Misjudging the character of the welfare state: Hayek, generality, and the knowledge problem

CHRISTOPHER S. MARTIN & NIKOLAI G. WENZEL

THE REVIEW OF AUSTRIAN ECONOMICS

Abstract: What are the limits of collective action? As James Buchanan famously worried, is it possible to empower the productive state without lapsing into the predatory state? This paper uses insights from F.A. Hayek to address problems of public goods and the role of the state. Hayek convincingly argued that no central planner has sufficient knowledge to run an economy. Yet Hayek also allowed for state provision of some goods beyond the prevention of coercion. The question, then, is whether Hayek’s safeguards offer a satisfactory response to Buchanan’s worry. This paper contends that Hayek violated his own conditions for permissible government activity. Nevertheless, he offers a serious research agenda for limiting state abuses.

A Previously Unpublished Correspondence between Adam Smith and Joseph Nicolas de Windischgratz

MENUDO, J.M., RIEUCAU, N.

HISTORY OF POLITICAL ECONOMY

Abstract: This article transcripts and comments on two letters by Adam Smith, and two letters by his correspondent Joseph Nicolas de Windischgrätz. These letters belong to a rather rich and lengthy exchange—which would end at the beginning of 1788—composed of at least sixteen pieces. As with the rest of the correspondence between them, the letters published here refer to the prize proposed by Windischgrätz in 1784–85. The Programme of this prize was looking for general formulas that would normalize all types of property transfer. Adam Smith replied that the great diversity of human customs did not lend itself to such formulas. In spite of his reluctance Smith eventually agreed to help Windischgrätz, but the prize had no winner.

Does International Commercial Arbitration Promote Foreign Direct Investment?

ANDREW MYBURGH & JORDI PANIAGUA

THE JOURNAL OF LAW AND ECONOMICS, Volume 59, Number 3

Abstract: This paper explores the role that international commercial arbitration plays in facilitating foreign direct investment (FDI). International commercial arbitration is a system of private commercial law that enables firms to more effectively enforce contracts by allowing them to avoid inefficiencies that arise from domestic courts. As a result, access to international arbitration should foster FDI. To explain the effect of international arbitration on FDI, this paper develops a model to explain the use and effect of resolving international disputes through arbitration. The predictions of the model are tested empirically in a gravity framework. The results of this analysis suggest that access to arbitration leads to an increase in FDI flows. This increase largely occurs through a change in the volume of investment, with a much smaller effect on the number of investment projects. The effect of arbitration is greater for countries with weaker institutions and for larger projects.

1688 and all that: property rights, the Glorious Revolution and the rise of British capitalism

GEOFFREY M. HODGSON

JOURNAL OF INSTITUTIONAL ECONOMICS, Volume 13, Issue 1

Abstract: In a seminal 1989 article, Douglass North and Barry Weingast argued that by making the monarch more answerable to Parliament, the Glorious Revolution of 1688 helped to secure property rights in England and stimulate the rise of capitalism. Similarly, Daron Acemoglu, Simon Johnson, and James Robinson later wrote that in the English Middle Ages there was a ‘lack of property rights for landowners, merchants and proto-industrialists’ and the ‘strengthening’ of property rights in the late 17th century ‘spurred a process of financial and commercial expansion’. There are several problems with these arguments. Property rights in England were relatively secure from the 13th century. A major developmental problem was not the security of rights but their feudal nature, including widespread ‘entails’ and ‘strict settlements’. 1688 had no obvious direct effect on property rights. Given these criticisms, what changes promoted the rise of capitalism? A more plausible answer is found by addressing the post-1688 Financial and Administrative Revolutions, which were pressured by the enhanced needs of war and Britain’s expanding global role. Guided by a more powerful Parliament, this new financial system stimulated reforms to landed property rights, the growth of collateralizable property and saleable debt, and thus enabled the Industrial Revolution.

Micro foundations in the Great Divergence debate: opening up a new perspective

LUCA ZAN

HISTORY AND PHILOSOPHY OF ECONOMICS

Abstract: Prevailing approaches in historical studies adopt a macro view and place an overwhelming emphasis on the Industrial Revolution as a major discontinuity in Western development. On the contrary, recent research in accounting, management and business history has suggested a different direction. When opting for a micro-level focus, crucial discontinuities in management and accounting in the West can be traced back to the Renaissance Period. The paper thus searches for ‘micro foundations’ in managing and accounting practices to address the on-going debate on the East-West divergence. Despite the obvious problems with source availability, we outline a new research agenda for the debate.

The Economics of Property Rights in Early and Medieval Christianity

BENEDIKT KOEHLER

ECONOMIC AFFAIRS

Abstract: Early and medieval Christianity pioneered an economics of property rights that had no precedent in antiquity. The early Church Fathers Tertullian, Ambrose, and John Chrysostomos successively evolved conceptions of the right to own property as a prerequisite for poor relief, and the basis of the right to own property was later formulated by Pope John XXII to settle a dispute on this issue instigated by Francis of Assisi. This article challenges assessments advanced by Joseph Schumpeter, Jacob Viner, and Frank Knight, who argued that the doctrines of Christianity were devoid of economics, and draws attention to the work of Georg Ratzinger (1844–1899), who first expounded how in early Christianity property rights and poor relief were linked.

Determinants of banks’ capital structure in the Pre-Regulation Era

KIM ABILDGREN

EUROPEAN REVIEW OF ECONOMIC HISTORY, Volume 21, Issue 1

Abstract: The article explores the determinants of banks’ capital ratio in the Pre-Regulation Era where capital structure decisions were not influenced by deposit-insurance schemes, capital requirements, or high tax shields. The analysis builds on partial-adjustment capital-structure models estimated on the basis of panel data for all Danish commercial banks 1847–1919. The results suggest that banks with low levels of liquidity had a higher capital ratio in periods with financial instability. This enabled them to suffer larger losses and thereby reduce the risk of facing costs of financial distress. The article is the first bank-level study on capital structure in the Pre-Regulation Era.