FEZ activities effective organization is efficient not only in giving impetus to the country’s economy development, but in bringing it into the world leaders as well. (shrink)

The monograph reveals challenging issues of small and medium enterprises development in the European Union and East-Partnership countries. Special attention is paid to a new paradigm of financing investments and fostering innovations at all levels of legal entities including SMEs, enhancing innovative entrepreneurship in conditions of global social and technological challenges as well as determining priority sectors for small and medium enterprises as drivers of economic growth. The authors of the monograph emphasize on such European approaches to financing SMEs as (...) crowd-funding and SME-bonds, analyze experience of applying fiscal instruments to support investment and innovations. The researchers underline the role of social investment as an innovative strategy for European SMEs that could be applied in Ukraine and East-partnership countries, suggest new conceptual approach to the evaluation of innovative business development. They also analyse trends of Ukrainian IT enterprises development in the context of modern information services in a global market. Additional attention is paid to the analysis of SMEs’ entrepreneurial potential in conditions of global social and technological changes, estimation effects of applying electronic governance technologies to provide administrative services by public authorities of various levels of governance. Finally, the researchers disclose economic mentality of legal entities as an informal side of financial assets and substantiate the necessity of creation entrepreneurial universities as drivers of innovative development of economy. The materials of the monograph will be useful to scholars, financial managers of companies, financial analysts, representatives of state bodies who implement the state policy in the field of SMEs development in the East-partnership countries, as well as students of economic universities. (shrink)

In the course of the eighteenth and nineteenth centuries the paradigm of a new science, political economy, was established. It was a science distinct from the Aristotelian sub-disciplines of practical philosophy named oikonomía and politiké, and emphasis on its character of science not unlike the natural sciences – still called ‘natural philosophy’ – mirrored precisely a willingness to stress its autonomy from two other sub-disciplines of practical philosophy, that is, ethics and politics. However, the new science resulted from a transformation (...) of part of traditional practical philosophy, allowing the inclusion of bodies of knowledge accumulated by experts of commerce and public finance. Such bodies of knowledge were unified by the (true or alleged) discovery of regularities, mechanisms, causal connections making for a new partial order within the overall social order. How far this paved the way to a science similar to mathematics rather left a normative discipline as alive as ever was a recurrent question for at least a century, until the marginalist revolution opened the way for a sharp division, leaving ‘economics’ as a science of causes and effects facing ‘economic policy’ as a discourse on ends. (shrink)

As the title of this essay suggests, my concern is with the issue of what are economic models. However, the goal of the paper is not to offer an in-depth study on multiple approaches to modelling in economics, but rather to overcome the dichotomical divide between conceptualizing models as isolations and constructions. This is done by introducing the idea of economic models as believable worlds, precisely descriptions of mechanisms that refer to the essentials of the modelled targets. In doing so (...) I make use of the Woodward’s (2002) conceptualization of mechanisms. It is shown that such models do not offer the perfectly true descriptions of the actual world but justified beliefs about the modelled, precisely they aim at maximizing truth and minimizing falsity in a large body of belief about the real world. The analysis throughout the paper is supported by in-depth examination of the Varian’s (1980) model of sales that is here treated as a representative way of reasoning in neoclassical economics. (shrink)

A discussion of the correspondence between Malthus and Ricardo and its bearing on their published works.

A discussion of the relationship between Ricardo and his Unitarian Minister Thomas Belsham, a New Testament scholar and the author of a philosophical treatise inspired by the Hartley-Priestley philosophy.

A discussion of Ricardo's sustained relationship with James Mill as well as of hypotheses by such commentators as Halévy and Hutchison on a decisive philosophical influenco by Mill (eithr Scottish or Benthamite) on Ricardo's eocnomic methodology.

F.A. Hayek argued that the sciences of complex phenomena, including (perhaps especially) economics, are limited to incomplete “explanations of the principle” and “pattern predictions.” According to Hayek, these disciplines suffer from (what I call) a data problem, i.e., the hopelessness of populating theoretical models with data adequate to full explanations and precise predictions. In Hayek’s terms, explanations in these fields are always a matter of “degree.” However, Hayek’s methodology implies a distinct theory problem: theoretical models of complex phenomena may be (...) underspecified so that, even were all the data available, a full explanation could not be inferred from the model. Where the sciences of complex phenomena are subject to both the data and theory problems, explanations and predictions will be of even lesser “predictive degree.” The paper also considers how to interpret Hayek’s claim that pattern predictions are falsifiable. (shrink)

What lessons can legal scholars learn from the life and work of W. D. "Bill" Hamilton, a lifelong student of nature? From my small corner of the legal Academia, three aspects of Bill Hamilton’s work in evolutionary biology stand out in particular: (i) Hamilton’s simple and beautiful model of social behavior in terms of costs and benefits; (ii) his fruitful collaboration with the political theorist Robert Axelrod and their unexpected yet elegant solution of the Prisoner’s Dilemma, an important game or (...) puzzle that had defied solution until Hamilton and Axelrod came along; and (iii) Hamilton’s conception of science generally -- and in particular his view of the process of scientific justification -- as a form of trial advocacy. In this review of Ullica Segerstråle’s recently-published biography of Bill Hamilton, the author briefly recounts and reviews each one of these important contributions. (shrink)

We reply to Philippe Depoortère’s paper “On Ricardo’s method: The Unitarian influence examined. Some comments on Cremaschi and Dascal’s article ‘Malthus and Ricardo on Economic Methodology’”. Depoortère asks two questions: (1) was Ricardo’s ‘conversion’ to Unitarianism sincere? (2) did Ricardo follow the methodologies of Priestley and Belsham? His answers are that he was a ‘religious skeptic’ and he was not an ‘empiricist’ like Priestley and Belsham. We reply that the sincerity of Ricardo’s religious beliefs is irrelevant since we start with (...) the evidence that he was exposed for a long time to the intellectual influence of Belsham, primarily in matters of philosophy, and to deny this would imply a negative answer to a different question, namely, did Ricardo attend Unitarian meetings for 15 years? Then we reply that Ricardo inherited Belsham’s version of Newtonian methodology which omitted the fourth rule, that is the most anti-Cartesian and anti-systematic rule, and this has little to do with empiricism but instead with apriorism. (shrink)

We reconstruct the text, that is, we analyse the development of the discussion between Malthus and Ricardo both in the correspondence and in published works, paying special attention to (a) the use of methodological statements, (b) some pragmatic features of the controversy, (c) considerations pertaining to the meta-level of the controversy (assessments of the status of the controversy, of ways of solving it, etc.); then, we reconstruct the co-text, that is, unpublished papers by each opponent that were not made available (...) to the other, records of exchanges between each of these and third parties, etc.; thirdly, we describe the essential features of the context, focusing on events that influenced the course of the controversy; (iv) we draw lessons from our case study on the role of co-text and context, on pragmatic and semantic interpretation, and on "casts of mind”. (shrink)

The paper describes how a simple idea, that of a new foundation of moral philosophy taking Galilean new natural philosophy as a mode , lead to unforeseen developments once the competition between a Cartesian and a Newtonian paradigm emerged. Those developments are reconstructed in Hume, Smith, Ferguson.