Showing posts with label classical. Show all posts
Showing posts with label classical. Show all posts

Friday, 18 October 2013

Neuro-Economics and Cooperation

          
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By Michael Towsey:
"Neuro-economics is the study of the neuro-physiological underpinnings of economic decision making. The field is new and providing unexpected insights into human economic behavior. Classical economic theory requires individuals to make complex calculations to maximize their personal advantage or utility. Utility, however, is a strangely ambiguous concept. On the one hand it is given a numerical value which implies the counting of something but on the other it is entirely abstract and not anchored to anything in the real world that can be counted. The advent of neurophysiology led to the idea that utility was really a surrogate for some chemical currency inside the brain, with most interest focused on serotonin molecules because these are known to be responsible for the experience of pleasure.


It turns out that a wide range of molecules of emotion[iii] impinge on the mental cost-benefit calculations that are supposed to take place inside the brain and they have unexpected effects. For example, in a ‘sharing experiment', person A was asked to share a sum of money with person B. These experiments demonstrated behavior inconsistent with neoclassical theory. People appear to put a high value on fairness. In a follow up experiment, persons A and B were placed in the same experimental scenario as before, but they were (unknowingly) given an intranasal administration of oxytocin. Oxytocin is a neuropeptide that plays a key role in social attachment and affiliation in animals and causes a substantial increase in trust in humans. In these experiments the effect of oxytocin was to increase the amount of money that A gives B. The experimenters concluded that "oxytocin may be part of the human physiology that motivates cooperation."[iv] It is worth adding that such hormone-mediated interactions are not confined to human relationships but are also likely to be involved in human-animal relationships.[v]


Oxytocin is not the only neurochemical to promote cooperation. Recent observations of bonobo monkeys in the jungles of the Congo reveal fascinating contrasts with chimpanzees.[vi] Bonobos are matriarchal and show little aggression compared to the patriarchal chimps. Chimps respond to strangers with aggression, while bonobos demonstrate curiosity. When under stress, chimp tribes degenerate into fighting while bonobos respond to stress by engaging in collective sexual activity. Scientists have concluded that bonobos demonstrate higher levels of trust both with each other and with strangers. Of most interest, however, from a neuro-economics point of view, is the ability of the monkeys to perform a simple task requiring cooperation in retrieving some bananas that are out of reach. Although both species are intelligent enough to work out a solution (for example, by one climbing on the shoulders of the other or by one holding a ladder for the other), the chimps fail because they cannot trust one another. On the other hand, bonobos have no trouble cooperating to retrieve the bananas.[vii]


It turns out that these differences can largely be correlated with a single gene - a so-called ‘social gene' that acts via a neuropeptide called vasopressin. Bonobo monkeys have the social gene, chimpanzees do not. And of particular interest - humans have the same vasopressin gene as bonobos. Social capital can be defined in terms of trust and empathy and these behavioral traits oil the wheels of social and economic interaction by encouraging cooperation between strangers. We now know that oxytocin and vasopressin are the physiological underpinnings of trust and that they influence levels of cooperation." (http://ruby.zcommunications.org/the-science-and-ethics-of-cooperation-by-michael-towsey)

References

[iii] This is the catchy title of a book by Candace Pert, Molecules of Emotion: The science behind mind-body medicine, pub Scribner, ISBN 0-684-84634-9, 1997.


[iv] Zak, Paul, R. Kurzban and W. Matzner. The Neurobiology of Trust. Annals of the New York Acadamy of Sciences, 2004, 1032: pp224-227. See also URL2 <http://abc.net.au/catalyst/stories/s1481749.htm <http://abc.net.au/catalyst/stories/s1481749.htm> >.


[v] Douglas, Catherine (2009) Cows with names produce more milk. Newcastle University, England. This study revealed that cows given personal names yield significantly more milk than cows identified just by numbers. http://www.thaindian.com/newsportal/health/cows-with-names-produce-more-milk_100147943.html


[vi] Newby, Jonica. Making love not war. Catalyst, ABC TV, 20th Sept 2007. http://abc.net.au/catalyst/stories/s2038245.htm <http://abc.net.au/catalyst/stories/s2038245.htm>


[vii] The reader may ask if experiments with monkeys have any relevance to human social behaviour because our social conditioning can sublimate or repress physiological tendencies. But this is exactly the point. It is difficult in humans to know the extent to which subtle and altruistic behaviour is ‘natural' because our social conditioning is so pervasive. Monkey experiments point to the natural physiological foundations of human behaviour presumably without the same degree of social conditioning. But there is an extremely important caveat. The information so obtained must be extrapolated to humans with much caution. A large body of experimental work on the ‘economic' behaviour of chimpanzees turns out not to be so relevant to humans because chimps lack the all important ‘trust' gene (producing vasopressin). On the other hand, comparisons between chimps and bonobos appear to tell us a lot."
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Friday, 1 February 2013

Physiocracy



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Pierre Samuel du Pont de Nemours, a prominent Physiocrat, emigrated to the US and his son founded DuPont, the world's second largest chemicals company. In his book la Physiocratie, du Pont advocated low tariffs and free trade.
Physiocracy (from the Greek for "Government of Nature") is an economic theory developed by the Physiocrats, a group of economists who believed that the wealth of nations was derived solely from the value of "land agriculture" or "land development." Their theories originated in France and were most popular during the second half of the 18th century. Physiocracy is perhaps the first well-developed theory of economics.
The movement was particularly dominated by François Quesnay (1694–1774) and Anne-Robert-Jacques Turgot (1727–1781).[1] It immediately preceded the first modern school, classical economics, which began with the publication of Adam Smith's The Wealth of Nations in 1776.
The most significant contribution of the Physiocrats was their emphasis on productive work as the source of national wealth. This is in contrast to earlier schools, in particular mercantilism, which often focused on the ruler's wealth, accumulation of gold, or the balance of trade. At the time the Physiocrats were formulating their ideas, economies were almost entirely agrarian. That is presumably why the theory considered only agricultural labor to be valuable. Physiocrats viewed the production of goods and services as consumption of the agricultural surplus, since the main source of power was from human or animal muscle and all energy was derived from the surplus from agricultural production.
The perceptiveness of the Physiocrats' recognition of the key significance of land was reinforced in the following half-century, when fossil fuels had been harnessed through the use of steam power. Productivity increased manyfold. Railways, and steam-powered water supply and sanitation systems, made possible cities of several millions, with land values many times greater than agricultural land. Thus, whilst modern economists also recognise manufacturing as productive and wealth-creating, the underlying principles laid down by the Physiocrats remain valid. Physiocracy also has an important contemporary relevance in that all life remains dependent on the productivity of the raw soil and the ability of the natural environment to renew itself.
Historian David B. Danbom explains, "The Physiocrats damned cities for their artificiality and praised more natural styles of living. They celebrated farmers."[2] They called themselves économistes, but are generally referred to as physiocrats to distinguish them from the many schools of economic thought that followed them.

Contents

[edit] Precursors

Physiocracy is an agrarianist philosophy. In the late Roman Republic, the dominant senatorial class was not allowed to engage in banking or commerce[3] but relied on their latifundia, large plantations, for income. They circumvented this rule through freedmen proxies who sold surplus agricultural goods.
After the decline of the Roman Empire, de-urbanization led to commerce ceasing and trade declining throughout most of western Europe. Economies became centered around agricultural manors where warrior-landlords, the medieval nobility, collected rent from their serfs in the form of produce. This was the dominant economic system until trade began to revive in the Late Middle Ages, fostering the rise of the merchant class.
Another inspiration came from China's economic system, then the largest in the world. Chinese society broadly distinguished four occupations, with scholar-bureaucrats, who were also agrarian landlords, at the top and merchants at the bottom (because they did not produce but only distributed goods made by others). Leading physiocrats like François Quesnay were avid Confucianists who advocated China's agrarian policies.[4] Some scholars have advocated connections with the school of Agriculturalism, which promoted utopian communalism.[5]

[edit] History

Pierre Le Pesant, sieur de Boisguilbert served as a member of Louis XIV's local administration of Paris, and wrote pamphlets and booklets on subjects related to his work: taxation, grain trade, and money. Le Pesant asserted that wealth came from self-interest and markets are connected by money flows (i.e. an expense for the buyer is revenue for the producer). Thus he realized that lowering prices in times of shortage – common at the time – is dangerous economically as it acted as a disincentive to production. Generally, Le Pesant advocated less government interference in the grain market, as any such interference would generate "anticipations" which would prevent the policy from working. For instance, if the government bought corn abroad, some people would speculate that there is likely to be a shortage and would buy more corn, leading to higher prices and more of a shortage. This was an early example of advocacy of free trade. In anonymously published tracts, Vauban proposed a system known as La dîme royale: this involved major simplification of the French tax code by switching to a relatively flat tax on property and trade. Vauban's use of statistics contrasted with earlier empirical methods in economics.[6]
Around the time of the Seven Years' War between France and England (1756-63), the physiocracy movement grew. Several journals appeared, signaling an increasing audience in France for new economic ideas. Among the most important were the Journal Œconomique (1721–72), which promoted agronomy and rational husbandry and the Journal du commerce (1759–62), which was heavily influenced by the Irishman Richard Cantillon (1680–1734), both dominated by physiocrats; the Journal de l'agriculture, du commerce et des finances (1765–74) and the Ephémérides du citoyen (1767–72 and 1774–76). Also, de Gournay (1712–59), the Intendant du commerce, brought together a group of young researchers including François Véron Duverger de Forbonnais (1722–1800) and one of the two most famous physiocrats, Anne-Robert-Jacques Turgot (1727–81). The other, François Quesnay (1694–1774), was among those writing prolifically in contemporary journals.[1]
In the 19th century Henry George in the United States advocated the collection of land rent as the primary if not the sole source of public revenue.

[edit] Tableau économique

The Tableau économique or Economic Table is an economic model first described by François Quesnay in 1759, which laid the foundation of the Physiocrats’ economic theories.[7]
The model Quesnay created consisted of three economic agents: the "proprietary" class consisted only of landowners; the "productive" class consisted of agricultural laborers; the "sterile" class was made up of artisans and merchants. The flow of production and/or cash between the three classes originated with the proprietary class because they owned the land and bought from both of the other classes.

[edit] Characteristics

[edit] Natural Order

The Physiocrats thought there was a "Natural order" that allowed human beings to live together. Men did not come together via a somewhat arbitrary "social contract". Rather, we have to discover the laws of the natural order that will allow individuals to live in society without losing significant freedoms.[8]

[edit] Individualism and laissez-faire

Main articles: Individualism and Laissez-faire
The Physiocrats, especially Turgot, believed that self-interest is the motivation for each segment of the economy to play its role. Each individual is best suited to determine what goods he wants and what work would provide him with what he wants out of life. While a person might labor for the benefit of others, he will work harder for his own benefit; however, each person's needs are being supplied by many other people. The system works best when there is a complementary relationship between one person's needs and another person's desires, and trade restrictions place an unnatural barrier to achieving one's goals.

[edit] Private property

None of the theories concerning the value of land could work without strong legal support for the ownership of private property. Combined with the strong sense of individualism, private property becomes a critical component of the Tableau's functioning.

[edit] Diminishing returns

Main article: Diminishing returns
Turgot was one of the first to recognize that “successive applications of the variable input will cause the product to grow, first at an increasing rate, later at a diminishing rate until it reaches a maximum.”[9] This was a recognition that the productivity gains required to increase national wealth had an ultimate limit, and, therefore, wealth was not infinite.

[edit] Investment capital

Both Quesnay and Anne Robert Jacques Turgot, Baron de Laune recognized that capital was needed by farmers to start the production process, and both were proponents of using some of each year’s profits to increase productivity. Capital was also needed to sustain the laborers while they produced their product. Turgot recognizes that there is opportunity cost and risk involved in using capital for something other than land ownership, and he promotes interest as serving a “strategic function in the economy.”[10]

[edit] See also

Wikisource has the text of the 1911 Encyclopædia Britannica article Physiocratic School.

[edit] People

[edit] Notes

  1. ^ a b Steiner (2003) p62
  2. ^ Why Americans Value Rural Life by David B. Danbom
  3. ^ Byrd, 34
  4. ^ Derk Bodde, CHINESE IDEAS IN THE WEST
  5. ^ Maverick, Lewis A. (1938). "Chinese Influences Upon the Physiocrats". Economic History 3.
  6. ^ Steiner (2003) p61
  7. ^ Henry William Spiegel (1983) The Growth of Economic Thought, Revised and Expanded Edition, Duke University Press. p.189
  8. ^ A history of economic doctrines from the time of the physiocrats to the present day[page needed]
  9. ^ Spiegel (1983) p.195
  10. ^ Spiegel (1983) p.196

[edit] References

Physiocrats
Pre-modern
Early modern
Modern
20th century
Related


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